Toy giant Mattel has agreed in principle to acquire the assets of award-winning nabi tablet creator Fuhu.

Fuhu has filed for Chapter 11 in the U.S. Bankruptcy Court in Delaware so that it can continue to operate in the interim under the benefits and protections afforded in the Bankruptcy Code.

According to Fuhu, after examining its options, the company decided that filing for Chapter 11 would provide the most effective and efficient process to increase the value of the company’s assets for all stakeholders, while allowing the company to operate the business as normal during the sale process.

Under the proposed deal between the two El Segundo, California-based companies, Mattel would become a “stalking horse” bidder for Fuhu’s assets, which means other interested buyers will have the opportunity to present a competing offer to buy the business.

Mattel’s proposed acquisition of Fuhu will follow the usual steps such as final documentation and other customary closing conditions, all of which will be overseen and approved by the bankruptcy court.

In a prepared statement, Fuhu CEO Jim Mitchell notes the company expects to be able to fulfill ongoing obligations to customers, vendors and employees pending the sale of company, as well as ensure a strong future for the company with the proposed acquisition.

He adds Fuhu expects to continue shipping its nabi tablets to customers, provide customer support and honor existing nabi Shop gift cards. It will also continue to develop its software, including nabi Pass (pictured) – the kid-safe app and content subscription service (US$4.99/month) that launched a year ago and is loaded with content from leading kids brands.

Fuhu, which was named the fastest-growing private children’s company in the US in both 2013 and 2014 by Inc. Magazine, had also just entered the wearable toy space with its nabi Compete – a fitness tracker infused with gaming, competition and personalization elements. And last January, Fuhu launched the nabi Square HD, a kids action camera with wifi and 4K video capabilities that works with an app to live-stream the feed.