AMENDED AND RESTATED
XXXXXXX TRADEMARK AGREEMENT
dated as of January 7, 2002
among
THE RIGHT START, INC.,
TOY SOLDIER, INC.
(to be known as F.A.O. Xxxxxxx, Inc.)
and
the F.A.O. XXXXXXX FAMILY FOUNDATION
TABLE OF CONTENTS
Page
1. Definitions......................................................... 1
2. Representations and Warranties.......................................3
3. Use of Name; Royalty; Arbitration; Quality Control.................. 4
4. Transfer of Right To Use Name....................................... 9
5. Consent to Asset Sale............................................... 12
6. Miscellaneous........................................................12
AMENDED AND RESTATED
XXXXXXX TRADEMARK AGREEMENT
This AMENDED AND RESTATED XXXXXXX TRADEMARK AGREEMENT (this "Agreement")
dated as of January 7, 2002, is made by and among THE RIGHT START, INC.
("Parent"), TOY SOLDIER, INC. (to be known as F.A.O. XXXXXXX, INC.), a Delaware
corporation ("Xxxxxxx"), and the F.A.O. XXXXXXX FAMILY FOUNDATION (the
"Foundation"), by H. XXXXXXXX XXXXXXX, as the duly appointed representative and
agent of the Foundation (the "Xxxxxxx Representative").
WHEREAS:
A. An agreement dated July 17, 1985, was executed among F.A.O. Xxxxxxx, a
New York corporation ("F.A.O. Seller"), the Xxxxxxx Investors (as defined
therein) and others, and such agreement was thereafter amended by amendments
dated July 25, 1990, December 1, 1997, February 1, 1999 and March 10, 1999 (as
so amended, the "Original Agreement");A.
B. On November 19, 2001, Royal Vendex KBB N.V., F.A.O. Seller, Quality
Fulfillment Services, Inc. ("QFS"), Parent and Xxxxxxx entered into an Asset
Purchase Agreement (the "Asset Purchase Agreement") pursuant to which Xxxxxxx
purchased substantial assets of F.A.O. Seller and QFS; B.
C. On the date hereof, the Schwarz Representative and F.A.O. Seller entered
into an agreement extending the right of F.A.O. Seller to use the FAO Xxxx (as
defined below) for the first six months of 2002 (the "Extension Letter"); and
D. In view of all of the foregoing, the parties deem it advisable and in
their mutual best interests to amend and restate the Original Agreement in
certain respects, as more fully set forth below;
NOW, THEREFORE, the parties agree further to amend and restate the Original
Agreement as follows:
Section 1. Definitions. The following terms, as used herein, have the
following respective meanings:
"Board of Arbitration" means a board of arbitration consisting of three
members selected as follows: the first member shall be selected by Parent, the
second member shall be selected by the Schwarz Representative, and the third
member shall be selected by mutual agreement between the first member and the
second member; provided, however, that if the selection of the first or second
member shall not have been made within seven (7) days after Parent or the
Schwarz Representative, as the case may be, shall have selected its member and
notified the other of the same, such first or second member shall thereafter be
selected by the American Arbitration Association upon application made to it by
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Parent or the Schwarz Representative, as the case may be; provided further that
if the selection of the third member shall not have been made within seven (7)
days after the first and second member shall have been selected as hereinabove
provided, such third member shall thereafter be selected by the American
Arbitration Association upon application made to it by either Parent or the
Schwarz Representative.
"FAO Xxxx" means any element of the name "F.A.O. Xxxxxxx" alone or in
combination with other trademarks, copyrighted materials, characters, logos or
other trademarks or tradenames owned or utilized by any Licensee in connection
with its commercial activities.
"FAOS Transfer" means any direct or indirect sale, assignment, lease or
transfer of any of the Exclusive Rights, whether by means of the sale,
disposition or other issuance of any Voting Securities or assets of Parent or of
Xxxxxxx or of any other Related Entity, or by means of a merger or consolidation
of Parent or of Xxxxxxx or of any other Related Entity into or with any Person,
or by any other means.
"Net Revenues" means, without duplication, all (i) fees paid to any
Licensee by third parties for use of the FAO Xxxx on Licensed Products (if such
fees are less than the fair market value, they shall be deemed for purposes of
this definition to be the fair market value for the use of the FAO Xxxx), (ii)
revenues of Licensees from Wholesale Distribution Sales (net of all related
returns), (iii) revenues of Licensees from the sale of products labeled with, or
otherwise bearing, the FAO Xxxx (net of all related returns) and (iv) revenues
from all other sales of products by any Licensee that uses the FAO Xxxx to
identify its business, any of its stores, any portion of any of its stores, any
of its catalogs or any of its electronic media sales outlets to consumers (in
each case to the extent of the revenues from sales in such business, stores,
portion of stores, catalogs or electronic media sales outlets by entities so
using the FAO Xxxx, net of all related returns), including, without limitation,
the sale of products that are not Xxxxxxx Products in the same retail store in
which Licensee receives proceeds from the sale of Xxxxxxx Products.
"Person" means an individual, corporation, partnership, trust,
organization, association, governmental body or agency, limited liability
company or other entity, and such term shall include a group of Persons acting
in concert.
"Related Entity" means any Person more than 50% of the Voting Securities of
which, at the time of which any determination is being made, is owned by, or
controlled by, or under common control with, Parent or one or more of Parent's
other Related Entities, or both, or any partnership of which Parent or any of
its Related Entities is a general partner or any limited liability company of
which Parent is a managing member.
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"Xxxxxxx Representative" means H. Xxxxxxxx Xxxxxxx and any other Person
authorized by the Foundation to act as its representative and agent with respect
to this Agreement.
"Voting Securities" of any corporation, partnership, limited liability
company or other business entity means securities of any class or classes
(however designated) having ordinary voting power for the election of at least a
majority of the members of the board of directors (or other governing body) of
such corporation, partnership, limited liability company or other business
entity other than securities having such power only by reason of the occurrence
of a contingency.
In addition, definitions for the following terms can be found in the
Sections indicated:
"Acquisition" Section 4.6(b)
"CPI" Section 3.3
"Exclusive Rights" Section 3.1
"First Quality" Section 3.5
"Kayne Group" Section 4.6
"Licensed Products" Section 3.1
"Licensee" Section 3.1
"Prohibited Transfer" Section 4.1
"Quality Controlled Person" Section 3.4
"Quality Surrogates" Section 3.5
"Xxxxxxx Notice" Section 4.3
"Xxxxxxx Products" Section 3.1
"Wholesale Distribution Sales" Section 3.1
Section 2. Representations and Warranties.
2.1 Representations and Warranties of the Schwarz Representative. The
Schwarz Representative represents and warrants that he has the right and power
to enter into this Agreement and to consummate the transactions contemplated
herein on behalf of the Foundation and the Foundation is the successor to all
rights to the FAO Xxxx of the "Xxxxxxx Investors" as defined in the Original
Agreement. The Foundation is the owner of all rights to the FAO Xxxx free and
clear of any lien, encumbrance, license or other adverse claim other than the
rights granted under this Agreement and the Extension Letter and has not granted
any rights to the FAO Xxxx to any other party except pursuant to this Agreement
and the Extension Letter.
2.2 Representation and Warranties of Xxxxxxx. Xxxxxxx represents and
warrants that it is a corporation duly organized, existing and in good standing
under the laws of the State of Delaware, and that the execution and delivery of
this Agreement and the consummation of the transactions contemplated in this
Agreement by Xxxxxxx have been duly authorized and no further corporate
authorization is necessary on the part of Xxxxxxx.
2.3 Representation and Warranties of Parent. Parent represents and warrants
that it is a corporation duly organized, existing and in good standing under the
3
laws of the State of California, and that the execution and delivery of this
Agreement and the consummation of the transactions contemplated in this
Agreement by Parent have been duly authorized and no further corporate
authorization is necessary on the part of Parent.
Section 3. Use of Name; Royalty; Arbitration; Quality Control.
3.1 Grant. The Foundation hereby grants to Xxxxxxx, Parent and any Related
Entity (each, a "Licensee") the exclusive right to use (subject to the rights
granted in the Extension Letter), for so long as Parent and such other
Licensees, respectively, comply with the terms of this Agreement, the FAO Xxxx
for advertising, promotion or any other business purpose (the "Exclusive
Rights") in connection with the retail store business of such Licensee. Use of
any variation of the name "F.A.O. Xxxxxxx" (other than as currently in use as
set forth on Exhibit A hereto) shall be subject to the approval of the Schwarz
Representative which consent will not be unreasonably withheld. The Exclusive
Rights shall hereby be deemed to include all of the activities described in the
following subsections (a), (b) and (c) of this Section 3.1:
(a) FAO Xxxxxxx Retail Sales
The use of the FAO Xxxx on products, including toys and related items, and
on packaging and labeling and in connection with the advertising of such
products in any medium now or hereafter existing, which are sold by Licensee (i)
in stores operated by or under license from Licensee, (ii) through catalogs,
Internet Sites and by any other electronic means including television sales,
(iii) by computer-assisted sales by Licensee to business and private purchasers,
and (iv) by any other manner of sale by Licensee through any existing or
future-developed means of communication and sale, subject at all times to the
quality store provisions of Section 3.4 below. The term "products" includes
products that are manufactured by or for a Licensee ("Xxxxxxx Products") and
products purchased at wholesale by a Licensee and sold at retail by any of the
foregoing means.
(b) Product Licensing
The grant by Licensees to third parties of licenses to use the FAO Xxxx on,
and in connection with the sale and advertising of, products manufactured by or
for such third parties ("Licensed Products") for sale to wholesalers or
retailers of Licensed Products, subject at all times to the quality control
provisions of Section 3.5 below.
(c) Wholesale Sales
The sale of Xxxxxxx Products to wholesalers for resale to third party
retailers or directly to retailers (such sales in each case being referred to as
"Wholesale Distribution Sales"), subject at all times to the quality control
provisions of Section 3.5 below.
3.2 Acceptable Name Changes. In the event that any Licensee shall be
required, by reason of Sections 3.3, 3.4 or 4.1 below, to change its legal name
and its name used in connection with the Exclusive Rights, such name shall be
changed to:
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(a) "Xxxxxxx, Inc.," "Xxxxxxx Toys, Inc.," "Xxxxxxx Toys & Togs, Inc.,"
"Xxxxxxx Toys & Togs Bazaars, Inc.," "Xxxxxxx Children's World, Inc.," "Xxxxxxx
Children's Stores, Inc.," "Xxxxxxx Children's Store Chain, Inc.," "Xxxxxxx Toy
Bazaar, Inc.," "Xxxxxxx Fifth Avenue, Inc." or any of the foregoing with the
word "Company," "Corporation" or "Limited," or an abbreviation thereof, or the
word "Incorporated" instead of the abbreviation "Inc." (or, for purposes of
advertising and promotion, any of the foregoing with the word "Company,"
"Corporation" or "Limited," or an abbreviation thereof, or the word
"Incorporated" or the abbreviation "Inc." omitted); or
(b) any other name which shall omit the initials "F.A.O." but include the
word "Xxxxxxx" and which in other respects shall be approved by the Foundation;
or
(c) any name containing neither the word "Xxxxxxx" nor the initials
"F.A.O."
As so changed, the legal name of such Licensee and the name used by such
Licensee for advertising, promotion and any other business purpose shall not be
subject to challenge by the Foundation. In addition, after 12 months following
such requirement to so change its legal name, any FAOS Transfer by such Licensee
shall be a Prohibited Transfer and the right of such Licensee to use the FAO
Xxxx shall terminate.
3.3 Royalties. In consideration for the Exclusive Rights, Xxxxxxx agrees
that, commencing with its 2002 fiscal year (February 2, 2002-February 1, 2003),
and for each of its fiscal years thereafter during which it has such Exclusive
Rights, it will pay or cause to be paid an annual royalty to the Foundation
equal to the greater of:
(i) 0.25% of the first $50,000,000 of Net Revenues, plus
0.375% of Net Revenues in excess of $50,000,000 (including in the
computation of the first $50,000,000 any Net Sales by FAO Seller
as set forth in the Extension Letter for the first full fiscal
year); and
(ii) $120,000; provided that for each fiscal year beginning
with the 2003 fiscal year (February 1, 2003-January 31, 2004)
such $120,000 shall be adjusted by multiplying it by a fraction,
the numerator of which is the United States Department of Labor,
Bureau of Labor Statistics Consumer Price Index for All Urban
Customers (All items; 1967 = 100) (hereinafter "CPI") annual
average for the preceding calendar year (e.g., the numerator for
the 2003 fiscal year will be the CPI annual average for calendar
2002) and the denominator of which is the CPI annual average for
calendar 2001.
Payment of such royalty shall be made to the Schwarz Representative not
later than 15 days after delivery to him or her of the audited financial
statements of Xxxxxxx for such fiscal year (which Xxxxxxx agrees to deliver),
but in any event not later than 120 days after the end of each such fiscal year.
5
In addition, Parent shall pay an amount equal to (a) $25,000 per annum for
each full year in which it uses the F.A.O. Xxxx in its corporate name and (b)
from the date hereof through February 1, 2002, 0.25% of Net Revenues for such
period.
In the event of Xxxxxxx'x failure to pay the royalty required hereby, each
Licensee shall be obligated to change its legal name and the name used by it in
connection with the exercise of the Exclusive Rights (if either such name
contains the initials "F.A.O." or the word "Xxxxxxx") in accordance with the
provisions of Section 3.2 above. Any change by a Licensee of its legal name and
the name used by it in connection with exercise of the Exclusive Rights, whether
by reason of this Section 3.3, Section 3.4 or otherwise, shall not constitute a
waiver of Xxxxxxx'x liability to pay royalty for use of the name "F.A.O.
Xxxxxxx" for periods prior to the date of such change. Xxxxxxx agrees that it
will not change its fiscal year without also correspondingly adjusting the
foregoing provisions for calculating the annual royalty hereunder.
3.4 Arbitration for Failure to Maintain Quality. In the event that the
Foundation shall be of the opinion in good faith that the business of a Licensee
who uses the FAO Xxxx to identify its business to consumers, including through
identification to consumers of such Licensee's affiliation with Xxxxxxx, or to
the extent such Licensee's business involves the sale of products identified
with the FAO Xxxx (a Person who so identifies its business or to the extent a
Person so identifies products, a "Quality Controlled Person"), is not being
operated and promoted as a quality store business or any such product is not a
First Quality product, the Schwarz Representative may notify the President of
Xxxxxxx in writing (the "Quality Maintenance Notification"), and the Quality
Maintenance Notification shall specify the basis for such opinion in sufficient
factual detail so as to enable the management of Xxxxxxx to determine the
objectionable practice or practices. Upon receiving the Quality Maintenance
Notification, such Licensee shall forthwith (i) make such changes in its methods
of operation and the promotion of its affairs as shall be necessary in order to
remedy the matters specified in the Quality Maintenance Notification, (ii)
change the legal name of such Quality Controlled Person and the name used by it
in connection with exercise of the Exclusive Rights as required by Section 3.2
above, or (iii) if in the opinion of the management of Xxxxxxx the business of
the Quality Controlled Person is being operated and promoted as a quality store
business, Xxxxxxx shall so notify the Xxxxxxx Representative by written response
specifying the basis for such opinion within 15 business days of receipt of such
Quality Maintenance Notification; provided, however, that such Quality
Controlled Person shall not expand any operation or promotional activity
complained of in the Quality Maintenance Notification by the Schwarz
Representative to which Xxxxxxx responds until such time as such dispute
resulting therefrom is resolved by arbitration in accordance with the procedures
provided herein. In the event the management of Xxxxxxx shall so advise the
Schwarz Representative in writing that in the opinion of such management the
relevant business of the Quality Controlled Person is being operated and
promoted as a quality store business (whether or not in their opinion it had
been so operated and promoted at the time of the Quality Maintenance
Notification), and the Foundation shall not agree with such opinion, the
question shall be resolved by arbitration in accordance with the procedures
6
provided herein. In the event a dispute arises hereunder, the management of
Xxxxxxx and the Schwarz Representative shall each appoint an executive engaged
in the retail business, and the two arbitrators so appointed shall appoint a
third executive engaged in the retail business. None of such arbitrators so
appointed shall be engaged in the so-called discount business or in a business a
substantial part of which consists of selling seconds, off price, job lots,
distress merchandise or other merchandise not so identified as the standard
trademarked lines of the manufacturer thereof sold at normal retail prices. In
the course of such arbitration proceedings, the burden of proof shall be on
Xxxxxxx to demonstrate that the relevant business of the Quality Controlled
Person in question is being operated and promoted as a quality store business,
which burden shall be sustained if (in addition to any other method or methods
of sustaining the burden) Xxxxxxx shall demonstrate that the Quality Controlled
Person is being operated and promoted as no less of a quality store business
than FAO Seller operated and promoted on the date of this Agreement or at any
time within three years before the date of this Agreement, or that, in
connection with any store that is being liquidated or closed, the operation or
promotional activity complained of is customary for the liquidation and closing
of retail stores. It shall be the sole responsibility of such arbitrators to
ascertain and report whether the relevant business of the Quality Controlled
Person is being operated and promoted as a quality store business, and, if they
determine that the relevant business is not being operated and promoted as a
quality store business to determine the amount of compensation to be awarded to
the Foundation for such operation and promotion from and after the date of the
Quality Maintenance Notification. The determination of a majority of such
arbitrators shall be binding upon the parties hereto. For this purpose a quality
store shall be deemed to have the general definition at the time of such
determination that the term then implies when used in connection with general
retail trade. In the event that such arbitrators determine that the relevant
business of the Quality Controlled Person is being operated and promoted as a
quality store business, the reasonable fees and expenses of such arbitrators
shall be paid by the Foundation. In the event that such arbitrators determine
that the relevant business of the Quality Controlled Person is not being
operated and promoted as a quality store business, the reasonable fees and
expenses of such arbitrators shall be paid by Xxxxxxx and, in addition thereto,
such Licensee shall either (i) forebear from the operation or promotional
activity determined by such arbitrators as not being part of a quality store
business or (ii) within one year after the date of such determination by such
arbitrators, change its legal name and the name used by it in connection with
exercise of the Exclusive Rights in accordance with the provisions of Section
3.2 above.
Xxxxxxx agrees to provide to the Schwarz Representative from time to time,
upon the request of the Schwarz Representative, reasonable access and
appropriate information to enable the Foundation to determine whether Xxxxxxx is
being operated as a quality store business.
3.5 Quality of Product and Distribution.
(a) Licensed Products Xxxxxxx covenants and agrees that it will retain the
right to approve Licensed Products. Such approval shall only be granted if
Xxxxxxx believes in good faith that the product is a first quality product.
7
"First Quality" means a product which is similar in quality to products
currently marketed by Xxxxxxxx Sonoma in home products, Xxxxx Lauren for
apparel, Gund for toys and Ethan Xxxxx in furniture ("Quality Surrogates").
(b) Distribution Quality Xxxxxxx covenants and agrees that it will seek by
all commercially reasonable means to cause Licensed Products to be sold only
through First Quality stores and catalogues (including electronic catalogs). The
Quality Surrogates for such sales shall currently be Xxxxxx-Xxxxxx, Saks Fifth
Avenue, Bloomingdale's, Nordstrom and Harrod's. Quality Surrogates for specialty
stores shall currently be stores in the category of Crate and Barrel, Garden
Botanika, Oilily, Barney's and/or other similar high-quality stores.
(c) Changes in Quality Surrogates Quality Surrogates described in Sections
3.5(a) and 3.5(b) will be reevaluated approximately every five years, and if the
Foundation or Xxxxxxx believes in good faith that other Quality Surrogates
should be substituted it will so inform the other party. In the event, however,
that the character of any Quality Surrogate shall change during such five-year
period, the parties, upon the request of the Schwarz Representative or Xxxxxxx,
shall reevaluate such Quality Surrogate prior to the end of such period, and if
commercially reasonable, shall remove such Quality Surrogate from serving as
such.
3.6 Use of FAO Xxxx by the Foundation. The Foundation agrees that during
the period Licensees have the Exclusive Rights, it will not, alone or together
with others, directly or indirectly, by stock ownership or otherwise, use or
permit the use of the name "F.A.O. Xxxxxxx" or a name substantially identical
thereto, in connection with, or sell the name "F.A.O. Xxxxxxx" or a name
substantially identical thereto, for use in connection with, any business or
enterprise primarily engaged in the same business as that of Licensees, namely,
the sale of toys and/or related merchandise at retail. Each of Xxxxxxxxx X. X.
Xxxxxxx, Xx. and Xxxxxxxxx X. X. Xxxxxxx, III, agrees that for the same period
he will not authorize the use of the name "F.A.O. Xxxxxxx" or any name
conflicting with it in the toy business or any retail business and will
cooperate in every way possible with Xxxxxxx to prevent the unauthorized use by
anyone of the name "F.A.O. Xxxxxxx" or any name conflicting with it. After such
period, the right of the Foundation to use the name "F.A.O. Xxxxxxx" shall be
governed by applicable legal principles relating to the use of names and marks,
and the provisions of this Agreement shall not be deemed to add to or detract
from such right.
3.7 Use of FAO Xxxx in Corporate Name. To the extent that Parent uses the
FAO Xxxx in its corporate name and either (i) ceases to be a person to whom an
FAOS Transfer would be permitted to be made in accordance with Section 4.1
hereof or (ii) conducts any portion of its business or the business of its
subsidiaries in a manner which fails to protect and maintain the reputation and
integrity of the FAO Xxxx or otherwise besmirches or brings ill repute upon the
good name of FAO Xxxx, then in either such case Parent shall be required to
change its legal name in accordance with the provisions of Section 3.2 hereof.
8
Section 4. Transfer of Right To Use Name.
4.1 Prohibited Transfers. Any FAOS Transfer to any Person who is not of
good character, reputation and financial standing in the business community is
prohibited by this Agreement (a "Prohibited Transfer)."
4.2 Notification by Parent. In the event Parent or any Licensee desires to
make an FAOS Transfer, Parent shall notify the Schwarz Representative in writing
in each such instance, of the name and address of the proposed transferee at
least thirty (30) days in advance of the closing of said transaction, which
notice shall identify the proposed transferee and shall also state Parent's
opinion, given in good faith, that the proposed transaction does not constitute
a Prohibited Transfer and shall specify the basis for such opinion. Parent also
agrees to provide promptly (and in any event ten (10) days before the closing of
such transaction) to the Xxxxxxx Representative information regarding the
business, character, reputation and financial standing in the business community
of the proposed transferee, the owners or controlling persons of the proposed
transferee, and the terms of the proposed transfer (except that financial terms
of the proposed transfer need not be disclosed) as the Schwarz Representative
shall reasonably request or to cause the proposed transferee to provide such
information.
4.3 Right of Foundation. If within twenty (20) days of the receipt of the
notice referred to in Section 4.2 (or, if later, within ten (10) days of receipt
of the information referred to in Section 4.2) the Schwarz Representative sends
to Parent a notice (the "Xxxxxxx Notice") that the Foundation is of the opinion
that the proposed transfer is a Prohibited Transfer, then Parent agrees that,
unless such proposed transfer is not a Prohibited Transfer pursuant to Section
4.6 hereof, such proposed transfer shall, if closed thereafter, be rescinded and
the ownership of the securities or rights transferred shall revert to the
transferor within thirty (30) days following a determination of the Board of
Arbitration if such determination is in favor of the Foundation. In the event
that a Prohibited Transfer is not rescinded if required by the preceding
sentence, then this Agreement shall automatically terminate at the end of such
thirty (30) day period. If the Schwarz Representative does not send to Parent
the Xxxxxxx Notice within said twenty (20) days (or said ten (10) days), then
the transaction shall not be a Prohibited Transfer and may proceed in accordance
with its terms. The Xxxxxxx Notice shall be given in good faith and shall
specify the basis for the opinion stated therein.
4.4 Terms of Proposed Transfer Agreement. Parent also agrees that any
proposed FAOS Transfer shall be subject, inter alia, to the following terms and
conditions:
(a) the transferee shall agree to abide by the terms and conditions of this
Agreement;
(b) each of Parent and the transferee shall have the right to refuse to
close said transaction if the Xxxxxxx Notice is given; and
9
(c) Parent and the transferee shall agree that if the Board of Arbitration
issues a decision in favor of the Foundation on the issue of whether or not the
transaction is a Prohibited Transfer, then said transaction shall be rescinded
and the Exclusive Rights transferred shall revert to the transferor within
thirty (30) days following the Board of Arbitration's decision.
4.5 Arbitration. If Parent shall not agree with the opinion of the
Foundation stated in the Xxxxxxx Notice (and if neither Parent nor the proposed
transferee has exercised the right referred to in Section 4.4(b)), then the
question of whether the proposed transfer is a Prohibited Transfer as defined in
Section 4.1 hereof shall be submitted to, and resolved by, a Board of
Arbitration, The Board of Arbitration shall meet in New York, New York, and
shall render a decision in writing (concurred in by a majority of its members)
with respect to any point of disagreement in respect of the matters submitted to
it pursuant hereto. Any determination made by the Board of Arbitration shall be
final and binding upon Parent, Xxxxxxx, the proposed transferee, the Schwarz
Representative and the Foundation, and shall have the force of an arbitral award
made in New York, New York. The expenses of the arbitration proceeding (i.e.,
the fees, expenses and costs of the arbitrators and of the American Arbitration
Association) shall be shared equally by Parent, on the one hand, and the
Foundation, on the other hand, prior to the Board of Arbitration's decision, but
the losing party shall bear all of the expenses of the arbitration proceeding
and shall reimburse the winning party for its share of said expenses prior to
the Board of Arbitration's decision.
4.6 Exempt Transaction. None of the following transactions shall be a
Prohibited Transfer except as set forth in the final paragraph of this Section
4.6:
(a) the sale or other disposition of ten percent (10%) or less of the
outstanding Voting Securities of Parent by Parent or any owner of Parent, in the
aggregate, during any twelve-month period to any Person which, after such sale
or disposition, shall own or control, directly or indirectly, not more than
fifteen percent (15%) of such Voting Securities;
(b) a public offering of Voting Securities of Parent (i) in which no Person
other than an incumbent director or officer of Parent acquires more than ten
percent (10%) of the outstanding Voting Securities of Parent as determined
following said offering or (ii) which is made in connection with the acquisition
of a business, whether by merger, consolidation or asset acquisition (an
"Acquisition");
(c) a public offering of Voting Securities of Xxxxxxx in which no Person
other than an incumbent director or officer of Parent acquires more than seven
and one-half percent (7.5%) of the outstanding Voting Securities of Xxxxxxx as
determined following said offering;
(d) an FAOS Transfer made to Parent or a Person who is a Related Entity;
provided that Parent shall cause such Person to abide by the terms and
conditions of this Agreement;
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(e) an FAOS Transfer that consists of the encumbrance, pledge,
hypothecation or grant of a security interest with respect to, or other transfer
of an interest (including without limitation the enforcement or foreclosure of
such encumbrance, pledge, hypothecation or security interest) in any of the
Exclusive Rights or the Xxxxxxx Voting Securities to a bank or other financial
institution providing credit to Parent or Xxxxxxx, if, and only if, (i) such
Person has notified the Schwarz Representative of such transfer and (ii) such
transfer or encumbrance is given as part of a collateral package which includes
all or substantially all of such Person's other property in order to give such
bank or financial institution the right, in the event of a default by such
Person under such credit facility, to foreclose on all or substantially all such
property and operate the business as a "going concern"; provided that this
exemption shall not apply to permit an FAOS Transfer by such bank or other
financial institution after such a foreclosure and any such FAOS Transfer shall
otherwise be subject to the terms of this Agreement;
(f) an FAOS Transfer among Parent's existing stockholders or among spouses,
children or grandchildren of existing stockholders or inter vivos or
testamentary transfers to trusts established for the benefit of such persons;
(g) a private offering of Voting Securities of Parent in connection with an
Acquisition; or
(h) an FAOS Transfer (i) to the extent involving securities that are
registered under applicable securities laws and are traded on the New York Stock
Exchange, the American Stock Exchange, the NASDAQ National Market System or
other recognized stock exchange or national market system or (ii) to or between
institutional investors where an institutional investor shall be defined as a
major banking institution, insurance company, a Fortune 1000 company or
subsidiary thereof or pension fund. Xxxxx Xxxxxxxx Investment Management Inc.,
and its affiliates, shall be deemed to be institutional investors for purposes
of this subsection (h).
The fact that a transfer or proposed transaction does not fall within any
of the eight types outlined above shall not mean or imply that such a
transaction is a Prohibited Transfer. Notwithstanding the foregoing, any
transaction or series of transactions described below shall not be excepted by
any provision of this Section 4.6 from the restrictions of Section 4.1 and shall
constitute a Prohibited Transfer: (i) an FAOS Transfer in which a Person or
group of Persons gains beneficial ownership of a number of Voting Securities
that exceeds the greater of (a) the number of Voting Securities beneficially
owned by Xxxxx Xxxxxxxx Investment Management, Inc. and its affiliates and Xx.
Xxxx Xxxxx (the "Kayne Group") or (b) 25% of the Voting Securities of the
surviving Person of such FAOS Transfer, (ii) an FAOS Transfer that results from
a merger of Parent with or into, or consolidation of Parent with, another Person
such that the holders of the Voting Securities of Parent before such merger or
consolidation hold less than 50% of the Voting Securities of the Person
resulting from such merger or consolidation (or of a Person that directly or
indirectly controls such Person) or (iii) an FAOS Transfer that results from the
disposition of all or substantially all of the Voting Securities of Parent held
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by the Kayne Group other than in connection with a merger of Parent with or
into, or consolidation of Parent with, another Person that does not violate
clause (ii) in which the Kayne Group receives no different consideration than
any other holder of Voting Securities of Parent in such transaction.
4.7 Other Provisions. Following either -
(a) the change of the legal name of Xxxxxxx and the name used by Xxxxxxx in
connection with exercise of the Exclusive Rights in accordance with Section 3.1
hereof, or
(b) the consummation of an FAOS Transfer and a decision of the Board of
Arbitration, if any, favorable to Parent that such FAOS Transfer is not a
Prohibited Transfer, if Parent thereafter no longer has the right (directly or
indirectly) (i) to vote at least twenty-five percent (25%) of the Voting
Securities of Xxxxxxx, (ii) to vote at least twenty-five percent (25%) of the
Voting Securities of any Person having the right (directly or indirectly) to use
or control the use of the F.A.O. Xxxx or (iii) to use or control the use of the
name F.A.O. Xxxx,
then Parent, its successors and transferees (except for any transferee in
an FAOS Transfer) shall forthwith be relieved of all obligations, restrictions
and liabilities under this Agreement. Notwithstanding the foregoing, in the
event Parent is relieved of such obligations, restrictions and liabilities,
Xxxxxxx shall continue to be bound by this Agreement as provided herein; and
Xxxxxxx agrees with the Foundation to perform and observe all covenants,
agreements and conditions of Parent hereunder, including without limitation
those contained in Section 4 hereof, until the earlier of (i) the occurrence of
the circumstances described in Section 4.7(a) hereof or (ii) the consummation of
an FAOS Transfer and a decision of the Board of Arbitration, if any, favorable
to Xxxxxxx, if Xxxxxxx thereafter no longer has either of the rights (directly
or indirectly) described in Section 4.7(b)(ii) and (iii) hereof.
Section 5. Consent to Asset Sale.
The Schwarz Representative, on behalf of the Foundation, hereby agrees that
Xxxxxxx is not a Person "not of good character, reputation and financial
standing in the business community," and, accordingly, that the sale of assets
(including rights to the FAO Xxxx) to Xxxxxxx described in the recitals to this
Agreement is not a "Prohibited Transfer" as such term is defined in Section 5.1
of the Original Agreement. The foregoing shall not limit the rights of the
Foundation under Sections 3.4 or 3.5.
Section 6. Miscellaneous.
6.1 Survival. All covenants and agreements contained in this Agreement or
in any document, exhibit, schedule or certificate delivered in connection
herewith shall survive the execution and delivery of this Agreement and any
investigation at any time made by the Foundation or on its behalf.
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6.2 Construction. This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the State of New York.
6.3 Notices. All notices hereunder shall be in writing and shall be deemed
to have been given at the time when mailed by certified mail, or sent by
facsimile with confirmation of transmission by the transmitting equipment, in
each case, addressed to the address below stated of the party to which notice is
given, or to such changed address as such party may have fixed by notice:
To Xxxxxxx:
c/o The Right Start, Inc.
00000 Xxxxxx Xxxx, Xxxxx 000
Xxxxxxxxx, Xxxxxxxxxx 00000
Attention: Legal
Fax: 000.000.0000
with a copy to:
Fulbright & Xxxxxxxx L.L.P.
000 Xxxxx Xxxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxx Xxx
Fax: 000.000.0000
To the Xxxxxxx Representative:
H. Xxxxxxxx Xxxxxxx
Chairman of the Board
U.S. Trust Company of New York
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Fax: 000.000.0000
with a copy to:
Cravath, Swaine & Xxxxx
000 Xxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx X. Xxxxx
Fax: 000.000.0000
provided, however, that any notice of change of address shall be effective only
upon receipt.
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6.4 Assignment. This Agreement shall be binding upon and inure to the
benefit of Parent, Xxxxxxx and the Foundation and the respective successors in
interest and assigns of the Foundation. Except as provided in Section 4 hereof,
neither Parent nor Xxxxxxx may assign this Agreement without the prior written
consent of the Xxxxxxx Representative; provided, however, that Parent and
Xxxxxxx may consummate the transactions in the Asset Purchase Agreement.
6.5 Amendments and Waivers. This Agreement and all exhibits and schedules
hereto set forth the entire understanding of the parties with respect to the
transactions contemplated hereby. This Agreement may not be amended, and neither
Parent nor Xxxxxxx may take any action herein prohibited or omit to take action
herein required to be performed by it, and no breach of or compliance with any
covenant or agreement shall be waived, unless Parent has obtained the written
consent or waiver of the Xxxxxxx Representative.
6.6 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument, and shall become
effective when copies hereof which, when taken together, bear the signatures of
each of the parties hereto, shall be delivered or mailed to Parent, Xxxxxxx and
the Schwarz Representative.
6.7 Headings; Table of Contents. The headings and the table of contents in
this Agreement are for reference purposes only and shall not constitute a part
hereof.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date set forth above.
THE RIGHT START, INC.
By /s/ Xxxxx X. Xxxxx
Name: Xxxxx X. Xxxxx
Title: President and CEO
TOY SOLDIER, INC.
By /s/ Xxxxx X. Xxxxx
Name: Xxxxx X. Xxxxx
Title: Chairman, President and CEO
F.A.O. XXXXXXX FAMILY FOUNDATION
By /s/ H. Xxxxxxxx Xxxxxxx
H. Xxxxxxxx Xxxxxxx
Xxxxxxx Representative
F.A.O. Xxxxxxx, Jr.
F.A.O. Xxxxxxx, III
15
ADDITIONAL LICENSEES WHO AGREE TO BE BOUND BY THE
TERMS OF THIS AGREEMENT:
By ________________________________
Name:
Title:
By ________________________________
Name:
Title:
16
EXHIBIT A*
FAO BABY
FAO UNIVERSITY
FAO GIRL
FAO
XXXXXXX
FAO SCHWEETZ
Fao bear
Xxxxxxxxxxx.xxx **
Xxxxxxxxxx.xxx**
Xxxxxxxxxx.xxx**
Xxxxxxxxx.xxx**
FAO HOTEL
Fao toystore
Fao personalshopper
XXX-XXXXXXX.XXX
fao espanol
* Each to be used as provided in this Agreement.
** To be used only to redirect visitors (online or through any
other medium requiring the visitor to spell) seeking the
F.A.O. Xxxxxxx brand to the correct location.
