1
Exhibit 2.1
CONTRIBUTION AGREEMENT
by and among
KB ONLINE HOLDINGS, INC.,
XXXXXXXXX.XXX, INC.
and
XXXXX.XXX LLC
May 18, 1999
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TABLE OF CONTENTS
PAGE
ARTICLE 1 DEFINITIONS..................................................1
1.1 Definitions..................................................1
ARTICLE 2 CONTRIBUTIONS................................................5
2.1 Contributions by KB Online Holdings..........................5
2.2 Contributions by BrainPlay...................................5
2.3 Assumed Liabilities..........................................5
2.4 Amount and Form of Consideration.............................6
2.5 Closing......................................................6
2.6 Transactions at Closing......................................6
ARTICLE 3 REPRESENTATIONS OF KB ONLINE HOLDINGS...............................7
3.1 Corporation Existence and Power..............................7
3.2 Corporate Authorization and Execution........................8
3.3 Governmental Authorization...................................8
3.4 Non-Contravention............................................8
3.5 Litigation...................................................8
3.6 Assets.......................................................8
3.7 Brokers......................................................9
3.8 Material Adverse Effect......................................9
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BRAINPLAY..........................9
4.1 Corporate Existence and Power................................9
4.2 Corporate Authorization......................................9
4.3 Governmental Authorization...................................9
4.4 Non-Contravention...........................................10
4.5 Capitalization..............................................10
4.6 Financial Statements........................................10
4.7 Absence of Certain Changes..................................11
4.8 No Undisclosed Material Liabilities.........................12
4.9 Labor Matters...............................................12
4.10 Contracts...................................................13
4.11 Litigation..................................................14
4.12 Compliance With Laws and Court Orders.......................14
4.13 Properties..................................................15
4.14 ERISA Representations.......................................15
4.15 Intellectual Property.......................................15
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4.16 Insurance Coverage..........................................17
4.17 Taxes.......................................................17
4.18 Licenses and Permits........................................19
4.19 Brokers.....................................................19
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF TOYCO.............................19
5.1 Existence and Power.........................................19
5.2 Authorization...............................................19
5.3 Governmental Authorization..................................19
5.4 Non-Contravention...........................................20
5.5 Litigation..................................................20
5.6 Brokers.....................................................20
5.7 Liabilities.................................................20
5.8 Contracts...................................................20
ARTICLE 6 COVENANTS OF KB ONLINE HOLDINGS.....................................21
6.1 Confidentiality.............................................21
6.2 Access......................................................21
6.3 Notice of Certain Events....................................21
6.4 Use of XXXxxx.xxx Name......................................22
6.5 Merchandise Supply..........................................22
6.6 Intercompany Services.......................................22
6.7 Forbearance.................................................23
6.8 Srinivasan Employment Agreement.............................23
ARTICLE 7 COVENANTS OF BRAINPLAY.............................................23
7.1 Conduct of the Business.....................................23
7.2 Access......................................................24
7.3 Notice of Certain Events....................................24
7.4 Other Offers................................................24
7.5 Confidentiality.............................................25
7.6 Books and Records...........................................25
ARTICLE 8 COVENANTS OF ALL PARTIES...........................................25
8.1 Reasonable Best Efforts; Further Assurances.................25
8.2 Certain Filings.............................................25
8.3 Public Announcements........................................26
8.4 Capital Markets Transaction.................................26
8.5 Put Option..................................................27
8.6 Guaranty....................................................27
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ARTICLE 9 EMPLOYEES AND EMPLOYEE BENEFITS.....................................27
9.1 Employees...................................................27
9.2 Equity Program..............................................28
9.3 BrainPlay Administrative Costs..............................28
9.4 Third Party Beneficiaries...................................28
ARTICLE 10 CONDITIONS TO CLOSING..............................................28
10.1 Conditions to Obligations of All Parties....................28
10.2 Conditions to Obligation of KB Online Holdings and Toyco....29
10.3 Conditions to Obligations of BrainPlay......................30
ARTICLE 11 SURVIVAL; INDEMNIFICATION..........................................30
11.1 Survival....................................................30
11.2 Indemnification.............................................31
11.3 Procedures..................................................31
11.4 Threshold and Limitation on Indemnification.................32
11.5 Failure to Meet KB Funding Obligations......................32
11.6 Injunctive Relief...........................................32
11.7 Specific Performance........................................32
ARTICLE 12 TERMINATION........................................................32
12.1 Events of Termination.......................................32
12.2 Effect of Termination.......................................33
ARTICLE 13 MISCELLANEOUS......................................................34
13.1 Notices.....................................................34
13.2 Binding Effect; Assignment..................................35
13.3 Third Party Beneficiaries ..................................35
13.4 Headings....................................................35
13.5 Governing Law; Consent to Jurisdiction......................35
13.6 Waivers.....................................................35
13.7 Expenses....................................................36
13.8 Severability................................................36
13.9 Amendment...................................................36
13.10 Entire Agreement............................................36
13.11 Counterparts................................................37
CSC GUARANTY..................................................................38
MAC FRUGAL'S GUARANTY.........................................................41
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SCHEDULES
Schedule 2.1(a) KB Online Assets
Schedule 2.1(b) KB Online Contributions
Schedule 2.1(c) KB Intangibles
Schedule 2.2(a) BrainPlay Assets
Schedule 2.2(b) Excluded BrainPlay Assets
Schedule 2.3(a) Other Assumed Liabilities
Schedule 2.3(b) Excluded Liabilities
Schedule 3.6 KB Online Liens
Schedule 4.4 Required Consents
Schedule 4.5 Capitalization
Schedule 4.6 Financial Statements
Schedule 4.7 Certain Changes
Schedule 4.8 Certain Liabilities
Schedule 4.9 Labor Matters
Schedule 4.10 Contracts
Schedule 4.11 Litigation
Schedule 4.13 BrainPlay Liens
Schedule 4.14 Employee Plans and Benefit Arrangements
Schedule 4.15 Intellectual Property
Schedule 4.16 Insurance
Schedule 4.17 BrainPlay Tax Basis of Assets
Schedule 4.18 Licenses and Permits
Schedule 7.1 Conduct of the Business
Schedule 8.5 Selling Stockholders' Cash Contributions
EXHIBITS
Exhibit A Assumption Agreement
Exhibit B Operating Agreement
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CONTRIBUTION AGREEMENT
This CONTRIBUTION AGREEMENT, dated as of this 18th day of May, 1999
(this "Agreement"), is made by and among KB Online Holdings, Inc., an Ohio
corporation ("KB Online Holdings"), XxxxxXxxx.xxx, Inc., a Delaware corporation
("BrainPlay"), and Xxxxx.xxx LLC, an Ohio limited liability company ("Toyco").
RECITALS
A. BrainPlay currently markets and sells toys, children's video games,
children's software, children's books, children's music and children's sporting
goods (collectively, "Toy Products") using web-based, on-line or Internet
retailing distribution channels, including operation of its website (the
"Business").
X. Xxxxx was formed pursuant to Chapter 1705 of the Ohio Revised Code
to (i) acquire certain assets from KB Online Holdings and/or its Affiliates (as
defined herein) and from BrainPlay and (ii) assume certain liabilities of
BrainPlay.
C. KB Online Holdings (directly or through certain Affiliates (as
defined herein)) desires to contribute to Toyco, and Toyco desires to accept and
acquire from KB Online Holdings (directly or through certain Affiliates
thereof), (i) all of the right, title and interest of KB Online Holdings in the
KB Online Assets (as defined herein) and (ii) the KB Funding Obligations (as
defined herein) in exchange for an Interest in Toyco.
D. BrainPlay desires to contribute to Toyco, and Toyco desires to
accept and acquire from BrainPlay, all of the right, title and interest of
BrainPlay in the BrainPlay Assets (as defined herein), subject to the Assumed
Liabilities (as defined herein), in exchange for an Interest in Toyco.
NOW, THEREFORE, in consideration of the mutual promises and
representations, warranties, covenants and agreements hereinafter set forth and
other good and valuable consideration, KB Online Holdings, BrainPlay and Toyco
hereby agree as follows:
ARTICLE 1
DEFINITIONS
1.1 DEFINITIONS. (a) The following terms, as used herein, have the
following meanings:
"AFFILIATE" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by or under common control with
such Person.
"ASSUMPTION AGREEMENT" means that certain Assumption Agreement between
BrainPlay and Toyco, to be entered into on the Closing Date, substantially in
the form of Exhibit A attached hereto.
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"BALANCE SHEET" means the unaudited balance sheet of BrainPlay as of
March 31, 1999.
"BENEFIT ARRANGEMENT" means any employment, severance or similar
contract, arrangement or policy, or plan or arrangement (whether or not written)
providing for severance benefits, insurance coverage (including any self-insured
arrangements), workers' compensation, disability payments, supplemental
unemployment benefits, vacation benefits, retirement benefits, deferred
compensation, profit-sharing, bonuses, stock options, stock appreciation rights
or other forms of incentive compensation of post-retirement insurance,
compensation of benefits that (i) is not an Employee Plan, (ii) is entered into
or maintained, as the case may be, by BrainPlay or any of its ERISA Affiliates
and (iii) covers any employee or former employee of BrainPlay or any Leased
Employee.
"CHARTER" means, with respect to any juridical Person, the Certificate
or Articles of Incorporation, or other analogous organizational or constituent
documents of such Person (including, in the case of a limited liability company,
such company's limited liability company or operating agreement).
"CLOSING DATE" means the date of Closing.
"CODE" means the United States Internal Revenue Code of 1986, as
amended.
"EMPLOYEE PLAN" means any "employee benefit plan", as defined in
Section 3(3) of ERISA, that (i) is subject to any provision of ERISA, (ii) is
maintained, administered or contributed to by BrainPlay or any of its ERISA
Affiliates and (iii) covers any employee or former employee of BrainPlay or any
Leased Employee.
"ERISA" means the Employee Retirement Income Security Act of 1974, or
any successor statute, and the rules and regulations promulgated thereunder, and
in the case of any reference section of any such statute, rule or regulation,
any successor section thereto, in each case, as from time to time amended and
then in effect.
"ERISA Affiliate" means of any entity, any other entity which, together
with such entity, would be treated as a single employer under Section 414 of the
Code.
"H-S-R Act" means the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of
1976, as amended.
"INTELLECTUAL PROPERTY RIGHTS" means any trademark, service xxxx, trade
name, invention, patent, trade secret, copyright, know-how (including any
registrations or applications for registration of any of the foregoing), or any
other similar type of proprietary intellectual property right.
"INTEREST" means the entire ownership interest in Toyco represented by
one or more Units.
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"KNOWLEDGE," with respect to any party, means actual knowledge of such
party's officers, key employees and directors, together with matters which such
individuals should have known consistent with their position.
"LEASED EMPLOYEE" means each individual who is considered to be a
"leased employee" of BrainPlay within the meaning of Section 414(n) of the Code.
"LIENS" means, with respect to any property or asset, any mortgage,
lien, pledge, charge, security interest, encumbrance or other adverse claim of
any kind and in respect of such property or asset. For the purposes of this
Agreement, a person shall be deemed to own, subject to a lien, any property or
asset which it has acquired or holds subject to the interest of a vendor or
lessor under any conditional sales agreement, capital lease or other title
retention agreement relating to such property or asset.
"MATERIAL ADVERSE EFFECT" means any change, event or effect that is or
is reasonably likely to be materially adverse to the business, financial
condition or results of operations of a party taken as a whole or to the
transactions contemplated by this Agreement; provided, however, that a Material
Adverse Effect shall not include any adverse effect following the date of this
Agreement that is attributable to the announcement of the transactions
contemplated hereby or to general market conditions.
"OPERATING AGREEMENT" means that certain Operating Agreement for Toyco
between KB Online Holdings and BrainPlay, to be entered into as of the Closing
Date, substantially in the form of Exhibit B attached hereto.
"PERCENTAGE INTEREST" means the amount, expressed as a percentage, that
the number of Units owned by a Person at any given time bears to the total
number of Units owned by all Persons as of such date.
"PERSON" means an individual, corporation, limited liability company,
partnership, association, trust or other entity or organization, including a
government or political subdivision or an agency or instrumentality thereof.
"SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"SRINIVASAN EMPLOYMENT AGREEMENT" means that certain Employment
Agreement between Toyco and Xxxxxxx Xxxxxxxxxx, to be entered into as of the
date of this Agreement, and effective as of the Closing Date.
"SUBSIDIARIES" means, with respect to any Person, any other entity of
which securities or other ownership interests having extraordinary voting power
to elect a majority of the Board of Directors or other persons performing
similar functions are at the time directly or indirectly owned by such Person.
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"UNITS" means a unit of ownership interest in Toyco representing an
undivided interest in the capital contributions and capital accounts of Toyco.
(b) Each of the following terms is defined in the Section set forth
opposite such term:
Term Section
---- -------
Agreement Preamble
Assumed Liabilities 2.3
Balance Sheet Date 2.3
BrainPlay Preamble
BrainPlay Assets 2.2
BrainPlay Intellectual Property Rights 4.15(a)
Business Recitals
Capital Markets Transaction 8.4(a)
Closing 2.5
Contracts 4.10(b)
Damages 11.2(a)
Excluded Liabilities 2.3
Indemnified Party 11.3(a)
Indemnifying Party 11.3(a)
Insurance Policies 4.16
Internet Distribution 6.7(a)
KB Funding Obligations 2.1(a)
KB Indemnitees 11.2(a)
KB Indemnitors 11.2(b)
KB Intangibles 2.1(c)
KB Online Assets 2.1(a)
KB Online Holdings Preamble
License Agreement 6.4
Licensor 2.6(a)(iii)
Permits 4.18
Public Entity 8.4(a)
Put Trigger Date 8.5(a)
Selling Stockholder 8.5(a)
Supply Agreement 6.5
Services Agreement 6.6
Taxes 4.17(j)
Tax Returns 4.17(j)
Toyco Preamble
Toy Products Recitals
Transaction Proposal 7.4
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(c) Definitions shall be equally applicable to both the singular and
plural forms of the terms defined, and references to the masculine, feminine or
neuter gender shall include each other gender.
ARTICLE 2
CONTRIBUTIONS
2.1 Contributions By KB Online Holdings. (a) Upon the terms and subject
to the conditions of this Agreement, during a twelve-month term commencing on
the Closing Date, KB Online Holdings (directly or through certain Affiliates)
shall assign, transfer, convey and deliver to Toyco, and Toyco shall acquire and
accept from KB Online Holdings, (i) all of the right, title and interest of KB
Online Holdings in and to the assets, rights and properties set forth on
Schedule 2.1(a) which shall he attached hereto prior to the Closing, wherever
such assets, rights and properties are located (collectively, the "KB Online
Assets"), free and clear of all Liens, except as set forth on Schedule 3.6
attached hereto, (ii) certain obligations of KB Online Holdings to provide cash
to fund Toyco's operations ("KB Funding Obligations") and (iii) all of
Licensor's right, title and interest in certain intangibles relating to its
website for the sale of toys using the name "K.B Toys", as set forth on Schedule
2.1(c) which shall be attached hereto prior to the Closing (the "KB
Intangibles"). The aggregate value of the KB Online Assets, together with the KB
Funding Obligations, is deemed to be $80,000,000; the stipulated value of the KB
Intangibles is $4,000,000.
(b) The KB Online Assets, together with the KB Funding Obligations,
will be provided to Toyco in accordance with Schedule 2.1(b) attached hereto.
2.2 Contributions By Brainplay. Upon the terms and subject to the
conditions of this Agreement, at the Closing, BrainPlay shall assign, transfer,
convey and deliver to Toyco, and Toyco shall acquire and accept from BrainPlay,
all of the right, title and interest of BrainPlay in and to all assets, rights
and properties of BrainPlay, wherever such assets, rights and properties are
located (collectively, the "BrainPlay Assets"), including without limitation the
assets set forth on Schedule 2.2(a) which shall be attached hereto prior to the
Closing. Notwithstanding the foregoing, the assets set forth on Schedule 2.2(b)
attached hereto shall be retained by BrainPlay (the "Excluded Assets").
2.3 Assumed Liabilities. Upon the terms and subject to the conditions
of this Agreement, at the Closing BrainPlay shall assign and Toyco shall assume
and be liable for any and all liabilities and obligations of BrainPlay (i)
reflected on the balance sheet of BrainPlay as of March 31, 1999 attached hereto
as Schedule 4.6 (the "Balance Sheet Date"), (ii) arising since the Balance Sheet
Date in the ordinary course consistent with past practice which are not material
liabilities, (iii) arising under the Contracts, on or after the Closing Date,
(iv) arising under the Employee Plans or Benefit Arrangements on or after the
Closing Date hereof and (v) other liabilities set forth on Schedule 2.3(a)
(collectively, the "Assumed Liabilities"). In no event, shall Toyco assume or be
liable for any obligations of BrainPlay set forth on Schedule 2.3(b) attached
hereto (the "Excluded Liabilities").
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2.4 AMOUNT AND FORM OF CONSIDERATION. (a) In consideration for their
aggregate contribution to Toyco of the KB Online Assets, the KB Funding
Obligations and the KB Intangibles, on the Closing Date, KB Online Holdings will
receive an Interest in Toyco equal to 80% of all outstanding Units (which Units
will be designated Class A Units).
(b) In consideration for BrainPlay's contribution to Toyco of the
BrainPlay Assets, on the Closing Date (i) Toyco will assume and be liable for
the Assumed Liabilities and (ii) BrainPlay will receive an Interest in Toyco
equal to 20% of all outstanding Units (which Units will be designated Class B
Units).
(c) The rights, preferences and terms of the Units are set forth in the
Operating Agreement.
2.5 CLOSING. The closing of the transactions contemplated herein (the
"Closing") shall take place at 10:00 a.m. (Eastern time) on June 25, 1999 at the
offices of Benesch, Friedlander, Xxxxxx & Xxxxxxx LLP, 00 Xxxx Xxxxx Xxxxxx,
Xxxxxxxx, Xxxx 00000-0000, or such other time, date and place as the parties
hereto may mutually agree; provided, however, that nothing contained in this
Section 2.5 shall release any of the parties hereto from liability for a willful
failure to perform its obligations hereunder.
2.6 TRANSACTIONS AT CLOSING. The following deliveries and transactions
shall take place at the Closing:
(a) KB Online Holdings shall deliver to BrainPlay and Toyco:
(i) such assignments, bills of sale, consents and other
instruments, in form and substance satisfactory to BrainPlay, as shall
be necessary in the reasonable judgment of BrainPlay, to evidence (A)
the assignment, transfer, conveyance and delivery to Toyco of the KB
Online Assets and (B) the first installment of the KB Funding
Obligation, in accordance with the terms hereof;
(ii) a counterpart of the Operating Agreement, duly executed by
KB Online Holdings;
(iii) a counterpart of the License Agreement, duly executed by KB
Online Holdings (or its designated Affiliate) (the "Licensor");
(iv) a counterpart of each of the Supply Agreement and the
Services Agreement, each duly executed by KB Online Holdings (or its
designated Affiliate);
(v) final versions of Schedules 2.1(a) and 2.1(c), drafts of
which shall be provided to BrainPlay and Toyco not less than five
business days prior to the Closing Date; and
(vi) such further instruments and documents as may be necessary
or appropriate to consummate the transactions contemplated herein.
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(b) BrainPlay will deliver to Toyco and KB Online Holdings:
(i) such assignments, bills of sale, consents and other
instruments, in form and substance satisfactory to KB Online Holdings,
as shall be necessary in the reasonable judgment of KB Online
Holdings, to evidence the assignment, transfer, conveyance and
delivery to Toyco of the BrainPlay Assets, in accordance with the
terms hereof;
(ii) a counterpart of the Assumption Agreement, duly executed by
BrainPlay;
(iii) a counterpart of the Operating Agreement, duly executed by
BrainPlay;
(iv) final versions of Schedules 2.2(a) and 4.17, drafts of which
shall be provided to Toyco and KB Online Holdings not less than five
business days prior to the Closing Date;
(v) the audited balance sheet of BrainPlay as of March 31, 1999,
and the related statements of income and cash flows for the year ended
March 31, 1999;
(vi) any updated Schedules to this Agreement to reflect matters
arising since the date of this Agreement and prior to Closing which
would have been required to have been disclosed pursuant hereto if the
same had existed or occurred as of or prior to the date of this
Agreement, drafts of which shall be provided to Toyco and KB Online
Holdings not less than five business days prior to the Closing Date;
and
(vii) such further instruments and documents as may be necessary
or appropriate to consummate the transactions contemplated herein.
(c) Toyco will deliver to each of KB Online Holdings and BrainPlay:
(i) a counterpart of the Assumption Agreement, duly executed by
Toyco;
(ii) a counterpart of the Operating Agreement, duly executed by
Toyco;
(iii) such further instruments and documents as may he necessary
to consummate the transactions contemplated herein.
ARTICLE 3
REPRESENTATIONS OF KB ONLINE HOLDINGS
KB Online Holdings hereby represents and warrants to each of BrainPlay
and Toyco as of the date hereof and the Closing Date, except as disclosed herein
or in any Schedule attached hereto:
3.1 CORPORATION EXISTENCE AND POWER. KB Online Holdings is a
corporation duly incorporated, validly existing and in good standing under the
laws of its jurisdiction of incorporation,
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and has all corporate powers and all material governmental licenses,
authorizations, permits, consents and approvals required to carry on its
business as now conducted.
3.2 CORPORATE AUTHORIZATION AND EXECUTION. The execution, delivery and
performance by KB Online Holdings of this Agreement are within the corporate
powers of KB Online Holdings and have been duly authorized by all necessary
corporate action on the part of KB Online Holdings. This Agreement constitutes a
valid and binding agreement of KB Online Holdings enforceable in accordance with
its terms, except as (a) the enforceability hereof may be limited by bankruptcy,
insolvency, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and (b) the availability of equitable remedies may
be limited by equitable principles of general applicability.
3.3 GOVERNMENTAL AUTHORIZATION. The execution, delivery and performance
by KB Online Holdings of this Agreement require no approval, consent, waiver,
authorization or other action by or in respect of, or filing, registration or
recording with, any governmental body, agency or official, except for (a)
satisfaction of the requirements of the H-S-R Act (if applicable) and (b) any
such approval, consent, waiver, authorization, or other action or filing,
registration or recording as to which the failure to make or obtain would not,
individually or in the aggregate, have a Material Adverse Effect on KB Online
Holdings or on the transaction contemplated in this Agreement.
3.4 NON-CONTRAVENTION. The execution, delivery and performance by KB
Online Holdings of this Agreement do not and will not (a) violate the articles
of incorporation and regulations of KB Online Holdings, (b) assuming compliance
with the matters referred to in Section 3.3 hereof, violate any applicable law,
rule, regulation, judgment, injunction, order or decree or (c) assuming
compliance with the matters referred to in Section 8.6, require any approval,
consent, waiver, authorization, or other action by, or filing, registration or
recording with, any Person under, constitute a breach or default under, or give
rise to any right or obligation of KB Online Holdings or to a modification of
the terms or conditions of any right or obligation to which KB Online Holdings
is entitled under, any agreement or other instrument binding upon KB Online
Holdings, except to the extent that any such approval, consent, waiver,
authorization or other action, default, right or modification would not,
individually or in the aggregate, have a Material Adverse Effect on KB Online
Holdings or the transactions contemplated in this Agreement.
3.5 LITIGATION. There is no action, suit or proceeding pending against,
or to the Knowledge of KB Online Holdings, threatened against or affecting, KB
Online Holdings before any court or arbitrator or any governmental body, agency
or official, which, individually or in the aggregate, is reasonably likely to
have a Material Adverse Effect on KB Online Holdings, or would, or would be
reasonably likely to, materially impair the ability of KB Online Holdings to
consummate the transactions contemplated in this Agreement.
3.6 ASSETS. As of the Closing, KB Online Holdings will have good and
marketable title to, all property, rights and assets (whether real or personal,
tangible or intangible), which constitute the KB Online Assets. None of the KB
Online Assets is subject to any Liens, except for Liens disclosed on Schedule
3.6 attached hereto. The KB Online Assets, together with cash of KB Online
Holdings, shall constitute all of the assets of KB Online Holdings.
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3.7 BROKERS. No Person has acted, directly or indirectly, as a broker,
finder or financial adviser for KB Online Holdings in connection with the
negotiations relating to the transactions contemplated by this Agreement, and no
Person is entitled to any fee or commission or like payment in respect thereof
based in any way on any agreement, arrangement or understanding made by or on
behalf of KB Online Holdings.
3.8 MATERIAL ADVERSE EFFECT. Since May 17, 1999, there has not been any
event, occurrence, development or state of circumstances or facts which has had
or would reasonably be expected to have a Material Adverse Effect on KB Online
Holdings.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BRAINPLAY
BrainPlay hereby represents and warrants to each of KB Online Holdings
and Toyco as of the date hereof and as of the Closing Date, except as disclosed
herein or in any Schedule attached hereto as follows:
4.1 CORPORATE EXISTENCE AND POWER. BrainPlay is a corporation duly
incorporated, validly existing and in good standing under the laws
of its jurisdiction of incorporation, and has all corporate powers and all
material governmental licenses, authorizations, permits, consents and approvals
required to carry on its business as now conducted. BrainPlay is duly qualified
to do business as a foreign corporation and is in good standing in each
jurisdiction where such qualification is necessary, except for those
jurisdictions where failure to be so qualified would not, individually or in the
aggregate, have a material adverse effect on BrainPlay, or the transactions
contemplated by this Agreement. BrainPlay has delivered to KB Online Holdings
true and complete copies of the certificate of incorporation and bylaws of
BrainPlay as currently in effect. BrainPlay has no Subsidiaries.
4.2 CORPORATE AUTHORIZATION. The execution, delivery and performance by
BrainPlay of this Agreement are within BrainPlay's corporate powers and have
been duly authorized by all necessary corporate action on the part of
BrainPlay. This Agreement constitutes the valid and binding agreement of
BrainPlay enforceable in accordance with its terms, except as (a) the
enforceability hereof may be limited by bankruptcy, insolvency, moratorium or
other similar laws affecting the enforcement of creditors' rights generally
and (b) the availability of equitable remedies may be limited by equitable
principles of general applicability.
4.3 GOVERNMENTAL AUTHORIZATION. The execution, delivery and performance
by BrainPlay of this Agreement require no approval, consent, waiver,
authorization or other action by or in respect of, or filing, registration or
recording with, any governmental body, agency, or official, except for (a)
satisfaction of the requirements of the H-S-R Act (if applicable) and (b) any
such approval, consent, waiver, authorization or other action or filing,
registration or recording as to which the failure to make or obtain would not,
individually or in the aggregate, have a Material Adverse Effect on BrainPlay or
on the transactions contemplated in this Agreement.
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4.4 NON-CONTRAVENTION. The execution, delivery and performance by
BrainPlay of this Agreement do not and will not (a) violate the certificate of
incorporation or bylaws of BrainPlay, (b) assuming compliance with the matters
referred to in Section 4.3 hereof, violate any applicable law, rule, regulation,
judgment, injunction, order or decree, (c) except as set forth on Schedule 4.4,
require any approval, consent, waiver, authorization or other action by, or
filing, registration or recording with, any Person under, constitute a breach
or default under, or give rise to any right of termination, cancellation or
acceleration of any right or obligation of BrainPlay or to a modification of the
terms or conditions of any right or obligation to which BrainPlay is entitled
under, any agreement or other instrument binding upon BrainPlay or any license,
franchise, permit or other similar authorization held by BrainPlay, or (d)
result in the creation or imposition of any Lien on, or the forfeiture of, any
asset of BrainPlay, except, in the case of subparagraphs (b), (c) and (d), to
the extent that any such violation, failure to obtain any such approval,
consent, waiver, authorization or other action, default, right, modification,
Lien or forfeiture would not, individually or in the aggregate, have a Material
Adverse Effect on BrainPlay, or on the transactions contemplated in this
Agreement.
4.5 CAPITALIZATION. (a) The authorized capital stock of BrainPlay
consists of 20,000,000 shares of common stock and 4,754,507 shares of preferred
stock, of which 2,622,855 shares of common stock and 4,742,448 shares of
preferred stock (consisting of 1,823,530 shares of Series A preferred stock and
2,918,918 shares of Series B preferred stock) are issued and outstanding.
Attached hereto as Schedule 4.5 are the record and beneficial owners of
BrainPlay's capital stock and their holdings.
(b) Except as disclosed in Section 4.5(a) hereof and set forth on
Schedule 4.5 attached hereto, there are no outstanding (i) shares of capital
stock or voting securities of BrainPlay, (ii) securities of BrainPlay
convertible into or exchangeable for shares of capital stock or voting
securities of BrainPlay or (iii) options or other rights to acquire from
BrainPlay or other obligations of BrainPlay to issue, any capital stock, voting
securities or securities convertible into or exchangeable for capital stock or
voting securities of BrainPlay. There are no outstanding obligations of
BrainPlay to issue, repurchase, redeem or otherwise acquire, or make any
payment in respect of, any of its outstanding common stock or other securities.
4.6 FINANCIAL STATEMENTS. The (a) audited balance sheets of BrainPlay
as of March 31, 1997 and 1998 and the related statements of income and cash
flows for each of the years ended March 31, 1997 and 1998, previously delivered
to KB Online Holdings, and (b) unaudited balance sheet of BrainPlay as of
March 31, 1999 and the related statements of income and cash flows for the year
ended March 31, 1999, attached hereto as Schedule 4.6, (i) present fairly, in
all material respects, the financial position of BrainPlay as of the dates
thereof and their results of operations for the periods then ended in conformity
with generally accepted accounting principles applied on a consistent basis,
except that such unaudited financial statements do not contain footnotes or
normal year-end adjustments and (ii) are accurate and complete in all material
respects.
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4.7 ABSENCE OF CERTAIN CHANGES. Except as disclosed in Schedule 4.7
attached hereto or as contemplated in this Agreement, since the Balance Sheet
Date, the Business has been conducted in the ordinary course consistent with
past practices and there has not been:
(a) any event, occurrence, development or state of circumstances or
facts which has had or would reasonably be expected to have a Material Adverse
Effect on BrainPlay;
(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to any of BrainPlay's capital stock, or any
repurchase, redemption or other acquisition by BrainPlay of any outstanding
shares of capital stock or other securities of, or other ownership interests in,
BrainPlay;
(c) any amendment of any material term of any outstanding security of
BrainPlay;
(d) any incurrence, assumption or guarantee by BrainPlay of any
indebtedness for borrowed money;
(e) any creation or assumption by BrainPlay of any Lien on any asset,
other than in the ordinary course of business consistent with past practices;
(f) any making of any loan, advance or capital contributions to or
investment in any Person;
(g) any damage, destruction or other casualty loss (whether or not
covered by insurance) materially affecting the Business or assets of BrainPlay;
(h) any transaction or commitment made, or any contract or agreement
entered into, by BrainPlay relating to its assets or the Business (including the
acquisition, disposition or lease of any assets) or any relinquishment by
BrainPlay of any contract or other right, other than (i) transactions and
commitments in the ordinary course of business consistent with past practices
and (ii) those contemplated in this Agreement;
(i) any change in the method of accounting or accounting practice by
BrainPlay, except for any change required by reason of a concurrent change in
generally accepted accounting principles;
(j) any (i) employment, deferred compensation, severance, retirement or
other similar agreement entered into with any director, officer or employee of
BrainPlay (or any amendment to any such existing agreement), (ii) grant of any
severance or termination pay to any director, officer, employee, consultant or
agent of BrainPlay or (iii) increase in compensation or other benefits paid or
payable to any director, officer, employee, consultant or agent of BrainPlay,
in each case other than for officers, employees or consultants with annual
compensation, payments and other benefits aggregating less than $100,000;
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(k) any labor dispute, other than routine individual grievances, or any
activity or proceeding by a labor union or representative thereof to organize
any employees of BrainPlay, which employees were not subject to a collective
bargaining agreement at the Balance Sheet Date, or any lockouts, strikes,
slowdowns, work stoppages or threats thereof by or with respect to any employees
of BrainPlay;
(1) any material capital expenditures;
(m) any sale, transfer, license or other disposition of any
Intellectual Property Rights;
(n) any canceled or compromised debt or claim;
(o) any settlement of, or agreement to settle, any material claim,
action, cause of action, suit, arbitration, proceeding or investigation; or
(p) any acquisition of capital stock of any Person or any assets
material in amount and constituting a business, or any merger, consolidation or
other business combination affecting BrainPlay or the entering into of an
agreement for such an acquisition, merger, consolidation or other business
combination.
4.8 NO UNDISCLOSED MATERIAL LIABILITIES. There are no material
liabilities of BrainPlay of any kind whatsoever, whether accrued, contingent,
absolute, determined, determinable or otherwise, other than:
(a) liabilities provided for in the Balance Sheet or disclosed in the
notes thereto;
(b) liabilities incurred in the ordinary course of business consistent
with past practice since the Balance Sheet Date; and
(c) liabilities disclosed in Schedule 4.8 attached hereto.
4.9 LABOR MATTERS. (a) BrainPlay has complied and is complying with all
Federal, state and local laws, rules, regulations and policies of a material
nature respecting employment and employment practices (including but not limited
to compensation for or termination of employment) and have not and are not
engaged in any unfair labor practice or unlawful discriminatory act or any other
act which violates in any material respect any of such laws, rules, regulations
or policies. Except as disclosed in Schedules 4.9 and 4.11 attached hereto,
there is no pending or, to the Knowledge of BrainPlay, threatened charge or
complaint by or against BrainPlay before the Equal Employment Opportunity
Commission, any other Federal governmental authority relating to labor or
employee matters or any similar state or local governmental authority, or any
other charge or complaint pending between BrainPlay and any of its employees,
except for charges and complaints with individual employees arising in the
ordinary course of business that have not had and would not have a Material
Adverse Effect on BrainPlay. BrainPlay is not a party to, or subject to, any
collective bargaining or other similar agreement with any labor union or other
similar association representing employees of BrainPlay, nor is any collective
bargaining agreement currently being
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negotiated by BrainPlay with respect to any employees of BrainPlay, nor has any
labor union within the last 12 months invoked the process of the National Labor
Relations Board, or any similar state or local agency, seeking to represent any
of BrainPlay's employees, or demanded recognition as the collective bargaining
representative of any such employees, and, to the Knowledge of BrainPlay, no
movement to designate a collective bargaining agent to represent any such
employees, is being conducted or is threatened.
(b) Except as disclosed in Schedule 4.9 attached hereto, the employment
by BrainPlay of any individual (whether or not a party to a written employment
agreement) is at-will and may be terminated for any reason whatsoever not
inconsistent with applicable law without penalty or liability of any kind other
than expenses or liabilities payable or reimbursable to such individuals
(including but not limited to accrued vacation pay and severance payable
pursuant to a BrainPlay severance policy) in the ordinary course of business
consistent with BrainPlay's past practices.
(c) BrainPlay does not maintain or participate in, or is it otherwise
subject to any grievance procedure or other dispute resolution mechanism under
which it is obligated to adjust or resolve employee grievances or complaints in
a manner other than through the exercise of BrainPlay's own discretion.
4.10 CONTRACTS. (a) Except as disclosed in Schedule 4.10 attached
hereto, BrainPlay is not a party to or bound by:
(i) any lease or sublease for real or personal property held or
used by BrainPlay;
(ii) any agreement for the purchase or other acquisition of
goods, services, equipment, property or other assets with payment
obligations of BrainPlay in excess of $25,000 since the Balance Sheet
Date;
(iii) any partnership, joint venture or other similar agreement
or arrangement;
(iv) any agreement relating to material indebtedness for borrowed
money or the deferred purchase price of property;
(v) any license, franchise or similar agreement;
(vi) any agency, dealer, sales representative, marketing or other
similar agreement;
(vii) any agreement that limits the freedom of BrainPlay to
compete in any line of business or with any Person or in any area or
which would so limit the freedom of BrainPlay after the Closing Date;
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(viii) any agreement with (A) any of its Affiliates, (B) any
Person directly or indirectly owning, controlling or holding with
power to vote, 5% or more of the outstanding voting securities of
BrainPlay or any of its Affiliates, (C) any Person 5% or more of whose
outstanding voting securities are directly or indirectly owned,
controlled or held with power to vote by BrainPlay or any of its
Affiliates or (D) any director or officer of BrainPlay or any of its
Affiliates or any "associates" or members of the "immediate family"
(as such terms are respectively defined in Rule 12b-2 and Rule 16a-1
of the Securities Exchange Act) of any such director or officer;
(ix) any agreement with any director or officer of BrainPlay or
with any "associate" or any member of the "immediate family" (as such
terms are respectively defined in Rules 12b-2 and 16a- 1 of the
Securities Exchange Act) of any such director or officer;
(x) any employment or material consulting agreement and all other
plans, agreements, arrangements or practices which provide
compensation or benefits to any of the directors, officers or
employees of BrainPlay, other than any Employee Plan or Benefit
Arrangement; or
(xi) any other agreement, commitment, arrangement or plan not
made in the ordinary course of business.
(b) Each agreement, commitment, arrangement, lease or plan disclosed in
Schedule 4.10 attached hereto (individually, a "Contract", or collectively, the
"Contracts") is a valid and binding agreement of BrainPlay, and is in full force
and effect; and BrainPlay is not and to the Knowledge of BrainPlay, no other
party thereto is, in default or breach in any material respect under the terms
of any Contract. To the Knowledge of BrainPlay, no event has occurred or
circumstance exists which with notice or lapse of time or both would constitute
such a material default or breach, or permit termination, modification or
acceleration by BrainPlay or any other Person or would result in a loss of
rights or the creation of any Lien under any Contract. BrainPlay has heretofore
delivered to Buyer true and complete copies of each of the Contracts disclosed
in Schedule 4.10 attached hereto.
4.11 LITIGATION. Except as disclosed in Schedule 4.11 attached hereto,
there is no action, suit, investigation or proceeding pending against, or to the
Knowledge of BrainPlay threatened against or affecting, BrainPlay or any of its
properties before any court or arbitrator or any governmental body, agency or
official, which, individually or in the aggregate, is likely to have a Material
Adverse Effect on BrainPlay, or would, or would be reasonably likely to,
materially impair the ability of BrainPlay to consummate the transactions
contemplated in this Agreement.
4.12 COMPLIANCE WITH LAWS AND COURT ORDERS. BrainPlay is not in
violation of, and since March 31, 1999 has not violated, any applicable law,
rule, regulation, judgment, injunction, order or decree, except for such
violations as have not had and will not have individually or in the aggregate a
Material Adverse Effect on BrainPlay.
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4.13 PROPERTIES. (a) BrainPlay has good and marketable title to, or in
the case of leased property has valid leasehold interests in, all property,
rights and assets (whether real or personal, tangible or intangible) reflected
on the Balance Sheet or acquired after the Balance Sheet Date. None of such
property or assets is subject to any Liens, except:
(i) Liens disclosed on the Balance Sheet; or
(ii) Liens disclosed in Schedule 4.13 attached hereto.
(b) There are no developments affecting any such property or assets
(whether real or personal) pending or, to the Knowledge of BrainPlay threatened,
which might materially detract from the value of such property, rights or assets
or materially interfere with any present or intended use of any such property,
rights or assets, other than any such developments affecting leased property,
rights or assets resulting from the transactions contemplated by this Agreement.
The BrainPlay Assets comprise all the assets necessary to operate the Business
as currently conducted.
4.14 ERISA REPRESENTATIONS. (a) Schedule 4.14 attached hereto
identifies each Employee Plan. BrainPlay has furnished or made available to KB
Online Holdings copies of the Employee Plans (and, if applicable, related trust
agreements) together with related summary plan descriptions and the most recent
annual report prepared in connection with any Employee Plan (Form 5500).
(b) Each Employee Plan that is intended to be qualified under Section
401(a) of the Code has (i) received a favorable determination letter from the
Internal Revenue Service that covers the applicable provisions of the Code added
by the Tax Reform Act of 1986 and other subsequent legislation covered by
applicable Internal Revenue Service procedures relating to such Employee Plans,
(ii) been maintained in substantial compliance with its terms and with the
requirements prescribed by any and all applicable statutes, orders, rules and
regulations, including but not limited to ERISA and the Code, and (iii) no
Employee Plan is a Title IV Plan or a Multiemployer Plan, except with respect to
matters that would not have a Material Adverse Effect on BrainPlay.
(c) Schedule 4.14 attached hereto identifies each Benefit Arrangement.
BrainPlay has furnished or made available to KB Online Holdings copies or
descriptions of each Benefit Arrangement. Each Benefit Arrangement has been
maintained in substantial compliance with its terms and with the requirements
prescribed by any and all applicable statutes, orders, rules and regulations,
except where the failure to do so would not have a Material Adverse Effect on
BrainPlay.
4.15 INTELLECTUAL PROPERTY. (a) Schedule 4.15 attached hereto contains
a list of all material Intellectual Property Rights owned by or licensed to
BrainPlay ("BrainPlay Intellectual Property Rights"), specifying as to each, as
applicable: (i) the nature of such Intellectual Property Right; (ii) the owner
of such Intellectual Property Right; and (iii) all licenses, sublicenses,
consents and other agreements as to which BrainPlay is a party, and pursuant to
which any Person is authorized to use such Intellectual Property Right or which
otherwise relates to any such Intellectual Property Rights, including the
identity of all parties thereto, a description of the nature and subject matter
thereof, the
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applicable royalty and any advances, the term thereof and the territory covered
thereby. Copies of all such licenses heretofore have been delivered to KB Online
Holdings.
(b) Except as disclosed in Schedule 4.15 attached hereto, all BrainPlay
Intellectual Property Rights are owned solely by BrainPlay or licensed to
BrainPlay under validly existing license agreements. Except as disclosed in
Schedule 4.15 attached hereto, there is no material license or other contractual
obligation under which BrainPlay is liable as licensor with respect to any
BrainPlay Intellectual Property Rights and BrainPlay has not granted any license
to any third party with respect to any BrainPlay Intellectual Property Rights.
Except as disclosed in Schedule 4.15 attached hereto and to BrainPlay's
Knowledge, the use or sale by BrainPlay of any products or services in the
Business and use by BrainPlay of the Intellectual Property Rights does not
infringe and has not infringed any rights of any third party, and no activity of
any third party infringes upon the rights of BrainPlay with respect to any of
BrainPlay's Intellectual Property Rights. Except as disclosed in Schedule 4.15
attached hereto, no action alleging or relating to any such infringement against
the rights of BrainPlay or any third parties is currently pending or, to the
Knowledge of BrainPlay, threatened.
(c) (i) Except as disclosed in Schedule 4.15 attached hereto, since
March 31, 1999, BrainPlay has not been a defendant in any unsettled action,
suit, investigation or proceeding relating to, or otherwise has been notified
of, any alleged claim of infringement of any other Person's Intellectual
Property Rights by BrainPlay, whether or not such claim of infringement involves
BrainPlay Intellectual Property Rights; and (ii) except as disclosed in Schedule
4.15 attached hereto, to the Knowledge of BrainPlay, has not engaged in any
activity which would amount to or give rise to any claim of infringement of any
other Person's Intellectual Property Rights.
(d) (i) Except as disclosed in Schedule 4.15 attached hereto, since
March 31,1999, BrainPlay has not been a plaintiff in any unsettled action, suit,
investigation or proceeding relating to any of BrainPlay Intellectual Property
Rights; and (ii) except as disclosed in Schedule 4.15 attached hereto, BrainPlay
has no Knowledge of any continuing infringement or other unlawful use of any
BrainPlay Intellectual Property Rights by any other Person.
(e) Except as disclosed in Schedule 4.15 attached hereto or the
agreements referred to therein, no BrainPlay Intellectual Property Right is
subject to any outstanding judgment, injunction, order, decree or agreement
restricting the use thereof by or restricting the licensing or sale thereof by
BrainPlay to any Person.
(f) BrainPlay has not entered into any agreement to indemnify any third
party against any charge of infringement of any Intellectual Property Right.
(g) BrainPlay has initiated a review of its operations with a view to
assessing whether its business or operations will, in the receipt, transmission,
processing, manipulation, storage, retrieval, retransmission or other
utilization of data, be vulnerable to any significant risk that computer
hardware or software used in its business or operations will not, in the case of
dates or time periods occurring after December 31, 1999, function at least as
effectively as in the case of dates or
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time periods occurring prior to January 1, 2000. As of the date hereof,
BrainPlay has no reason to believe that any such risk would have a Material
Adverse Effect on BrainPlay.
4.16 INSURANCE COVERAGE. All material properties of BrainPlay are
covered by valid and currently effective insurance policies issued in favor of
BrainPlay. Schedule 4.16 contains a summary of all policies or binders of
insurance by which BrainPlay is insured (the "Insurance Policies"), together
with (i) the name of the insurer, the names of the principal insured and each
named insured, and (ii) the policy number and period of coverage, the type,
scope (including an indication of whether coverage is on a claims made,
occurrence or other basis), and amounts (including a description of how
deductibles, retentions, aggregates and retroactive premium adjustments or other
loss-sharing arrangements are calculated and operate) of coverage. BrainPlay
has given KB Online Holdings access to true and complete copies of all Insurance
Policies and fidelity bonds relating to the assets, the Business, operations,
employees, officers or directors of BrainPlay. Except as disclosed in Schedule
4.16 hereof, there is no claim by or on behalf of BrainPlay pending under any of
such Insurance Policies or bonds as to which coverage has been questioned,
denied or disputed by the underwriters of such Insurance Policies or bonds as to
which coverage has been questioned, denied or disputed by the underwriters of
such Insurance Policies or bonds or in respect of which such underwriters have
reserved their rights. All premiums payable under such Insurance Policies and
bonds have been paid timely and BrainPlay has otherwise complied in all material
respects with the terms and conditions of all such Insurance Policies and bonds.
The insurance currently maintained by BrainPlay provides coverage in kind and
amount reasonably necessary to protect against the risk inherent or associated
with the Business, except with respect to matters which would not have a
Material Adverse Effect on BrainPlay.
4.17 TAXES. (a) BrainPlay has filed all Tax Returns required to be
filed by BrainPlay (including any consolidated or combined return required to be
filed by them or any affiliated person or entity) accurately reflecting all
Taxes owing to the United States or any other government or any government
subdivision, state, local, or foreign or any other taxing authority, and has
paid in full all Taxes for which BrainPlay has or may have liability, regardless
of whether shown on any Tax Return, except where the failure to do so would not
have a Material Adverse Effect on BrainPlay. All such Tax Returns are true,
correct and complete in all material respects.
(b) BrainPlay has no Knowledge of any unassessed Tax deficiency
proposed or threatened against BrainPlay as a result of the operation of the
Business. There are no encumbrances on the assets of BrainPlay as a result of
any Tax liabilities except for Taxes not yet due and payable. There are, and
after the date of this Agreement will be, no Tax deficiencies of any kind
assessed against or relating to BrainPlay with respect to any taxable period
ending on or before, or including, the Closing Date, of a character or nature
that would result in any encumbrances or other claims on all or any portion of
the BrainPlay Assets or on Toyco's title to or use of the BrainPlay Assets, or
that would result in any claim against Toyco or the Business after the Closing
Date.
(c) As to all Tax periods, or portions thereof, which end prior to, or
include, the Closing Date for which no Tax Returns are yet due, the liability of
BrainPlay for Taxes with respect to such periods, or portions thereof, does not
exceed in any material respect the amount accrued for such liability (rather
than any reserve for deferred Taxes to reflect timing differences between book
and
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Tax income) on the most recent financial statements delivered to KB Online
Holdings, as adjusted for operations and transactions in the ordinary course of
business of BrainPlay through the Closing Date in accordance with the past
practice of BrainPlay.
(d) BrainPlay has complied in all respects with all applicable laws,
rules and regulations relating to the payment and withholding of Taxes and has,
within the time and the manner prescribed by law, withheld and paid over to the
proper governmental authorities, all amounts required to be so withheld and paid
over under applicable laws except where the failure to do so would not have a
Material Adverse Effect on BrainPlay.
(e) BrainPlay is not a party to any action, audit or proceeding by any
governmental or taxing authority for the assessment or collection of Taxes, nor
to BrainPlay's Knowledge, has any such event been asserted or threatened.
(f) There are no outstanding agreements or waivers extending the
statutory period of limitations applicable to any Tax Return of BrainPlay for
any period. No taxing authority has audited any Tax Return filed by BrainPlay.
(g) BrainPlay has never been a member of an affiliated, consolidated,
combined or unitary group for federal, state, local or foreign Tax purposes, and
is not liable for the Taxes of any person under Treasury Regulations Section
1.1502-6 (or any similar provision of state, local or foreign law) as a
transferee or successor, by operation of law or otherwise.
(h) There are no Tax sharing agreements or similar arrangements
(whether written or oral) in effect that include BrainPlay, and BrainPlay does
not have liability to any person with respect to any previously terminated Tax
sharing agreement or similar arrangement.
(i) Schedule 4.17 which shall be attached hereto prior to the Closing
sets forth the tax basis of BrainPlay in the BrainPlay Assets as of March 31,
1999.
(j) For purposes of this Agreement, "Taxes" shall mean any and all
taxes, charges, fees, levies or other assessments, including, without
limitation, income, alternative minimum tax, gross receipts, value added,
excise, real or personal property, sales, withholding, social security,
retirement, unemployment, occupation, use, service, service use, license, net
worth, payroll, franchise, transfer and recording taxes, customs and import
dues, fees and charges, imposed by the Internal Revenue Service or any taxing
authority (whether domestic or foreign including, without limitation, any state,
county, local or foreign government or any subdivision or taxing agency
thereof), whether computed on a separate, consolidated, unitary, combined or any
other basis; and such term shall include any interest whether paid or received,
fines, penalties or additional amounts attributable to, or imposed upon, or with
respect to, any such taxes, charges, fees, levies or other assessments. "Tax
Return" shall mean any report, return, document, declaration or other
information or filing required to be supplied to any taxing authority or
jurisdiction (foreign or domestic) with respect to Taxes, including, without
limitation, information returns, any documents with respect to or accompanying
payments of estimated Taxes, or with respect to or accompanying requests for the
extension of time in which to file any such report, return, document,
declaration or other information.
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(k) None of the BrainPlay Assets are subject to the provisions of
Section 197(f)(9)(A) of the Code.
4.18 LICENSES AND PERMITS. Schedule 4.18 attached hereto contains a
list of each material license, franchise, permit or other similar authorization
affecting, or relating in any way to, the BrainPlay Assets or the Business (the
"Permits") together with the name of the government agency or entity issuing
such Permit. BrainPlay has been duly granted and continues to hold, and as of
the Closing Date will hold, all Permits necessary for the conduct of the
Business, except where the failure to do so would not have a Material Adverse
Effect with respect to BrainPlay. Except as disclosed in Schedule 4.18 attached
hereto, such Permits are valid and in full force and effect and none of the
Permits will be terminated or impaired or become terminable, in whole or in
part, as a result of the transactions contemplated hereby. BrainPlay has not
received written notice that any governmental authority or agency will revoke,
cancel, rescind, materially modify or refuse to renew in the ordinary course of
business any of the Permits.
4.19 BROKERS. No person has acted, directly or indirectly, as a broker,
finder or financial advisor for BrainPlay in connection with the negotiations
relating to the transactions contemplated by this Agreement, and no person is
entitled to any fee or commission or like payment in respect thereof based in
any way on any agreement, arrangement or understanding made by or on behalf of
BrainPlay.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF TOYCO
Toyco hereby represents and warrants to BrainPlay as of the date hereof
and the Closing Date, except as disclosed herein or in any Schedule attached
hereto:
5.1 EXISTENCE AND POWER. Toyco is a limited liability company duly
organized and validly existing under the laws of its jurisdiction of
organization, and has all powers and all material governmental licenses,
authorizations, permits, consents and approvals required to carry on its
business as now conducted. Toyco has delivered to BrainPlay true and complete
copies of its Charter as currently in effect.
5.2 AUTHORIZATION. The execution, delivery and performance by Toyco of
this Agreement are within Toyco's powers and have been duly authorized by all
necessary action on the part of Toyco. This Agreement constitutes a valid and
binding agreement of Toyco enforceable in accordance with its terms, except as
(a) the enforceability hereof may be limited by bankruptcy, insolvency,
moratorium or other similar laws effecting the enforcement of creditors'
generally and (b) the availability of equitable remedies may be limited by
equitable principles of general applicability.
5.3 GOVERNMENTAL AUTHORIZATION. The execution, delivery and performance
by Toyco of this Agreement require no approval, consent, waiver, authorization
or other action by or in respect
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of, filing, registration or recording with, any governmental body, agency or
official, except for (a) satisfaction of the requirements of the H-S-R Act (if
applicable) or (b) any such approval, consent, waiver, authorization or other
action or filing, registration or recording as to which failure to make or
obtain would not, individually or in the aggregate, have a Material Adverse
Effect on Toyco, or on the transactions contemplated in this Agreement.
5.4 NON-CONTRAVENTION. The execution, delivery and performance by Toyco
of this Agreement do not and will not (a) violate the Charter of Toyco or
Operating Agreement, (b) assuming compliance with the matters referred to in
Section 5.3 hereof, violate any applicable law, rule, regulation, judgment,
injunction, order or decree or (c) assuming compliance with the matters referred
to in Section 8.6, require any approval, consent, waiver, authorization or other
action by, or filing, registration or recording with any Person under,
constituting a breach or default under, or give rise to any right or obligation
of Toyco or to a modification of the terms or conditions of any right or
obligation to which Toyco is entitled under any Agreement or other instrument
binding upon Toyco, except to the extent that any such approval, consent,
waiver, authorization or other action, default, right or modification would not,
individually or in the aggregate, have a Material Adverse Effect on Toyco, or on
the transactions contemplated in this Agreement.
5.5 LITIGATION. There is no action, suit, investigation or proceeding
pending against, or to the knowledge of Toyco, threatened against or affecting
Toyco before any court or arbitrator or any governmental body, agency or
official, which, individually or in the aggregate, is reasonably likely to have
a Material Adverse Effect on Toyco, or would, or would be reasonably likely to,
materially impair the ability of Toyco to consummate the transactions
contemplated in this Agreement.
5.6 BROKERS. No person has acted directly or indirectly as a broker,
finder or financial advisor for Toyco in connection with the negotiations
relating to the transactions contemplated by this Agreement and no person is
entitled to any fee or commission or like payment in respect thereof based in
any way on arrangements or understandings made by or on behalf of Toyco.
5.7 LIABILITIES. As of the Closing Date, there will be no material
liabilities of Toyco of any kind whatsoever, whether accrued, contingent,
absolute, determined, determinable or otherwise, other than the Assumed
Liabilities, the liabilities set forth on Schedule 3.6 and expenses accrued in
connection with the transactions contemplated herein.
5.8 CONTRACTS. As of the Closing Date, except as provided herein,
including, without limitation, as provided in Section 8.6, there will be no
contractual agreements to which Toyco is a party.
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ARTICLE 6
COVENANTS OF KB ONLINE HOLDINGS AND TOYCO
6.1 CONFIDENTIALITY. Prior to the Closing Date and after any
termination of this Agreement, KB Online Holdings and Toyco will hold in
confidence and not use, and will use their best efforts to cause their
respective officers, directors, members, managers, employees, accountants,
counsel, consultants, advisors and agents to hold in confidence and not to use,
unless compelled to disclose by judicial or administrative process or by other
requirements of law, all confidential documents and information concerning
BrainPlay furnished to KB Online Holdings or Toyco or on their behalf in
connection with the transactions contemplated by this Agreement, except to the
extent that such information can be shown to have been (a) previously known on a
nonconfidential basis by KB Online Holdings or Toyco, (b) in the public domain
through no fault of KB Online Holdings or Toyco or (c) later lawfully acquired
by KB Online Holdings or Toyco from sources other than BrainPlay; provided,
however, that KB Online Holdings or Toyco may disclose such information to its
officers, directors, members, managers, employees, accountants, counsel,
consultants, advisors and agents in connection with the transactions
contemplated by this Agreement and to its lenders so long as such Persons are
informed by KB Online Holdings and Toyco of the confidential nature of such
information and are directed by KB Online Holdings or Toyco to comply with the
foregoing obligations. KB Online Holdings and Toyco shall be liable for any
breach by any such Person of such obligations. The obligations of KB Online
Holdings or Toyco to hold any such information in confidence shall he satisfied
if they exercise the same care with respect to such information as they would
take to preserve the confidentiality of their own similar information. If this
Agreement is terminated, KB Online Holdings and Toyco will, and will use their
best efforts to cause their respective officers, directors, members, managers,
employees, accountants, counsel, consultants, advisors and agents to, destroy
and deliver to BrainPlay, upon request, all documents and other materials, and
all copies thereof, obtained by KB Online Holdings or Toyco or on their behalf
from BrainPlay in connection with this Agreement that are subject to such
confidence.
6.2 ACCESS. KB Online Holdings and Toyco, on and after the Closing
Date, will provide BrainPlay with reasonable access during normal business hours
to their properties, books, records, employees and auditors to the extent
necessary to permit BrainPlay to determine any matter relating to its rights and
obligations hereunder or to any period ending on or before the Closing Date;
provided, however, that any such access (a) does not unreasonably interfere with
the normal conduct of the business of KB Online Holdings or Toyco and (b) is
reasonably related to such matter (including but not limited to the preparation
of any Tax Returns).
6.3 NOTICE OF CERTAIN EVENTS. KB Online Holdings and Toyco shall
promptly notify BrainPlay in writing of:
(a) any notice or other communication received from any Person alleging
that the consent of such Person is or may be required in connection with the
transactions contemplated by this Agreement;
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(b) any notice or other communication received from any governmental or
regulatory agency or authority in connection with the transactions contemplated
by this Agreement;
(c) any actions, suits, claims, investigations or proceedings commenced
or, to its Knowledge threatened against, relating to or involving or otherwise
affecting KB Online Holdings or Toyco that, if pending on the date of this
Agreement, would have been required to have been disclosed pursuant to Sections
3.5 or 5.5 hereof, or that relate to the consummation of the transactions
contemplated by this Agreement; and
(d) any development which would have a Material Adverse Effect on KB
Online Holdings or Toyco or give rise to any breach of any representation or
warranty of KB Online Holdings or Toyco contained in this Agreement; provided,
that no such disclosure shall be deemed to amend any Schedule or cure any such
breach or provide an exception to any such representation or warranty.
6.4 USE OF XXXxxx.xxx NAME. KB Online Holdings will use its best
efforts to cause the Licensor to execute and deliver to Toyco a license or
sublicense for use of the XXXxxx.xxx name, which shall be mutually agreeable to
KB Online Holdings and BrainPlay and which shall be executed at Closing (the
"License Agreement"). The License Agreement shall provide, inter alia, for use
by Toyco of certain service marks and trademarks utilizing the name "XXXxxx.xxx"
and for domain names utilizing the name "XXXxxx.xxx" and certain derivatives.
6.5 MERCHANDISE SUPPLY. KB Online Holdings will, and will cause its
Affiliates to, provide Toyco with such expertise and experience in the buying of
merchandise and related know-how as shall be reasonably required in connection
with the operation of Business, the terms and conditions of such arrangement to
be set forth in a supply agreement (the "Supply Agreement") which shall be
mutually agreeable to KB Online Holdings and BrainPlay and which shall be
executed at Closing. In any event, the Supply Agreement shall provide (a) that
KB Online Holdings will, and will cause its Affiliates to, provide merchandise
to Toyco at costs available to KB Online Holdings or its Affiliates (such costs
to include freight, third-party warehousing and any other out-of-pocket expenses
incurred in connection with the buying and delivery of such merchandise) and (b)
KB Online Holdings will use commercially reasonable efforts to provide Toyco
with such merchandise (both number of SKUs and amount of merchandise) as Toyco
shall reasonably require.
6.6 INTERCOMPANY SERVICES. (a) KB Online Holdings will, and will cause
its Affiliates to, provide Toyco with certain intercompany services such as (i)
expertise and experience in advertising and media relations as shall be
reasonably required in connection with the operation of the Business and (ii)
expertise and experience in warehousing and fulfillment and related know-how as
shall be reasonably required in connection with the operation of the Business.
(b) The obligations of KB Online Holdings set forth in Section 6.6(a)
hereof shall be set forth in greater detail in a services agreement between KB
Online Holdings or its Affiliate and Toyco (the "Services Agreement"), the terms
and conditions thereof to be mutually agreeable to KB Online Holdings and
BrainPlay, which Services Agreement shall be executed at Closing.
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6.7 FORBEARANCE. (a) Until the earlier of (i) twelve months after the
consummation of a Capital Markets Transaction or (ii) December 31, 2001, KB
Online Holdings will, and will cause its Affiliates to, not offer for sale or
sell Toy Products using web-based, on-line or Internet retailing distribution
channels ("Internet Distribution").
(b) Until KB Online Holdings no longer owns a majority Interest,
directly or indirectly, in Toyco, KB Online Holdings will, and will cause its
Affiliates to, not engage in Internet Distribution of Toy Products that are not
"closeouts" as that term is commonly applied in the toy industry.
6.8 SRINIVASAN EMPLOYMENT AGREEMENT. Concurrent with the execution of
this Agreement, Toyco shall enter into the Srinivasan Employment Agreement.
ARTICLE 7
COVENANTS OF BRAINPLAY
7.1 CONDUCT OF THE BUSINESS. Except as otherwise contemplated by this
Agreement or set forth in Schedule 7.1 attached hereto, from the date hereof
until the Closing Date, BrainPlay will conduct the Business in the ordinary
course consistent with past practice and use its reasonable best efforts to
preserve intact relationships with third parties and to keep available the
services of present officers and employees. Without limiting the generality of
the foregoing, except as otherwise contemplated by this Agreement, from the date
hereof until the Closing Date, without the prior written consent of KB Online
Holdings, which shall not be unreasonably withheld, BrainPlay will not:
(a) adopt or propose any change to its certificate of incorporation or
bylaws;
(b) merge or consolidate with any other Person or acquire a material
amount of assets of any other Person;
(c) sell, lease, license or otherwise dispose of any material assets or
property except (i) pursuant to the Contracts and (ii) in the ordinary course
consistent with past practice;
(d) fail to maintain its books and records in the ordinary course
of business;
(e) fail to maintain in good repair, subject to ordinary wear and tear,
its premises, fixtures, machinery, furniture and equipment in a manner
consistent with past practices;
(f) hire any new employee for an annual salary in excess of
$100,000;
(g) purchase or otherwise acquire any real property;
(h) make any material capital expenditures;
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(i) enter into any agreement with a vendor providing for payments to
BrainPlay in return for an exclusive arrangement with such vendor; or
(j) agree or commit to do any of the foregoing.
BrainPlay will not (i) take or agree or commit to take any action that
would make any representation and warranty of BrainPlay hereunder inaccurate in
any respect at, or as of any time prior to, the Closing Date or (ii) omit or
agree or commit to omit to take any action necessary to prevent any such
representation or warranty from being inaccurate in any respect at any such
time.
7.2 ACCESS. From the date hereof until the Closing Date, BrainPlay (a)
will give KB Online Holdings and its counsel, financial advisors, auditors,
lenders and other authorized representatives reasonable access during normal
business hours to the offices, properties, books and records of BrainPlay, and
(b) will furnish to KB Online Holdings and its counsel, financial advisors,
auditors, lenders and other authorized representatives such financial and
operating data and other information relating to BrainPlay as such Persons may
reasonably request.
7.3 NOTICE OF CERTAIN EVENTS. BrainPlay shall promptly notify KB Online
Holdings in writing of:
(a) any notice or other communication received from any Person alleging
that the consent of such Person is or may be required in connection with the
transactions contemplated by this Agreement;
(b) any notice or other communication received from any governmental or
regulatory agency or authority in connection with the transactions contemplated
by this Agreement;
(c) any actions, suits, claims, investigations or proceedings commenced
or, to its Knowledge threatened against, relating to or involving or otherwise
affecting that, if pending on the date of this Agreement, would have been
required to have been disclosed pursuant to Section 4.11 hereof or that relate
to the consummation of the transactions contemplated by this Agreement; and
(d) any development which would have a Material Adverse Effect on
BrainPlay or give rise to any breach of any representation or warranty of
BrainPlay contained in this Agreement; provided that no such disclosure shall be
deemed to amend any Schedule or cure any such breach or provide an exception to
any such representation or warranty.
7.4 OTHER OFFERS. From the date hereof until the Closing Date or
termination hereof, BrainPlay will not, and will cause its directors, officers,
employees and representatives not to, directly or indirectly, take any action to
solicit, initiate or encourage any Transaction Proposal or in any manner
discuss, consider or accept any Transaction Proposal, except as shall be
consistent with their fiduciary duties under the Delaware General Corporation
Law. For purposes of this Agreement, "Transaction Proposal" means any offer or
proposal for, or any indication of interest in, a joint venture, business
combination or similar arrangement involving BrainPlay or the acquisition of any
equity interest in, or a material portion of the assets of, BrainPlay, other
than the transactions
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contemplated by this Agreement. BrainPlay shall promptly notify KB Online
Holdings of any Transaction Proposal, which notice shall include the identity of
all relevant parties thereto and the terms and conditions of such Transaction
Proposal, or any change in the terms and conditions of any such Transaction
Proposal.
7.5 CONFIDENTIALITY. From and after the Closing Date, BrainPlay will
hold in confidence and not use, and will use its best efforts to cause its
officers, directors, employees, accountants, counsel, consultants, advisors and
agents to hold in confidence and not use, unless compelled to disclose by
judicial or administrative process of by other requirements of law, all
confidential documents and information concerning KB Online Holdings and its
Affiliates, as may be received from any of them, except to the extent that such
information can be shown to have been (i) in the case of information relating to
any of them, previously known on a nonconfidential basis by BrainPlay, (ii) in
the public domain through no fault of BrainPlay or (iii) later lawfully acquired
by BrainPlay from sources other than KB Online Holdings or its Affiliates.
BrainPlay shall be liable for any breach by any such Person of such obligations.
The obligation of BrainPlay to hold any such information in confidence shall be
satisfied if it exercises the same care with respect to such information as it
would take to preserve the confidentiality of its own similar information.
7.6 BOOKS AND RECORDS. BrainPlay acknowledges and agrees that from and
after the Closing Toyco will be entitled to copies of all documents, books,
records, agreements and financial data of any sort relating to the Business.
BrainPlay agrees to deliver, at Closing, copies of all such books and records in
its possession to Toyco.
ARTICLE 8
COVENANTS OF ALL PARTIES
8.1 REASONABLE BEST EFFORTS; FURTHER ASSURANCES. Subject to the terms
and conditions of this Agreement, each of the parties hereto will use their
reasonable best efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all things necessary or desirable under applicable laws and
regulations to consummate the transactions contemplated by this Agreement.
8.2 CERTAIN FILINGS. (a) Each party hereto shall cooperate with the
other parties (i) in determining whether any action by or in respect of, or
filing with, any governmental body, agency, official or authority is required,
or any actions, consents, approvals or waivers are required to be obtained from
parties to any Contracts, in connection with the consummation of the
transactions contemplated by this Agreement and (ii) in taking such actions or
making such filings, furnishing information required in connection therewith and
seeking timely to obtain any such actions, consents, approvals or waivers.
(b) Promptly upon execution and delivery of this Agreement and if
required by law, each of KB Online Holdings and BrainPlay will prepare and file,
or cause to be prepared and filed, with the appropriate governmental
authorities, a notification with respect to the transactions contemplated by
this Agreement pursuant to the H-S-R Act. Each of KB Online Holdings and
BrainPlay will
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promptly provide all additional information requested, and take all other
actions necessary or appropriate, to comply with the notification requirements
under the H-S-R Act and to cause the expiration of all waiting periods under the
H-S-R Act.
8.3 PUBLIC ANNOUNCEMENTS. Each of the parties hereto agree not to issue
any press release or make any public statement with respect to this Agreement or
the transactions contemplated hereby without the approval of the other parties,
which approval shall not be unreasonably withheld, and, except as may be
required by applicable law or any listing agreement with any national securities
exchange, will not issue any such press release or make any such public
statement prior to receipt of such approval.
8.4 CAPITAL MARKETS TRANSACTION. (a) Each of the parties hereto will
use their reasonable best efforts during the 12-month period commencing on the
Closing Date to cause Toyco, or an Affiliate thereof (the "Public Entity"), to
seek an underwritten public offering of equity (a "Capital Markets
Transaction"). Any Capital Markets Transaction will require the approval of the
Toyco Board of Managers (as required by the Operating Agreement); PROVIDED,
HOWEVER, each of KB Online Holdings and BrainPlay will cause their designees to
the Toyco Board of Managers to approve a Capital Markets Transaction if:
(i) the gross proceeds exceed $50,000,000;
(ii) the market capitalization of the Public Entity as of the
effectiveness of the registration statement relating to the Capital
Markets Transaction exceeds $250,000,000;
(iii) each of (A) KB Online Holdings and (B) BrainPlay shall be
entitled to exchange their respective Interests in Toyco for shares of
the Public Entity, such exchange (1) to be structured in a manner that
would result in a tax-free transaction to the stockholders of
BrainPlay and (2) to be based on (x) the valuation of the Public
Entity as determined by the underwriter of the Capital Markets
Transaction and (y) the interest of the exchanging party in Toyco; and
(iv) the underwriters' lockup or similar restrictions on
transferability or share of the Public Entity held by KB Online
Holdings or BrainPlay shall not exceed 180 days.
(b) BrainPlay agrees that the condition set forth in Section
8.4(a)(iii) (1) shall be satisfied if the proposed structure to consummate a
Capital Markets Transaction is one in which (i) BrainPlay is the Public Entity
or (ii) BrainPlay becomes a subsidiary of the Public Entity in a reverse
triangular merger in which the stockholders of BrainPlay receive stock in the
Public Entity. BrainPlay agrees that it shall use its best efforts and exercise
good faith to evaluate whether any particular structure proposed by KB Online
Holdings to consummate a Capital Markets Transaction satisfies the condition set
forth in Section 8.4(a)(iii)(1).
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8.5 PUT OPTION. (a) If Toyco has not consummated a Capital Markets
Transaction on or before the third anniversary of the Closing Date, then on such
date (the "Put Trigger Date") each stockholder of BrainPlay shall have the
right, exercisable for one year after the Put Trigger Date, to require Toyco or
its Affiliates to purchase all of such stockholder's interest (the "Selling
Stockholder") in BrainPlay at a purchase price equal to the Selling
Stockholders' aggregate cash contributions to BrainPlay as set forth on Schedule
8.5 hereto, plus the amount of any cash contributions after the date of this
Agreement, so long as at the time such entity is not prohibited by law from
doing so.
(b) A Selling Stockholder may exercise its put right pursuant to
subparagraph (a) above by giving written notice of exercise to Toyco within one
year after the Put Trigger Date, which notice must specify a date for the
closing of the purchase which shall be at least thirty (30) days from the date
of the exercise notice. The purchase price shall be paid by Toyco to the Selling
Stockholder in immediately available funds at the closing.
8.6 GUARANTY. The parties acknowledge and agree that as of the date of
this Agreement, each of Toyco and KB Online Holdings shall execute and deliver a
counterpart signature page to the Master Guaranty Agreement and the Master
Intercompany Subordination Agreement as required pursuant to the Amended and
Restated Credit Agreement among Consolidated Stores Corporation, the Banks party
thereto and the various agents, dated as of May 15, 1998, as amended.
ARTICLE 9
EMPLOYEES AND EMPLOYEE BENEFITS
9.1 EMPLOYEES. With respect to each individual who, immediately prior
to the Closing Date, is employed (including persons absent from active service
by reason of illness, disability or leave of absence, whether paid or unpaid),
by BrainPlay (an "Employee"), (a) BrainPlay shall continue the employment of
each Employee (whether through BrainPlay or the current employee leasing
organization) or (ii) BrainPlay shall terminate the employment of each Employee
and, immediately thereafter, Toyco shall employ, or cause an Affiliate thereof,
to employ each Employee as mutually agreed by the parties. If any Employee Plan
of BrainPlay is terminated or discontinued in connection with the transactions
contemplated herein, such Employee Plan shall be given full credit for purposes
of eligibility in vesting (and in connection with severance or vacation plan or
policy, for the purposes of determining level of benefits) for any service of an
Employee with Toyco or an Affiliate thereof.
(b) Prior to the Closing, the parties agree to use their best efforts
and exercise good faith to determine a structure for the purposes of employing
the Employees and providing such Employee Plans as set forth herein.
(c) As soon as practicable after the Closing Date, BrainPlay, Toyco and
any of their respective Affiliates shall take all necessary action, if any, and
shall make any and all filings and
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submissions to the appropriate governmental agencies required to be made by any
of them, in connection with treatment of the Employee Plans hereunder.
9.2 EQUITY PROGRAM. The parties hereto agree to use good faith and
their best efforts to agree on an incentive equity program (the "Equity
Program") prior to the Closing Date which will provide for the grant of options
to acquire Units in (or substantially similar contractual rights from) Toyco to
or for the benefit of (i) certain of Toyco's officers, managers, and employees,
(ii) certain of Consolidated Stores Corporation's and/or its Affiliates'
officers and employees and (iii) if applicable, officers or employees of an
entity that provides management services to Toyco. The amount of Units (or
substantially similar contractual rights) available to be granted pursuant to
the Equity Program from time to time shall not exceed fifteen percent (15%) of
the outstanding Units immediately following the Closing and the initial grants
to be made under the Equity Program shall not exceed ten percent (10%) of the
outstanding Units immediately following the Closing.
9.3 BRAINPLAY ADMINISTRATIVE COSTS. After the Closing Date, Toyco
agrees that it shall reimburse BrainPlay, promptly upon submission to Toyco of
receipts therefor, for all administrative costs actually incurred by BrainPlay
in connection with BrainPlay's continuing existence as a corporate entity
subsequent to the Closing and prior to consummation of a Capital Markets
Transaction; provided, that the aggregate amount of all such reimbursements by
Toyco for administrative costs shall not exceed $25,000.
9.4 THIRD PARTY BENEFICIARIES. No provision of this Article 9 shall
create any third party beneficiary rights to any Employee or former employee of
BrainPlay (including any beneficiary dependent thereof) in respect of continued
employment or resumed employment, and no provision of this Article 9 shall
create any rights in any such persons in respect of any benefits that may be
provided, directly or indirectly, under any Employee Plan or Benefit
Arrangement.
ARTICLE 10
CONDITIONS TO CLOSING
10.1 CONDITIONS TO OBLIGATIONS OF ALL PARTIES. The obligations of each
party hereto to consummate the Closing are subject to the satisfaction of the
following conditions:
(a) No provision of any applicable law or regulation and no judgment,
injunction, order or decree shall prohibit the consummation of the Closing.
(b) Any applicable waiting period under the H-S-R Act (if applicable)
relating to the transactions contemplated hereby shall have expired or been
terminated.
(c) All actions by or in respect of or filing with any governmental
body, agency, official or authority required to permit the consummation of the
Closing shall have been taken, made or obtained.
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10.2 CONDITIONS TO OBLIGATION OF KB ONLINE HOLDINGS AND TOYCO. The
obligation of KB Online Holdings and Toyco to consummate the Closing is subject
to the satisfaction of the following further conditions:
(a) (j) BrainPlay shall have performed in all material respects all of
its obligations hereunder required to be performed by it on or prior to the
Closing Date, (ii) the representations and warranties of BrainPlay contained in
this Agreement and in any certificate or other writing delivered by BrainPlay
pursuant hereto shall be true in all material respects at and as of the Closing
Date as if made at and as of such date, it being understood that, for purposes
of this Section 10.2, where any such representation or warranty already includes
a Material Adverse Effect or materiality exception, the materiality exception in
this clause (ii) shall not apply, and (iii) KB Online Holdings and Toyco shall
have received a certificate signed by an officer of BrainPlay to the foregoing
effect.
(b) KB Online Holdings and Toyco shall have received an opinion of
counsel of BrainPlay, dated the Closing Date, in form and substance as shall be
reasonably satisfactory to each of them.
(c) KB Online Holdings and Toyco shall have received the audited
balance sheet of BrainPlay as of March 31, 1999 and the related statements of
income and cash flows for the year ended March 31, 1999 in accordance with
Section 2.6(b)(v), which shall not be materially and adversely different from
the unaudited financial statements attached hereto as Schedule 4.6; provided,
however, in the event (i) Toyco agrees to assume any materially and adversely
different item set forth therein, or (ii) Toyco does not agree to assume any
materially and adversely different item set forth therein but the stockholders
of BrainPlay assume such obligation (including by satisfying such obligation in
cash or by agreeing to a reduction in the equity interests of Toyco held by
BrainPlay), in each case subject to the approval of KB Online Holdings, then
this closing condition shall not apply.
(d) KB Online Holdings and Toyco shall have received Schedules 2.2(a)
and 4.17 in accordance with Section 2.6(b)(iv).
(e) KB Online Holdings and Toyco shall have received any updated
Schedules in accordance with Section 2.6(b)(vi), which shall not be materially
and adversely different from the Schedules attached hereto as of the date of
this Agreement; provided, however, in the event (i) Toyco agrees to assume any
material adverse newly disclosed item, or (ii) Toyco does not agree to assume
any material adverse newly disclosed item but the stockholders of BrainPlay
assume such obligation (including by satisfying such obligation in cash or by
agreeing to a reduction in the equity interests of Toyco held by BrainPlay), in
each case subject to the approval of KB Online Holdings, then this closing
condition shall not apply.
(f) KB Online Holdings and Toyco shall have received all documents it
may reasonably request relating to the existence of BrainPlay and the authority
of BrainPlay for this Agreement, all in form and substance reasonably
satisfactory to each of them.
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10.3 CONDITIONS TO OBLIGATIONS OF BRAINPLAY. The obligation of
BrainPlay to consummate the Closing is subject to the satisfaction of the
following further conditions:
(a) (i) Each of KB Online Holdings and Toyco shall have performed in
all material respects their respective obligations hereunder required to be
performed by them at or prior to the Closing Date, (ii) the representations and
warranties of each of KB Online Holdings and Toyco contained in this Agreement
and in any certificate or other writing delivered by any of them pursuant hereto
shall be true in all material respects at and as of the Closing Date as if made
at and as of such date, it being understood that, for purposes of this Section
10.3, where any such representation or warranty already includes a Material
Adverse Effect or materiality exception, the materiality exception in this
clause (ii) shall not apply, and (iii) BrainPlay shall have received a
certificate signed by an officer or authorized representative of each of KB
Online Holdings and Toyco to the foregoing effect.
(b) BrainPlay shall have received an opinion of counsel to or counsel
of each of KB Online Holdings and Toyco, dated the Closing Date, in form and
substance reasonably satisfactory to BrainPlay.
(c) BrainPlay shall have received all documents it may reasonably
request relating to the existence of each of KB Online Holdings and Toyco and
the authority of each of KB Online Holdings and Toyco for this Agreement, all in
form and substance reasonably satisfactory to BrainPlay.
(d) BrainPlay shall have received Schedules 2.1(a) and 2.1(c) in
accordance with Section 2.6(a)(v).
(e) With respect to Sections 10.2(c) and 10.2(e), in the case of any
materially and adversely different item, either Toyco or the BrainPlay
stockholders, with the approval of KB Online Holdings, as the case may be, shall
have assumed such obligation.
ARTICLE 11
SURVIVAL; INDEMNIFICATION
11.1 SURVIVAL. The covenants, agreements, representations and
warranties of the parties hereto contained in this Agreement or in any
certificate or other writing delivered pursuant hereto or in connection herewith
shall survive until the later of (a) the consummation of a Capital Markets
Transaction; or (b) the first anniversary of the Closing Date; provided,
however, that (i) the covenants and agreements contained in Articles 6, 7 and 8
hereof shall survive for the respective periods set forth therein, (ii) the
covenants, agreements, representations and warranties contained in Sections 4.14
and 4.17 hereof shall survive until expiration of the statute of limitations
applicable to the matters covered thereby (giving effect to any waiver,
mitigation or extension thereof), if later, and (iii) the representations and
warranties set forth in the first sentence of Section 4.13(a) hereof shall
survive until the third anniversary of the Closing Date. No covenant, agreement,
representation
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or warranty contained in this Agreement shall survive after the time at which it
would otherwise terminate pursuant to the preceding sentence unless notice of
the inaccuracy or breach thereof shall have been given to the party against whom
such indemnity may be sought prior to such time.
11.2 INDEMNIFICATION. (a) BrainPlay hereby agrees to indemnify KB
Online Holdings and Toyco (collectively, the "KB Indemnitees"), its Affiliates
and their respective directors and officers against and agrees to hold them
harmless from any and all damage, loss, liability and expense (including without
limitation reasonable expenses of investigation and reasonable attorneys' fees
and expenses in connection with any action, suit or proceeding) ("Damages")
incurred or suffered by the KB Indemnitees, arising out of (i) any
misrepresentation or breach of warranty, covenant or agreement made or to be
performed by BrainPlay pursuant to this Agreement or (ii) the Excluded
Liabilities.
(b) KB Online Holdings and Toyco (collectively, the "KB Indemnitors"),
jointly and severally, hereby agree to indemnify BrainPlay against and agree to
hold it harmless from any and all Damages incurred or suffered by the BrainPlay
arising out of any misrepresentation or breach of warranty, covenant or
agreement made or to be performed by the KB Indemnitors pursuant to this
Agreement.
(c) Toyco hereby agrees to indemnify BrainPlay and KB Online Holdings
and to hold each of them harmless from any and all Damages incurred or suffered
by any of them arising out of (i) the Assumed Liabilities, (ii) any liabilities
of Toyco arising subsequent to the Closing, and (iii) any liabilities of
BrainPlay in connection with any obligations of BrainPlay set forth in Article 9
hereof other than liabilities resulting from BrainPlay's fraud or gross,
intentional or willful misconduct.
11.3 PROCEDURES. (a) The party seeking indemnification under Sections
11.2 or 11.3 hereof (the "Indemnified Party") agrees to give prompt notice to
the party against whom indemnity is sought (the "Indemnifying Party") of the
assertion of any claim, or the commencement of any suit, action or proceeding in
respect of which indemnity may be sought under such Section; provided, however,
that, if a claim for indemnification under Section 11.2 hereof is based upon the
claim, demand, action or assertion of a third party, such notice shall be given
within ten Business Days after the Indemnified Party has received from such
third party written notice of such claim, demand, action or assertion. The
Indemnifying Party may, and at the request of the Indemnified Party shall,
participate in and control the defense of any such suit, action or proceeding at
its own expense. The Indemnifying Party shall not be liable under Section 11.2
hereof for any settlement effected without its consent of any claim, litigation
or proceeding in respect of which indemnity may be sought hereunder.
(b) After the Closing, this Article 11 will provide the exclusive
remedy for any misrepresentation or breach of warranty, covenant or other
agreement (other than those contained in Sections 2.6, 6.1 and 7.5 hereof), or
other claim arising out of this Agreement or the transactions contemplated
hereby other than claims relating to fraud or pursuant to Section 11.5, 11.6 and
11.7 hereof.
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11.4 THRESHOLD AND LIMITATION ON INDEMNIFICATION. An Indemnified Party
shall not be entitled to indemnification (or otherwise for Damages) under this
Article 11 or under any other provision of this Agreement unless and until the
aggregate of all Damages incurred and suffered by such Indemnified Party exceeds
$400,000; provided, however, when the aggregate of all Damages does exceed this
limitation, the Indemnified Party shall be entitled to seek indemnification from
the Indemnifying Party for all Damages incurred or suffered hereunder.
Notwithstanding the foregoing, the liability of each of the parties hereunder
shall be limited solely to their Interest in Toyco, which shall be adjusted to
reflect the payment of any Damages.
11.5 FAILURE TO MEET KB FUNDING OBLIGATIONS. The parties agree that the
remedies for a breach of Section 2.1(b) shall be, in addition to any other
rights available at law or in equity, as set forth in the Operating Agreement.
11.6 INJUNCTIVE RELIEF. KB Online Holdings acknowledges that monetary
damages would not adequately compensate Toyco in the event of a breach by KB
Online Holdings of its obligations under Section 6.7, and that injunctive relief
would be essential for Toyco to adequately protect itself hereunder.
Accordingly, KB Online Holdings agrees that, in addition to any other remedies
available to Toyco at law or in equity, Toyco shall be entitled to injunctive
relief in the event KB Online Holdings or any of its Affiliates is in breach of
the provisions of Section 6.7.
11.7 SPECIFIC PERFORMANCE. Toyco expressly agrees and understands that
the remedy at law for a breach by it of Section 8.5 will be inadequate, and
accordingly, acknowledges that upon adequate proof of its violation of Section
8.5, a stockholder of BrainPlay shall be entitled to compel specific performance
by Toyco of the obligations set forth in Section 8.5.
ARTICLE 12
TERMINATION
12.1 EVENTS OF TERMINATION. (a) This Agreement may be terminated at any
time prior to the Closing:
(i) by written agreement of KB Online Holdings, Toyco and
BrainPlay;
(ii) by either (A) KB Online Holdings, or (B) BrainPlay if the
Closing shall not have been consummated on or before July 31, 1999 and
such failure to close does not result from the actions or failure to
act of the terminating party;
(iii) by either (A) KB Online Holdings, or (B) BrainPlay, if
there shall be any law or regulation that makes consummation of the
transactions contemplated hereby illegal or otherwise prohibited or if
consummation of the transactions contemplated hereby would violate any
nonappealable final order, decree or judgment of any court or
governmental body having competent jurisdiction;
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(iv) by Brainplay, if any representation or warranty of KB Online
Holdings or Toyco contained in this Agreement shall prove to be
inaccurate in any material respect at the time when made (it being
understood that, for purposes of this subsection (iv), where any such
representation or warranty already includes a Material Adverse Effect
or materiality exception, the materiality exception in this subsection
(iv) shall not apply) and KB Online Holdings or Toyco, as the case may
be, shall refuse or fail after written notice to correct such
representation or warranty within 15 days of such written notice;
(v) by KB Online Holdings, if any representation or warranty of
BrainPlay contained in this Agreement shall prove to be inaccurate in
any material respect at the time when made (it being understood that,
for purposes of this subsection (v), where any such representation or
warranty already includes a Material Adverse Effect or materiality
exception, the materiality exception in this subsection (v) shall not
apply) and BrainPlay shall refuse or fail after written notice to
correct such representation or warranty within 15 days of such written
notice;
(vi) by BrainPlay, if there shall be any material breach or
violation of any material covenant or agreement herein to be performed
by KB Online Holdings, including the failure of KB Online Holdings to
deliver the License Agreement pursuant to Section 2.6(a)(iii), and
such breach of violation is not capable of cure prior to July 31,
1999;
(vii) by KB Online Holdings, if there shall be any material
breach or violation of any material covenant or agreement herein to be
performed by BrainPlay and such breach or violation is not capable of
cure prior to July 31, 1999;
(b) The party desiring to terminate this Agreement shall give written
notice of such termination to the other parties hereto.
12.2 EFFECT OF TERMINATION. If this Agreement is terminated as
permitted by Section 12.1 hereof, termination shall be without liability of any
party (or any stockholder, director, member, manager, officer, employee, agent,
consultant or representative of such party) to any other party to this
Agreement; provided that if such termination shall result from the willful
failure of any party hereto to fulfill a condition to the performance of the
obligations of the other party, failure to perform a covenant of this Agreement
or breach by such party of any representation or warranty or agreement contained
herein, such party shall be fully liable for any and all Damages incurred or
suffered by the other party as a result of such failure or breach. The
provisions of Sections 6.1, 7.5, 12.2 and Article 13 shall survive any
termination hereof pursuant to Section 12.1.
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ARTICLE 13
MISCELLANEOUS
13.1 NOTICES. All notices and other communications under this Agreement
shall be in writing and shall be deemed to have been given (a) three days after
the registration if sent by registered mail, postage prepaid, return receipt
requested, (b) upon delivery by courier, (c) upon transmission by facsimile or
(d) upon e-mail to the following addresses:
If to KB Online Holdings or Toyco:
Consolidated Stores Corporation
000 Xxxxxxxx Xxxx
Xxxxxxxx, Xxxx 00000-0000
Attention: General Counsel
Fax: (000) 000-0000
Voice: (000) 000-0000
e-mail: xxxxx@xxxxxxxx.xxx
with a copy to:
Benesch, Friedlander,
Xxxxxx & Xxxxxxx LLP
0000 XX Xxxxx
000 Xxxxxx Xxxxxx
Xxxxxxxxx, Xxxx 00000
Attention: Xxxxxxx Xxxxx, Esq.
Fax: (000) 000-0000
Voice: (000) 000-0000
e-mail: xxxxxx@xxxx.xxx
If to BrainPlay:
XxxxxXxxx.xxx, Inc.
000 Xxxxxxxxxxx Xxxxxx
Xxxxx 000
Xxxxxx, Xxxxxxxx 00000
Attention: Xxxxxxx Xxxxxxxxxx
Fax: (000) 000-0000
Voice: (000) 000-0000
e-mail: xxxxxxx@xxxxxxxxx.xxx
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with a copy to:
Xxxxxxx, Xxxxxxx & Xxxxxxxx LLP
25th Floor
0000 Xxxxxxxxxxx Xxxxxx
Xxxxxx, Xxxxxxxx 00000
Attention: Xxxxxx Xxxxxxxxxxx, Esq.
Fax: (000)000-0000
Voice: (000) 000-0000
e-mail: xxxxxxxxxxxx@xxxxxxx.xxx
13.2 BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding upon
and inure to the benefit of the parties and their respective successors and
assigns. No assignment of this Agreement or of any rights or obligations
hereunder (by operation of law or otherwise) may be made without consent of the
other parties, except, however, that KB Online Holdings may assign its rights or
obligations (other than the KB Funding Obligations or the redemption obligations
set forth in Section 8.5) hereunder to one or more of its respective Affiliates.
Any attempted assignment without any required consent hereunder shall be void.
13.3 THIRD PARTY BENEFICIARIES. Nothing in this Agreement is intended
or shall be construed to confer on any person other than the parties any rights
or benefits hereunder, except, however, that the stockholders of BrainPlay shall
have the right to enforce the provisions of Section 8.5 against Toyco or its
Affiliates, or against Consolidated Stores Corporation or its Affiliates or Mac
Frugel's Bargains Close-outs Inc. or its Affiliates as the guarantors as
hereinafter provided.
13.4 HEADINGS. The headings in this Agreement are intended solely for
convenience of reference and shall be given no effect in the construction or
interpretation of this Agreement.
13.5 GOVERNING LAW; CONSENT TO JURISDICTION. This Agreement shall be
governed by and construed in accordance with the laws of the State of Ohio
without regard to conflicts of law rules of such state. Any action or
proceeding, however characterized, relating to or arising out of this Agreement,
or in connection with the subject matter hereof shall be maintained in the state
or federal courts located in the County of Franklin and State of Ohio, and the
parties hereto, each for itself, its successors and permitted assigns, hereby
irrevocably submits to the jurisdiction of the courts of the State of Ohio and
the Courts of the United States of America sitting in the County of Franklin and
State of Ohio for the purposes of any such action or proceeding and irrevocably
agrees to be bound by any judgment rendered thereby in connection with this
Agreement.
13.6 WAIVERS. Compliance with the provisions of this Agreement may be
waived only by a written instrument specifically referring to this Agreement and
signed by the party waiving compliance. No course of dealing, nor any failure or
delay in exercising any right, shall be construed as a waiver, and no single or
partial exercise of a right shall preclude any other or further exercise of that
or any other right.
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13.7 EXPENSES. Except as otherwise expressly provided herein, Toyco
shall bear all of the fees and expenses of each of KB Online Holdings, BrainPlay
and Toyco (including, without limitation, reasonable fees and disbursements of
counsel, accountants and other experts) incurred by them in connection with the
preparation, negotiation, execution, delivery and performance of this Agreement,
each of the other documents and instruments executed in connection with or
contemplated by this Agreement and the consummation of the transactions
contemplated hereby and thereby. If the transactions contemplated herein are not
consummated, all costs and expenses incurred in connection with this Agreement
will be borne by the party incurring such cost or expense.
13.8 SEVERABILITY. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, each of which shall remain in full force and
effect.
13.9 AMENDMENT. No amendment of this Agreement shall be binding unless
made in a written instrument that specifically refers to this Agreement and is
signed by all parties hereto.
13.10 ENTIRE AGREEMENT. This Agreement (together with the Exhibits and
Schedules hereto) is the exclusive statement of the agreement among KB Online
Holdings, BrainPlay and Toyco concerning the subject matter hereof. All
negotiations, disclosures, discussions and investigations relating to the
subject matter of this Agreement are merged into the Agreement and there are no
representations, warranties, covenants, understandings, or agreements, oral or
otherwise, relating to the subject matter of the Agreement, other than those
included herein.
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13.11 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the document.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written
KB ONLINE HOLDINGS, INC.
By: /s/Xxxxxxx X. Xxxxxx
-----------------------------
Name: Xxxxxxx X. Xxxxxx
---------------------------
Title: Executive Vice President
--------------------------
XXXXXXXXX.XXX
By:
-----------------------------
Xxxxxxx Xxxxxxxxxx
President and Chief Executive Officer
XXXXX.XXX LLC
By: K.B. Consolidated, Inc. its Member
By: /s/Xxxxxx X. Xxxx
---------------------------
Name: Xxxxxx X. Xxxx
---------------------------
Title: Executive Vice President
--------------------------
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13.8 SEVERABILITY. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, each of which shall remain in full force and
effect.
13.9 AMENDMENT. No amendment of this Agreement shall be binding unless
made in a written instrument that specifically refers to this Agreement and is
signed by all parties hereto.
13.10 ENTIRE AGREEMENT. This Agreement (together with the Exhibits and
Schedules hereto) is the exclusive statement of the agreement among KB Online
Holdings, BrainPlay and Toyco concerning the subject matter hereof. All
negotiations, disclosures, discussions and investigations relating to the
subject matter of this Agreement are merged into the Agreement and there are no
representations, warranties, covenants, understandings, or agreements, oral or
otherwise, relating to the subject matter of the Agreement, other than those
included herein.
13.11 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the document.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
KB ONLINE HOLDINGS, INC.
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
XXXXXXXXX.XXX
By: /s/Xxxxxxx Xxxxxxxxxx
-----------------------------
Xxxxxxx Xxxxxxxxxx
President and Chief Executive Officer
XXXXX.XXX LLC
By: K.B. Consolidated, Inc. its Member
By:
---------------------------
Name:
---------------------------
Title:
--------------------------