ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (this "Agreement"), dated as of September 17,
2004, is made and entered into by and between SMALL WORLD TOYS a California
corporation ("Small World"), and NEUROSMITH, LLC, a California limited liability
company ("Neurosmith").
A. Neurosmith has been engaged in the business of designing, producing and
selling various "smart" toys and related products for children (as defined
below, the "Products").
B. Small World wishes to purchase from Neurosmith, and Neurosmith wishes to sell
to Small World, the Purchased Assets (as defined below), upon the terms and
conditions of this Agreement.
In consideration of the mutual promises and covenants set forth herein, the
parties hereby agree as follows:
ARTICLE I
SALE AND PURCHASE OF ASSETS
1.1 Assets to be Transferred. Subject to the terms and conditions set forth in
this Agreement and in reliance upon the representations and warranties of
Neurosmith and Small World herein set forth, at the Closing Neurosmith shall
sell, transfer, convey, assign and deliver to Small World, by appropriate deeds,
bills of sale, assignments and other instruments as set forth herein, and Small
World shall purchase from Neurosmith, all of Neurosmith's right, title and
interest, as of the Effective Time, in and to the Purchased Assets.
1.2 Title to Purchased Assets. The Purchased Assets shall be conveyed free and
clear of all liabilities, obligations and Liens, excepting only the Permitted
Liens
1.3 No Other Assets. The Purchased Assets consist solely of those assets defined
as part of the Purchased Assets pursuant to Section 12.1 and shall not include
any other properties or rights, tangible or intangible. Without limiting the
foregoing, the Purchased Assets shall not include any of the following: (a)
cash, cash equivalents, securities, stocks, and negotiable financial
instruments; (b) Tangible Personal Property (including leases thereof) other
than the Tooling, Prototypes, Models and Chips; (c) Prepaid Items; (d) Licenses
and Permits; (e) real property or interests in leases of real property; (f)
accounts receivable; (g) Books and Records; (h) claims, causes of action,
choices in action, rights of recovery and rights of set-off; and (i) rights to
receive mail and other communications. Although Neurosmith will retain ownership
of the Books and Records, after the Closing it shall provide Small World upon
request with reasonable access to any Books and Records that Small World
requires and that are reasonably necessary for its business purposes relating to
the Purchased Assets.
1.4 No Assumption of Liabilities. Small World shall not assume or be liable for
any liabilities or obligations of Neurosmith, direct or indirect, fixed,
contingent or otherwise, known or unknown, which exist at the Effective Time or
which arise thereafter as a result of any act, omission or circumstance taking
place prior to the Effective Time, and whether or not the same are reflected on
Neurosmith's financial statements, including, without limitation, the following
liabilities or obligations:
1.4.1 any liability of Neurosmith for unpaid taxes or for income,
transfer, sales, use and other Taxes, other than Taxes described in Section 2.3,
and
1.4.2 any liability of Neurosmith for costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby.
ARTICLE II
PURCHASE PRICE, PAYMENT AND RELATED MATTERS
2.1 Purchase Price; Payment of the Purchase Price. The purchase price (the
"Purchase Price") for the Purchased Assets shall be Eight Hundred Thousand
Dollars ($800,000). Six Hundred Thousand Dollars ($600,000) of the Purchase
Price shall be paid to Neurosmith upon Closing (the "Closing Payment") and the
remaining Two Hundred Thousand Dollars ($200,000) shall be paid by making the
"T&C Payment" on behalf of Neurosmith as defined in Section 2.2.
2.2 Tinkers & Chance.
2.2.1 Background. Neurosmith previously had various contacts with Tinkers
& Chance, a partnership comprised of Xxxxxx Xxxx and Xxxxx Xxxxxx (individually
and collectively "T&C"). T&C claims (as defined in Section 12.1, the "T&C
Claims") that some of the Products infringe upon or violate certain issued
and/or pending patent claims and applications of T&C (as defined in Section
12.1, the "T&C Rights".) In connection with the foregoing, Neurosmith and T&C
entered into a binding Memorandum of Understanding (the "MOU") pursuant to which
T&C and Neurosmith entered into various agreements some of which related to the
T&C Rights and their use by Neurosmith. One of the provisions called for a Two
Hundred Thousand Dollar ($200,000) payment (defined in the MOU as the "Payment")
that Neurosmith would make to T&C if certain transactions occurred on or before
March 31, 2004. There is a pending dispute between T&C as to whether any of the
Transactions occurred on or before March 31, 2004 and therefore whether the
Payment was due and owing.
2.2.2 Payment. Prior to or concurrently with the Closing, Small World will
pay T&C the sum of Two Hundred Thousand Dollars ($200,000) (the "T&C Payment")
and obtain from Tinkers & Chance a full and complete general release (the "T&C
Release") of all claims, damages, liabilities etc. that T&C may have against
Neurosmith and any of its affiliates, owners, managers, directors, employees,
attorneys, agents and other representatives (past and present) (individually and
collectively, the "Neurosmith Parties"). The T&C Payment shall explicitly
represent a payment by Small World on behalf of Neurosmith in consideration of
T&C's claims against Neurosmith and for the T&C Release provided by Tinkers &
Chance. Neurosmith agrees execute a general release in favor of Tinkers & Chance
and its partners (the "Neurosmith Release"). The forms of T&C Release and
Neurosmith Release are attached hereto Exhibit "B".
2.3 Taxes. Small World shall pay documentary and transfer taxes including sales,
use and excise taxes if any, arising out of the sale of the Purchased Assets
hereunder. It is also understood that all of the Chips and Tooling are currently
outside of the United States and are to be transferred to Small World where they
are.
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ARTICLE III
CLOSING
3.1 Time and Place. The closing shall take place at the offices of Loeb & Loeb
LLP, 00000 Xxxxx Xxxxxx Xxxxxxxxx, Xxxxx 0000, Xxx Xxxxxxx, Xxxxxxxxxx 00000, at
10:00 a.m. local time at such time as Small World and Neurosmith mutually agree
(the "Closing"). The Closing and the transfer of title, possession and control
of the Purchased Assets shall be effective as of the Effective Time, and all
transactions and deliveries at the Closing shall be deemed to have occurred
simultaneously. The "Effective Time" shall mean 12:01 a.m. Los Angeles time on
the day after the Closing.
3.2 Transactions at the Closing. At the Closing, the following shall occur:
3.2.1 Small World shall deliver the Closing Payment by wire transfer in
accordance with instructions from Neurosmith;
3.2.2 Small World shall deliver to Neurosmith evidence reasonably satisfactory
to Neurosmith that the T&C Payment has been delivered to T&C;
3.2.3 Small World shall deliver to Neurosmith the T&C Release executed and
delivered by T&C;
3.2.4 Small World shall deliver to Neurosmith the certificates referred to in
Sections 9.1 and 9.2;
3.2.5 Neurosmith shall deliver to Small World assignments in registrable form of
all trademarks, service marks, patents, copyrights and registrations or
applications for the same included within the Purchased Assets and a xxxx of
sale and assignment covering the balance of the Purchased Assets, in forms
reasonably acceptable to Neurosmith and Small World, together with such other
instruments of sale, transfer, conveyance, assignment and confirmation as are
reasonably required by Small World but in form reasonably acceptable to
Neurosmith. It is understood and agreed that none of the representations or
warranties in the foregoing assignments or bills of sale will supercede,
increase, modify or amend any of the representations or warranties of Neurosmith
in this Agreement nor limit in any manner any of the limitations of liabilities
or disclaimers set forth in this Agreement (so that, it shall be deemed as if
the only representations or warranties made by Neurosmith in the bills of sale
and assignments shall be those set forth herein, the representations and
warranties in the bills of sale and assignments shall be of no force or effect
and that this Agreement shall prevail in all respects in the event of any
conflict between those documents and this Agreement);
3.2.6 Neurosmith shall physically deliver the Models and Prototypes in its
possession. The Tooling and Chips are in the possession of third parties as
described on Exhibit A. Neurosmith shall deliver the Tooling and Chips solely by
providing notice to the third parties described on Exhibit A informing such
third parties of Small World's ownership, in form acceptable to Small World; and
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3.2.7 Neurosmith shall deliver to Small World the certificates referred to in
Sections 8.1 and 8.2.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF NEUROSMITH
Neurosmith hereby represents and warrants to Small World that:
4.1 Organization; Authority; Due Authorization. Neurosmith is a limited
liability company duly organized, validly existing and in good standing under
the laws of the State of California and has all requisite power to own, lease
and operate its assets, properties and business and to carry on its business as
conducted. Neurosmith has all requisite power, authority and approvals required
to enter into, execute and deliver this Agreement and all of the other
transaction documents to which it is a party, and to perform fully Neurosmith's
obligations hereunder and thereunder. Neurosmith has taken all actions of a
limited liability company necessary to authorize it to enter into and perform
fully its obligations under this Agreement and all of the other transaction
documents to be executed by it and to consummate the transactions contemplated
herein and therein. This Agreement has been duly and validly executed by
Neurosmith and (assuming the due authorization, execution and delivery by Small
World) constitutes the legal, valid and binding obligation of Neurosmith,
enforceable in accordance with its terms, except as the same may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar
Applicable Laws affecting creditors' rights generally or by general equitable
principles affecting the enforcement of contracts.
4.2 No Violation. Neither the execution or delivery by Neurosmith of this
Agreement and all other transaction documents to which Neurosmith is a party,
nor the consummation of the transactions contemplated hereby and thereby will
(with or without notice or lapse of time or both): (i) violate any provision of
the Articles of Organization, Operating Agreement, bylaws or other charter
documents of Neurosmith; (ii) require the consent of any party; (iii) violate in
any material respect any Applicable Law or Order, the violation of which may
affect the Purchased Assets or Small World's rights therein; or (iv) result in
the creation of any Lien or other encumbrance upon any of the Purchased Assets.
4.3 Regulatory Approvals and Other Consents. No consent, approval,
authorization, or exemption from, nor any notice to or filing with, any
Governmental Authority is required to consummate the transactions contemplated
herein.
4.4 Title to Tangible Assets. Section 4.4 of Neurosmith's Disclosure Schedule
sets forth a description of the Models, Tooling and Chips, including the
location thereof. Except as indicated in Section 4.4 of Neurosmith's Disclosure
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Schedule and except for Permitted Liens: (a) Neurosmith has good and marketable
title owned by it to each item of Tangible Assets, free and clear of all Liens
or other encumbrances; (b) no officer, director, shareholder or employee of
Neurosmith, nor any Affiliate thereof, owns directly or indirectly, in whole or
in part, any item of the Tangible Assets or has any other interest therein; (c)
Neurosmith has the valid and enforceable right to receive and/or use each of the
items of Tangible Assets in which Neurosmith has any other interest, free and
clear of all Liens; and (d) the delivery to Small World of the instruments of
transfer of ownership of the Tangible Assets contemplated by this Agreement will
at the Effective Time vest good and marketable title to, or the valid and
enforceable right to receive and/or use, the Tangible Property in Small World,
free and clear of all Liens. Neurosmith makes no representation or warranty
whatsoever as to the physical condition of any Tangible Assets (including
whether any such Tangible Asset is in good operating condition and repair or
usable in the ordinary course of business). Neurosmith also makes no
representation or warranty that the Products will conform to any Applicable Laws
or meet any applicable health and safety, consumer protection or environmental
protection rules, regulations orders or laws.
4.5 Intellectual Assets. Except as set forth in Neurosmith's Disclosure Schedule
4.5 and except for the T&C Claims, to the Knowledge of Neurosmith: (i)
Neurosmith is the owner of all right, title and interest in and to each of the
Intellectual Assets (excluding the Miscellaneous Assets, which are transferred
"as is" without representation) free and clear of all Liens, other than
Permitted Liens; (ii) none of the Intellectual Assets (other than Miscellaneous
Assets) is subject to any Taxes, maintenance fees or actions falling due within
90 days after the date hereof (it being understood that not all of trademarks
have been registered and that this representation does not relate to
registration fees or actions for trademarks); (iii) there are no pending claims,
actions, judicial or other adversary proceedings, disputes or disagreements
involving Neurosmith concerning any item of the Intellectual Assets, and no such
action, proceeding, dispute or disagreement is threatened; (iv) the Intellectual
Assets do not infringe upon the Intellectual Property Rights of any third
person, including patent, copyright, and trade secrets; (iii) all officers,
employees and consultants of Neurosmith who were involved in any material manner
in developing any of the Intellectual Assets) have executed and delivered to
Neurosmith agreements regarding the protection of proprietary information and
the assignment to Neurosmith of all Intellectual Property Rights arising from
the services performed for Neurosmith by such Persons, and Neurosmith has made
available to Small World or its counsel copies of all such agreements; and (iv)
no employee or consultant of Neurosmith violated any term of any employment
Contract, disclosure agreement, non-competition agreement or any other Contract
or restrictive covenant relating to the right of such Person to be employed or
engaged by Neurosmith or to use the Intellectual Property rights of others.
Neurosmith makes no representation that any Intellectual Property Right in any
Intellectual Asset is valid and enforceable. A list of trademarks and patents
and patent applications is set forth on Exhibit C.
4.6 Contracts. There are no executory obligations or liabilities arising from
any Contracts relating to the Purchased Assets that could be or may result in a
Lien or otherwise affect the Purchased Assets after the sale and transfer to
Small World.
4.7 Litigation. Except as set forth in Section 4.7 of Neurosmith's Disclosure
Schedule and except for the T&C Claims, to Neurosmith's Knowledge, there is no
action, suit, proceeding or investigation pending or threatened: (i) against
Neurosmith by any Person with respect to any of the Purchased Assets or which
could create a Lien or other obligation against or relating to the ownership of
the Purchased Assets; (ii) seeking to prohibit or restrict the sale and purchase
of the Purchased Assets or the carrying out of any of the other transactions
contemplated by this Agreement. Neurosmith is not subject to any judgment,
order, decree, award, writ, injunction, decision, ruling or finding that may
have an adverse affect on this Agreement or the rights of Small World in and to
the Purchased Assets.
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4.8 Applicable Law. To Neurosmith's knowledge, Neurosmith has, in all material
respects, complied with and is now in all material respects, in compliance with
all Applicable Laws and Orders.
4.9 Representations and Warranties on Closing. The representations and
warranties contained in this ARTICLE IV shall be true and complete in all
material respects at and as of the Effective Time with the same force and effect
as though such representations and warranties had been made at and as of the
Effective Time.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF SMALL WORLD
Small World represents and warrants to Neurosmith as follows:
5.1 Due Incorporation; Power. Small World is a corporation duly organized,
validly existing and in good standing under the Applicable Laws of its
jurisdiction of incorporation. Small World has all requisite power, authority
and approvals required to enter into, execute and deliver this Agreement and all
of the other transaction documents to which it is a party, and to perform fully
Small World's obligations hereunder and thereunder.
5.2 Authority to Execute and Perform Agreements. Small World has all requisite
power, authority and approval required to enter into, execute and deliver this
Agreement and the other Small World Documents and to perform fully Small World's
obligations hereunder and thereunder.
5.3 Due Authorization; Enforceability. Small World has taken all corporate
actions necessary to authorize it to enter into and perform its obligations
under this Agreement and all other documents to which it is a party and to
consummate the transactions contemplated herein and therein. This Agreement has
been duly and validly executed by Small World and (assuming the due
authorization, execution and delivery by Neurosmith) constitutes the legal,
valid and binding obligations of Small World, enforceable in accordance with its
terms, except as the same may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar Applicable Laws affecting creditors'
rights generally or by general equitable principles affecting the enforcement of
contracts.
5.4 No Violation. Neither the execution and delivery of this Agreement and all
other transaction documents to which Small World is a party, nor the
consummation of the transactions contemplated hereby and thereby will (with or
without notice or lapse of time or both): (i) violate any provision of the
Articles of Incorporation or bylaws of Small World; (ii) require the consent of
any party; or (iii) violate in any material respect any Applicable Laws or
Orders, the violation of which may affect the transactions contemplated by this
Agreement.
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5.5 Regulatory Approvals. No consent, approval, authorization, notice, filing,
or exemption is required to consummate the transactions contemplated herein.
5.6 Representations and Warranties on Closing. The representations and
warranties contained in this ARTICLE V shall be true and complete in all
material respects at and as of the Effective Time.
ARTICLE VI
COVENANTS AND AGREEMENTS OF THE PARTIES
EFFECTIVE PRIOR TO CLOSING
The parties hereto covenant and agree as follows:
6.1 Business Examinations and Physical Investigations of Assets. Prior to the
Effective Time, Small World shall be entitled, through its employees and
representatives, including, without limitation, Loeb & Loeb LLP and Xxxxx Xxxxx,
to make such investigations and examinations relating to the Purchased Assets as
Small World may reasonably request (including where reasonably related to the
Purchased Assets the Books and Records of Neurosmith). Neurosmith shall furnish
Small World and its representatives during such period with all information
concerning the affairs of Neurosmith as Small World or such representatives may
request and cause Neurosmith's officers, employees, consultants, agents,
accountants and attorneys to cooperate fully with Small World and such
representatives and to make full disclosure of all information and documents
requested by Small World and/or such representatives. No investigation by Small
World shall, however, diminish or obviate in any way, or affect Small World's
right to rely upon, any of the representations, warranties, covenants or
agreements of Neurosmith contained in this Agreement.
6.2 Conduct of Business. From the date hereof through the Effective Time,
Neurosmith shall not undertake, and shall use reasonable commercial efforts to
avoid failing to undertake, any action if such action or failure would render
any of its warranties and representations untrue as of the Effective Time. The
failure of Neurosmith to fulfill its obligations shall, if material, permit
Small to terminate this Agreement as Small World's sole and exclusive remedy for
such failure.
6.3 Arrangements with Employees. From the date hereof until the Effective Time,
Neurosmith shall permit Small World to approach and negotiate with any or all of
the ex-employees of Neurosmith with respect to their employment by Small World
following the Closing. Neurosmith shall use reasonable efforts to assist Small
World in such negotiations.
6.4 No Solicitation or Negotiation. Neurosmith and its members shall not cause,
suffer or permit any of Neurosmith's members, directors, officers, employees,
representatives, agents, investment bankers, advisors, accountants or attorneys
to (a) initiate or solicit any inquiries or the making of any proposal, or (b)
engage in negotiations or discussions with any Person, or (c) provide any
confidential information or data to any Person, with respect to any acquisition,
business combination or purchase of all of any significant part of the Purchased
Assets.
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6.5 Risk of Loss. Neurosmith hereby assumes all risk of material adverse change,
loss, damage and destruction to all or any part of the Purchased Assets until
the Effective Time from any cause whatsoever.
6.6 Title to Chips and Tooling Small World and Neurosmith shall obtain
confirmation from the factories holding the Tooling and Chips that, upon the
Effective Date the Tooling and Chips will be the sole property of Small World
and that such factories are not owed any amount from Neurosmith or otherwise
with respect to the Purchased Assets. In connection therewith, it is understood
that Neurosmith's representations regarding title to the Tooling and Chips are
subject to the receipt of such confirmations without the payment of any monies
by Neurosmith. If such confirmation is not obtained, the sole right of either
party shall be to terminate this Agreement and there shall be no breach of this
Agreement or claim of default in such circumstance.
ARTICLE VII
CONDITIONS PRECEDENT TO THE OBLIGATION
OF EACH PARTY TO CLOSE
The obligations of Neurosmith and Small World to consummate the transactions
contemplated herein shall be subject to the fulfillment, at or prior to the
Closing of all of the conditions set forth below in this ARTICLE VII.
7.1 No Action or Proceeding. No action, suit, or proceeding shall have been
instituted or threatened before any court or governmental body seeking to
challenge or restrain the transactions contemplated herein which presents a
substantial risk that such transactions will be restrained or that either party
hereto may suffer material damages or other relief as a result of consummating
such transactions.
7.2 Governmental and Other Approvals. Any and all permits and approvals from any
Authority required for the lawful consummation of the transaction contemplated
herein shall have been obtained.
7.3 Tinkers & Chance License Agreement; Release. Small World shall have entered
into a license agreement with T&C in form and substance reasonably acceptable to
Small World and Neurosmith (solely as to the T&C Release) pursuant to which T&C
will grant a non-exclusive worldwide license under those patent and patent
applications owned by T&C relating to the Products. T&C will have executed and
delivered the T&C Release.
ARTICLE VIII
CONDITIONS PRECEDENT TO THE OBLIGATION
OF SMALL WORLD TO CLOSE
The obligation of Small World to consummate the transactions contemplated herein
shall be subject to the fulfillment, at or before the Closing Date, of all of
the conditions set forth below in this ARTICLE VIII.
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8.1 Representations and Warranties. The representations and warranties of
Neurosmith contained in this Agreement and in each other transaction document
shall have been true and correct when made and shall be true and correct in all
material respects on and as of the Closing Date with the same force and effect
as though made on and as of the Closing Date, other than such representations
and warranties as are made as of another specified date, which shall be true and
correct as of such date, and at the Closing, Neurosmith shall deliver to Small
World a certificate to such effect.
8.2 Performance of Covenants. Each obligation of Neurosmith to be performed by
it on or before the Closing Date pursuant to the terms of this Agreement and
each other transaction document shall have been duly performed on or before the
Closing Date, and at the Closing Neurosmith shall have delivered to Small World
a certificate to such effect.
8.3 Updated Schedules. Neurosmith shall have delivered to Small World an updated
Neurosmith's Disclosure Schedule reasonably acceptable to Small World and dated
no later than one business day prior to the Closing Date.
ARTICLE IX
CONDITIONS PRECEDENT TO THE OBLIGATION
OF NEUROSMITH TO CLOSE
The obligation of Neurosmith to consummate the transactions contemplated herein
shall be subject to the fulfillment, at or before the Closing Date, of all the
conditions set forth below in this ARTICLE IX.
9.1 Representations and Warranties. The representations and warranties of Small
World contained in this Agreement shall be true on and as of the Closing Date in
all material respects with the same force and effect as though made on and as of
the Closing Date, other than such representations and warranties as are made as
of another specified date, which shall be true and correct as of such date, and
at the Closing Small World shall have delivered to Neurosmith a certificate to
such effect.
9.2 Performance of Covenants. Each of the obligations of Small World to be
performed by it on or before the Closing Date pursuant to the terms of this
Agreement shall gave been duly performed on or before the Closing Date, and, at
the Closing, Small World shall have delivered to Neurosmith a certificate to
such effect.
ARTICLE X
INDEMNIFICATION
10.1 Indemnification by Neurosmith. Neurosmith shall, indemnify, defend and hold
harmless (i) Small World, (ii) each of Small World's Affiliates, assigns and
successors in interest, and (iii) each of their respective shareholders,
directors, officers, employees, agents, attorneys and representatives, from and
against any and all damages, awards, judgments, payments, diminutions in value
and other losses (including, without limitation, legal fees and expenses)
however suffered or characterized, which may be incurred or suffered by any such
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party and which may arise out of or result from (i) any breach of any
representation, warranty, covenant or agreement of Neurosmith contained in this
Agreement; (ii) litigation, arbitration, governmental investigation, suit,
action or other proceedings related to the Purchased Assets of Neurosmith
arising from any occurrence prior to the Effective Time; (iii) any tax
obligation of Neurosmith relating to any period prior to the Effective Time;
(iv) any debt, liability or obligation of Neurosmith direct or indirect, fixed,
contingent or otherwise, now or as of the Effective Time known or unknown, and
whether or not then due or payable, which exists at or as of the Effective Time
or which arises after the Effective Time but which is based upon or arises from
any act, omission, transaction, circumstance, sale of goods or services, state
of facts or other condition which occurred or existed at or before the Effective
Time; and (v) any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs and expenses (including, without limitation, legal
fees and expenses) incurred in enforcing this indemnity.
10.2 Indemnification by Small World. Small World shall, indemnify, defend and
hold harmless (i) Neurosmith (ii) each of Neurosmith's Affiliates, assigns and
successors in interest, and (iii) each of their respective shareholders,
members, directors, officers, employees, agents, attorneys and representatives,
from and against any and all damages, awards, judgments, payments, diminutions
in value and other losses (including, without limitation, legal fees and
expenses) however suffered or characterized, which may be incurred or suffered
by any such party and which may arise out of or result from (i) any breach of
any representation, warranty, covenant or agreement of Small World contained in
this Agreement; (ii) litigation, arbitration, governmental investigation, suit,
action or other proceedings related to the Purchased Assets arising from any
occurrence from and after the Effective Time (including any such matters raised
by T&C with arising from the Purchased Assets after the Effective Time); (iii)
any tax obligation of Small World relating to any period from and after the
Effective Time; (iv) any debt, liability or obligation of Small World, direct or
indirect, fixed, contingent or otherwise, known or unknown, and whether or not
then due or payable, which arises from and after the Effective Time; and (v) any
and all actions, suits, proceedings, claims, demands, assessments, judgments,
costs and expenses (including, without limitation, legal fees and expenses)
incurred in enforcing this indemnity.
ARTICLE XI
TERMINATION; REMEDIES
11.1 Termination Without Default. Anything herein to the contrary
notwithstanding, this Agreement may otherwise be terminated before the Closing
only as follows (and in no other manner):
11.1.1 Mutual Consent. By the mutual consent in writing of the parties.
11.1.2 Conditions to Small World's Performance Impossible. By Small World
upon written notice to Neurosmith if any event occurs which would render
impossible the satisfaction of one or more conditions to the obligations of
Small World set forth in ARTICLE VII and ARTICLE VIII.
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11.1.3 Conditions to Neurosmith's Performance Impossible. By Neurosmith
upon written notice to Small World if any event occurs which would render
impossible the satisfaction of one or more conditions to the obligations of
Neurosmith set forth in ARTICLE VII and ARTICLE IX.
11.2 Termination Upon Default. Either party may terminate this Agreement by
giving notice to the other on or prior to the Closing Date, without prejudice to
any rights or obligations it may have, if (i) after written notice of the
default and the passage of thirty (30) Business Days, or such shorter period as
may end upon the scheduled Closing Date, in the case of a default which by its
nature is capable of being cured and is not cured by the end of such period, the
other party has failed in the due and timely performance of any of its covenants
or agreements herein contained or there shall have been a breach of the other's
warranties or representations herein contained, and (ii) such failure or breach
could reasonably be expected to give the non-defaulting party grounds not to
close pursuant to ARTICLES VII, VIII, and IX, as the case may be. In any such
event the party who is not guilty of the breach may, in addition to all of its
other rights and remedies, recover all Losses incurred by it from the party
responsible for the breach.
11.3 Specific Performance. The parties acknowledge that the Purchased Assets are
unique and cannot be obtained by Small World except from Neurosmith and for that
reason, among others, Small World will be irreparably damaged in the absence of
the consummation of this Agreement. Therefore, in the event of any breach by
Neurosmith of this Agreement, Small World shall have the right, at its election,
to obtain an order for specific performance of this Agreement, without the need
to post a bond or other security, to prove any actual damage or to prove that
money damages would not provide an adequate remedy.
11.4 Attorneys' Fees. If Neurosmith or Small World shall bring an action against
the other by reason of any alleged breach of any covenant, provision or
condition hereof, or otherwise arising out of this Agreement, the unsuccessful
party shall pay to the prevailing party all attorneys' fees and costs actually
incurred by the prevailing party, in addition to any other relief to which it
may be entitled. As used in this Section 11.4 and elsewhere in this Agreement,
"actual attorneys' fees" or "attorneys' fees actually incurred" means the full
and actual cost of any legal services actually performed in connection with the
matter for which such fees are sought calculated on the basis of the usual fees
charged by the attorneys performing such services, and shall not be limited to
"reasonable attorneys' fees" as that term may be defined in statutory or
decisional authority.
ARTICLE XII
DEFINITIONS
12.1 Definitions. When used in this Agreement, the following terms shall have
the respective meanings set forth below:
"Affiliate" shall mean with respect to any Person (i) a Person directly or
indirectly controlling, controlled by or under common control with such Person;
(ii) a Person owning or controlling 10% or more of the outstanding voting
securities of such Person; or (iii) an officer, director, member or partner of
such Person. When the Affiliate is an officer, director, member or partner of
such Person, any other Person for which the Affiliate acts in that capacity
shall also be considered an Affiliate. For these purposes, control means the
possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of a Person, whether its the ownership of voting
securities, by contract or otherwise.
11
"Agreement" shall mean this Asset Purchase Agreement, including all
exhibits and schedules thereto, as the same may hereafter be amended, modified
or supplemented from time to time in accordance with the provisions of Section
13.6.
"Applicable Law" shall mean, with respect to any Person, any domestic
or foreign, federal, state or local statute, law, ordinance, rule,
administrative interpretation, regulation, Order, writ, injunction, directive,
judgment, decree or other requirement of any Authority applicable to such Person
or any of its Affiliates or any of their respective properties, assets,
officers, directors, general partners, managers, employees, consultants or
agents (in connection with such officer's, director's, general partner's,
manager's, employee's, consultant's or agent's activities on behalf of such
Person or any of its Affiliates).
"Authority" shall mean any governmental, regulatory or administrative
body, agency or authority, any court of judicial authority, any arbitrator or
any public, private or industry regulatory authority, whether Federal, state,
local or foreign.
"Books and Records" of a Person shall mean all books and records,
ledgers, employee records, customer lists, files, correspondence, computer data
bases, accounting information and other records of every kind, whether written,
computerized or maintained in any other medium, which are owned by that Person
or in which that Person has any interest.
"Chips" shall mean those computer chips and other parts listed on
Exhibit "B".
"Closing Date" shall mean the date upon which the Closing occurs.
"Contracts" of a Person shall mean all contracts, agreements,
warranties, guaranties, indentures, bonds, options, leases, subleases,
easements, mortgages, plans, collective bargaining agreements, licenses,
commitments or binding arrangements of any nature whatsoever, express or
implied, written or unwritten, and all amendments thereto, entered into or
binding upon that Person or to which any property of that Person may be subject.
"Intellectual Assets" shall mean all Intellectual Property Rights in
the Products and in the Miscellaneous Rights.
12
"Intellectual Property Rights" shall mean: (i) all registered and
unregistered trademarks, service marks, trade names (including product names),
trade dress, logos, corporate names, tag lines, slogans and commercial symbols
associated with such asset, including all applications therefore, and all
associated goodwill; (ii) all statutory, common law and registered copyrights,
all applications therefore and all associated goodwill required for the
manufacture and exploitation of such asset; (iii) all patents and patent
applications, all associated technical information, shop rights, know-how, trade
secrets, processes, operating, maintenance and other manuals, drawings and
specifications, process flow diagrams and related data, and all associated
goodwill required for the manufacture and exploitation of such asset; (iv) all
software (source and object code) required for the manufacture and exploitation
of such asset and all documentation thereof (including all electronic data
processing systems and program specifications, functional specifications, source
and object codes, algorithms, architecture, input data, report layouts and
format, record file layouts, diagrams, narrative descriptions and flow charts)
other than "off the shelf" software purchased in retail transactions; (v) all
other mask works, moral rights, inventions, discoveries, conceptions,
improvements, reductions to practice, plans (including advertising materials),
processes, formulae (secret or otherwise), data, drawings, specifications, trade
secrets, confidential information, financial, pricing and cost models and
information, operating procedures, supplier lists required for the manufacture
and exploitation of such asset; (vii) all drawings, copy, art (including
packaging artwork), Product content (including any rights to music and any
licenses for such music, to the extent transferable), records, books or other
tangible media embodying the foregoing; (viii) all rights to obtain and rights
to register patents, trademarks and copyrights; (ix) all rights, if any in the
URL "Xxxxxxxxxx.xxx" and the "content" for such URL. For purposes of this
Agreement, Intellectual Property Rights does not include any rights to xxx or
recover and retain damages and costs and attorneys fees for infringement of any
of the foregoing arising prior to the Effective Time.
"Knowledge" shall mean, with respect to Neurosmith, the actual
knowledge of each Barre Rorabaugh, Xxxx Xxxxxx and Xxxxxx Xxxxxxxxxxx.
"Licenses and Permits" of a Person shall mean all licenses and permits
issued to that Person or in which that Person has any interest (including the
right to use).
"Lien" shall mean any lien, pledge, mortgage, security interest, lease,
charge, conditional sales contract, option, restriction, reversionary interest,
right of first refusal, voting trust arrangement, preemptive right, claim under
bailment or storage contract, easement or any other adverse claim or right
whatsoever.
"Miscellaneous Assets" shall mean those items of Intellectual Property
Rights listed on Exhibit "B".
"Models" shall mean models of Products that were in development for
2004; models are non-working mock-ups of Products in various stages.
"Order" shall mean any decree, order, judgment, writ, award,
injunction, rule or consent of or by an Authority.
"Permitted Liens" shall mean Liens set forth on Section 4.4 of
Neurosmith's Disclosure Schedule.
"Person" shall mean any entity, corporation, company, association,
joint venture, joint stock company, partnership, trust, organization, individual
(including personal representatives, executors and heirs of a deceased
individual), nation, state, government (including agencies, departments,
bureaus, boards, divisions and instrumentalities thereof), trustee, receiver or
liquidator, as well as any syndicate or group that would be deemed to be a
Person under Section 13(d)(3) of the Securities Exchange Act of 1934.
13
"Prepaid Items" of a Person shall mean all prepaid items (such as
insurance deposits, municipal or local tax payments or deposits, utility
deposits and the like), deferred charges, reserve accounts and other security
and similar deposits owned by that Person or in which that Person has any
interest.
"Products" shall mean those toys and related items described as
products on Exhibit "A".
"Purchased Intellectual Property" shall mean all intangible rights in
the Products and all Intellectual Property Rights associated with such toys and
related products, together with all rights in the name "Neurosmith".
"Prototypes" shall mean those prototypes of Products that were under
development for 2004; a prototype is a model of a product with some working
features, although there is no representation as to completeness of the
Prototype.
"Purchased Assets" shall mean solely the Purchased Intellectual
Property, the Prototypes, the Models, the Chips and the Miscellaneous Assets.
"Neurosmith's Disclosure Schedule" shall mean the schedule entitled
"Neurosmith's Disclosure Schedule", dated of even date herewith, delivered to
Small World and executed by Neurosmith. Neurosmith's Disclosure Schedule shall
be considered a part of this Agreement.
"Tangible Assets" means the Tooling, Chips, Models and Prototypes.
"Tangible Personal Property" of a Person shall mean all tooling, chips,
equipment, furniture, trade fixtures, computers, supplies, spare parts, tools,
inventories, stores, Books and Records and other tangible personal property
owned by that Person, leased by that Person or in which that Person has any
other interest (including the right to use).
"Tax" shall mean any federal, state, local or foreign tax, charge, fee,
levy, deficiency or other assessment of whatever kind or nature (including
without limitation, any net income, gross income, gross receipts, sales, use,
value added, ad valorem, transfer, franchise, profits, license, withholding,
payroll, employment, unemployment, excise, estimated, severance, stamp,
occupation, real property, personal property, intangible property, occupancy,
recording, minimum, environmental and windfall profits tax, including any
liability therefore as a transferee (including without limitation under Section
6901 of the Code or any similar provision of Applicable Law), as a result of
Treasury Regulation Section 1.1502-6 or any similar provision of Applicable Law,
or as a result of any tax sharing or similar agreement, together with any
interest, penalty, addition to tax or additional amount imposed by any Tax
Authority. "Taxing" and Taxable" shall have the correlative meanings.
"T&C Claims" shall mean any and all claims, demands, cause of actions
and similar rights that T&C may at any time assert against the Purchased Assets
or Neurosmith including any claims that any of the Purchased Assets or the
Intellectual Property Rights therein violate or infringe upon in any manner any
of the T&C Rights.
14
"T&C Rights" shall mean any Intellectual Property Rights claimed by
T&C, including rights in patents and patent applications and the subject
inventions, as well as all other Intellectual Property Rights in such
inventions.
12.2 Other Defined Terms. In addition to those terms defined above, the
following terms shall have the respective meanings given to them in the Sections
indicated below:
Term Section
Effective Time Section 4.1
Purchase Price Section 2.1
Small World Preamble
Neurosmith Preamble
T&C Section 2.1
T&C Payment Section 2.2
Neurosmith Parties Section 2.2
Neurosmith Release Section 2.2
12.3 Other Interpretive Provisions. References in this Agreement to "Articles,"
"Sections," "Exhibits" and "Schedules," shall be to the Articles, Sections,
Exhibits and Schedules of this Agreement, unless otherwise specifically
provided; where the context or construction requires, all words applied in the
plural shall be deemed to have been used in the singular, and vice versa; the
masculine shall include the feminine and neuter, and vice versa; and the present
tense shall include the past and future tense, and vice versa; the words
"herein", "hereof" and "hereunder" and words of similar import, when used in
this Agreement, shall refer to this Agreement as a whole and not to any
particular provision of this Agreement; and except as otherwise specified in
this Agreement, all references in this Agreement (a) to any Person shall be
deemed to include such Person's permitted heirs, personal representatives,
successors and assigns, (b) to any agreement, any document or any other written
instrument shall be a reference to such agreement, document or instrument
together with all exhibits, schedules, attachments and appendices thereto, and
in each case as amended, restated, supplemented or otherwise modified from time
to time in accordance with the terms thereof prior to the Effective Time and (c)
to any law, statute or regulation shall be deemed references to such law,
statute or regulation as the same may be supplemented, amended, consolidated,
superseded or modified from time to time prior to the Effective Time. All
accounting terms used herein have the meanings ascribed to them under GAAP.
ARTICLE XIII
MISCELLANEOUS
13.1 Expenses of Sale. Each Party shall bear its own direct and indirect
expenses incurred in connection with the negotiation and preparation of this
Agreement and the other transaction documents and the consummation and
performance of the transactions contemplated herein and therein.
15
13.2 Publicity. No publicity release or announcement concerning this Agreement
or the transactions contemplated herein shall be issued without advance written
approval of both parties, except as may be required by applicable securities
laws in which case the parties shall consult with each other with respect to
text and means of communication of any such release or announcement.
13.3 Notices. All notices, requests and other communications hereunder shall be
in writing and shall be delivered by courier or other means of personal service
(including by means of a nationally recognized courier service or a professional
messenger service), or sent by telex or telecopy or mailed first class, postage
prepaid, by certified mail, return receipt requested, in all cases, addressed to
the other party at its last known address.
13.4 Survival of Representations and Warranties; No Other Representations. The
representations, warranties, covenants and agreements made by the parties hereto
in the Agreement, and any schedule or document delivered pursuant to the
Agreement, shall survive the Closing for a period of two (2) years. Neither
party is making any representation or warranty not expressly set forth herein
and all other representations and warranties, including those of
merchantability, fitness for a particular purpose and infringement, are hereby
disclaimed.
13.5 Further Assurances. Each of the parties shall use its reasonable and
diligent best efforts to proceed promptly with the transactions contemplated
herein, to fulfill the conditions precedent for such party's benefit or to cause
the same to be fulfilled and to execute such further documents and other papers
and perform such further acts as may be reasonably required or desirable to
carry out the provisions hereof and the transactions contemplated herein.
Without limiting the foregoing, Neurosmith shall take such further actions, as
Small World may reasonably deem necessary or desirable in order to transfer,
convey and assign to Small World, and to confirm Small World's title to, all of
the Purchased Assets to assist Small World in exercising all rights with respect
thereto (provided that any material cost of such assistance shall be borne by
Small World.)
13.6 Amendments. This Agreement may be modified or amended only by a written
instrument signed by the party sought to be bound.
13.7 Entire Agreement. This Agreement, and any documents attached hereto or
incorporated herein by reference, constitutes the entire agreement between the
parties with respect to the subject matter hereof.
13.8 Governing Law and Venue. This Agreement is to be governed by and construed
in accordance with the laws of the State of California without regard to the
conflicts of laws principles thereof. Any suit brought hereon, whether in
contract, tort, equity or otherwise, shall be brought in the state or federal
courts sitting in Los Angeles, California, the parties hereto hereby waiving any
claim or defense that such forum is not convenient or proper.
13.9 Arbitration. Except as otherwise provided in this Section 14.9, the
exclusive method for resolving any disputes, controversies or claims of any
nature, including those arising out of or relating to this Agreement, or the
making, validity, interpretation, performance or breach of this Agreement, shall
be arbitration in Los Angeles, California, U.S.A. before a single arbitrator
under the auspices of, and in accordance with the commercial arbitration rules
of, the American Arbitration Association. The single arbitrator shall have the
power to award any and all remedies and relief whatsoever that is deemed
appropriate under the circumstances, including, without limitation, money
damages and equitable relief. The award shall be final, binding and enforceable,
and may be enforced by any court of competent jurisdiction. The procedure
whereby the evidence (oral and/or written) relating to the matter is presented
in the arbitration shall be as agreed to by the parties hereto, and in the
absence of such agreement, shall be as determined by the arbitrator; provided,
that each party hereto shall have the right to discovery, to call witnesses and
to cross-examine (either through legal counsel, expert witnesses or both). The
decision of the arbitrator shall be rendered within thirty (30) days following
the conclusion of the arbitration proceeding, but in the event that the
arbitrator does not render an award within such period the arbitrator shall
nonetheless retain jurisdiction of the matter for the purpose of making an award
as soon as reasonably possible. Such arbitration proceedings shall be the
exclusive means to resolve any disputes, controversies or claims between the
parties hereto; provided, however, that either party hereto shall have the right
to seek temporary and/or preliminary injunctive relief in any court of competent
jurisdiction to enjoin violations of this Agreement pending final resolution of
the controversy in arbitration.
16
13.10 Attorneys' Fees. If either party shall bring an action against the other
arising out of or related to this Agreement, the unsuccessful party shall pay to
the prevailing party all attorneys' fees and costs actually incurred by the
prevailing party, in addition to any other relief to which it may be entitled.
13.11 Binding Effect. This Agreement and the rights, covenants, conditions and
obligations of the respective parties hereto and any instrument or agreement
executed pursuant hereto shall be binding upon the parties and their respective
successors, assigns and legal representatives.
13.12 Assignment. Neurosmith may not assign or transfer any of its rights or
obligations under this Agreement. Small World may assign its rights and
obligations to any of its affiliates or subsidiaries without Neurosmith's
consent.
13.13 Counterparts. This Agreement may be executed simultaneously in any number
of counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
13.14 Severability. In the event that any provision or any part of any provision
of this Agreement shall be void or unenforceable for any reason whatsoever, then
such provision shall be stricken and of no force and effect. However, unless
such stricken provision goes to the essence of the consideration bargained for
by a party, the remaining provisions of this Agreement shall continue in full
force and effect, and to the extent required, shall be modified to preserve
their validity.
13.15 No Third Party Rights. This Agreement is not made for the benefit of any
third party except for Small World's successors and assign.
17
13.16 Construction. The language in all parts of this Agreement shall in all
cases be construed simply, according to its fair meaning, and not strictly for
or against any of the parties hereto. Without limitation, there shall be no
presumption against any party on the ground that such party was responsible for
drafting this Agreement or any part thereof.
13.17 Limitation on Liability and Damages. In no event shall either party be
liable or responsible for any type of damages other than actual, direct damages.
Without limiting the foregoing, neither party shall be liable for any
consequential, special, indirect, punitive or other type of damage, whether or
not such party has knowledge of any such other damages or facts that would
result in such damage. In addition, in no event shall either party have any
liability for any amounts which in the aggregate exceed the Purchase Price
(including the T&C Payment), provided that the foregoing shall not limit
indemnification claims under Article 10 with respect to liabilities or claims of
third parties.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the day and year first above written.
SMALL WORLD TOYS NEUROSMITH, LLC
A California corporation A California limited liability company
By: By:
---------------------------------------- -------------------------------------------------
Xxxxx Xxxx, Chief Executive Officer Xxxx X. Xxxxxx, Chief Executive Officer
18
ASSET PURCHASE AGREEMENT
Between
SMALL WORLD KIDS, INC.
as purchaser
and
NEUROSMITH, LLC
as seller
Dated:
September 16, 2004
TABLE OF CONTENTS
Page
ARTICLE I SALE AND PURCHASE OF ASSETS...................................................................1
1.1 Assets to be Transferred......................................................................1
1.2 No Other Assets...............................................................................1
1.3 Title to Purchased Assets.....................................................................1
1.4 No Assumption of Liabilities..................................................................1
ARTICLE II PURCHASE PRICE, PAYMENT AND RELATED MATTERS...................................................2
2.1 Purchase Price; Payment of the Purchase Price.................................................2
2.2 Tinkers &Chance...............................................................................2
2.3 Taxes.........................................................................................2
ARTICLE III CLOSING.......................................................................................3
3.1 Time and Place................................................................................3
3.2 Transactions at the Closing...................................................................3
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF NEUROSMITH..................................................4
4.1 Organization; Authority; Due Authorization....................................................4
4.2 No Violation..................................................................................4
4.3 Regulatory Approvals and Other Consents.......................................................4
4.4 Title to Tangible Assets......................................................................4
4.5 Intellectual Assets...........................................................................5
4.6 Contracts.....................................................................................5
4.7 Litigation....................................................................................5
4.8 Applicable Law................................................................................6
4.9 Representations and Warranties on Closing ....................................................6
ARTICLE V REPRESENTATIONS AND WARRANTIES OF SMALL WORLD.................................................6
5.1 Due Incorporation.............................................................................6
5.2 Authority to Execute and Perform Agreements...................................................6
5.3 Due Authorization; Enforceability.............................................................6
5.4 No Violation..................................................................................6
5.5 Regulatory Approvals..........................................................................7
5.6 Representations and Warranties on Closing.....................................................7
ARTICLE VI COVENANTS AND AGREEMENTS OF THE PARTIES EFFECTIVE PRIOR TO CLOSING............................7
6.1 Business Examinations and Physical Investigations of Assets...................................7
6.2 Conduct of Business...........................................................................7
6.3 Arrangements with Employees...................................................................7
6.4 No Solicitation or Negotiation................................................................7
6.5 Risk of Loss..................................................................................7
6.6 Title to Chips and Tooling....................................................................8
i
ARTICLE VII CONDITIONS PRECEDENT TO THE OBLIGATION OF EACH PARTY TO CLOSE.................................8
7.1 No Action or Proceeding.......................................................................8
7.2 Governmental and Other Approvals..............................................................8
7.3 Tinkers & Chance License Agreement............................................................8
ARTICLE VIII CONDITIONS PRECEDENT TO THE OBLIGATION OF SMALL WORLD TO CLOSE................................8
8.1 Representations and Warranties................................................................9
8.2 Performance of Covenants......................................................................9
8.3 Updated Schedules.............................................................................9
ARTICLE IX CONDITIONS PRECEDENT TO THE OBLIGATION OF NEUROSMITH TO CLOSE.................................9
9.1 Representations and Warranties................................................................9
9.2 Performance of Covenants......................................................................9
ARTICLE X INDEMNIFICATION...............................................................................9
10.1 Indemnification by Neurosmith.................................................................9
10.2 Indemnification by Neurosmith.................................................................9
ARTICLE XI TERMINATION; REMEDIES........................................................................10
11.1 Termination Without Default..................................................................10
11.2 Termination Upon Default.....................................................................11
11.3 Specific Performance.........................................................................11
11.4 Attorneys' Fees..............................................................................11
ARTICLE XII DEFINITIONS..................................................................................11
12.1 Definitions..................................................................................11
12.2 Other Defined Terms..........................................................................15
12.3 Other Interpretive Provisions................................................................15
ARTICLE XIII MISCELLANEOUS................................................................................15
13.1 Expenses of Sale.............................................................................15
13.2 Publicity....................................................................................16
13.3 Notices......................................................................................16
13.4 Survival of Representations and Warranties; No Other.........................................16
13.5 Further Assurances...........................................................................16
13.6 Amendments...................................................................................16
13.7 Entire Agreement.............................................................................16
13.8 Governing Law and Venue......................................................................16
13.9 Arbitration..................................................................................16
13.10 Attorneys' Fees..............................................................................17
ii
13.11 Binding Effect...............................................................................17
13.12 Assignment...................................................................................17
13.13 Counterparts.................................................................................17
13.14 Severability.................................................................................17
13.15 No Third Party Rights........................................................................17
13.16 Construction.................................................................................18
13.17 Limitations on Liabilities and Damages.......................................................18
iii
Exhibit A
Purchased Assets
Products
1. Proposed 2004 Products.
The following Products were proposed to be manufactured and produced by
Neurosmith as its 2004 new Products. These toys were never reduced to production
and exist only in various stages of development. There is no tooling for these
Products. The Intellectual Property Rights in these products are provided only
in the actual stage of development and not as completed Products: (1) Mozart's
Rolling Orchestra; (2) Touch `N Sing Animal Block (3 sets); (3) Pinball Math;
(4) Lingo the Learning Bird; (5) Pet Me Platypus (revised); (6) Together Tunes
Sing-Along Book; (7) Xxxxx (the Elephant); (8) Abigail (the Alligator") and (7)
a special private version of Sunshine Symphony.
Prior to the Closing, Neurosmith will provide to Small World all design
documentation, marketing data, electronic engineering documents (including
schematics) and manufacturing data, to the extent those items exist. The design
documents include industrial design, fabric design, decoration design and
packaging design. Industrial design documents may include 2-D and 3-D drawings
to assist in creating tools for injection molding. Marketing data may include
competitive marketing analysis, focus group test reports, play group test
results, budget analysis and detailed schedules. Manufacturing data includes
quotes from manufacturing vendors, cost of goods results, vendor correspondence
and financial analysis. Neurosmith will also deliver preliminary programming
code and original and code level audio recordings to the extent these exist.
(The foregoing deliveries are referred to herein as the "Proprietary Data".)
Prior to the Closing, Neurosmith will provide Small World with all
existing Prototypes and Models for the above-Products. By Closing, Small World
will be acknowledging that it has received all Prototypes and Models to be
provided by Neurosmith pursuant to this Agreement.
Except as expressly set forth in Article IV of the Agreement and
subject to the disclaimers in the Schedules hereto, Neurosmith makes no
representations or warranties regarding the foregoing and, without limiting the
foregoing, makes no representation as to the completeness of the Proprietary
Data, the accuracy thereof or whether the programming has any errors. By
effectuating the Closing, Small World will be acknowledging that it is satisfied
that it has done its own review of the Proprietary Data provided and that such
Proprietary Data is sufficient for its purposes and therefore that the
Proprietary Data constitutes full and complete delivery by Neurosmith of
everything regarding the Products that Neurosmith is obligated to provide.
Notwithstanding the foregoing, if Neurosmith later learns of additional
information or data that has not been provided to Small World, Neurosmith will
promptly deliver such additional data and/or information to Small World.
2. 2003 and Before and Cartridges
a. 2003 Products. The following Products were manufactured and
produced by Neurosmith as its 2003 new Products: (1) Music Blocks Composer; (2)
Music Block Creativity Cartridge; (3) Pet Me Platypus; (4) Grow & Discover
Block; (5) Alphabet Ball; (6) Together Tunes; (7) Musini Preschool; (8)
Magnaphonics; (9) Musini Preschool Quintet Cartridge; and (10) Musini Magic Wand
Set.
b. Pre-2003 Products. The following Products were manufactured
and produced by Neurosmith prior to 2003. Those Products that were discontinued
by 2004 are noted: (1) Music Blocks; (2) Jumbo Music Blocks (Discontinued);
Sunshine Symphony; (4) Little Linguist (Discontinued); and (5) Phonics Tiles
(Discontinued). (6); (6) Babbler; (7) Little Linguist; (8) Magic Sensor (i.e.,
Musini Wand) (Discontinued); (9) Rhythm Roller (Discontinued); and (10) Phonics
Blocks (Discontinued).
c. Cartridges. All "Cartridges" for any of the other Products,
such as for Music Blocks, Jumbo Music Blocks, Music Blocks Composer, Phonics
Tiles, Together Tunes, including the following: Rhythms (Target), Orchestra,
Jazz (Target), Opera, Bach, Nutcracker, Rock (Target), Cinderella, Pooh,
Poppins, World, Kids Classics, Classical.
d. Products. Wild Instruments - This line of toys was never
developed past the model stage.
At or before the Closing, Neurosmith will provide to Small World all
Proprietary Data regarding all of the foregoing Products in a., b. and c. above
(the "Old Products"), to the extent such data exists. It is understood that,
because the Old Products have already been manufactured, some of the Proprietary
Data for the Old Products may no longer remain in Neurosmith's possession (but
may be in the hands of the companies that manufactured such items). On the other
hand, the Proprietary Data for the Old Products may contain additional types of
data, such as purchasing information and sales reports.
Except as expressly set forth in Article IV of the Agreement and subject
to the disclaimers in the Schedules hereto, Neurosmith makes no representations
or warranties regarding the foregoing and, without limiting the foregoing, makes
no representation as to the completeness of the Proprietary Data, the accuracy
thereof or whether the programming has any errors. By effectuating the Closing,
Small World will be acknowledging that it is satisfied that it has done its own
review of the Proprietary Data provided and that such Proprietary Data is
sufficient for its purposes and therefore that the Proprietary Data constitutes
full and complete delivery by Neurosmith of everything regarding the Products
that Neurosmith is obligated to provide. Notwithstanding the foregoing, if
Neurosmith later learns of additional information or data that has not been
provided to Small World, Neurosmith will promptly deliver such additional data
and/or information to Small World.
Chips and Other Parts
Neurosmith will deliver all of the following chips and other items. Except as
set forth in Article IV of the Agreement and subject to the disclosures in the
schedule hereto, Neurosmith makes no representation as to items to be provided,
including as to their condition or the exact quantity.
1. Items believed to be in the possession of Verifan, Ltd.
a. Roms for Music Block Cartridges, for Mozart, Rhythms, Orchestra,
Bach, Jazz, Nutcracker, Opera, Cinderella, Pooh, Poppins, Rock, Mozart v.2.0;
OSC for Mozart v.2.0, Controller 3-1 Cart.
b. Neurosmith has provided Small World with a "Physical Inventory"
dated April 1, 2004 from Verifan and an Inventory Analysis of Neurosmith dated
as of November 30, 2003. Neurosmith makes no representation as to the correct
amount of such items (i.e., how many are part of the Purchased Assets), their
condition or any claims or Liens that Verifan may assert.
2. Items believed to be in the possession of Jetta
a. Roms for Maestro Edition, World Music, Classical Collection,
Phonics Tiles, Rock Around the Block, Maestro (Ed Bulk Pack), SC615 (Challenge
Cart), Magnaphonics; Together Tunes; I/C for Phonics Tiles (SC614).
b. Neurosmith has provided Small World with an Inventory Analysis of
Neurosmith dated as of November 30, 2003. Neurosmith makes no representation as
to the correct amount of such items (i.e., how many are part of the Purchased
Assets), their condition or any claims or Liens that Jetta may assert.
3. Items believed to be in the possession of Wynnewood
a. Roms for Quintet, Preschool Favorites, Musini Preschool.
b. Neurosmith has provided Small World with an Inventory Analysis of
Neurosmith dated as of November 30, 2003. Neurosmith makes no representation as
to the correct amount of such items (i.e., how many are part of the Purchased
Assets), their condition or any claims or Liens that Wynnewood may assert.
c. The Inventory Analysis shows inventory for Roms for Sequence
Cartridge. Neurosmith does not know the present location, if any, of such Roms,
although Wynnewood was the manufacturer of that cartridge. All rights to such
Roms are part of the Purchased Assets, but Neurosmith makes no representation as
to the correct amount of such items (i.e., how many are part of the Purchased
Assets), their condition or any claims or Liens that Wynnewood may assert.
Miscellaneous Assets
The URL: "Xxxxxxxxxx.xxx" and any of the trade or service marks listed on
Exhibit "C" that do not relate to Products that were actually produced or
marketed.
The list of Purchased Assets is intended to cover all Products in which
Neurosmith has any Intellectual Property Rights, including all discontinued
Products. In the event that it is later determined that there are any Products
not listed, such Products shall be transferred to Small World as Products under
this Agreement; however, Neurosmith makes no representation or warranty of any
nature whatsoever about any such Product or any Intellectual Property Rights
therein.
Exhibit "B"
Form of Releases
Exhibit "C"
Trademarks and Patents and Patent Applications
Trademarks
1. Music Blocks - U.S. Application 75459420. Reg. 2545293
(Supplemental) (No separate registration for Music Block Composer or
Music Block Creativity Cartridge.
2. Pet Me Platypus - U.S. Application 76497493
3. Grow & Discover Block - U.S. Application 76570542
4. Alphabet Ball - No application
5. Together Tunes - U.S. Application 76497490
6. Musini - U.S. Application 76381083 (No separate application for
Musini Preschool or Magic Wand or Preschool Quintet Cartridge)
7. Magnaphonics - U.S. Application 76497492
8. Phonics Tile - U.S. Application Abandoned (Product Discontinued)
9. Jumbo Music Block - U.S. Application 2641320 Reg. 2641320
(Supplemental)
10. Sunshine Symphony - U.S Application 78044454. Reg. 2807383
11. Little Linguist - U.S. Application 754588875. Reg. 2423716
12. Babbler - No application
13. Mozart's Rolling Orchestra - No Application and no trademark search
14. Touch `N Sing Animal Block (3 sets) - Registration Abandoned
15. Pinball Math - No Application and no search
16. Lingo the Learning Bird - U.S. Application 76570549
17. Together Tunes Sing-Along Book - No separate application from
Together Tunes
18. Xxxxx (the Elephant) - No U.S. Application and no search
19. Abigail (the Alligator - No U.S. Application and no search
20. Smart Toys for Developing Minds - (Tagline) No U.S. Application and
no search
21. Phonics Block - U.S. Application 75465684; Reg. 2485558
22. Magic Sensor - U.S. Application 76449802 - Abandoned
23. Touch `N Sing - U.S. Application 76566213
24. Rhythm Roller - U.S. Application 76570547
25. Cyber Cartridge - U.S Application 75709657; Reg 2621740
Patents and Patent Applications.
U.S. Patent 6,353,168 (March 5, 2000) - Educational Musical Instrument for
Children
U.S. Patent D410,972 (June 5, 1999) - Design for Music Blocks
U.S. Provisional Patent Application Entitled: Interactive Sound Generator
Application Serial No.: 60/355,776; Filing Date: February 9, 2002, as
superceded by U.S. Patent Application Entitled: Interactive Sound
Generator
Application Serial No.: 10/360,416; Filing Date: February 7, 2003
Disclosure Schedules
Schedule 4.4
All chips and tooling are in the possession of the manufacturers of the
applicable products, such as Wynnewood, Jetta and Qualiman. Although Neurosmith
and Small World have each contacted these manufacturers, it is not clear whether
these manufacturers are making any claims that they own or have a lien on such
chips and/or tooling, including as to whether they must be paid any amounts
before Neurosmith and/or any successor to Neurosmith, such as Small World may
have possession of or title thereto. Neurosmith is delivering to Small World
only such title in chips and tooling as Neurosmith may have, not including any
claims that such manufacturers may make and such claims are exceptions to
Neurosmith's representations hereunder, including those in Article IV. The
description of the chips and tooling and the exceptions to representations set
forth therein set forth in Exhibit "A" are incorporated herein.
Schedule 4.5
There are no known exceptions. However, Neurosmith did not undertake trademark
searches on most proposed names for its 2004 Products
Schedule 4.7
Pierre Belvedere, Inc. ("Belvedere"), a Canadian distribution company, has
filed suit in Canada claiming that Neurosmith wrongfully terminated Belvedere as
Neurosmith's Canadian distributor. Neurosmith is contesting this matter.
Belvedere has claimed damages of between $300,000 and $400,000 Canadian dollars.
This matter should not affect the Purchased Assets; Neurosmith shall indemnify
Small World with respect to this matter.
KB Toys of Massachusetts, Inc. ("KB"), a purchaser of Neurosmith Products,
notified Neurosmith in a letter dated August 26, 2004, that KB, which is in
Chapter 11 Bankruptcy proceedings in Delaware, is owed $125,224.71 as a
pre-petition claim. Neurosmith is investigating this matter, but its initial
review shows nothing to support this claim. In any event, the matter should not
affect the Purchased Assets and Neurosmith shall indemnify KP with respect to
such claim.
Schedule 4.8
The Musini Wand may not comply with all FCC requirements.
7The battery case for an earlier design of Sunshine Symphony was found to permit
the positive and negative contacts to touch in extreme circumstances, which
could lead to "warming". This defect was fixed. It is noted that this defect was
reported to the Consumer Protection Safety Commission which did not consider the
defect to be a safety hazard, because the warming was not enough to cause xxxxx
or start a fire. Any liability relating to the sale of the Sunshine Symphony
with the earlier design of the battery case remains Neurosmith's, subject to the
indemnification obligations hereunder.
Some Pet Me Platypus products were incorrectly manufactured by Qualiman and were
recalled. While Neurosmith retains any liability for any such products that were
sold by Neurosmith prior to the Effective Date, Small World shall have full
responsibility for products sold after the Effective Date.
