<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported): DECEMBER 22, 1998
Commission file number 0-22464
-------
KOALA CORPORATION
-----------------
(Exact name of small business issuer
as specified in its charter)
Colorado 84-1238908
-------- ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
5031 So. Ulster Street, Suite 300, Denver, CO 80237
---------------------------------------------------
(Address of principal executive offices)
(303) 770-3500
-------------------
(Issuer's telephone number)
Not Applicable
---------------------------------------------------
(Former name, former address, and former fiscal year,
if changed since last report)
<PAGE>
ITEM 2. ACQUISITION OF ASSETS
On December 22, 1998, Koala Corporation (the "Company"), acquired all of
the assets of Park Structures, Inc. and Park Structures Sales, Inc., both
incorporated in the State of Florida, (collectively "Park Structures") for $12.7
million plus $590,000 as a preliminary payment for certain current assets. The
Company has issued a promissory note for the purchase price, which is payable on
January 4, 1999. The Company will finance the payment of the promissory note
with the combination of (1) the proceeds of a secondary public offering of
1,200,000 shares of Common Stock, of which 320,000 shares were issued by the
Company (the "Offering"), (2) the proceeds of a revolving credit facility with
U.S. Bank National Association, and (3) working capital. In addition, if certain
earnings targets are met, Park Structures will receive up to an additional $6.0
million during 1999, of which up to $1.5 million will be payable in Common
Stock.
Based in Coral Springs, Florida, Park Structures produces and markets
children's outdoor modular play systems for municipalities, parks, public and
private schools, day care centers and private developers. The assets acquired
by the Company included current assets, fixed assets, intellectual property and
molds.
The purchase price and terms were negotiated on an arms length basis with
Park Structures. No principal of Park Structures had a relationship with the
Company prior to the transaction.
ITEM 5. OTHER EVENTS
The Company completed the above referenced Offering on December 22, 1998.
The Offering included the sale of 880,000 shares owned by a selling shareholder.
Thomas W. Gamel, a member of the selling shareholder, was also a member of the
Company's Board of Directors. On December 23, 1998, Mr. Gamel submitted his
resignation as a Director. The Company will not seek a replacement for Mr.
Gamel.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL
INFORMATION AND EXHIBITS
(A) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
The following financial statements of the business acquired are filed
herewith:
Financial Statements of Park Structures, Inc. as of December 31, 1996 and
1997 and September 30, 1997 and 1998 (unaudited) and for the years then
ended.
Independent Auditor's Report.
Combined Balance Sheets as of December 31, 1996 and 1997 and
September 30, 1998 (unaudited).
Combined Income Statements for the Years ended December 31, 1996 and
1997 and the Nine Month Periods Ended September 30, 1997 and 1998
(unaudited).
Combined Statement of Stockholder's Equity for the Years ended
December 31, 1996 and 1997 and the Nine Month Periods Ended September
30, 1997 and 1998 (unaudited).
Combined Statements of Cash Flows for the Years ended December 31,
1996 and 1997 and the Nine Month Periods Ended September 30, 1997 and
1998 (unaudited).
Notes to Combined Financial Statements.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL
INFORMATION AND EXHIBITS (CONTINUED)
(B) PRO FORMA FINANCIAL INFORMATION.
The following pro forma financial statements of the registrant are filed
herewith:
Unaudited Pro Forma Consolidated Financial Statements of Koala Corporation
for the Nine Months Ended September 30, 1998 and for the Year Ended
December 31, 1997.
Unaudited Pro Forma Consolidated Financial Statements Introduction.
Unaudited Pro Forma Consolidated Balance Sheet as of September 30,
1998.
Unaudited Pro Forma Consolidated Statement of Income for the Year
ended December 31, 1997.
Unaudited Pro Forma Consolidated Statement of Income for the Nine
Months Ended September 30, 1998.
Notes to Unaudited Pro Forma Consolidated Financial Statements.
(C) EXHIBITS.
2.1 Agreement for Sale and Purchase of Assets dated August 14, 1998 by and
among Koala Corporation, Park Structures, Inc, Park Structures Sales,
Inc., Alan Bayman and Kay Bayman.
10.1 Form of Revolving Credit Agreement dated December 16, 1998 between
Koala Corporation and U.S. Bank National Association.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this ammendment to be signed on its behalf by the
undersigned thereunto duly authorized.
KOALA CORPORATION
Date: December 31, 1998 By: /s/ Mark A. Betker
-----------------------------------
Mark A. Betker, Chairman and Chief
Executive Officer
<PAGE>
INDEX TO FINANCIAL STATEMENTS
SEQUENTIAL
DESCRIPTION PAGE NO.
----------- --------
Financial Statements of Park Structures, Inc. as of
December 31, 1996 and 1997 and September 30, 1997 and 1998
(unaudited) and for the Periods then Ended................. F-1 to F-11
Unaudited Pro Forma Consolidated Financial Statements of
Koala Corporation for the Nine Months Ended September 30,
1998 and for the Year Ended December 31,1997............... F-12 to F-18
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Park Structures, Inc. and Affiliate
Coral Springs, Florida
We have audited the accompanying combined balance sheets of Park Structures,
Inc. and Affiliate as of December 31, 1997 and 1996, and the related combined
statements of income, retained earnings and stockholder's equity and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Park Structures,
Inc. and Affiliate at December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the two years in the period ended
December 31, 1997, in conformity with generally accepted accounting
principles.
Boca Raton, Florida
July 28, 1998 Goldstein Lewin & Co.
F-1
<PAGE>
PARK STRUCTURES, INC. AND AFFILIATE
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1996 1997 1998
------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............ $ 537,609 $ 333,521 $ 327,129
Accounts receivable.................. 1,183,401 1,099,070 2,129,993
Other receivables.................... -- -- 14,942
Inventories.......................... 939,850 1,073,006 1,582,798
Prepaid expenses..................... -- 21,797 105,597
Current portion of note receivable... -- -- 15,000
Current portion of deferred rent
expense............................. -- 13,307 13,307
---------- ---------- ----------
Total current assets.................. 2,660,860 2,540,701 4,188,766
---------- ---------- ----------
Property and equipment, net........... 38,173 666,385 816,244
---------- ---------- ----------
Other assets:
Note receivable, net of current
portion............................. -- -- 30,000
Deferred rent expense, net of current
portion............................. -- 42,138 32,158
Deposits............................. 3,663 25,350 98,164
---------- ---------- ----------
3,663 67,488 160,322
---------- ---------- ----------
$2,702,696 $3,274,574 $5,165,332
========== ========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of capital lease
obligations......................... $ -- $ 4,091 $ 4,360
Accounts payable and accrued
expenses............................ 601,242 338,233 513,150
Customers' deposits.................. -- 39,428 118,401
Line of Credit....................... -- -- 178,900
Loan from related party.............. 807,603 466,956 430,956
---------- ---------- ----------
Total current liabilities............. 1,408,845 848,708 1,245,767
---------- ---------- ----------
Capital lease obligations, net of
current portion...................... -- 18,818 15,513
---------- ---------- ----------
Commitments and contingencies
Stockholder's equity:
Common stock......................... 1,000 1,000 1,000
Retained earnings.................... 1,292,851 2,406,048 3,903,052
---------- ---------- ----------
1,293,851 2,407,048 3,904,052
---------- ---------- ----------
$2,702,696 $3,274,574 $5,165,332
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
PARK STRUCTURES, INC. AND AFFILIATE
COMBINED INCOME STATEMENTS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
---------------------- ----------------------
1996 1997 1997 1998
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Sales, net................ $7,145,279 $8,241,758 $5,717,299 $6,847,436
Cost of goods sold........ 4,909,576 5,559,611 3,856,888 4,083,517
---------- ---------- ---------- ----------
Gross profit.............. 2,235,703 2,682,147 1,860,411 2,763,919
Selling, general and
administrative expenses.. 1,330,301 1,332,366 991,422 1,119,499
---------- ---------- ---------- ----------
Income from operations.... 905,402 1,349,781 868,989 1,644,420
---------- ---------- ---------- ----------
Other income and
(expenses):
Interest income.......... 9,224 31,640 25,729 8,129
Interest expense......... (31,978) (41,763) (35,766) (13,508)
Fee to related entity.... (599,219) (226,461) (182,604) --
Gain on sale of assets... -- -- -- 62,000
---------- ---------- ---------- ----------
Total other income and
(expenses)............... (621,973) (236,584) (192,641) 56,621
---------- ---------- ---------- ----------
Net income................ $ 283,429 $1,113,197 $ 676,348 $1,701,041
========== ========== ========== ==========
Pro forma net income data
(unaudited):
Net income, as reported.. $ 283,429 $1,113,197 $ 676,348 $1,701,041
Pro forma tax provision
(Note 1)................. 103,000 419,000 254,000 640,000
---------- ---------- ---------- ----------
Pro forma net income...... $ 180,429 $ 694,197 $ 422,348 $1,061,041
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
PARK STRUCTURES, INC. AND AFFILIATE
COMBINED STATEMENT OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON STOCK (NOTE 8)
----------------------------
SHARES
---------------------
PARK
PARK STRUCTURES
STRUCTURES SALES, RETAINED
INC. INC. AMOUNT EARNINGS
---------- ---------- ------ ----------
<S> <C> <C> <C> <C>
Balance, January 1, 1996............. 500 500 $1,000 $1,130,850
Distributions........................ (121,428)
Net income........................... 283,429
--- --- ------ ----------
Balance, December 31, 1996........... 500 500 1,000 1,292,851
Net income........................... 1,113,197
--- --- ------ ----------
Balance, December 31, 1997........... 500 500 1,000 2,406,048
Distributions (unaudited)............ (204,037)
Net income (unaudited)............... 1,701,041
--- --- ------ ----------
Balance, September 30, 1998
(unaudited)......................... 500 500 $1,000 $3,903,052
=== === ====== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
PARK STRUCTURES, INC. AND AFFILIATE
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------- --------------------
1996 1997 1997 1998
-------- ---------- -------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income........................ $283,429 $1,113,197 $676,348 $1,701,041
Adjustments to reconcile net in-
come to net cash provided by
(used in) operating activities:
(Gain) on sale of assets........ (62,000)
Depreciation.................... 25,236 19,075 15,442 58,712
Changes in assets and
liabilities:
(Increase) decrease in:
Accounts receivable............ (664,153) 84,331 (93,115) (1,030,923)
Other receivables.............. (14,942)
Inventories.................... (179,876) (133,156) (90,124) (509,792)
Prepaid expenses............... (21,797) (26,518) (83,800)
Deferred rent expense.......... (55,445) 9,980
Deposits....................... (21,687) (21,687) (72,814)
Increase (decrease) in:
Accounts payable and accrued
liabilities.................. 467,996 (263,009) (311,496) 174,917
Customer deposits............. (25,619) 39,428 88,911 78,973
-------- ---------- -------- ----------
Net cash provided by (used in) op-
erating activities................ (92,987) 760,937 237,761 249,352
-------- ---------- -------- ----------
Cash flows from investing
activities:
Proceeds from sale of assets...... 12,000
Purchase of equipment and
furniture........................ (623,089) (174,796) (208,571)
-------- ---------- -------- ----------
Net cash used in investing activi-
ties.............................. (623,089) (174,796) (196,571)
-------- ---------- -------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
PARK STRUCTURES, INC. AND AFFILIATE
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------- ------------------
1996 1997 1997 1998
------------ ----------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows provided by
financing activities:
Proceeds from line of credit.. $ $ 70,000 $ 70,000 $178,900
Payments on line of credit.... (70,000) (70,000)
Payments on capital lease
obligations.................. (1,289) (319) (3,036)
Payments received on note
receivable................... 5,000
Proceeds from related party
loans........................ 507,603 157,431
Repayment of related party
loans........................ (498,078) (316,647) (36,000)
Distributions to stockholder.. (121,428) (204,037)
------------ ----------- -------- --------
Net cash provided by (used in)
financing activities.......... 386,175 (341,936) (316,966) (59,173)
------------ ----------- -------- --------
Increase (decrease) in cash.... 293,188 (204,088) (254,001) (6,392)
Cash:
Beginning..................... 244,421 537,609 537,609 333,521
------------ ----------- -------- --------
Ending........................ $ 537,609 $ 333,521 $283,608 $327,129
============ =========== ======== ========
Supplementary disclosures:
Interest paid................. $ 31,978 $ 41,763 $ 35,766 $ 13,508
============ =========== ======== ========
Supplementary schedule of
noncash investing and financ-
ing activities:
Note received as payment for
sale of assets............... $ -- $ -- $ -- $ 50,000
============ =========== ======== ========
Capital lease obligations in-
curred for acquisition of
equipment..................... $ -- $ 24,198 $ 24,198 $ --
============ =========== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
PARK STRUCTURES, INC. AND AFFILIATE
NOTES TO THE COMBINED FINANCIAL STATEMENT
(Information with respect to the nine months ended September 30, 1997 and 1998
is unaudited)
NOTE 1: NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Park Structures, Inc. and its affiliate, Park Structures Sales, Inc.,
collectively known as the "Company", were incorporated in the State of Florida
on January 8, 1986 and February 2, 1995, respectively, to engage in the
manufacturing and sale of playground and park equipment, primarily in the
continental United States.
A summary of the Company's significant accounting policies follows:
Principles of Combination
The combined financial statement includes the accounts of the Company and
its affiliate. All significant intercompany transactions have been eliminated
in the combined financial statements. The companies have been combined because
of their common ownership.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
Inventories
Inventories of finished goods and work in process are stated at the lower of
standard cost (which approximates average cost) or market. Raw material
inventories are stated at the lower of average cost or market.
Property and Equipment
Property and equipment are stated at cost and depreciated on a straight-line
basis over the assets' estimated useful lives. Amortization of capital leases
is included in depreciation expense.
Income Taxes
The Company, with the consent of its shareholder, has elected under the
Internal Revenue Code to be treated as an S corporation. In lieu of corporate
income taxes, the stockholder of an S corporation is taxed on his
proportionate share of the Company's taxable income. Therefore, no provision
or liability for Federal or State income taxes has been included in the
financial statement. Had such taxes been payable by the combined corporations,
a tax provision of approximately $103,000 and $419,000 for the years ended
December 31, 1996 and 1997, respectively, and $254,000 and $640,000 for the
nine months ended September 30, 1997 and 1998, respectively, would have
resulted on a combined corporation basis. The provision has been calculated
for Federal and State purposes utilizing a blended rate of 36.3% for December
31, 1996 and 37.6% for December 31, 1997 and September 30, 1997 and 1998.
F-7
<PAGE>
PARK STRUCTURES, INC. AND AFFILIATE
NOTES TO THE COMBINED FINANCIAL STATEMENT
(Information with respect to the nine months ended September 30, 1997 and 1998
is unaudited)
Revenue Recognition:
The Company recognizes revenue upon shipment of the unit.
Advertising Costs:
Advertising costs are generally charged to operations in the year incurred
and amounted to $172,422 and $265,401 during 1996 and 1997, respectively, and
$210,336 and $179,965 during the nine months ended September 30, 1997 and
1998, respectively.
Accounting Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statement. Actual results could differ from those estimates.
NOTE 2: INVENTORIES:
Inventories consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1996 1997 1998
------------ ------------ -------------
<S> <C> <C> <C>
Raw materials........................ $743,598 $ 848,949 $1,252,290
Work in process...................... 175,856 200,771 296,159
Finished goods....................... 20,396 23,286 34,349
-------- ---------- ----------
$939,850 $1,073,006 $1,582,798
======== ========== ==========
</TABLE>
NOTE 3: PROPERTY AND EQUIPMENT:
Property and equipment consists of:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, (LIFE IN
1996 1997 1998 YEARS)
------------ ------------ ------------- --------
<S> <C> <C> <C> <C>
Machinery & equipment..... $64,166 $104,674 $200,393 5
Vehicles.................. 69,372 69,372 69,372 5
Furniture & fixtures...... -- 2,655 29,194 7
Leasehold improvements.... -- -- 690,438 14
------- -------- --------
133,538 176,701 989,397
Less: accumulated
depreciation............. 95,365 114,440 173,153
------- -------- -------- ---
38,173 62,261 816,244
Construction in progress.. -- 604,124 --
------- -------- --------
$38,173 $666,385 $816,244
======= ======== ========
</TABLE>
F-8
<PAGE>
PARK STRUCTURES, INC. AND AFFILIATE
NOTES TO THE COMBINED FINANCIAL STATEMENT
(Information with respect to the nine months ended September 30, 1997 and 1998
is unaudited)
NOTE 4: LINE OF CREDIT:
In May, 1998, the Company entered into a $250,000 line of credit with a bank
which expires June 5, 1999. The line provides for interest, payable monthly,
at 9% through May, 1998 then interest is to be at prime plus .5%. The line is
guaranteed by the Company's president and collateralized by all the assets of
the Company.
NOTE 5: TRANSACTIONS WITH RELATED PARTIES:
Loans from a related party amounted to $807,603 at December 31, 1996 and
$466,956 at December 31, 1997. Of these amounts $300,000 was interest bearing,
at 10% per annum, through December 31, 1997. The balance of the loans are non-
interest bearing and payable on demand.
The Company paid $18,000 for rent expense and $30,000 for interest to a
related entity during each of the years ended December 31, 1997 and 1996.
Fees, based upon sales and income, to a related entity amounted to $226,461
and $599,219 for the years ended December 31, 1997 and 1996, respectively and
$182,604 and $-0- for the nine months ended September 30, 1997 and 1998,
respectively. The fee arrangement was terminated January 1, 1998.
NOTE 6: CAPITAL LEASE OBLIGATIONS:
The Company is the lessee of equipment under capital leases expiring in
various years through 2002. The assets and liabilities under capital leases
were recorded at the lower of the present value of the minimum lease payments
or the fair value of the asset.
Capital lease obligations at December 31, 1997 consist of:
<TABLE>
<S> <C>
Obligation under capital lease, $322 due monthly through August,
2002, with a bargain purchase option exercisable at that date for
$101............................................................. $14,949
Obligation under capital lease, $168 due monthly through August,
2002, with a bargain purchase option exercisable at that date for
$101............................................................. 7,960
-------
22,909
Less: Current portion............................................. (4,091)
-------
$18,818
=======
</TABLE>
The future minimum lease payments under capital leases together with the
present value of net minimum lease payments are due as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
1998................................................................ $ 5,880
1999................................................................ 5,880
2000................................................................ 5,880
2001................................................................ 5,880
2002................................................................ 3,920
-------
Total minimum lease payments........................................ 27,440
Less: amount representing interest.................................. (4,531)
-------
Present value of net minimum lease payments......................... $22,909
=======
</TABLE>
F-9
<PAGE>
PARK STRUCTURES, INC. AND AFFILIATE
NOTES TO THE COMBINED FINANCIAL STATEMENT
(Information with respect to the nine months ended September 30, 1997 and 1998
is unaudited)
NOTE 7: OPERATING LEASES:
The Company has entered into non-cancelable operating leases for building
and equipment.
The following is a schedule by year of future minimum lease payments under
the non-cancelable operating leases which have initial or remaining lease
terms in excess of one year at December 31, 1997.
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
1998.............................................................. $227,375
1999.............................................................. 209,007
2000.............................................................. 206,289
2001.............................................................. 198,000
2002.............................................................. 33,000
--------
$873,671
========
</TABLE>
As part of the lease agreement certain rental amounts were abated for the
first five month period of the lease. In addition, the Company did not take
control of the premises until mid-December, 1997. Consequently, $56,000 has
been capitalized as net deferred rent and is being amortized over the
remaining life of the lease (50.5 months).
NOTE 8: CAPITAL STRUCTURE:
At December 31, 1997 common stock consisted of 500 authorized, issued and
outstanding shares, $1.00 par value, for each of Park Structures, Inc. and its
affiliate.
NOTE 9: CONTINGENCIES:
Warranties:
The Company provides warranties ranging from one year on certain parts of
the structures to a lifetime warranty on certain metallic parts. The Company
has experienced minimal warranty claims which have not been passed on to the
original supplier of the materials or parts; therefore, as of December 31,
1997 and September 30, 1998, no accrual has been made for future claims.
NOTE 10: CONCENTRATION OF CREDIT RISK:
The Company places its excess cash investments in a financial institution in
amounts that at times exceeds the Federal insured limits.
The Company's credit sales are made to customers in the ordinary course of
business. The Company performs on going credit evaluations of its customers
and generally requires no collateral.
NOTE 11: INTERIM FINANCIAL INFORMATION:
In the opinion of management, the accompanying unaudited interim financial
statements contain all adjustments, consisting of only normal recurring
adjustments, necessary to present fairly the financial position of the Company
and the results of its operations and cash flows for the nine months ended
September 30, 1997 and 1998 and changes in stockholders equity for the nine
months ended September 30, 1998. The results of operations and cash flows for
the nine months ended September 30, 1997 and 1998 are not necessarily
indicative of the results of operations and cash flows for the full year.
F-10
<PAGE>
PARK STRUCTURES, INC. AND AFFILIATE
NOTES TO THE COMBINED FINANCIAL STATEMENT
(Information with respect to the nine months ended September 30, 1997 and 1998
is unaudited)
NOTE 12: EVENT (UNAUDITED) SUBSEQUENT TO THE DATE OF THE REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANT:
In August 1998, the Company signed an agreement to sell the combined assets
of the Company in consideration for up to $18.7 million in cash and common
stock of Koala Corporation (Koala). Closing of the sale is planned to occur
simultaneously with the closing of a secondary public offering of Koala's
common stock.
F-11
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS--INTRODUCTION
The accompanying unaudited pro forma consolidated financial statements
reflect the consolidated results of operations of Koala Corporation for the
year ended December 31, 1997, and the nine months ended September 30, 1998
after giving pro forma effect to the purchase of Park Structures and Delta
Play, Ltd. ("Delta Play"). The unaudited pro forma consolidated financial
statements should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" of the Company and
Park Structures and the respective historical financial statements of the
Company, Park Structures and Delta Play, Ltd. contained in the Company's
registration statement no. 333-61551. The unaudited pro forma information does
not purport to be indicative of actual results that would have been achieved had
the acquisitions actually been completed as of the dates indicated on the
following pages nor which may be achieved in the future.
F-12
<PAGE>
KOALA CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(ALL AMOUNTS IN US DOLLARS)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
---------------------------------------------------------
KOALA PARK PRO FORMA
CORPORATION STRUCTURES ADJUSTMENTS PRO FORMA
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
(A) (B)
ASSETS
Current assets:
Cash................... $ 1,187,522 $ 327,129 $(1,514,651)(c) $ 0
Accounts receivable,
net of allowance for
doubtful accounts..... 3,229,418 2,144,935 (14,942)(d) 5,359,411
Inventory.............. 1,708,608 1,582,798 0 3,291,406
Prepaid expenses....... 693,622 133,904 (28,307)(d) 799,219
Deferred offering and
acquisition costs..... 251,000 0 (251,000)(c) 0
Deferred income taxes.. 14,314 0 0 14,314
----------- ---------- ----------- -----------
Total current assets.... 7,084,484 4,188,766 (1,808,900) 9,464,350
----------- ---------- ----------- -----------
Property and equipment,
net of accumulated
depreciation........... 1,464,766 816,244 0 2,281,010
----------- ---------- ----------- -----------
Other assets:
Other assets
intangibles and
patents, net of
accumulated
amortization.......... 8,534,896 0 9,957,975 (e) 18,492,871
Deposits and other..... 0 160,322 (62,158)(d) 98,164
----------- ---------- ----------- -----------
Total other assets...... 8,534,896 160,322 9,895,817 18,591,035
----------- ---------- ----------- -----------
$17,084,146 $5,165,332 $ 8,086,917 $30,336,395
=========== ========== =========== ===========
LIABILITIES & SHAREHOLD-
ERS' EQUITY
Current liabilities:
Accounts payable and
accrued expenses...... $ 1,328,002 $1,066,867 $(1,066,867)(d) $ 1,328,002
Line of credit......... -- 178,900 (178,900) --
Accrued income taxes... 389,136 0 0 (d) 389,136
----------- ---------- ----------- -----------
Total current liabili-
ties................... 1,717,138 1,245,767 (1,245,767) 1,717,138
----------- ---------- ----------- -----------
Long-term liabilities:
Notes payable.......... 8,691,449 (s) 8,691,449
Other.................. 15,513 (15,513)(d) 0
----------- ---------- ----------- -----------
Total long-term liabili-
ties................... 0 15,513 8,675,936 8,691,449
----------- ---------- ----------- -----------
Deferred income taxes... 398,047 0 0 398,047
----------- ---------- ----------- -----------
Total liabilities....... 2,115,185 1,261,280 7,430,169 10,806,634
----------- ---------- ----------- -----------
Shareholders' equity:
Preferred stock........ 0 0 0 0
Common stock........... 252,736 1,000 31,000 (c)(f) 284,736
Additional paid in cap-
ital.................. 5,307,988 0 4,528,800 (c) 9,836,788
Translation of foreign
currency.............. (127,971) 0 0 (127,971)
Retained earnings...... 9,536,208 3,903,052 (3,903,052)(f) 9,536,208
----------- ---------- ----------- -----------
Total shareholders' eq-
uity................... 14,968,961 3,904,052 656,748 19,529,761
----------- ---------- ----------- -----------
$17,084,146 $5,165,332 $ 8,086,917 $30,336,395
=========== ========== =========== ===========
</TABLE>
See notes to unaudited pro forma consolidated financial statements
F-13
<PAGE>
KOALA CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(ALL AMOUNTS IN US DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
--------------------------------------------------------------
KOALA DELTA PLAY, PARK PRO FORMA
CORPORATION LTD. STRUCTURES ADJUSTMENTS PRO FORMA
----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(g) (h) (i)
Net sales............... $13,621,292 $1,878,044 $8,241,758 $ 0 $23,741,094
Cost of sales........... 5,528,542 1,148,999 5,559,611 (125,000)(j) 12,112,152
----------- ---------- ---------- --------- -----------
Gross profit............ 8,092,750 729,045 2,682,147 125,000 11,628,942
----------- ---------- ---------- --------- -----------
Selling, general and
administrative
expenses............... 4,230,988 370,596 1,332,366 0 5,933,950
Management, employee bo-
nuses and other fees... 0 219,106 0 0 (r) 219,106
Amortization of
intangibles and
patents............... 200,861 0 0 402,912 (k) 603,773
----------- ---------- ---------- --------- -----------
Income from operations.. 3,660,901 139,343 1,349,781 (277,912) 4,872,113
----------- ---------- ---------- --------- -----------
Other (income)
expenses............... (115,708) 0 10,123 (41,763)(l) (147,348)
Interest expense on
acquisition debt....... 0 0 0 615,705 (t) 615,705
Fees paid to related
entities............... 0 0 226,461 0 (r) 226,461
----------- ---------- ---------- --------- -----------
Income before provision
for income taxes....... 3,776,609 139,343 1,113,197 (851,854) 4,177,295
Provision for income
taxes.................. 1,340,697 49,467 419,000 (326,223)(m) 1,482,941
----------- ---------- ---------- --------- -----------
Net income.............. $ 2,435,912 $ 89,876 $ 694,197 $(525,631)(r) $ 2,694,354
=========== ========== ========== ========= ===========
Net income per share.... $ 0.97 (r) $ 0.95
=========== ===========
Weighted average shares
outstanding............ 2,503,654 (n) 2,823,654
=========== ===========
Net income per share--
diluted................ $ 0.96 (r) $ 0.94
=========== ===========
Weighted average shares
outstanding--diluted... 2,548,148 (n) 2,868,148
=========== ===========
</TABLE>
See notes to unaudited pro forma consolidated financial statements
F-14
<PAGE>
KOALA CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(ALL AMOUNTS IN US DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1998
---------------------------------------------------
KOALA PARK PRO FORMA
CORPORATION STRUCTURES ADJUSTMENTS PRO FORMA
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
(o) (p)
Net sales................ $13,492,507 $6,847,436 $ 0 $20,339,943
Cost of sales............ 5,977,138 4,083,517 0 10,060,655
----------- ---------- --------- -----------
Gross profit............. 7,515,369 2,763,919 0 10,279,288
----------- ---------- --------- -----------
Selling, general and
administrative
expenses................ 3,894,621 1,119,499 0 5,014,120
Amortization of
intangibles and
patents................. 196,137 0 248,949 (k) 445,086
----------- ---------- --------- -----------
Income from operations... 3,424,611 1,644,420 (248,949) 4,820,082
Interest expense on
acquisition debt........ 0 0 531,265 (u) 531,265
Other (income) expenses.. (19,940) (56,621) 48,492 (q) (28,069)
----------- ---------- --------- -----------
Income before provision
for income taxes........ 3,444,551 1,701,041 (828,706) 4,316,886
Provision for income
taxes................... 1,222,815 640,000 (330,321)(m) 1,532,494
----------- ---------- --------- -----------
Net income............... $ 2,221,736 $1,061,041 $(498,385) $ 2,784,392
=========== ========== ========= ===========
Net income per share..... $ 0.88 $ 0.98
=========== ===========
Weighted average shares
outstanding............. 2,527,362 (n) 2,847,362
=========== ===========
Net income per share--
diluted................. $ 0.86 $ 0.96
=========== ===========
Weighted average shares
outstanding--diluted.... 2,588,018 (n) 2,908,018
=========== ===========
</TABLE>
See notes to unaudited pro forma consolidated financial statements
F-15
<PAGE>
KOALA CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma consolidated balance sheet reflects the financial
position of Koala Corporation as of September 30, 1998, as if the acquisition
of Park Structures occurred on that date. The unaudited pro forma consolidated
statement of income for the year ended December 31, 1997 gives effect to the
consolidated results of operations for the year ended December 31, 1997, as if
the acquisitions of Park Structures and Delta Play occurred on January 1,
1997. The unaudited pro forma consolidated statement of income for the nine
months ended September 30, 1998 gives effect to the consolidated results of
operations for the nine months ended September 30, 1998, as if the acquisition
of Park Structures occurred on January 1, 1998. These results are not
necessarily indicative of the consolidated results of operations of the
Company as they may be in the future, or as they might have been had these
events been effective at January 1, 1997 and 1998, respectively. The unaudited
pro forma consolidated financial statements should be read in conjunction with
the historical financial statements of the Company and Park Structures and the
related notes thereto.
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
ARE AS FOLLOWS:
(a) Represents the unaudited consolidated balance sheet of Koala Corporation
as of September 30, 1998.
(b) Represents the unaudited combined balance sheet of Park Structures as of
September 30, 1998.
(c) The Company will finance the acquisition of Park Structures through a
combination of borrowings of bank debt and the proceeds from the issuance
and sale of 320,000 shares of Koala Corporation common stock at an assumed
market value of $16.25 per share pursuant to this Offering. Gross proceeds
of $5,200,000 million plus bank loan proceeds of $8,691,449 million plus
$1,514,651 million of available cash are used to pay acquisition costs of
$15,017,900 (see below) and stock offering costs of $639,200 (of which
approximately $151,000 has been paid through September 30, 1998). The
issuance of stock is reflected by increasing common stock by $32,000 and
additional paid in capital by $4,528,800 ($5,200,000, less $32,000
allocated to common stock, less $639,200 offering costs).
Park Structures preliminary acquisition cost at closing, based on
contractual consideration pursuant to the purchase agreement and estimated
direct costs incurred to consummate the transaction is as follows:
<TABLE>
<S> <C>
Purchase price-cash portion................................. $12,500,000
Payment for leasehold improvements.......................... 732,000
Additional amounts paid for current assets
and other assets, in excess of minimum..................... 1,635,900
Estimated direct costs of acquisition (approximately
$100,000 paid through September 30, 1998).................. 150,000
-----------
Total acquisition costs (preliminary)....................... $15,017,900
===========
</TABLE>
Park Structures is entitled to receive up to an additional $5.5 million,
of which $4.0 million is payable in cash and $1.5 million is payable in
the Company's common stock, if certain earnings targets are met. Assuming
the additional consideration is paid, total acquisition cost increases to
$20,517,900. Income from operations for the twelve months ended June 30,
1999 from Park Structures must be greater than $3,150,000 for the maximum
consideration to be paid. The additional consideration, if incurred, will
be allocated to goodwill and amortized to expense over 30 years. For the
year ended December 31, 1997, the impact on pro forma net income after
taxes of the additional consideration would be $122,550 per year, or $.04
per diluted share, for additional amortization expense, net of income
taxes. For the nine months ended September 30, 1998, the impact on pro
forma net income after taxes of the additional consideration would be
$91,900, or $.03 per diluted share, for additional amortization expense,
net of income taxes.
F-16
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED):
Should the Company utilize debt to finance the $4.0 million cash portion
of the additional consideration, the impact on December 31, 1998 pro forma
net income after taxes of the interest expense would be $210,270 for the
future months and $0.07 per diluted share. For the nine months ended
September 30, 1998, the impact on pro forma net income after taxes of the
interest expense would be $157,700 and $0.05 per diluted share
(d) Represents elimination of assets excluded and liabilities not assumed
pursuant to the terms of the Park Structures asset purchase agreement.
(e) Represents the allocation to intangible assets of the cost over fair value
of net assets acquired as a result of the preliminary purchase price
allocation for Park Structures.
(f) Elimination of common stock and retained earnings of Park Structures for
proper reflection of pro forma retained earnings as if the purchase
occurred on September 30, 1998.
(g) Represents the consolidated results of operations of Koala Corporation for
the year ended December 31, 1997, which includes the results of operations
of Delta Play Company for the seven months subsequent to its effective
acquisition date of June 1, 1997.
(h) Represents the unaudited results of operations of Delta Play, Ltd. for the
five months ended May 31, 1997, with all amounts translated to U.S.
currency at a rate of .72035, which is the average exchange rate for the
five month period.
(i) Represents the combined results of operations of Park Structures for the
year ended December 31, 1997.
(j) Represents the adjustment to remove the profit component of related party
charges from Safeplay Designs, Inc., an affiliate of Delta Play, Ltd. A
separate statement of income for Safeplay is not included in the
accompanying unaudited pro forma consolidated statement of income since
Delta Play, Ltd. was Safeplay's sole customer and the majority of payments
to Safeplay for design costs are recorded in cost of sales.
(k) Represents the increase to amortization expense for the amortization of
cost over fair value of net assets acquired over 30 years as a result of
the preliminary purchase price allocation for both Delta Play, Ltd. and
Park Structures. On the December 31, 1997 pro forma income statement, the
amount of the adjustment for Delta Play, Ltd. is $70,980 for the five
month period ended May 31, 1997, and the adjustment for Park Structures is
$331,732 for the twelve month period ended December 31, 1997. On the
September 30, 1998 pro forma income statement, the entire amount of the
adjustment equaling $248,949 relates to Park Structures.
(l) Represents interest expense incurred by Park Structures on liabilities not
assumed by Koala.
(m) Reflects applicable income tax effects of adjustments at an effective tax
rate of 35.5%.
(n) Reflects the increase to common stock equivalents for 320,000 shares
issued in connection with this offering
(o) Represents the unaudited consolidated results of operations of Koala
Corporation for the nine months ended September 30, 1998.
(p) Represents the combined results of operations of Park Structures for the
nine months ended September 30, 1998.
F-17
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED):
(q) Represents the elimination of $62,000 for gain on Park Structures sale of
an asset that was not acquired by Koala and elimination of Park Structures
interest expense of $13,508 on liabilities not assumed by Koala.
(r) Represents Delta Play, Ltd. management bonuses utilized for tax planning
purposes that will no longer be paid pursuant to the terms of the
employment agreement executed at the closing of the Delta purchase and
fees paid to related entities by Park Structures that will no longer be
paid after the closing of the Park Structures purchase.
These items were not given effect to as pro forma adjustments, but had
they been, pro forma net income and net income per share--diluted would be
as follows:
<TABLE>
<S> <C>
Pro forma net income before taxes................................ $4,177,295
Management bonuses............................................... 219,106
Fees to related entities......................................... 226,461
----------
Adjusted pro forma net income before taxes....................... 4,622,862
Provision for income taxes at 35.5%.............................. 1,641,116
----------
Adjusted net income.............................................. $2,981,746
Adjusted net income per share.................................... $ 1.06
Adjusted net income per share--diluted........................... $ 1.04
</TABLE>
(s) Represents the bank loan financing required to complete the purchase of
Park Structures along with utilization of the net proceeds of the
Offering. The credit facility provides for a moritorium on principal
repayments in year one.
(t) Represents interest expense, committment fees and amortization of
origination fees on the bank loan financing as if the loan was extended on
January 1, 1997. The average interest rate utilized is 7.99% which is the
average LIBOR rate plus 2.35% for the twelve month period ended December
31, 1997. For purposes of interest rate sensitivity, a variance in the
interest rate of up to 1/4% would have an immaterial effect on pro forma
income.
(u) Represents interest expense, committment fees and amortization of
origination fees on the bank loan financing as if the loan was extended on
January 1, 1998. The average interest rate utilized is 8.00% which is the
average LIBOR rate plus 2.35% for the nine month period ended September
30, 1998. For purposes of interest rate sensitivity, a variance in the
interest rate of up to 1/4% would have an immaterial effect on pro forma
income.
F-18
<PAGE>
EXHIBIT 2.1
AGREEMENT FOR SALE AND PURCHASE OF ASSETS
BY AND AMONG
PARK STRUCTURES, INC.,
PARK STRUCTURES SALES, INC.,
ALAN BAYMAN,
KAY BAYMAN
AND
KOALA CORPORATION
AUGUST 14, 1998
<PAGE>
AGREEMENT FOR SALE AND PURCHASE OF ASSETS
THIS AGREEMENT FOR SALE AND PURCHASE OF ASSETS ("Agreement") is made
and entered into as of August 14, 1998, by and among Park Structures, Inc., a
Florida corporation ("Park Structures"), and Park Structures Sales, Inc., a
Florida corporation ("Park Structures Sales") (Park Structures and Park
Structures Sales being referred to hereinafter collectively as "Seller"), Alan
Bayman, Kay Bayman and Koala Corporation, a Colorado corporation ("Buyer").
RECITALS
A. Seller conducts a business of designing, constructing, selling
and distributing outdoor play equipment and accessories for children's use in
commercial settings (the "Business").
B. Alan Bayman and Kay Bayman are the shareholders of Seller and are
herein referred to as the "Shareholders."
C. Seller, Alan Bayman and Kay Bayman desire to sell the Business
and substantially all of the assets used in the Business. Buyer desires to
purchase and acquire the Business and substantially all of the assets used in
the Business and to assume only specific liabilities as more specifically set
forth below.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein set forth, the parties hereto agree as follows:
ARTICLE I
Assets and Liabilities
----------------------
SECTION 1.1 Sale of Assets. Subject to the terms and conditions set
--------------
forth in this Agreement (and except for the assets excluded as provided in
Section 1.2 hereof), Seller shall sell, convey, transfer, assign and deliver to
Buyer or a newly-formed subsidiary of Buyer and Buyer or such subsidiary shall
purchase, all of Seller's right of title and interest in and to the Business and
the assets (the "Purchased Assets") owned by Seller or used in or necessary to
or useful to the Business as of the Effective Time (as hereinafter defined)
including, but not limited to, the following:
(a) All of Seller's cash, cash equivalents and prepaid
expenses;
(b) All of Seller's accounts receivable ("Accounts
Receivable");
(c) Notes receivable from Warthan and Bush Paint ("Notes
Receivable");
(d) All leasehold improvements, property, plant and
equipment, and tangible personal property of all kinds owned by Seller or used
or useful in the Business (the "Personal Property") including without limitation
all of the furniture and fixtures, leasehold
<PAGE>
improvements, molds and tooling (the "Molds") and equipment listed on Schedule
1.1(c) attached hereto;
(e) All of Seller's right, title and interest in and to the
name "Park Structures" and the patents, copyrights, trademarks, tradenames,
logos, patterns, designs, goodwill, customer lists, trade secrets, know how,
proprietary rights and other intellectual property rights owned by Seller or
used in the Business (the "Intellectual Property"), including the Intellectual
Property listed on Schedule 1.1(e) attached hereto;
(f) All forms and other supplies and expendables on order
or on hand (the "Supplies");
(g) All of Seller's existing contract rights, commitments,
purchase orders and sales orders relating to the Business and disclosed to Buyer
under Section 4.18 hereof as updated pursuant to Section 4.18 (the "Assigned
Contracts");
(h) All of Seller's franchises, licenses, registrations,
files, papers, books of account, sales and marketing records, personnel files
and all other books and records and files of any kind or description relating to
the Business;
(i) Seller's finished goods, work in process and parts
inventory (the "Purchased Inventory");
(j) All of Seller's rights in and to that certain Lease
Agreement dated March 20, 1997 with Handy & Harman Electronic Materials
Corporation pertaining to Seller's manufacturing facilities (the "Lease"); and
(k) All originals and copies of agreements, documents,
tapes, maps, books, records and files in the possession of Seller or the
Shareholders relating principally to the Business, including without limitation
electronically stored data.
The Purchased Assets shall include all of Seller's assets described above and/or
reflected in the June 30 Balance Sheet (as hereinafter defined), including
without limitation Other Assets (as hereinafter defined) and any such assets
acquired thereafter and prior to the Closing (as hereinafter defined) except for
inventory transferred or disposed of in the ordinary course of business after
June 30, 1998 or described in Section 1.2.
SECTION 1.2 Excluded Assets. The following assets of Seller (the
---------------
"Excluded Assets") shall be excluded from the Purchased Assets:
(a) Seller's prepaid expenses, as set forth in Seller's
December 31, 1997 balance sheet, deferred rent and other receivables as
described on Schedule 1.2, as such schedule shall be updated and mutually agreed
to by Seller and Buyer as of Closing.
-2-
<PAGE>
(b) Anything to the contrary in Section 1.1
notwithstanding, the Purchased Assets shall exclude and Buyer shall not purchase
the following assets of Seller: (i) a 1995 Corvette used by Alan Bayman; and
(ii) the corporate minute books and stock records of Seller and any other
corporate records which pertain to the corporation organization and
capitalization of Seller; provided that Buyer may receive a copy thereof at or
prior to Closing.
SECTION 1.3 Liabilities Assumed by Buyer. As of the Closing Date (as
----------------------------
hereinafter defined in Section 3.1), Buyer shall assume only the following
liabilities of Seller (the "Assumed Liabilities"): (a) liabilities arising from
and after the Closing Date under the Assigned Contracts and the Lease; and (b)
warranty liabilities ("Assumed Warranties"), if any, to the extent of the
warranty reserve reflected in the Closing Balance Sheet (as hereinafter defined
in Section 3.6).
SECTION 1.4 Liabilities Not Assumed by Buyer. Buyer shall not assume
--------------------------------
any liabilities of Seller except those described in Section 1.3 hereof. In
addition, Buyer shall not assume the Toyota-Lexus automobile lease referenced in
Schedule 4.15. Specifically, Buyer is not assuming any disclosed or undisclosed
liabilities of any nature not included as Assumed Liabilities relating to the
Business or its operation prior to the Closing Date, including any payments due
suppliers under any contracts or commitments not included as Assigned Contracts,
taxes of any kind, salaries, bonuses or any other amounts due Seller's employees
for the period prior to the Closing Date, pension or any other liability to any
of Seller's employees for the period prior to the Closing Date, or liabilities
resulting from any products sold by Seller prior to the Closing Date in excess
of the Assumed Warranties. Seller shall promptly pay when due or otherwise
discharge all liabilities relating to the Business and its operations prior to
the Closing Date that are not Assumed Liabilities; provided that Seller shall be
entitled to contest any liabilities in good faith so long as no lien or charge
is imposed on the Purchased Assets or Buyer as a result thereof. To the extent
that Seller shall require parts or other inventory after the Closing to satisfy
its warranty obligations or liabilities, Buyer shall supply such parts or other
inventory to Seller at Buyer's normal and customary prices and charges which
shall be commercially reasonable.
ARTICLE II
Purchase Price
--------------
SECTION 2.1 Purchase Price. The consideration for the purchase
--------------
("Purchase Price") shall be as follows:
(a) Cash in the amount of $12,000,000.00, subject to
adjustment as set forth herein (the "Cash Portion");
(b) Cash in an amount equal to $651,613.00, representing
the cost of leasehold improvements made to the manufacturing plant covered by
the Lease, net of accumulated depreciation, as reflected on the June 30 Balance
Sheet (as hereafter defined);
(c) Cash in an amount equal to leasehold improvements made
after June 30, 1998 approved by Buyer which are not greater than $30,000.00;
-3-
<PAGE>
(d) Cash in an amount equal to $82,444.00, representing
amounts paid for furniture, fixtures and equipment, net of depreciation, from
January 1, 1998 to June 30, 1998, as reflected on the June 30 Balance Sheet, and
amounts paid for such items after June 30, 1998 approved by Buyer;
(e) The Additional Purchase Price described in Section 2.2;
and
(f) The amount of the Assumed Liabilities.
The Purchase Price is based on Current Assets included in the
Purchased Assets being equal to $2,540,000.00 and Other Assets being equal to
$67,500.00. The Cash Portion will be increased or decreased on a dollar for
dollar basis by the amount that Current Assets is more or less than
$2,540,000.00 and Other Assets is more or less than $67,500.00, and will be
decreased by the amount of the Assumed Warranties described in Section 1.3(b),
if any. Current Assets shall mean the sum of cash, cash equivalents, accounts
receivable, inventory and prepaid expenses included in the Purchased Assets.
Other Assets shall mean other assets of Seller consistent with those reflected
in the Reports (as hereafter defined). Current Assets, Other Assets and Assumed
Warranties shall be determined based on the Closing Balance Sheet as specified
in Section 3.6.
SECTION 2.2 Additional Purchase Price. Buyer shall pay Seller an
-------------------------
additional amount based on EBITA for the Business for the nine month period
ended September 30, 1998 ("Nine Month Additional Purchase Price"), the twelve
(12) month period ended December 31, 1998 ("1998 Additional Purchase Price") and
for the six (6) month period ended June 30, 1999 ("1999 Additional Purchase
Price") (the Nine Month Additional Purchase Price, the 1998 Additional Purchase
Price and the 1999 Additional Purchase Price are collectively referred to as the
"Additional Purchase Price"). The Nine Month Additional Purchase Price shall be
determined under the following formula:
$1,500,000.00 - (($2,000,000.00 - the lesser of (i) Nine Month EBITA or
(ii) $2,000,000) x 3.5), provided that if the Nine Month Additional Purchase
Price is less than $1,500,000.00 (the "Nine Month Shortfall Amount") and
Adjusted 1998 EBITA is at least $2,000,000.00, Buyer shall pay Seller the Nine
Month Shortfall Amount.
The 1998 Additional Purchase Price shall be determined under the following
formula:
$3,500,000.00 - (($3,000,000.00 - the lesser of (i) Adjusted 1998 EBITA or
(ii) $3,000,000) x 3.5)
EBITA shall mean net income of the Business before interest, taxes,
amortization of acquisition intangibles, expenses of Goldstein Lewin & Co. in
preparing the Reports (as hereinafter defined) and reasonable legal fees and
costs relating to the transactions contemplated by this Agreement determined on
the basis of generally accepted accounting principles by Buyer's independent
certified public accountants in a manner that is materially consistent with the
preparation of the Reports. No deduction shall be taken for payments for or in
respect of pricing or other intercompany transactions or arrangements or
payments to Buyer's independent certified public
-4-
<PAGE>
accountants or legal expenses made after the Closing between Seller, Buyer or
their affiliates. Nine Month EBITA shall mean EBITA for the nine (9) month
period ended September 30, 1998, and 1998 EBITA shall mean EBITA for the twelve
(12) month period ended December 31, 1998. To the extent that sales from the
Business are less than $11,754,000.00 for the twelve (12) month period ended
December 31, 1998, 1998 EBITA shall be adjusted ("Adjusted 1998 EBITA") to
include the net contribution of backlog orders at December 31, 1998, to the
extent that the amount of such backlog orders exceeds $646,000.00 ("Excess
Backlog Orders"). Net contribution shall mean the gross dollar amount of the
Excess Backlog Orders multiplied by the average gross profit percentage for the
Business for the twelve (12) month period ended December 31, 1998, less
commissions or bonuses to representatives or salespersons associated with such
excess Backlog Orders. In any event, the amount of the Excess Backlog Orders
utilized in the above calculation shall not exceed the lesser of (i) the amount
of the shortfall in sales from $11,754,000.00, or (ii) $500,000. By way of
example but without limitation, if 1998 EBITA (or 1998 Adjusted EBITA) is
$2,900,000.00, the 1998 Additional Purchase Price shall be $3,150,000, and if
1998 EBITA (or 1998 Adjusted EBITA) is less than $2,000,000.00, no 1998
Additional Purchase Price shall be paid. Buyer shall pay 57% of the 1998
Additional Purchase Price in cash and 43% of the Additional Purchase Price in
common stock of Buyer ("Koala Common Stock"). The number of shares of Koala
Common Stock to be issued to Seller shall be based on the average daily closing
sale price of Buyer's Common Stock on the Nasdaq National Market in the month of
December 1998 (with the number of shares rounded to the nearest whole number).
If payable, the Nine Month Additional Purchase Price shall be payable on the
later of October 15, 1998 or fifteen (15) days after the Closing. If payable,
the 1998 Additional Purchase Price and the Nine Month Shortfall Amount shall be
paid to Seller on or before March 1, 1999. Seller agrees that the shares of
Koala Common Stock may not be sold, exchanged or otherwise transferred for two
(2) years from their date of issuance and that the certificates representing
such shares shall bear a legend to that effect; provided that Seller may assign
such shares to the Shareholders, any trust for the benefit of the Shareholders
and to any members of their immediate families (i.e., spouse and children)
subject to the same restriction.
The 1999 Additional Purchase Price shall equal $1,000,000.00 in cash. The
1999 Additional Purchase Price shall be payable only if EBITA for the six (6)
months ended June 30, 1999 is greater than 120% of EBITA for the six (6) months
ended June 30, 1998 (as shown in the Reports). The 1999 Additional Purchase
Price shall be paid to Seller on or before September 1, 1999. EBITA for the
purposes of the 1999 Additional Purchase Price shall be reduced by the amount of
any adjustment to 1998 EBITA for Excess Backlog Orders.
If after the Closing a Force Majeure (as hereinafter defined) occurs, the
periods used in computing the Nine Month Additional Purchase Price, the 1998
Additional Purchase Price and the 1999 Additional Purchase Price shall be
extended by the number of days during which the effects of a Force Majeure cause
the operation of the Business to be suspended or materially limited. "Force
Majeure" shall mean a fire, hurricane, tornado, flood or other Act of God,
explosion, labor dispute, accident or other calamity, civil disturbance, riot,
material slowdown or shutdown of any major supplier, government action or other
similar event not within the control of Buyer or the death or incapacitation of
Alan Bayman.
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<PAGE>
SECTION 2.3 Allocation of Purchase Price. The Purchase Price shall be
----------------------------
allocated among the Purchased Assets in the manner set forth in Schedule 2.3.
Buyer and Seller shall not take any position on their respective income tax
returns that is inconsistent with the allocation of the Purchase Price as set
forth in Schedule 2.3, and Buyer and Seller shall duly prepare and timely file
such reports and information returns as may be required under Section 1060 of
the Internal Revenue Code of 1986 to report the allocation of the Purchase Price
among the assets as set forth in Schedule 2.3.
SECTION 2.4 Past Due Payments. If any payment due Seller is not timely
-----------------
paid and delivered to it on the due date, interest thereon shall accrue and be
due at the rate of twelve (12.00%) per annum.
ARTICLE III
The Closing
-----------
SECTION 3.1 Place and Time. The closing (the "Closing") under this
--------------
Agreement will take place on a date specified by Buyer (the date on which the
Closing occurs is referred to herein as the "Closing Date"). The Closing will
take place on three business days notice to Seller at the offices of Parcel
Mauro PC, 1801 California Street, Suite 3600, Denver, Colorado. The Closing
will be effective as of the 12:01 a.m. Eastern Time on the first day of the
month in which the Closing occurs (the "Effective Time").
SECTION 3.2 Payment and Delivery by Buyer. At the Closing, and subject
-----------------------------
to the terms and conditions as set forth herein, Buyer shall:
(a) deliver to Seller the Cash Portion of the Purchase
Price, net of the holdbacks described in Sections 3.8 and 3.9, and the amount
determined under Section 2.1(b) in the form of a certified or bank cashier's
check or by wire transfer of funds;
(b) execute and deliver the certificate required by Section
9.1 hereof;
(c) cause Buyer to execute and deliver the General
Assignment, Conveyance and Assumption Agreement described in Section 3.3
pursuant to which Buyer will assume the Assumed Liabilities; and
(d) deliver an opinion of Buyer's counsel reasonably
acceptable to Seller and the Shareholders.
SECTION 3.3 Delivery by Seller. At the Closing, and subject to the
------------------
terms and conditions as set forth herein, Seller shall:
(a) execute and deliver a General Assignment, Conveyance
and Assumption Agreement, with warranty of title, conveying to Buyer all of the
Purchased Assets;
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<PAGE>
(b) execute and deliver such other warranty bills of sale,
endorsements, assignments, certificates of title, and other instruments of
transfer and conveyance as are reasonably requested by Buyer including if
required an Assignment of Lease;
(c) deliver fully executed releases of all liens, charges,
encumbrances or security interests affecting the Purchased Assets;
(d) execute and deliver appropriate documents changing its
name to a name that does not include "Park Structures";
(e) deliver duly signed consents required for the
assignment of any Assigned Contracts;
(f) execute and deliver the certificate required by Section
8.1 hereof; and
(g) deliver an opinion of counsel to Seller and the
Shareholders reasonably acceptable to Buyer.
The documents described in (a), (b), (e) and (f) shall be prepared by
Buyer's counsel and shall be reasonably satisfactory to Seller and Seller's
counsel. All of the Purchased Assets shall be conveyed to Buyer free and clear
of all liens and encumbrances. Each party will from time to time after the
Closing, at the other party's request, execute such further instruments as the
other party reasonably deems necessary to carry out the sale of the Purchased
Assets pursuant to this Agreement.
SECTION 3.4 Other Deliveries. At the Closing, and subject to the terms
----------------
and conditions as set forth herein, Buyer and Alan Bayman shall enter into the
letter agreement regarding his employment by Buyer attached as Exhibit A.
SECTION 3.5 Possession. Buyer shall be entitled to take possession of
----------
and Seller shall deliver to Buyer the Purchased Assets at the close of business
on the Closing Date effective as of the Effective Time. The delivery shall take
place at Seller's principal place of business.
SECTION 3.6 Calculation of Current Assets, Other Assets and Assumed
-------------------------------------------------------
Warranties. Current Assets, Other Assets and Assumed Warranties shall be
- -----------
determined as of the close of business on the business day immediately preceding
the Closing Date (the "Closing Balance Sheet Date") based on a balance sheet
(the "Closing Balance Sheet") prepared by Buyer's independent certified public
accountants in accordance with generally accepted accounting principles subject
to the following:
(a) Purchased Inventory shall be valued at the lower of
cost or market value, with no value being given to obsolete (i.e., not usable or
saleable in the ordinary course within 120 days) or damaged inventory not usable
in the ordinary course of business;
(b) Cash equivalents shall be valued at fair market value
as of the close of business on the Closing Balance Sheet Date;
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<PAGE>
(c) Other Assets shall be valued as of the close of
business on the Closing Balance Sheet Date in a manner consistent with Other
Assets established in the Reports; and
(d) the warranty reserve for the Assumed Warranties shall
be determined in a manner consistent with the warranty reserve established in
the Reports.
SECTION 3.7 Disputes Concerning Financial Calculations Affecting
----------------------------------------------------
Purchase Price. Buyer, Seller and the Shareholders agree not to dispute any
- --------------
calculations agreed to as of the Closing under Section 2.1 absent manifest
error. For the purpose of the Additional Purchase Price calculation described
in Section 2.2 and the calculation in Section 3.8, Seller shall receive copies
of the calculations prepared by Buyer's independent certified public accountants
and may dispute any aspect of the calculations by giving written notice to Buyer
within twenty-one (21) business days following the delivery of such calculation
to Seller. If such dispute is not resolved promptly by agreement and in any
event within twenty-one (21) business days after the delivery of the notice of
dispute to Buyer, the matter will be referred to binding arbitration before a
certified public accountant qualified to practice in Denver, Colorado who is
mutually agreeable to the parties. If Seller and Buyer cannot agree on an
arbitrator, each shall designate a certified public accountant qualified to
practice in Denver, Colorado who shall meet and select another certified public
accountant qualified to practice in Denver, Colorado to serve as the arbitrator.
The arbitrator will determine the matter in dispute in accordance with the rules
of the American Arbitration Association and will be instructed to make a
decision within thirty (30) days of being appointed. At any time during such
thirty (30) day period, Seller or Buyer may make written submissions to the
arbitrator concerning the specific items in dispute, copies of which submissions
will be delivered to the other parties contemporaneously with the delivery
thereof to the arbitrator. The decision of the arbitrator with respect to any
matter in dispute shall be final and binding on Buyer and Seller and, to the
fullest extent permitted by law, shall not be subject to appeal or review by any
party. The fees and expenses of the arbitrator shall be borne equally by Seller
and Buyer. Upon agreement with respect to all matters in dispute, or upon a
decision of the arbitrator with respect to all matters in dispute, such
amendments shall be made to the calculations as may be appropriate to reflect
such agreement or such decision, as the case may be.
SECTION 3.8 Purchase Price Adjustment Procedures. Schedule 3.8 is a
-------------------------------------
preliminary calculation of the Current Assets, Other Assets and Assumed
Warranties and the Cash Portion of the Purchase Price relating thereto to be
paid at Closing based upon the June 30 Balance Sheet. Pending final calculation
of Current Assets, Other Assets and Assumed Warranties under Sections 3.6 and
3.7 and the Accounts Receivable Shortfall (as hereinafter defined), if any,
$400,000.00 (the "Holdback Amount") of the Cash Portion of the Purchase Price
shall be held back at the Closing. Seller and Buyer shall cooperate to complete
the final calculation of Current Assets, Other Assets and Assumed Warranties as
soon as possible, but in no event later than one hundred fifty (150) days
following the Closing Date. Accounts Receivable shall be valued as of the close
of business on the Closing Balance Sheet Date, net of a reserve in an amount
consistent with the reserve established in the Reports, with no value being
given to Accounts Receivable more than one hundred fifty (150) days past due
(the "Net Accounts Receivable Value"). The Notes Receivable shall be valued at
their outstanding principal and accrued interest balances on the Closing Balance
Sheet Date. After the
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<PAGE>
Closing, Buyer shall use reasonable diligence to collect the Accounts Receivable
in the ordinary course of business. Buyer shall not settle any Accounts
Receivable for less than full payment without obtaining the prior written
consent of Seller. If within one hundred fifty (150) days of the Closing, Buyer
has not collected cash from such Accounts Receivable in an amount that is at
least equal to the Net Accounts Receivable Value, the difference between the Net
Accounts Receivable Value and the amount so collected (the "Accounts Receivable
Shortfall") shall be retained by Buyer and any uncollected Accounts Receivable
shall be immediately assigned to Seller. To the extent Buyer collects any
Accounts Receivable for which it has attributed no value, Buyer shall promptly
pay Seller such collected amounts. If a default occurs under a Note Receivable
and Buyer is unable to collect such Note Receivable after making reasonable non-
judicial collection attempts, Seller and the Shareholders shall promptly pay
Buyer the outstanding amounts due under such Note Receivable and Buyer shall
immediately assign to Seller the Note Receivable and any security interest
therein. Within ten (10) days after Current Assets, Other Assets and Assumed
Warranties and the Accounts Receivable Shortfall are calculated, the parties
will determine the correct Cash Portion of the Purchase Price based on the
adjustments described in Section 2.1, and the amount owed by Buyer to Seller or
Seller to Buyer, as applicable, will be paid immediately by bank cashier's check
or wire transfer as Seller may direct based on disbursement instructions signed
by Buyer and Seller or, if Buyer and Seller are unable to agree, based on the
decision of the arbitrator under Section 3.7. The amount paid to Seller shall
include interest thereon from the Closing Date to the date of payment at five
(5) percent per annum.
SECTION 3.9 Warranty Holdback. To further protect Buyer against
-----------------
warranty claims for products and services sold by Seller prior to the Effective
Time ("Pre-Closing Warranty Claims"), Seller shall, for a period of two (2)
years after the Closing (the "Warranty Period"), satisfy any Pre-Closing
Warranty Claims that individually have a cost ("Warranty Cost") in excess of
$1,000 ("Covered Warranty Claims"). Buyer shall determine Warranty Cost
consistently with the cost of satisfying warranty claims for products and
service in the Business sold by Buyer after the Closing. Warranty Cost shall
include Buyer's normal and customary prices and charges, including the cost of
parts or other inventory and labor and shall be reduced by recoveries by Buyer
from suppliers or other third parties. Seller shall promptly reimburse Buyer
for the Warranty Cost of any Covered Warranty Claims.
ARTICLE IV
Representations and Warranties of Seller and the Shareholders
-------------------------------------------------------------
Seller and the Shareholders, jointly and severally, represent, promise
and warrant to Buyer as of the date hereof and as of the Closing as follows:
SECTION 4.1 Organization. Each of Park Structures and Park Structures
------------
Sales is a corporation duly organized, validly existing, and in good standing
under the laws of Florida. Each has all power and authority to own its property
and carry on the business as now conducted and has all necessary and material
licenses, permits and government approvals. Each of Park Structures and Park
Structures Sales is duly qualified to transact business in the jurisdictions
listed on Schedule 4.1.
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<PAGE>
SECTION 4.2 Authorization. Alan Bayman and Kay Bayman are the sole
-------------
shareholders, beneficially and of record, of each of Park Structures and Park
Structures Sales. The execution, delivery and performance of this Agreement and
any other documents or instruments contemplated hereby have been duly authorized
by all necessary action of Seller, Alan Bayman and Kay Bayman and this Agreement
has been executed and delivered by Seller, Alan Bayman and Kay Bayman and
constitutes a legal, valid and binding obligation of Seller, Alan Bayman and Kay
Bayman enforceable in accordance with its terms, except that such enforcement
may be limited by applicable bankruptcy, insolvency or other laws of general
application affecting the enforceability of creditor's rights generally and
except that specific performance and equitable remedies may only be granted in
the discretion of a court of competent jurisdiction.
SECTION 4.3 Financial Reports. Attached hereto as Schedule 4.3 are true
-----------------
and correct copies of the audited financial statements (including a balance
sheet and statement of income) of Seller for the two years ended December 31,
1997 and the audited financial statements (including a balance sheet (the "June
30 Balance Sheet") and statement of income) of Seller for the six months ended
June 30, 1998. The foregoing audited financial statements shall be prepared by
Goldstein Lewin & Co. and are referred to hereinafter collectively as the
"Reports". The Reports shall contain an unqualified opinion of Goldstein Lewin
& Co. Until Closing, Seller shall deliver to Buyer no later than the 15th day
of each month a true and correct copy of the financial statements (including a
balance sheet and statement of income) of Seller as of the last day of each
preceding month prepared from the books of Seller without audit (the "Interim
Reports") (collectively, the Reports and the Interim Reports shall be referred
to as the "Financial Reports"). All such Financial Reports are in accordance
with the books and records of Seller and have been prepared in accordance with
generally accepted accounting principles consistently followed throughout the
periods indicated (except as indicated therein), reflect all assets and
liabilities of Seller, including all contingent liabilities, and present fairly
and completely the financial condition of Seller and the business at such dates
and results of its operations for the periods then ended, subject only, in the
case of the Interim Reports, to normal year end adjustments.
SECTION 4.4 Absence of Undisclosed Liabilities. Except to the extent
----------------------------------
reflected or reserved against in the Reports or disclosed on Schedule 4.4, to
the best knowledge of Seller and the Shareholders, Seller did not have as of the
date of the Reports any material liabilities or obligations of any nature,
whether accrued, absolute, contingent or otherwise, and whether due or to become
due.
SECTION 4.5 Absence of Certain Changes. Except as contemplated by this
--------------------------
Agreement, since June 30, 1998, Seller has not and will not have as of the
Closing Date:
(a) Except as disclosed in Schedule 4.5, suffered any
material adverse change in its financial condition, assets, liabilities,
business, or prospects; experienced any labor difficulty; or suffered any
material casualty loss (whether or not insured);
(b) Incurred any material obligations or liabilities
(whether absolute, accrued, contingent, or otherwise and whether due or to
become due), except current liabilities in the ordinary course of business and
consistent with past practice;
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<PAGE>
(c) Entered into any contracts or agreements except in the
ordinary course of business and consistent with past practice;
(d) Except as disclosed on Schedule 4.5, permitted or
allowed any of its properties or assets, real, personal, or mixed, tangible or
intangible, to be mortgaged, pledged, or subjected to any lien or encumbrance
other than the lien of current property taxes not yet due and payable;
(e) Except as disclosed in Schedule 4.5, written down or
written up the value of any of its inventory, or written off as uncollectible
any of its notes or accounts receivable or any portion thereof, except for write
downs and write-offs in the ordinary course of business, consistent with past
practice;
(f) Canceled any other material debts or claims, or waived
any rights of substantial value, or sold or transferred any of its properties or
assets, real, personal, or mixed, tangible or intangible, except in the ordinary
course of business and consistent with past practice;
(g) Knowingly disposed of or permitted to lapse any patent,
trademark, or copyright or any patent, trademark, or copyright application or
license, or disposed of or disclosed to any person or trade secret, formula,
process, or know-how;
(h) Granted any increase in compensation or rate of
compensation or commission payable or to become payable to any of its employees
or agents except merit or seniority increases made in the usual course of
business and heretofore disclosed to Buyer;
(i) Except for the leasehold improvements approved by Buyer
under Section 2.1(c), made capital expenditures or commitments for additions to
property, plant, or equipment;
(j) Made any changes in any method of accounting or
accounting practice; or
(k) Agreed, whether in writing or otherwise, to take any
action described in this Section 4.5
SECTION 4.6 Title to Purchased Assets. Except as disclosed on Schedule
-------------------------
4.6, the Purchased Assets constitute all of the assets used in the business and
Seller owns, and has the right to transfer to Buyer, the Purchased Assets, free
and clear of any liens, charges, encumbrances or security interests, whether by
mortgage, pledge, lien, conditional sale agreement, encumbrance, charge, or
otherwise, and such Purchased Assets are not subject to any lease or license
other than as described on Schedule 4.6. At the Closing all of the liens and
encumbrances described on Schedule 4.6 affecting the Purchased Assets will be
paid or discharged in full. There are no outstanding options, agreements or
commitments obligating Seller to sell the Business or any of the Purchased
Assets to any other person except for sales of products in the ordinary course
of business. The Purchased
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<PAGE>
Assets owned are in good and serviceable condition and suitable for the uses for
which they are intended, and the owned and leased Purchased Assets and their use
conform in all material respects to all applicable laws, including building and
zoning laws or other applicable laws, and no notice of any violation of building
or zoning laws or other applicable ordinances or regulations relating to the
Purchased Assets and their use has been received by Seller. No special
assessment, impact fee or similar charge has been imposed or, to the knowledge
of Seller or the Shareholders is proposed to be imposed against any of the
Purchased Assets. Seller enjoys peaceful and undisturbed possession under all
leases under which it is operating, and all said leases are valid and subsisting
and in full force and effect. Except for the Purchased Assets, Seller has no
other assets or properties, tangible or intangible, used, usable or useful in
the operation of the Business.
SECTION 4.7 Personal Property. Schedule 4.7 contains a complete and
-----------------
accurate list of all of the Personal Property used by Seller in the Business
with a value in excess of $1,000.00. Except as otherwise disclosed on Schedule
4.7, the Personal Property and Supplies are all in possession of Seller and
located at Seller's principal place of business, are in good and useable
condition and repair with no known material defects and of a quality and
quantity useable in, and adequate for, the ordinary course of business.
SECTION 4.8 Property Violations. Seller has not received any
-------------------
notification that there is any violation of any building, zoning, or other law,
ordinance, or regulation in respect of any property used by Seller in the
business, and to the best of its knowledge no such violation exists.
SECTION 4.9 Purchased Inventory. The Purchased Inventory is in good
-------------------
condition and consists of a quality, type and quantity useable and saleable in
the ordinary course of business without discounts or adjustments.
SECTION 4.10 Accounts Receivable. All of the Accounts Receivable have
-------------------
been or will have been created in the ordinary course of business from the sale
of Seller's products or services on normally and customary terms of sale,
represent bona fide obligations from unrelated parties, and are collectible in
the ordinary course except to the extent of the reserve provided for in the
Reports, and no obligor with respect to any Accounts Receivable has any right of
offset against Seller.
SECTION 4.11 Compliance with Other Instruments. Seller and the
---------------------------------
Shareholders have complete and unrestricted power to undertake and perform all
of the obligations contained in this Agreement. Neither the execution and
delivery, nor the consummation of the transactions provided for in this
agreement, will violate the organizational documents of Seller or any material
agreement, mortgage, indenture, license, franchise, permit, lease or other
instrument, judgment, decree, order, law or regulation by which Seller or the
Shareholders are bound. No consent is required for Seller or the Shareholders
to enter into this Agreement or consummate the transactions contemplated thereby
that has not been obtained.
SECTION 4.12 Litigation. Except as disclosed in Schedule 4.12, there is
----------
no action, suit, litigation or proceeding pending, or, to the best knowledge of
Seller and the Shareholders, threatened against or relating to Seller or the
Business.
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<PAGE>
SECTION 4.13 Tax Returns. Seller's income tax returns for the years
-----------
ended December 31, 1993, 1994, 1995, 1996 and 1997, true and correct copies of
which have been provided to Buyer, are materially correct and complete. Seller
has duly filed all tax reports and returns required to be filed by it and has
duly paid all taxes and other charges due or claimed to be due from it by
federal, provincial, state, or local taxing authorities (including, without
limitation, those due in respect of its properties, income, franchise, licenses,
sales, and payrolls); there are no tax liens upon any of the Purchased Assets
(other than liens for current taxes not yet due); there are no agreements,
waivers or other arrangements providing for an extension of time with respect to
the assessment of any tax or deficiency against the Purchased Assets or Seller
nor are there to the best knowledge of Seller and the Shareholders any actions,
suits, proceedings, investigations or claims now pending against Seller or
relating to the Business; and, there are no pending discussions or questions
relating to, or claims asserted for taxes or assessments against Seller.
SECTION 4.14 Insurance and Other Claims. Schedule 4.14 contains a
--------------------------
summary of claims filed against Seller, whether or not covered by insurance
maintained by Seller. The current policies issued to Seller, copies of which
are attached as part of Schedule 4.14, are valid, outstanding, and enforceable
policies which shall continue to be in effect through the Closing. Seller has
not been refused any insurance nor has any such coverage been limited by an
insurance carrier to which it has applied for insurance during the last three
years.
SECTION 4.15 Leases. Schedule 4.15 hereto contains an accurate and
------
complete description of the terms of all leases pursuant to which Seller leases
real or personal property from or to others. A true, correct and complete copy
of all leases (including all amendments or modifications thereto) have been
provided to Buyer. All such leases are valid, binding, in full force and effect
with no default thereunder and enforceable in accordance with their terms,
except that such enforcement may be limited by applicable bankruptcy, insolvency
or other laws of general application affecting the enforceability of creditor's
rights generally and except that specific performance and equitable remedies may
only be granted in the discretion of a court of competent jurisdiction. The
execution of this Agreement and the consummation of the transactions
contemplated by this Agreement will not terminate or be a cause for default
under any such leases and no consent to assignment of any of such leases is
required that has not been obtained.
SECTION 4.16 Intellectual Property. Schedule 4.16 hereto contains an
---------------------
accurate and complete description of all Intellectual Property owned or held by
Seller and used in the Business, as well as all pending applications for
registration of any rights in Intellectual Property. No products sold, nor any
patents, formulae, processes, designs, patterns, know-how, trade secrets,
trademarks, trade names, assumed names, copyrights, or designations used in its
business are included in any interference proceeding or infringe on any
proprietary rights of any person. No licenses, sublicenses or covenants have
been granted or entered into by Seller in respect of any Intellectual Property.
Seller validly owns or has valid licenses for Intellectual Property that is
necessary for the conduct of the business as now conducted. Seller and the
Shareholders have no knowledge of any infringement against any Intellectual
Property.
SECTION 4.17 Employee Matters. Schedule 4.17 hereto contains an accurate
----------------
and complete (a) list of all employees showing their date of hire, compensation,
accrued vacation and sick leave
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as of the date of this Agreement and (b) a description of, and the annual amount
payable pursuant to, each fringe-benefit plan or arrangement payable to
employees (including each bonus, deferred compensation, or other arrangement).
Except as disclosed on Schedule 4.17, there are no contracts of employment with
any employees. Seller has complied with all applicable laws relative to employee
benefits. Seller is not a party to any collective bargaining or other labor
agreement and neither Seller nor the Shareholders are aware of any labor union
organizing activities involving Seller's employees. Seller shall update Schedule
4.17 as of the Closing.
SECTION 4.18 Contracts and Commitments. Schedule 1.1(d) hereto is a list
-------------------------
of all of the following contracts, agreements, plans, arrangements, or
commitments currently in effect for the benefit of or relating to the Business:
(a) All contracts, contract rights, purchase orders,
agreements and commitments with respect to the sale of products or services;
(b) all contracts, contract rights, purchase orders,
agreements and commitments for the purchase of supplies, materials, equipment,
parts inventory, or other products involving expenditures or commitments in
excess of $3,000;
(c) All sales agency and distributor agreements or
franchises;
(d) All other agreements with suppliers of goods and
services involving expenditures or commitments in excess of $3,000 or which
cannot be terminated on thirty (30) days' notice;
(e) All agreements providing for the services of any
independent contractor;
Except as specified in Schedule 4.18, all of such contracts,
agreements, and commitments, are valid, binding, and in full force and effect
and there is no existing material default thereunder; and the transaction
contemplated by this Agreement will not create nor result in a default
thereunder and will not cause acceleration of any obligation of any party
thereto or the creation of any lien, encumbrance, or security interest in or
upon any Purchased Assets or grant any other right or remedy to a third party;
copies of all of the documents described in the aforesaid schedules have been
delivered to Buyer or will be delivered upon request and are, or will when
delivered be, true and complete in all material respects and include all
material amendments, supplements or modifications thereto. Seller shall update
Schedule 4.18 as of the Closing Date to reflect changes to such Schedule between
the date of this Agreement and the Effective Time; provided that no such changes
shall be made to such Schedule without Buyer's prior written consent if such
changes, either individually or in the aggregate, would increase the liability
of Buyer beyond that which Buyer shall have under the Assigned Contracts as of
the date of this Agreement.
SECTION 4.19 Compliance with Law. Seller has not received any notice of
-------------------
any violation of, and Seller has complied in all material respects with, all
laws, regulations, and orders applicable to the Business including all rules and
regulations of the Consumer Product Safety Commission.
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<PAGE>
Without limiting the foregoing, Seller has not violated and is not now in
violation of any federal, state nor local environmental law. Seller has not
received or is subject to any order, decree, claim, injunction or notice of
violation, noncompliance or potential liability under or relating to any
environmental law, and no threat has been made and, to the knowledge of Seller
no basis exists for the issuance or assertion of any such order, claim or
notice. Except as disclosed in Schedule 4.19, to Seller's and the Shareholders'
knowledge, no environmental conditions exist at, on or under, and there has been
no generation, treatment, storage, disposal, transfer or release of any
hazardous substances or hazardous materials as defined under any environmental
law at, on, under or from, any of the properties owned, leased or operated by
Seller that could give rise to any material liability to Seller. The letter
attached to Schedule 4.19 that establishes an environmental baseline for the
Business is true, accurate and complete.
SECTION 4.20 Licenses and Permits. Schedule 4.20 hereto is a list of all
--------------------
licenses and permits required for Seller's operation of the Business, all of
which are in full force and effect.
SECTION 4.21 Product Warranties. The warranty reserve reflected on the
------------------
Closing Balance Sheet will adequately cover the amount of all warranty claims
for products and services sold by Seller prior to the Effective Time.
SECTION 4.22 No Condemnation. No proceedings are pending or, to the
---------------
knowledge of Seller threatened with respect to the condemnation or taking by
eminent domain of any of the Properties.
SECTION 4.23 Year 2000 Issue. Seller and the Shareholders acknowledge
---------------
that the approach of the year 2000 has become a potential problem for businesses
utilizing computers in their operations since many computer programs are date
sensitive and will only recognize the year 1900 or not at all (the Year "2000
Issue"). To Seller's and the Shareholders' knowledge, except as disclosed in
Schedule 4.23, all software programs included in the Business are Year 2000
compliant, that is, the operation and functionality of such software programs
will not be materially adversely affected by the Year 2000 Issue and there are
no other material Year 2000 Issues involving Seller, its suppliers or customers
that may have a material adverse effect upon the Business.
SECTION 4.24 No Adverse Conditions. Except as otherwise set forth in
---------------------
this Agreement, the Assets are not subject to any adverse conditions or
circumstances that could reasonably be expected to interfere with Buyer's use
and enjoyment of or opportunity to resell or encumber any of the Assets or that
might otherwise impede Buyer's ability to conduct the Business using the Assets.
SECTION 4.25 Disclosure. All material facts of which Seller or the
----------
Shareholders have knowledge relating to the Business or the operations,
financial condition and prospects of Seller and the business are reflected in
the Financial Reports or have been disclosed in this Agreement or otherwise
disclosed in writing to Buyer. No representation or warranty by Seller or the
Shareholders contained in this Agreement and no statement contained in any
exhibit, schedule certificate, list, or other writing furnished to the Buyer
pursuant to the provision hereof contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make the statements
therein not materially misleading.
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ARTICLE V
Conduct of Business Prior to Closing
------------------------------------
Seller and the Shareholders, jointly and severally, covenant and agree
that from the date of this Agreement and prior to the Closing, except as Buyer
shall have consented in writing:
SECTION 5.1 Operation in Ordinary Course. The Business will be
----------------------------
conducted only in the ordinary course consistent with past practices. Seller
shall not make any distributions or other payments to Seller's shareholders
except for compensation for services consistent with past practices.
SECTION 5.2 Operation of the Business. Seller and the Shareholders
-------------------------
shall use their best efforts to keep the Business intact and to preserve the
goodwill of suppliers, customers and others having business relations with
Seller and to keep available to Buyer the services of the present employees and
agents.
SECTION 5.3 Employees. Seller shall pay all salaries, wages, payroll
---------
taxes, benefits, vacation pay, all other fringe benefit costs, and all other
costs of every nature whatsoever due or accrued at or prior to the Closing to or
for the benefit of its employees or agents. Seller shall hold Buyer harmless
and indemnify Buyer from loss, cost or expense including but not limited to
attorneys' fees which might result from any claim by or on behalf of any of
Seller's employees relating to the foregoing. Effective as of the close of
business on the Closing Date, Seller shall terminate the employment of all of
Seller's employees and Buyer shall have the right to hire such employees as
contemplated by Section 12.3 hereof.
SECTION 5.4 Payment of Liabilities. Seller shall pay as the same
----------------------
becomes due all of Seller's liabilities accrued after, at, or prior to the
Closing; provided Seller shall be entitled to contest any liabilities in good
faith so long as no lien or charge is imposed on the Purchased Assets or Buyer
as a result thereof.
SECTION 5.5 Payment of Taxes. Seller and the Shareholders shall
----------------
promptly file all tax returns and pay all federal, state and local tax
assessments and governmental charges which are or may be lawfully levied or
assessed against Seller, the Business or the Purchased Assets for periods ending
on or prior to the Effective Time, including, but not limited to income, ad
valorem, sales, use, excise, franchise and personal property taxes. Buyer shall
fully cooperate with Seller and the Shareholders to provide all information
requested by Seller and the Shareholders to file such tax returns.
SECTION 5.6 Access to Information. Seller shall permit Buyer and their
---------------------
authorized employees, agents, consultants, accountants and legal counsel,
access, at Buyer's sole expense, risk and cost, during normal business hours and
in such a manner as will not interfere with the conduct of Seller's business, to
the books and records, properties and other Purchased Assets and will furnish
Buyer with such additional financial and operating data and other information
pertaining to the Business as Buyer may reasonably request; provided, however,
that all site visits and inquiries of employees of Seller shall be coordinated
through Alan Bayman.
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SECTION 5.7 Insurance. Seller will maintain in effect through the
---------
Closing Date all existing insurance coverage covering the Purchased Assets.
SECTION 5.8 Maintenance of Properties, etc. Through the Closing Date,
------------------------------
Seller will maintain all the properties in customary repair, order and
condition, reasonable wear and use and damage by fire or other casualty
excepted. Seller shall be responsible for all risk of loss prior to the Closing
Date.
SECTION 5.9 Maintenance of Books, etc. Through the Closing Date, Seller
--------------------------
will maintain the books, accounts and records in the usual manner on a basis
consistent with prior periods. Seller will duly comply in all material respects
with all laws and decrees applicable to it.
SECTION 5.10 Certain Prohibited Transactions. Through the Closing Date,
-------------------------------
except with the prior written consent of the Buyer, Seller will not enter into
any contract to merge or consolidate with or sell all or any substantial part of
the Purchased Assets to any other person, or engage in any discussions with any
other party with respect to any of the foregoing, or change the character of the
Business.
SECTION 5.11 Notice of Adverse Changes. Between the date of this
-------------------------
Agreement and the Closing Date, Seller shall promptly notify Buyer in writing of
any materially adverse developments affecting the Business which become known to
Seller or the Shareholders, including, without limitation, (i) any change in the
condition, financial or otherwise, of the Business and its prospects that could
have a material adverse effect on Seller, including, without limitation the loss
of major sales representatives or other customers or suppliers; (ii) any damage,
destruction or loss (whether or not covered by insurance) materially and
adversely affecting the Business, (iii) any notice of any violation, forfeiture,
or complaint regarding the Business that might have a material adverse effect on
Seller; or (iv) any representation or warranty made by Seller or the
Shareholders hereunder shall have become inaccurate or untrue in any material
respect. The items set forth in clauses (i) through (iv) above, together with
any other item discovered by Buyer between the date of this Agreement and the
Closing that Buyer reasonably believes have the same effect as the items set
forth in clauses (i) through (iv) above, are referred to as a "Seller Material
Adverse Change."
ARTICLE VI
Covenants of Seller
-------------------
SECTION 6.1 Telephone Number. Seller will assist in the transfer of
----------------
Seller's business telephone number to Buyer at the Closing.
SECTION 6.2 Cooperation. The parties shall use their reasonable best
-----------
efforts to cause the sale contemplated by this Agreement to be consummated, and,
without limiting the generality of the foregoing, to obtain all consents and
authorizations of third parties and to make all filings with and give notices to
third parties which may be necessary or reasonably required in order to effect
the transactions contemplated hereby. Seller and the Shareholders acknowledge
that Buyer intends to finance the acquisition of the Purchased Assets hereunder
through the public offering and sale of Buyer's Common Stock (the "Offering").
Seller and the Shareholders agree at their expense, except
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as otherwise set forth herein, to provide and to cause their attorneys,
accountants, employees and agents to provide Buyer with all of the information
that Buyer, its attorneys, accountants and agents and the underwriters for the
Offering and their attorneys, accountants and agents may reasonably request in
connection with the Offering. Such information shall be subject to the
Confidentiality Agreement (as hereinafter defined). Prior to and following the
Closing, Seller and the Shareholders shall use their reasonable best efforts to
preserve the Business organization intact and to keep available the services of
Seller's employees and representatives and to preserve the goodwill of the
employees, customers, suppliers and others having business relations with
Seller.
SECTION 6.3 Non-Competition. Each of Alan Bayman and Kay Bayman agrees
---------------
that during the Non-Competition Period (as defined below), he shall not engage,
directly or indirectly, through Seller or otherwise, whether as owner, director,
officer, employee, consultant, agent or otherwise, in any business in
competition with the Business or the business conducted by Buyer or any
affiliate of Buyer following the Closing. The foregoing non-competition
covenant will apply to any country in which Buyer or its affiliates are then
selling its products or services. The foregoing non-competition covenant shall
not preclude the purchase by Alan Bayman or Kay Bayman of up to five (5) percent
of any publicly-held company that is in competition with the Business or the
business conducted by Buyer or any affiliate of Buyer following the Closing.
Each of Alan Bayman and Kay Bayman also covenants and agrees that during the
Non-Competition Period, he will not directly or indirectly induce any employee
of Buyer to terminate his employment with Buyer or hire or offer to hire any
such employee, or hire, offer to hire, contract or otherwise agree to contract
with any sales or marketing representatives or distributors with which Buyer
does business. The "Non-Competition Period" shall mean the period commencing on
the Closing Date and ending on the fifth anniversary of the later of (i) the
Closing Date or (ii) the date that he ceases to be employed by Buyer or an
affiliate. Each of Alan Bayman and Kay Bayman agrees that this non-competition
covenant is reasonable and necessary from the standpoint of protecting Buyer
from competing efforts and acknowledges that Buyer would not enter into this
Agreement without this covenant. The provisions of this non-competition
covenant are severable and shall be enforceable to the maximum extent permitted
by law. If this covenant shall be held by a court of competent jurisdiction to
be unenforceable under applicable law with respect to the entire area, the
entire duration, or the scope of activities of the covenant, then the covenant
shall be deemed enforceable in such part or parts of the area, for such lesser
period of time and for such limited scope of activities as is permissible under
applicable law. Each of Alan Bayman and Kay Bayman acknowledges that a breach
of this non-competition covenant would result in irreparable damage to Buyer,
and without limiting other remedies which may exist for a breach of this
covenant, agree that this covenant may be enforced by temporary restraining
order, temporary injunction, and permanent injunction restraining violation
hereof, pending or following trial on the merits.
SECTION 6.4 Transfer Taxes. Buyer will be responsible for and shall pay
--------------
at Closing or at such other times as when due any taxes, excluding federal,
state, local or foreign income or similar taxes required to be paid by Seller or
the Shareholders, and any registration, transfer or assignment fees or charges
required to be paid by a purchaser in respect of the sale and transfer of the
Purchased Assets to Buyer, and Buyer shall indemnify and save Seller and the
Shareholders harmless from and against any claims, demands, actions, causes of
action, loss, damage, cost, penalty or expense
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whatsoever, including legal fees, suffered or incurred by Seller or the
Shareholders by reason of the failure of Buyer to pay or discharge any such
amounts.
ARTICLE VII
Representations and Warranties of Buyer
---------------------------------------
Buyer represents, promises and warrants to Seller as follows:
SECTION 7.1 Organization. Buyer is a corporation duly organized,
------------
validly existing, and in good standing under the laws of the State of Colorado,
and has all corporate power and authority to own its property and carry on its
business as now conducted.
SECTION 7.2 Authorization. The execution, delivery and performance of
-------------
this Agreement and any other documents or instruments contemplated hereby has
been duly authorized by all necessary corporate actions of Buyer, and this
Agreement has been executed and delivered by Buyer and constitutes a legal,
valid and binding obligation of the Buyer enforceable in accordance with their
terms, except that such enforcement may be limited by applicable bankruptcy,
insolvency or other laws of the general application affecting the enforceability
of creditor's rights generally and except that specific performance and
equitable remedies may only be granted in the discretion of a court of competent
jurisdiction.
SECTION 7.3 Compliance with Other Instruments. Buyer has complete and
---------------------------------
unrestricted power to undertake and perform all of the obligations contained in
this Agreement. Neither the execution and delivery, nor the consummation of the
transactions provided for in this Agreement, will violate the Articles of
Incorporation, or the Bylaws of Buyer or any material agreement, mortgage,
indenture, license, franchise, permit, lease or other instrument, judgment,
decree, order, law or regulation by which Buyer is bound.
SECTION 7.4 Litigation. There is no action, suit, litigation or
----------
proceeding pending, or, to the best knowledge of Buyer, threatened against or
relating to Buyer which could adversely affect the ability of Buyer to perform
the transactions contemplated by this Agreement.
ARTICLE VII
Conditions Precedent to Buyer's Obligations
-------------------------------------------
The obligation of Buyer to consummate the transactions contemplated by this
Agreement is subject to the fulfillment to its satisfaction of the following
conditions prior to or at the Closing (unless expressly waived in writing by
Buyer).
SECTION 8.1 Representations, Warranties and Covenants. The
-----------------------------------------
representations and warranties made by Seller and the Shareholders shall be true
and correct in all material respects at and as of the Closing Date; and Seller
and the Shareholders shall have performed and complied in all material respects
with all covenants, agreements and conditions contained in this Agreement
required to be performed or complied with by them prior to the Closing and
Seller shall provide to Buyer at the Closing a certificate to such effect
executed by Seller and the Shareholders.
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<PAGE>
SECTION 8.2 Litigation. There shall be no litigation pending or
----------
threatened against Seller or the Shareholders with respect to the consummation
of this Agreement or which could adversely affect the ability of Seller to
convey the Purchased Assets to Buyer.
SECTION 8.3 Consent and Approval. There shall have been obtained and
--------------------
delivered to Buyer the consent of any party whose failure to consent would
materially affect any asset or right transferred to Buyer or would materially
affect Buyer's ability to operate the Business.
SECTION 8.4 Financing. Buyer shall have closed the Offering on terms
---------
acceptable to Buyer.
SECTION 8.5 Seller Material Adverse Change. There shall not have
------------------------------
occurred a Seller Material Adverse Change.
ARTICLE IX
Conditions Precedent to Seller's Obligations
--------------------------------------------
The obligation of Seller to consummate the transactions contemplated by
this Agreement is subject to the fulfillment to its satisfaction of the
following conditions prior to at the Closing (unless expressly waived in writing
by Seller):
SECTION 9.1 Representations, Warranties and Covenants. The
-----------------------------------------
representations and warranties made by Buyer shall be true and correct in all
material respects at and as of the Closing Date and Buyer shall have performed
and complied in all material respects with all covenants, agreements and
conditions contained in this Agreement required to be performed or complied with
by it prior to the Closing and Buyer shall provide to Seller at the Closing a
certificate to such effect executed by an officer of Buyer.
SECTION 9.2 Litigation. There shall be no litigation pending or
----------
threatened against Buyer with respect to the consummation of this Agreement.
ARTICLE X
Termination
-----------
SECTION 10.1 Grounds for Termination. This Agreement may be terminated
-----------------------
at any time prior to the Closing:
(a) by the mutual written agreement of Seller, the
Shareholders and Buyer;
(b) if any court of competent jurisdiction shall have
issued an order, decree or ruling or taken any other action restraining,
enjoining or otherwise prohibiting the transactions contemplated hereby and such
order, decree, ruling or other action shall have become final and nonappealable,
by Buyer or Seller by the delivery of written notice to such effect to the other
party;
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<PAGE>
(c) by Buyer if a Seller Material Adverse Change occurs;
(d) by either party (meaning Seller and the Shareholders on
the one hand and Buyer on the other hand) if any of the representations and
warranties made by the other party in this Agreement were materially false or
misleading as of the date given or as of the Closing Date, and these false or
misleading representations or warranties have not been waived by the party
giving notice of termination;
(e) by either party (meaning Seller and the Shareholders on
the one hand and Buyer on the other hand) if any covenant or agreement of the
other party shall not have been materially complied with or performed and this
noncompliance or nonperformance shall not have been waived by the party giving
notice of termination;
(f) by either party (meaning Seller and the Shareholders on
the one hand and Buyer on the other hand) if any condition of such party set
forth in this Agreement is not satisfied as of December 31, 1998 and such
condition has not been waived by the party giving notice of termination; or
(g) by any party if the Closing has not occurred by October
31, 1998 ("Final Closing Date"); provided that if Buyer delivers to Seller, on
or before October 10, 1998 and November 10, 1998, respectively, a letter or
letters stating that Buyer in good faith is seeking to satisfy the condition set
forth in Section 8.4 or otherwise finance the transactions covered by this
Agreement, the Final Closing Date shall be extended to November 30, 1998 and
December 31, 1998, respectively. In no event shall the Final Closing Date be
extended beyond December 31, 1998 without the prior written consent of the
parties to this Agreement..
Notwithstanding the foregoing, a party shall not be allowed to exercise any
right of termination (i) pursuant to Sections 10.1(d), (e) or (f) unless such
party shall first have given the other party written notice of the
misrepresentation, noncompliance, nonperformance or nonsatisfaction and the
other party shall not have cured same within 30 days, or (ii) pursuant to any
provision of this Section 10.1 if (A) the event giving rise to such termination
right shall be due to the failure of such party to perform or observe in any
material respect any of the covenants, agreements or conditions set forth herein
to be performed or observed by such party, or (B) such party is then in material
breach of this Agreement.
SECTION 10.2 Effect of Termination. Any termination of this Agreement
---------------------
pursuant to Section 10.1 shall have the following effect:
(a) if termination is pursuant to Section 10.1(a), then the
parties shall determine the effect of such termination as a part of their
agreement;
(b) if such termination is pursuant to Section 10.1(b),
(c), (f) or (g), then no party shall have any liability to another; provided,
however, each party shall remain liable to the other if a condition is not
satisfied due to the failure of a party to use its best efforts to satisfy such
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condition and provided further that if such termination is pursuant to a failure
by Buyer to satisfy the condition set forth in Section 8.4 then Buyer shall pay
Seller the reasonable audit expenses of Seller in obtaining the audited
financial statements included in the Reports and the reasonable attorneys' fees
of Seller in connection with this Agreement;
(c) if such termination is pursuant to Section 10.1(d) or
(e), then the terminating party may recover from the other(s) any and all
damages, costs and expenses (including, without limitation, reasonable
attorneys' fees) sustained or incurred by the terminating party;
(d) Seller, the Shareholders and Buyer hereby agree that
the provisions of this Section 10.2 and Article XI shall survive any termination
of this Agreement pursuant to the provisions of this Article X; and
(e) Buyer shall return all materials and documents provided
to Buyer by Seller in accordance with the terms of the Confidentiality and Non-
Disclosure Agreement dated March 12, 1998, as amended (the "Confidentiality
Agreement").
ARTICLE XI
Survival and Indemnity
----------------------
SECTION 11.1 Survival of Representations, Warranties and Covenants. All
-----------------------------------------------------
of the representations and warranties contained in Articles IV and VII and in
any documents delivered pursuant to this Agreement shall survive the Closing
hereunder for a period of two (2) years except for representations and
warranties regarding taxes which shall survive for the period of the applicable
limitation period for such taxes. The covenants and agreements of all the
parties herein, including without limitation the agreements of Seller in Section
1.4 and the covenants of Seller and the Shareholders in Article VI and the
indemnity obligations relating thereto, shall survive the Closing subject only
to the applicable limitation period. The representations and warranties of the
parties shall remain in full force and effect for the specified period of time
regardless of the Closing and irrespective of any investigation which the
parties or their respective counsel or accountants or other representatives may
make in connection with this transaction or any matter involved therein.
SECTION 11.2 Indemnity by Seller and the Shareholders. Seller and the
----------------------------------------
Shareholders and their successors, jointly and severally, shall indemnify, save,
and hold harmless Buyer from and against any "Damages" as hereinafter defined.
"Damages," as used herein, shall mean and include any loss, damage, cost,
expense or other liability (including any loss, cost, expense or other
liability, reasonable attorneys' fees and costs incurred in trial and appellate
proceedings) which Buyer may incur or suffer by reason of or arising out of (i)
any breach or default in the performance by Seller or the Shareholders of any
covenant or agreement of Seller or the Shareholders contained in this Agreement;
(ii) any breach of warranty or inaccurate or erroneous representation made by
Seller or the Shareholders herein or in any certificate or other instrument
delivered by or on behalf of the Seller or Shareholders pursuant hereto or (iii)
other than Assumed Liabilities, any liabilities of Seller, including without
limitation those arising from Seller's failure to pay when due or otherwise
discharge all liabilities relating to the Business and its operations prior to
the Effective Time that are not Assumed Liabilities; provided Seller shall be
entitled to contest any liabilities in good faith so
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<PAGE>
long as no lien or charge is imposed on the Purchased Assets or Buyer as a
result thereof. The foregoing indemnity is not intended to include any damages
caused by Buyer in the conduct of the Business following the Closing. Buyer
shall be entitled to exercise all remedies provided by law in the event of
Seller's or either Shareholder's breach of any representation, warranty,
covenant or agreement; provided, however that, to the extent applicable, Buyer
agrees to use reasonable efforts to obtain payment from the insurance provided
for in Section 11.5 before pursuing its remedies against Seller or the
Shareholders hereunder.
SECTION 11.3 Indemnity by Buyer. Buyer and its successors shall
------------------
indemnify, save and hold harmless Seller and the Shareholders from and against
any "Damages" as hereinafter defined. "Damages," as used herein, shall mean and
include any loss, damage, cost, expense or other liability (including any loss,
cost, expense or other liability, reasonable attorneys' fees and costs incurred
in trial and appellate proceedings), which Seller or Alan Bayman may incur or
suffer by reason of or arising out of (i) except to the extent otherwise
provided herein, any claim made against Seller or either of the Shareholders in
respect of any of the liabilities assumed by Buyer pursuant to Section 1.3, (ii)
any breach or default in the performance by Buyer of any covenant or agreement
of Buyer contained in this Agreement, or (iii) any breach of warranty or
inaccurate or erroneous representation made by Buyer herein or in any
certificate or other instrument delivered by or on behalf of the Buyer pursuant
hereto. The foregoing indemnity is not intended to include any damages caused
by Seller or either Shareholder in the conduct of the Business prior to the
Closing. Seller and the Shareholders shall be entitled to exercise all remedies
provided by law in the event of Buyer's breach of any representation, warranty,
covenant or agreement.
SECTION 11.4 Notice of Claim. If either party to this Agreement (the
---------------
"Indemnified Party") shall become aware of any claim, proceeding or other matter
involving any loss in respect of which the other party (the "Indemnifying
Party") is required to indemnify the Indemnified Party pursuant to this
Agreement, then the Indemnified Party shall promptly and in any case within
ninety (90) days of becoming aware of the Claim give written notice thereof to
the Indemnifying Party. The notice shall specify with reasonable particularity
the factual basis for the claim and the amount of the claim if known.
SECTION 11.5 Security. Seller agrees to maintain discontinued operations
--------
product liability insurance with an insurer and in an amount reasonably
acceptable to Buyer for a period of four (4) years from Closing to secure
Seller's indemnification obligation for product liability claims under Section
11.2 hereof. Seller shall bear the premium cost for such insurance up to a
maximum of $16,000 per year. Upon presentment of an invoice, Buyer shall
reimburse Seller to the extent such premium exceeds $16,000 per year. Such
policy shall name Buyer as an additional insured and shall contain a clause
requiring the insurer to give Buyer at least thirty (30) days' notice of
cancellation or suspension of such policy. Seller shall furnish Buyer with a
copy of such policy and any amendments thereto.
SECTION 11.6 Limitation. The liability of Seller and the Shareholders
----------
for any claim relating to a breach of or any inaccuracy in any of the
representations and warranties shall be limited to the Purchase Price. Seller
and the Shareholders shall not be liable under Section 11.2 for any claim for
indemnity for breach of a warranty or representation until the aggregate of all
such claims exceeds $15,000.
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SECTION 11.7 Right of Set-Off. Buyer shall have no right of set-off
----------------
against any amounts or payments due or to become due under the employment
agreement referenced in Section 3.4 unless Buyer shall obtain an arbitration
award or judgment in respect of any claim asserted by Buyer against one or more
of Seller or Shareholders, and then only to the extent of such award or
judgment. Buyer shall have a right to set-off payments due or to become due
under Sections 2.2 and 3.8 for the amount of any claims under Section 11.2;
provided that (a) Buyer shall remit to Seller the balance of the amounts due or
to become due under Sections 2.2 and 3.8, (b) Buyer shall escrow the amount of
such set-off payment pending resolution of the claim and (c), if an arbitration
award or judgment shall determine that Buyer set-off payments in excess of the
amount due Buyer (the "Wrongful Set-Off Amount"), Seller shall be entitled to
recover interest on the Wrongful Set-Off Amount at a rate of twelve (12) percent
per annum together with reasonable attorney's fees and costs.
ARTICLE XII
Post-Closing Rights and Obligations
-----------------------------------
SECTION 12.1 Delivery of Records. At the Closing, Seller shall deliver
-------------------
to Buyer all of the books, records, and other documents or information relating
to the Business but shall not be required to deliver any records, documents or
other information regarding Seller.
SECTION 12.2 Cooperation. Seller and the Shareholders and Buyer shall
-----------
cooperate with each other as reasonably required to complete a smooth transition
of the ownership of the Business from Seller to Buyer.
SECTION 12.3 Employees. Buyer shall offer to hire all of Seller's
---------
employees following the Closing on substantially the same terms and conditions
as disclosed in Schedule 4.17 including medical, dental and vacation plans, and
consistent with Buyer's employment policies, but Buyer shall thereafter have the
right to modify the terms of employment or terminate the employment of any
employee. Buyer shall be responsible for all payments due employees following
the Closing, including payments due as a result of termination of employment of
any employee following the Closing Date and shall indemnify and hold Seller
harmless with respect thereto.
SECTION 12.4 Further Assurances. After the Closing, Seller and Buyer
------------------
will take all appropriate action and execute any documents, instruments or
conveyances of any kind that may be reasonably necessary to effectuate the
intent of this Agreement.
ARTICLE XII
General
-------
SECTION 13.1 Notice. All notices, requests, demands and other
------
communications hereunder shall be furnished to the other party at its address
listed below (or such other address as notified in writing), shall be in
writing, and shall be deemed to have been duly given if delivered personally or
mailed, by certified or registered mail, return receipt requested and postage
prepaid.
(a) If to Buyer, to:
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Koala Corporation
5031 South Ulster Street, Suite 300
Denver, Colorado 80237
Attn: Mark A. Betker
With a copy to:
Parcel Mauro PC
1801 California Street, Suite 3600
Denver, Colorado 80202
Attn: Douglas R. Wright, Esq.
(b) If to Seller, Alan Bayman or Kay Bayman, to:
Park Structures, Inc.
12325 West Sample Road
Coral Springs, Florida 33065
Attn: Alan Bayman
With a copy to:
Rutherford, Mulhall & Wargo, P.A.
2600 N. Military Trail
Boca Raton, Florida 33431
Attn: Robert L. Wunker, Esq.
SECTION 13.2 Amendment. This Agreement may be amended or modified only
---------
by a written instrument executed by the party hereto against which it is to be
enforced.
SECTION 13.3 Specific Performance. Because of the unique nature of the
--------------------
Purchased Assets, Buyer shall have the right to specific performance of this
Agreement.
SECTION 13.4 Expenses of Parties. Except as otherwise specifically
-------------------
provided herein, each party to this Agreement shall pay its own expenses
(including, without limitation, the fees and expenses of their respective
agents, representatives, counsel and accountants) incidental to the preparation
and carrying out of this Agreement. In the event a party commences legal action
against another party to enforce its rights under this Agreement, the prevailing
party in such action shall be entitled to recover all of its costs and expenses
in connection therewith, including reasonable attorneys' fees and costs.
SECTION 13.5 Brokers. Seller and the Shareholders represent and warrant
-------
to Buyer, and Buyer represents and warrants to Seller and the Shareholders, that
they have not engaged any broker, funder, agent or other third party in
connection with this Agreement. Seller and the Shareholders, jointly and
severally, shall indemnify Buyer and Buyer shall indemnify Seller and the
Shareholders, against any claim by any third person for any commission,
brokerage, finder's fee or other payment
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based upon any alleged agreement or understanding between such party and such
third person, whether expressed or implied from the actions of such party.
SECTION 13.6 Governing Law. This Agreement is being delivered in and
-------------
shall be construed in accordance with and governed by the laws of the State of
Colorado.
SECTION 13.7 Headings. The headings contained in this Agreement are for
--------
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
SECTION 13.8 Prior Agreements; Counterparts. Except for the
------------------------------
Confidentiality Agreement, this Agreement, with its Exhibits and Schedules,
merges and integrates all prior agreements and representations respecting this
transaction, whether written or oral, and constitutes the sole agreement of the
parties in connection therewith. This Agreement may be executed simultaneously
in any number of counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.
SECTION 13.9 Assignment. This Agreement shall not be assignable by
----------
Seller, the Shareholders or Buyer, except that Buyer may assign this Agreement
to a wholly owned subsidiary provided Buyer remains fully liable to Seller and
the Shareholders hereunder. Subject to the foregoing, this Agreement shall be
binding upon, and inure to the benefit of, and be enforceable by, the respective
successors and permitted assigns of Seller, the Shareholders and Buyer. Nothing
in this Agreement, express or implied, is intended to confer upon any other
person any rights or remedies under or by reason of this Agreement.
SECTION 13.10 Waiver. The failure of any party to enforce any right
------
arising under this Agreement on one or more occasions shall not operate as a
waiver of that or any other right on that or any other occasion.
SECTION 13.11 Submission to Jurisdiction. Each of the parties irrevocably
--------------------------
submits to the jurisdiction of the federal or state courts of Colorado in any
action and each party to this Agreement waives, and will not assert by way of
motion, as a defense, or otherwise, in any action, claim that:
(a) that party is not subject to the jurisdiction of the
courts of Colorado;
(b) the action is brought in an inconvenient forum;
(c) the venue of the action is improper; or
(d) any subject matter of the action may not be enforced in
or by the courts of Colorado; provided that Seller or the Shareholders may bring
an action asserting breach of this Agreement by Buyer (other than as a
counterclaim to an action already commenced by Buyer in Colorado) in the federal
or state courts of Florida.
SECTION 13.12 Press Release. The parties will consult with each other
-------------
prior to the issuance of any press release regarding this Agreement. Seller and
the Shareholders acknowledge, however,
-26-
<PAGE>
that Buyer is required to make certain disclosures regarding this Agreement as
required by applicable securities laws.
SECTION 13.13 Counterparts. This Agreement may be executed in multiple
------------
counterparts and by facsimile signature, all of which together shall be deemed
one and the same originally executed document.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first above written.
SELLER:
PARK STRUCTURES, INC.
By:_____________________________________
President
PARK STRUCTURES SALES, INC.
By:_____________________________________
President
SHAREHOLDER
________________________________________
Alan Bayman
SHAREHOLDER
________________________________________
Kay Bayman
BUYER:
KOALA CORPORATION
By:_____________________________________
Chairman and Chief
Executive Officer
-27-
<PAGE>
EXHIBIT A
EMPLOYMENT LETTER
_________________, 1998
Mr. Alan Bayman
Park Structures, Inc.
12325 West Sample Road
Coral Springs, Florida 33065
Dear Alan:
This letter will set forth your compensation during the term of your
employment as President of the Park Structures division of Koala Corporation
("Koala"). The Park Structures division is referred to herein as "Park
Structures."
1. This letter is given in connection with the acquisition of the
business and substantially all of the assets of Park Structures, Inc. pursuant
to the terms of the Agreement for Sale and Purchase of Assets dated as of August
7, 1998 (the "Purchase Agreement").
2. Effective upon the closing under the Purchase Agreement, you will be
employed on a full-time basis as President of Park Structures and, subject to
the direction of the Chairman and Chief Executive Officer of Koala, will be
responsible for all of the operations of Park Structures. You will have the
authority delegated to you by, and will report to, the Chairman and Chief
Executive Officer of Koala.
3. You will serve as President of Park Structures until either the
Chairman and Chief Executive Officer of Koala or you elect to terminate your
employment upon not less than ninety (90) days prior written notice. Koala will
not terminate your employment without "cause" as defined below prior to the end
of the period described in Section 2.2 of the Purchase Agreement upon which the
Additional Purchase Price is to be calculated.
4. If your employment is terminated by Koala pursuant to paragraph 3
effective prior to December 31, 1999, without cause or as a result of your
death, disability, incapacitation or other medical condition that precludes you
from performing your duties hereunder, Koala will pay you or, in the event of
death, your estate, a lump sum severance payment equal to your then current base
salary from the effective date of termination through December 31, 1999. You
will not be entitled to any severance payment if you voluntarily terminate your
employment with Koala, Koala terminates your employment for cause or the Company
terminates your employment effective after December 31, 1999 for any reason.
For this purpose, "cause" shall mean misappropriation of company funds, failure
to perform your duties as directed by the Chairman and Chief Executive
<PAGE>
Officer of Koala, usurping a corporate opportunity, acting outside the scope of
your authority, conviction of a felony or other similar actions.
5. You will be entitled to a base salary of $100,000.00 per year, payable
in accordance with Koala's regular payroll practices. Through June 30, 1999,
you, as shareholder of Park Structures, will be receiving a contingent payment
under the Purchase Agreement based on the performance of Park Structures. After
June 30, 1999, you will be entitled to participate in Koala's incentive
compensation plan which will provide for additional compensation based on the
performance of Park Structures in the form of quarterly cash bonuses and
discretionary stock options under Koala's Stock Option Plan. Koala will adopt
the incentive compensation plan prior to June 30, 1999.
6. Your base salary will be reviewed by the Chairman and Chief Executive
Officer of Koala during November of each year commencing in 1999 and may be
increased for the subsequent year.
7. All payments to you under this agreement will be subject to required
withholding.
8. You will be entitled to participate in all of Koala's benefit plans
for its employees, including vacation plans and medical insurance. These fringe
benefits will be comparable to the benefits provided to the Chairman and Chief
Executive Officer of Koala.
9. Koala will reimburse you for your reasonable travel and lodging
expenses in connection with travel for Koala as well as for other reasonable
expenses you incur in connection with the performance of your duties for Koala.
The reimbursements will include reasonable expenses (e.g., mileage and business
insurance costs) for your use of your personal automobile for business purposes.
We look forward to working with you as President of Park Structures.
Please confirm your agreement to the terms of this letter by signing and
returning the enclosed copy.
Very truly yours,
KOALA CORPORATION
By:___________________________________
Mark A. Betker
Chairman and Chief Executive Officer
<PAGE>
AGREED:
________________________________ Date:_________________________
Alan Bayman
<PAGE>
SCHEDULE 1.1(C)
<PAGE>
SCHEDULE 1.1(D)
<PAGE>
SCHEDULE 1.2
<PAGE>
SCHEDULE 2.3
<PAGE>
SCHEDULE 3.8
<PAGE>
SCHEDULE 4.1
<PAGE>
SCHEDULE 4.3
<PAGE>
SCHEDULE 4.4
<PAGE>
SCHEDULE 4.5
<PAGE>
SCHEDULE 4.6
<PAGE>
SCHEDULE 4.7
<PAGE>
SCHEDULE 4.12
<PAGE>
SCHEDULE 4.14
<PAGE>
SCHEDULE 4.15
<PAGE>
SCHEDULE 4.16
<PAGE>
SCHEDULE 4.17
<PAGE>
SCHEDULE 4.18
<PAGE>
SCHEDULE 4.19
<PAGE>
SCHEDULE 4.20
<PAGE>
SCHEDULE 4.23
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
RECITALS....................................................................................... 1
AGREEMENT...................................................................................... 1
ARTICLE I
Assets and Liabilities ................................................................... 1
----------------------
SECTION 1.1 Sale of Assets..................................................... 1
--------------
SECTION 1.2 Excluded Assets.................................................... 2
---------------
SECTION 1.3 Liabilities Assumed by Buyer....................................... 3
----------------------------
SECTION 1.4 Liabilities Not Assumed by Buyer................................... 3
--------------------------------
ARTICLE II
Purchase Price ........................................................................... 3
--------------
SECTION 2.1 Purchase Price..................................................... 3
--------------
SECTION 2.2 Additional Purchase Price.......................................... 4
-------------------------
SECTION 2.3 Allocation of Purchase Price....................................... 5
----------------------------
SECTION 2.4 Past Due Payments.................................................. 6
-----------------
ARTICLE III
The Closing .............................................................................. 6
-----------
SECTION 3.1 Place and Time..................................................... 6
--------------
SECTION 3.2 Payment and Delivery by Buyer...................................... 6
-----------------------------
SECTION 3.3 Delivery by Seller................................................. 6
------------------
SECTION 3.4 Other Deliveries................................................... 7
----------------
SECTION 3.5 Possession......................................................... 7
----------
SECTION 3.6 Calculation of Current Assets, Other Assets and Assumed Warranties 7
------------------------------------------------------------------
SECTION 3.7 Disputes Concerning Financial Calculations Affecting Purchase Price 8
-------------------------------------------------------------------
SECTION 3.8 Purchase Price Adjustment Procedures............................... 8
------------------------------------
SECTION 3.9 Warranty Holdback.................................................. 9
-----------------
ARTICLE IV
Representations and Warranties of Seller and the Shareholders ............................. 9
-------------------------------------------------------------
SECTION 4.1 Organization........................................................ 9
------------
SECTION 4.2 Authorization...................................................... 9
-------------
SECTION 4.3 Financial Reports.................................................. 10
-----------------
SECTION 4.4 Absence of Undisclosed Liabilities................................. 10
----------------------------------
SECTION 4.5 Absence of Certain Changes......................................... 10
--------------------------
SECTION 4.6 Title to Purchased Assets.......................................... 11
-------------------------
SECTION 4.7 Personal Property.................................................. 12
-----------------
SECTION 4.8 Property Violations................................................ 12
-------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 4.9 Purchased Inventory................................................ 12
-------------------
SECTION 4.10 Accounts Receivable................................................ 12
-------------------
SECTION 4.11 Compliance with Other Instruments.................................. 12
---------------------------------
SECTION 4.12 Litigation......................................................... 12
----------
SECTION 4.13 Tax Returns........................................................ 12
-----------
SECTION 4.14 Insurance and Other Claims......................................... 13
--------------------------
SECTION 4.15 Leases............................................................. 13
------
SECTION 4.16 Intellectual Property.............................................. 13
---------------------
SECTION 4.17 Employee Matters................................................... 13
----------------
SECTION 4.18 Contracts and Commitments.......................................... 14
-------------------------
SECTION 4.19 Compliance with Law................................................ 14
-------------------
SECTION 4.20 Licenses and Permits............................................... 15
--------------------
SECTION 4.21 Product Warranties................................................. 15
------------------
SECTION 4.22 No Condemnation.................................................... 15
---------------
SECTION 4.24 No Adverse Conditions.............................................. 15
---------------------
SECTION 4.25 Disclosure......................................................... 15
----------
ARTICLE V
Conduct of Business Prior to Closing...................................................... 15
------------------------------------
SECTION 5.1 Operation in Ordinary Course....................................... 16
----------------------------
SECTION 5.2 Operation of the Business.......................................... 16
-------------------------
SECTION 5.3 Employees.......................................................... 16
---------
SECTION 5.4 Payment of Liabilities............................................. 16
----------------------
SECTION 5.5 Payment of Taxes................................................... 16
----------------
SECTION 5.6 Access to Information.............................................. 16
---------------------
SECTION 5.7 Insurance.......................................................... 16
---------
SECTION 5.8 Maintenance of Properties, etc..................................... 16
------------------------------
SECTION 5.9 Maintenance of Books, etc.......................................... 17
-------------------------
SECTION 5.10 Certain Prohibited Transactions.................................... 17
-------------------------------
SECTION 5.11 Notice of Adverse Changes.......................................... 17
-------------------------
ARTICLE VI
Covenants of Seller....................................................................... 17
-------------------
SECTION 6.1 Telephone Number................................................... 17
----------------
SECTION 6.2 Cooperation........................................................ 17
-----------
SECTION 6.3 Non-Competition.................................................... 18
---------------
SECTION 6.4 Transfer Taxes..................................................... 18
--------------
ARTICLE VII
Representations and Warranties of Buyer................................................... 19
---------------------------------------
SECTION 7.1 Organization....................................................... 19
------------
SECTION 7.2 Authorization...................................................... 19
-------------
SECTION 7.3 Compliance with Other Instruments.................................. 19
---------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 7.4 Litigation......................................................... 19
----------
ARTICLE VIII
Conditions Precedent to Buyer's Obligations............................................... 19
-------------------------------------------
SECTION 8.1 Representations, Warranties and Covenants.......................... 19
-----------------------------------------
SECTION 8.2 Litigation......................................................... 20
----------
SECTION 8.3 Consent and Approval............................................... 20
--------------------
SECTION 8.4 Financing.......................................................... 20
---------
SECTION 8.5 Seller Material Adverse Change..................................... 20
------------------------------
ARTICLE IX
Conditions Precedent to Seller's Obligations.............................................. 20
--------------------------------------------
SECTION 9.1 Representations, Warranties and Covenants.......................... 20
-----------------------------------------
SECTION 9.2 Litigation......................................................... 20
----------
ARTICLE X
Termination............................................................................... 20
-----------
SECTION 10.1 Grounds for Termination............................................ 20
-----------------------
SECTION 10.2 Effect of Termination.............................................. 21
---------------------
ARTICLE XI
Survival and Indemnity.................................................................... 22
----------------------
SECTION 11.1 Survival of Representations, Warranties and Covenants.............. 22
-----------------------------------------------------
SECTION 11.2 Indemnity by Seller and the Shareholders........................... 22
----------------------------------------
SECTION 11.3 Indemnity by Buyer................................................. 23
------------------
SECTION 11.4 Notice of Claim.................................................... 23
---------------
SECTION 11.5 Security........................................................... 23
--------
SECTION 11.6 Limitation......................................................... 23
----------
SECTION 11.7 Right of Set-Off................................................... 24
----------------
ARTICLE XII
Post-Closing Rights and Obligations....................................................... 24
-----------------------------------
SECTION 12.1 Delivery of Records................................................ 24
-------------------
SECTION 12.2 Cooperation........................................................ 24
-----------
SECTION 12.3 Employees.......................................................... 24
---------
SECTION 12.4 Further Assurances................................................. 24
------------------
ARTICLE XIII
General................................................................................... 24
-------
SECTION 13.1 Notice............................................................. 24
------
SECTION 13.2 Amendment.......................................................... 25
---------
SECTION 13.3 Specific Performance............................................... 25
--------------------
SECTION 13.4 Expenses of Parties................................................ 25
-------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 13.5 Brokers............................................................ 25
-------
SECTION 13.6 Governing Law...................................................... 26
-------------
SECTION 13.7 Headings........................................................... 26
--------
SECTION 13.8 Prior Agreements; Counterparts..................................... 26
------------------------------
SECTION 13.9 Assignment......................................................... 26
----------
SECTION 13.10 Waiver............................................................. 26
------
SECTION 13.11 Submission to Jurisdiction......................................... 26
--------------------------
SECTION 13.12 Press Release...................................................... 26
-------------
SECTION 13.13 Counterparts....................................................... 27
------------
</TABLE>
<PAGE>
Exhibit 10.1
REVOLVING CREDIT AGREEMENT
This Revolving Credit Agreement (the "Agreement") is made as of December 16,
1998, between KOALA CORPORATION, a Colorado corporation ("Borrower") and U.S.
BANK NATIONAL ASSOCIATION, fka COLORADO NATIONAL BANK, a national banking
association ("Bank").
RECITALS:
i. Borrower and Bank entered into (a) a Revolving Credit Agreement dated as
of June 24, 1997 pursuant to which Bank made available to Borrower a
Revolving Credit Line of $2,000,000 and (b) a First Amendment to Revolving
Credit Agreement dated June 24, 1998 which extended Bank's commitment to
make loans under Revolving Credit Line to June 24, 1999 (the "Prior
Agreement");
ii. Borrower is proposing to acquire the assets of Park Structures, Inc. and
Park Structures Sales, Inc. (the "Acquisition") and to issue additional
equity securities in the public markets (the "Offering") in connection
therewith;
iii. Borrower has requested that Bank increase its commitment to $15,000,000
and to extend the Termination Date to December 16, 2001 in connection with
such Acquisition; and
iv. Bank is willing to take such action upon and subject to the terms and
conditions set forth in this Agreement which upon execution shall
supercede the Prior Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual covenants
contained in this Agreement, Borrower and Bank agree as follows:
1. TERMS OF BORROWING
------------------
1.01 Revolving Credit Line. Subject to the following terms and conditions, Bank
---------------------
agrees to make a line of credit available to Borrower (the "Revolving
Credit Line") in the maximum amount of $15,000,000 (the "Maximum Line")
or, if less, the amount of the Cash Flow Limit (defined below), pursuant
to which Bank will make loans to Borrower (each an "Advance") in such
amounts as Borrower may request from time to time, the proceeds of which
shall be used for working capital, the proposed Acquisition and future
acquisitions and to purchase equipment, including computer equipment. The
aggregate outstanding principal balance of all Advances made hereunder may
not exceed the Maximum Line. Amounts borrowed under the Revolving Credit
Line may be repaid prior to the Termination Date (defined below) without
penalty, except as set forth in Exhibit A to the Note (defined below), and
may be reborrowed subject to the terms hereof.
Bank's commitment to make Advances hereunder is subject to the conditions
in Section 4 below and the following limitations:
a. Bank's commitment to lend hereunder terminates on December 16, 2001
(the "Termination Date"), if not sooner terminated under Section 8
below;
b. Bank shall not be obligated to make any Advance which would cause
the outstanding principal balance of the Revolving Credit Line (the
"Line Balance") to exceed the Maximum Line or, if less, the Cash Flow
Limit; and
c. Bank shall not be obligated to make any Advance if an Event of
Default, as defined in Section 7 below, or an event which, with the
giving of notice or lapse of time, or both, would become an Event of
Default (a "Potential Default"), has occurred and has not been cured by
Borrower or waived by Bank.
1
<PAGE>
1.02 Line Note. Borrower's indebtedness to Bank for amounts borrowed under the
---------
Revolving Credit Line and for interest accrued thereon shall be evidenced
by Borrower's promissory note to Bank, on Bank's standard form for
commercial promissory notes and otherwise satisfactory to Bank, in the
principal amount of the Maximum Line (as amended or extended from time to
time, the "Line Note").
1.03 Interest. Borrower agrees to pay interest on the Line Balance from time to
--------
time as provided herein. Interest will accrue on the daily outstanding
balance of each Advance at a fluctuating rate per annum equal to the
applicable "Reserve Adjusted LIBOR Rate" plus the applicable margin as set
forth below for the selected Interest Period (see the attached Exhibit A
which will be attached to and incorporated into the Line Note for terms
and definitions which will apply to the interest rates based on a Reserve
Adjusted LIBOR Rate). Borrower shall have the option to select fixed
Interest Periods or a reset daily one-month Interest Period basis for each
Advance. The interest rate for any new Advance made on or after the date
of determination of Borrower's ratio of Debt to Annualized Cash Flow for
each fiscal quarter or for any Advance outstanding on a reset daily basis
on such determination date, will be subject to further adjustment, as of
the date of such determination each fiscal quarter, as follows: When
Borrower's ratio of Debt (as defined in Section 6.02) to Annualized Cash
Flow (as defined in Section 1.04) is within one of the ranges set forth
below, then the "margin" or "spread" to be added to the applicable Reserve
Adjusted LIBOR Rate shall be the rate per annum set forth below opposite
such range:
Debt/Annualized
Cash Flow Ratio Margin
--------------- ------
Less than 1.00:1 2.15%
1.00:1 less than or equal to 2.50:1 2.35%
Greater than 2.50:1 2.60%
Accrued interest on each Advance shall be due and payable (i) at the end
of each fixed Interest Period but not less than at the end of each 3
months, (ii) on the first day of each month for interest on a reset daily
one-month Interest Period basis, (iii) at maturity of the Line Note and
(iv) on demand after such maturity. After the occurrence of an Event of
Default or after maturity or any acceleration of maturity of the Line
Note, at Bank's option, the interest rate applicable to any Advance or the
Line Balance may be increased as provided in the Line Note and Borrower
agrees to pay any such increased interest. Interest shall be computed
using the actual number of days in the period for which such computation
is made and a per diem rate equal to 1/360 of the fluctuating rate per
annum.
1.04 Cash Flow Limit. The "Cash Flow Limit" means from time to time an amount
---------------
equal to the result of multiplying Borrower's Annualized Cash Flow by 3.5
through September 30, 1999 and by 3.0 as of December 31, 1999 and
thereafter. "Annualized Cash Flow" means Borrower's earnings before
interest, taxes, depreciation and amortization calculated at the end of
each quarter for the previous four quarters (i.e. on a four-quarter
trailing basis).
1.05 Repayment of Principal. Borrower agrees to repay all Advances made
----------------------
hereunder. The Line Balance will be due and payable in full at the
maturity of the Line Note, which will be December 16, 2001 subject to
acceleration upon the occurrence of an Event of Default. In the event
Borrower issues any additional debt or equity securities for cash after
the date hereof (excluding the Offering and any Debt to Bank or Bank's
affiliates), Borrower agrees to repay outstanding Advances hereunder from
and to the extent of the net proceeds received from any such issue of
securities.
1.06 Method of Borrowing. Requests for Advances may be submitted by Borrower in
-------------------
writing or by telephone. Bank shall be entitled to honor any such request
it reasonably believes to be genuine, whether or not the person making the
request is named as an authorized person in any corporate resolution or
instruction furnished Bank by Borrower. Advances shall be disbursed only
by deposit to a demand deposit account maintained by Borrower at Bank.
Proceeds of an Advance shall be disbursed on the Banking Day (as
2
<PAGE>
defined in the Colorado Uniform Commercial Code) Bank receives Borrower's
request if such request is received by 2:00 p.m. Denver time on such day,
and on the next Banking Day if received after 2:00 p.m. on such day, and
in either case the conditions of Section 4 are met.
1.07 Letters of Credit. In the event and to the extent Bank issues a letter of
-----------------
credit (an "L/C") on behalf of Borrower under the Revolving Credit Line in
lieu of an advance, the Maximum Line shall be considered utilized by the
amount of such L/C. Borrower shall pay fees for any such L/C at the time
of issuance according to Bank's schedule of fees relating to letters of
credit in effect from time to time; and Borrower shall execute Bank's then
current standard form application and agreement for such L/C. Amounts
drawn under any such L/C and honored by Bank but not immediately
reimbursed by Borrower to Bank shall become an Advance hereunder in such
amount at such time evidenced by the Line Note and subject to all the
terms of this Agreement, whether or not any Event of Default or Potential
Default has occurred. No such L/C shall expire later than the Termination
Date.
1.08 Loan Fee. Borrower agrees to pay Bank a fee of $35,000.00, payable in
--------
advance on the date of execution hereof by Borrower.
1.09 Commitment Fee. As additional consideration for the commitment to lend
--------------
hereunder, Borrower agrees to pay Bank a commitment fee on the average
daily unused portion of the Maximum Line from the date hereof until the
Termination Date at a rate of one quarter of one percent (.25%) per annum,
payable quarterly in arrears on the first day of each calendar quarter
during the term of the Revolving Credit Line commencing April 1, 1999 and
on the Termination Date.
2. COLLATERAL AND OTHER CREDIT SUPPORT
-----------------------------------
2.01 Collateral. The repayment of all of Borrower's indebtedness to Bank shall
----------
be secured by first priority security interests (the "Security Interests")
in all accounts, general intangibles, inventory and equipment (all such
terms having the meanings given them in the Colorado Uniform Commercial
Code) now owned or hereafter acquired by Borrower and in all proceeds
thereof (the "Collateral"). The Security Interests shall be created and
perfected by security agreements, UCC financing statements, and any other
collateral documents deemed necessary or advisable by Bank in its sole
discretion, each in form satisfactory to Bank, duly executed by Borrower
(the "Collateral Documents"). Hereafter, Borrower shall from time to time
execute and deliver to Bank such other documents in form and substance
satisfactory to Bank, and perform such other acts, as Bank may reasonably
request, to perfect and maintain valid Security Interests in the
Collateral. In addition Borrower hereby grants to Bank a security interest
in all Borrower's deposit accounts at Bank to secure all obligations of
Borrower to Bank now or hereafter arising.
2.02 Subordinated Debt. Any and all loans or advances made to Borrower by any
-----------------
of Borrower's shareholders or any other affiliates of Borrower shall be
subordinated to all indebtedness of Borrower to Bank now or hereafter
existing and such subordination shall be evidenced by agreements in form
and substance satisfactory to Bank in Bank's sole discretion, duly
executed by each such other creditor (the "Subordinated Debt").
3. REPRESENTATIONS AND WARRANTIES
------------------------------
To induce Bank to enter into this Agreement, Borrower represents and
warrants as follows:
3.01 Incorporation. Borrower is a corporation duly organized, validly existing,
-------------
and in good standing under the laws of the State indicated at the
beginning of this Agreement, and Borrower is duly qualified or licensed
and in good standing to do business as a foreign corporation in all
jurisdictions in which the nature of Borrower's business requires
qualification.
3
<PAGE>
3.02 Borrower's Authorization. The execution, delivery and performance by
------------------------
Borrower of this Agreement, the Line Note and the Collateral Documents are
within Borrower's corporate powers, have been authorized by all necessary
corporate action and do not and will not contravene Borrower's Articles of
Incorporation or Bylaws, violate any provision of law or result in a
breach of or default under any other agreement to which Borrower is a
party.
3.03 Litigation. There is no pending or threatened action, claim,
----------
investigation, lawsuit or proceeding against or affecting Borrower before
any court, governmental agency, arbitrator or arbitration panel, which if
decided adversely to Borrower would have a material adverse affect on the
financial condition or operations of Borrower or in any event which claims
or involves an amount exceeding $100,000 ("Material Litigation").
3.04 Financial Condition. The audited balance sheet of Borrower as at December
-------------------
31, 1997, and the related statements of income and retained earnings for
the fiscal year then ended, and the unaudited balance sheet of Borrower as
at September 30, 1998, and the related statements of income and retained
earnings for the period then ended, copies of which have been furnished to
Bank, fairly present the financial condition of Borrower as at such dates
and the results of the operations of Borrower for the periods ended on
such dates, all in accordance with generally accepted accounting
principles ("GAAP") applied on a consistent basis, subject to year-end
audit adjustments for the unaudited September 30, 1998 financial
statements, and since September 30, 1998 there has been no material
adverse change in such condition or operations.
3.05 Valid Obligations. This Agreement constitutes, and each of the Line Note
-----------------
and the Collateral Documents when delivered hereunder will be, a legal,
valid and binding obligation of Borrower, enforceable against Borrower in
accordance with its respective terms.
3.06 Taxes. Borrower (i) has filed all tax reports and returns required to be
-----
filed, including but not limited to reports and returns concerning income,
franchise, employment, sales and use, and property taxes; (ii) has paid
all of its tax liabilities which were due on or prior to the date hereof;
and (iii) is not aware of any pending investigation by any taxing
authority or of any pending assessments or adjustments which would
materially increase its tax liability.
3.07 Regulation U. Borrower is not engaged in the business of extending credit
------------
for the purpose of purchasing or carrying margin stock (within the meaning
of Regulation U issued by the Board of Governors of the Federal Reserve
System), and no proceeds of any Advance will be used to purchase or carry
any margin stock or to extend credit to others for the purpose of
purchasing or carrying any margin stock.
3.08 Disclosure. No information, exhibit or report furnished by Borrower to
----------
Bank in connection with the negotiation of this Agreement contains any
material misstatement of fact or omitted to state a material fact
necessary to make the statement contained therein not misleading.
3.09 Environmental Compliance. The ownership and operation of Borrower's
------------------------
properties have been and are in compliance with all applicable federal,
state, and local environmental protection and hazardous waste disposal
statutes and regulations. Borrower has not received any notice of claim
under or violation of any such laws affecting Borrower's properties.
3.10 Liens. Borrower is the legal and beneficial owner of the property granted
-----
as collateral hereunder, free from any lien, encumbrance, or restriction
whatsoever except the Bank's Security Interests and liens for taxes not
yet due and payable, and Borrower has full power and authority to grant
liens and the security interests in such property as collateral for its
indebtedness.
4
<PAGE>
4. CONDITIONS PRECEDENT
--------------------
4.01 Conditions Precedent to Initial Advance. The obligation of Bank to make its
---------------------------------------
initial Advance hereunder is subject to the condition precedent that Bank
shall have received on or before the day of such Advance the following,
each in form and substance satisfactory to Bank:
i. the Line Note and such Collateral Documents as may be specified by
Bank, each duly executed by Borrower, and any fees specified above;
ii. if not already in possession of Bank, copies of the Articles of
Incorporation and By-laws of Borrower, each certified by the Secretary of
Borrower to be a true and correct copy thereof, including all amendments
thereto, if any;
iii. certified copies of the resolutions of the Board of Directors of
Borrower approving this Agreement, the Line Note and the Collateral
Documents, and of all documents evidencing other necessary corporate action
and governmental approvals, if any, with respect to this Agreement, the
Line Note and the Collateral Documents;
iv. a certificate of the Secretary of Borrower certifying the names and
true signatures of the officers of Borrower authorized to sign this
Agreement, the Line Note and the Collateral Documents;
v. a certificate of the Secretary of State of Colorado certifying that
Borrower is a corporation duly organized and in good standing under the
laws of Colorado or such other evidence thereof as may be satisfactory to
Bank;
vi. a year 2000 compliance representation letter on Bank's form; and
vii. evidence that both the Acquisition and the Offering have closed and
been completed substantially as contemplated on the date hereof.
4.02 Conditions Precedent to All Advances. The obligation of Bank to make each
-----------------------------------
Advance (including the initial Advance) shall be subject to the further
conditions precedent that on the date of such Advance:
i. the following statements shall be true:
(a) the representations and warranties contained in Section 3 are
correct on and as of the date of such Advance as though made on and
as of such date; and
(b) no event has occurred and is continuing, or would result from
such Advance, which constitutes an Event of Default or Potential
Default;
and Bank may request a certificate of an officer of Borrower stating
the foregoing;
ii. Bank shall have received such other approvals, opinions or documents
as Bank may reasonably request; and
iii. Bank's legal counsel is reasonably satisfied as to all legal matters
incident to the making of such Advance.
5
<PAGE>
5. AFFIRMATIVE COVENANTS
---------------------
So long as the Line Note or any indebtedness of Borrower to Bank remains
unpaid
5.01 Accounting Records. Maintain adequate books and accounting records in
------------------
accordance with GAAP, consistently applied, reflecting all financial
transactions of Borrower.
5.02 Inspections. At any reasonable time and from time to time, permit any
-----------
agents or representatives of Bank to examine and make copies of and
abstracts from records and books of account of Borrower, to visit and
inspect the properties of Borrower and to discuss the affairs, finances
and accounts of Borrower with any of its officers or directors.
5.03 Maintenance of Property. Maintain and preserve all of its properties and
-----------------------
assets necessary or useful in the performance of its business in good
working order, repair and condition, ordinary wear and tear excepted.
5.04 Insurance. Maintain insurance with responsible and reputable insurance
---------
companies in such amounts and covering such risks as is usually and
customarily carried by companies engaged in similar businesses and owning
similar properties, including, but not limited to, public liability,
property damage and worker's compensation, and deliver to Bank, at Bank's
request, schedules setting forth all insurance then in effect and copies
of such policies or certificates of insurance on property granted or
pledged as collateral; cause Bank to be named loss payee and as additional
insured on any insurance covering property granted or pledged as
collateral, and furnish to Bank certificates indicating such status.
5.05 Payment of Taxes, Liens. Pay and discharge, before the same become
-----------------------
delinquent, (i) all taxes, assessments and governmental charges or levies
imposed upon Borrower or upon its property, and (ii) all lawful claims
which, if unpaid, might by law become a lien upon its property, except any
thereof which is being contested in good faith and by appropriate
proceedings.
5.06 Compliance with Laws. Comply in all material respects with all applicable
--------------------
laws, rules, regulations and orders of any government authority, non-
compliance with which would materially adversely affect its business or
credit.
5.07 Corporate Existence. Preserve and maintain its corporate existence and
-------------------
rights and franchises in its State of incorporation, and all licenses
necessary to do business; and qualify and remain qualified and in good
standing as a foreign corporation in each jurisdiction in which such
qualification is necessary in view of its operation or ownership of its
properties.
5.08 Reporting. Furnish Bank the following as soon as available and in any
---------
event:
i. Within ninety (90) days after the end of each fiscal year of
Borrower, a copy of the annual audited financial statements of Borrower as
at the end of such fiscal year, including a balance sheet and income
statement, audited by an independent Certified Public Accountant ("CPA")
reasonably acceptable to Bank, with an unqualified opinion thereon by said
CPA;
ii. Within forty-five (45) days after the end of each fiscal quarter, (a)
Borrower's internally prepared statement of financial condition as at the
end of such quarter, including a balance sheet and income statement
prepared substantially in accordance with GAAP and (b) a certificate as to
compliance with Borrower's financial covenants in the form of Exhibit B
---------
hereto or in such other form as may be acceptable to Bank;
iii. Prior to the end of each fiscal year of Borrower, a copy of
Borrower's projected financial statements for the next fiscal year; and
6
<PAGE>
iv. From time to time such other information as Bank may reasonably
request.
5.09 Financial Condition. Maintain the financial condition of Borrower,
-------------------
determined in accordance with GAAP, so that it meets the following
requirements measured on a quarterly basis for the preceding four fiscal
quarters, i.e. on a 4-quarter trailing basis:
i. Borrower's ratio of (a) Debt to (b) Annualized Cash Flow will be not
more than 3.50:1 through the quarter ending 9/30/99 and not more than
3.00:1 thereafter; and
ii. Borrower's ratio of (a) Annualized Cash Flow to (b) Interest Expense
will be not less than 4.00:1.
5.10 Deposit Accounts. Maintain all material deposit accounts at Bank.
----------------
5.11 Notice of Significant Events. Promptly notify Bank in writing of 1) the
----------------------------
occurrence of any Event of Default or Potential Default; 2) any change in
its name, address, form of entity, or organizational or capital structure;
or 3) the threat of or commencement of any Material Litigation.
6. NEGATIVE COVENANTS
------------------
So long as the Line Note or any indebtedness of Borrower to Bank remains
unpaid or Bank has any commitment to lend hereunder, without the prior
written consent of Bank, Borrower will not:
6.01 Use of Funds. Use any of the amounts loaned to it by Bank pursuant to
------------
this Agreement for any purpose except as specified in Section 1.01;
6.02 Debt. Create, incur, assume or permit to exist any Debt except 1) Debt to
----
Bank or to affiliates of Bank; 2) Debt which is trade debt incurred by
Borrower in the ordinary course of business on a short term basis for the
acquisition of supplies or services; and 3) other Debt up to an aggregate
amount of $150,000 at any one time outstanding. "Debt" means (i)
indebtedness for borrowed money or for the deferred purchase price of
property or services, (ii) obligations as lessee under leases which shall
have been or should be, in accordance with GAAP, recorded as capital
leases, (iii) obligations under direct or indirect guaranties in respect
of, and obligations (contingent or otherwise) to purchase or otherwise
acquire, or otherwise assure a creditor against loss in respect of,
indebtedness or obligations of others of the kinds referred to in clause
(i) or (ii) above, and (iv) liabilities in respect of unfunded vested
benefits under plans covered by Title IV of ERISA;
6.03 Liens. Create, incur, assume, or permit to exist any mortgage, deed of
-----
trust, pledge, lien, security interest or other charge or encumbrance or
any other type of preferential arrangement, upon or with respect to any of
its properties, whether now owned or hereafter acquired, or assign any
right to receive any income, other than (i) purchase money security
interests or liens in or upon any property acquired or held by Borrower in
the ordinary course of business to secure the purchase price of such
property or to secure indebtedness incurred solely for the purpose of
financing the acquisition of such property, (ii) security interests or
liens existing in or on such property at the time of its acquisition,
(iii) liens for taxes not yet due and payable, deposits or pledges in
connection with or to secure payment of workmen's compensation,
unemployment insurance or other social security or in connection with the
good faith context of any tax lien, and (iv) the Security Interests and
any other liens in favor of Bank, provided that the aggregate principal
--------
amount of the indebtedness secured by the security interests or liens
referred to in clauses (i) and (ii) above shall not exceed $50,000 any
time outstanding;
6.04 Loans and Investments. Make any loans or advances to any person or entity
---------------------
or purchase or otherwise acquire the capital stock, assets, or obligations
of, or any other interest in, any person or entity or make any other
investments, except (i) readily marketable direct obligations of the
United States of America or a money market mutual fund investing solely
therein; (ii) certificates of deposit issued by commercial banks
7
<PAGE>
of recognized standing operating in the United States of America; (iii)
other loans or investments in an aggregate amount in any one fiscal year
not exceeding $1,000,000 excluding the Acquisition; or (iv) loans or
advances to wholly-owned or controlled subsidiary corporations or similar
limited liability entities ("Subsidiaries");
6.05 Guaranty. Guarantee or become liable in any way as surety for any
--------
liability or obligation of any other person or entity except by
endorsement of instruments for deposit or collection in the ordinary
course of business and except for guarantees of Subsidiaries up to an
aggregate amount of $150,000 at any one time outstanding;
6.06 Merger or Sale. Merge into or consolidate with any corporation or other
--------------
entity; or sell, lease, assign or otherwise transfer or dispose of all or
any material portion of its assets except for sales of inventory in the
ordinary course of business;
6.07 Nature of Business. Materially change the scope or nature of its
------------------
business; or
6.08 Distribution to Shareholders. Pay or declare any dividends, or purchase,
----------------------------
redeem or otherwise acquire any of its capital stock, or make any other
distributions of any property to any of its shareholders as such.
7. DEFAULT
-------
If any of the following events shall occur, it shall be an event of
default ("Event of Default"):
7.01 Non-Payment. Borrower fails to pay any principal of the Line Note or any
-----------
other sums payable by Borrower to Bank pursuant to this Agreement when
due, or Borrower fails to pay any interest on the Line Note within ten
(10) days after any such interest is due;
7.02 Representations. Any representation or warranty made by Borrower herein or
---------------
in connection herewith proves to have been incorrect in any material
respect when made;
7.03 Breach of Negative Covenants. Borrower fails to observe or comply with any
----------------------------
of the covenants in Section 6 of this Agreement;
7.04 Breach of Covenants. Borrower fails to perform or observe any other term,
-------------------
covenant or agreement contained in this Agreement (other than those
referred to in Section 7.01 and 7.03) or in any Collateral Document and
such failure has not been cured within ten (10) days after Bank has
notified Borrower of such failure;
7.05 Default on Other Debt. Borrower shall fail to pay any Debt of Borrower
---------------------
(other than Debt evidenced by the Line Note) or any interest or premium
thereon when due (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise) and such failure shall continue after
the applicable grace period, if any, specified in the agreement or
instrument relating to such Debt; or any other default or event under any
agreement or instrument relating to any such Debt shall occur and shall
continue after the applicable grace period, if any, specified in such
agreement or instrument, if the effect of such default or event is to
accelerate, or to permit the acceleration of, the maturity of such Debt;
or any such Debt shall be declared to be due and payable, or required to
be prepaid (other than by a regularly scheduled required prepayment),
prior to the stated maturity thereof;
7.06 Insolvency. Borrower shall generally not pay its debts as such debts
----------
become due, or shall admit in writing its inability to pay its debts
generally, or shall make a general assignment for the benefit of
creditors; or any proceeding shall be instituted by or against Borrower
seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation,
winding up, reorganization, arrangement, adjustment, protection, relief,
or composition of it or its debts under any law relating to bankruptcy,
insolvency or reorganization or relief of debtors, or seeking the entry of
an order for relief or the appointment of a receiver, trustee, or other
8
<PAGE>
similar official for it or for any substantial part of its property and,
if instituted against Borrower, shall remain undismissed for a period of
thirty days; or Borrower shall take any corporate action to authorize any
of the actions set forth above in this subsection;
7.07 Judgments. Any judgment or order for the payment of money in excess of
---------
$500,000 which is not covered by insurance shall be rendered against
Borrower and either (i) enforcement proceedings shall have been commenced
by any creditor upon such judgment or order or (ii) there shall be any
period of 10 consecutive days during which a stay of enforcement of such
judgment or order, by reason of a pending appeal or otherwise, shall not
be in effect;
7.08 Change in Control. Any person, entity or group of persons acting together
-----------------
(not including the current principal shareholder(s) of Borrower) acquires
a sufficient number of the shares of Borrower's voting common stock to
enable such acquiring person, entity or group to elect a majority of
Borrower's Board of Directors.
8. REMEDIES
--------
Upon the occurrence of any Event of Default, Bank shall have the right by
notice to Borrower:
8.01 Further Loans. To terminate its commitment to make Advances;
-------------
8.02 Acceleration. To declare the Line Balance and all interest accrued thereon
------------
and all other amounts payable under this Agreement to be immediately due
and payable whereupon all such indebtedness of Borrower to Bank shall
become and be immediately due and payable without presentment, demand,
protest or further notice of any kind, all of which are hereby expressly
waived by Borrower; and
8.03 Other Rights. To exercise any other rights or remedies available to it
------------
whether under the Collateral Documents, or at law or in equity.
9. MISCELLANEOUS
-------------
9.01 Waiver Amendments. No waiver by Bank or any amendment of any provision of
-----------------
this Agreement, nor any consent of Bank to any failure to comply with the
terms hereof by Borrower, shall be effective unless made in writing and
signed by Bank. No waiver by Bank of any default or of any right to
enforce this Agreement shall operate as a waiver of any other default, or
of the same default on a future occasion, or of the right to enforce this
Agreement on any future occasion. No delay in or discontinuance of the
enforcement of this Agreement, nor the acceptance by Bank of installments
of principal or interest after the occurrence of any Event of Default,
shall operate as a waiver of any default.
9.02 Rights Cumulative. The rights and remedies herein provided are cumulative
-----------------
and not exclusive of any rights or remedies afforded by any promissory
note or other agreement executed in connection herewith, or provided by
law. Bank's remedies may be exercised concurrently or separately, in any
order, and the election of one remedy shall not be deemed a waiver of any
other remedy.
9.03 Expenses. Borrower will pay to Bank on demand all expenses, including
--------
reasonable fees and expenses of attorneys, paid or incurred by Bank in
connection with the creation and perfection of Bank's security interest in
collateral, the making or collection of Advances made pursuant to this
Agreement, or the protection, preservation or enforcement of Bank's rights
hereunder and in property pledged or granted as collateral.
9.04 Successors and Assigns. This Agreement shall be binding upon and inure to
----------------------
the benefit of Borrower, Bank and their respective successors and assigns.
However, Borrower shall not have the right to assign or otherwise transfer
any rights in or under this Agreement without Bank's prior written
consent. Bank reserves the right to sell, assign, transfer, negotiate or
grant participations in the Advances provided for
9
<PAGE>
herein. In connection therewith Bank may disclose all documents and
information which Bank now has or may hereafter acquire relating to the
Advances, Borrower or Borrower's business or any of the Collateral.
9.05 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Colorado.
9.06 Notices. All notices, requests and demands given to or made upon either
-------
party must be in writing and shall be deemed to have been given or made
when personally delivered or two (2) days after having been deposited in
the United States Mail, first class postage prepaid, addressed as follows:
If to Borrower: Koala Corporation
Attn: Mark A. Betker
President and CEO
5031 South Ulster St. Suite 300
Denver, CO 80237
If to Bank U.S. Bank National Association
Attn: Joni Fish, Vice President
918 17th Street
Denver, CO 80202
9.07 Accounting Terms. All accounting terms not specifically defined herein
----------------
shall be construed in accordance with generally accepted accounting
principles consistently applied, except as otherwise stated herein.
9.08 Recitals. The recitals to this Agreement and any definitions set forth
--------
therein are made a part hereof and incorporated in this Agreement.
9.09 Entire Agreement. The following documents contain the entire agreement
----------------
between the parties concerning the subject matter hereof: this Agreement,
the Line Note and the Collateral Documents (collectively, the "Relevant
Documents"). Any representation, understanding or promise concerning the
subject matter hereof, which is not expressly set forth in any of the
Relevant Documents, shall not be enforceable by any party hereto or its
successors or assigns. In the event of any conflict or inconsistency
between the terms of this Agreement and the terms of any other Relevant
Document, the terms of this Agreement shall govern.
9.10 Severability. The unenforceability of any provision of this Agreement
------------
shall not affect the enforceability or validity of any other provision
hereof.
9.11 JURY TRIAL WAIVER. BANK AND BORROWER EACH IRREVOCABLY WAIVES ITS RIGHT TO
-----------------
A JURY TRIAL IN ANY ACTION OR PROCEEDING OF ANY ISSUE, CLAIM, COUNTERCLAIM
OR OTHER CAUSE OF ACTION, WHETHER IN CONTRACT OR TORT, BASED UPON OR
ARISING OUT OF THIS AGREEMENT, THE CREDIT EXTENDED HEREUNDER, ANY
COLLATERAL PROPERTY SECURING SUCH CREDIT, OR ANY OTHER AGREEMENT OR
DEALINGS RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT.
IN WITNESS WHEREOF, the parties have executed this Agreement the date first
stated above for the purposes set forth herein.
KOALA CORPORATION U.S. BANK NATIONAL ASSOCIATION
By:_____________________________ By:_____________________________
Title:__________________________ Title:__________________________
10
<PAGE>
EXHIBIT A
TO PROMISSORY NOTE ("NOTE")
OF KOALA CORPORATION
("BORROWER")
DATED DECEMBER 16, 1998
AND PAYABLE TO THE ORDER OF
U.S. BANK NATIONAL ASSOCIATON ("BANK")
This Exhibit A contains provisions expressly incorporated into the Note to which
it is attached and to which the Note is expressly made subject. In the event of
any inconsistency between the provisions of this Exhibit A and the terms of the
Note, the terms of this Exhibit A shall control.
- --------------------------------------------------------------------------------
1. Definitions. Unless otherwise defined in the Note, capitalized terms shall
-----------
have the following meanings:
"Advance": Each amount borrowed by the Borrower under the credit facility
-------
between the Borrower and the Bank and evidenced by the Note to which this
Exhibit A is attached. Advances may be either LIBOR Rate Advances or
Reference Rate Advances.
"Business Day": Any day of the year on which the Bank's main Denver office
------------
is open for carrying on substantially all of its business and on which the
interbank Eurodollar market is open for business.
"Eurocurrency Reserve Rate": A percentage equal to the daily average during
-------------------------
the applicable Interest Period of the aggregate maximum reserve
requirements (including all basic, supplemental, marginal and other
reserves), as specified under Regulation D of the Federal Reserve Board, or
any other applicable regulation that prescribes reserve requirements
applicable to Eurocurrency liabilities (as presently defined in Regulation
D) or applicable to extensions of credit by member banks the rate of
interest on which is determined with regard to rates applicable to
Eurocurrency liabilities. Without limiting the generality of the foregoing,
the Eurocurrency Reserve Rate shall reflect any reserves required to be
maintained by the Bank against (i) any category of liabilities that
includes deposits by reference to which the LIBOR Rate is to be determined,
or (ii) any category of extensions of credit or other assets that includes
loans or advances having an interest rate based upon the LIBOR Rate. Any
LIBOR Rate Advance shall be deemed to be "Eurocurrency liability" as
defined in Regulation D.
"Interest Period": as to any LIBOR Rate Advance, a period commencing on
---------------
(and including) the date the funds of such LIBOR Rate Advance are advanced
or the date the immediately preceding Interest Period ends, and ending on
the last day of the Interest Period specified in the Borrower's Interest
Period Election, provided, however, that (i) if any Interest Period would
otherwise end on a day which is not a Business Day, such Interest Period
shall be extended to the next succeeding Business Day unless such next
succeeding Business Day falls in another calendar month, in which case such
Interest Period shall end on the next preceding Business Day; (ii) any
Interest Period which begins on the last Business Day of a calendar month
(or on a day for which there is no numerically corresponding day in the
calendar month at the end of such Interest Period) shall end on the last
Business Day of the calendar month at the end of such Interest Period;
(iii) interest shall accrue from and including the first day of the
Interest Period to but excluding the last day of such Interest Period, and
(iv) no Interest Period applicable to any LIBOR Rate Advance may end after
the maturity date of the Note.
"Interest Period Election": The number of months in any Interest Period as
------------------------
selected by the Borrower or as otherwise determined in accordance with this
Exhibit A.
"LIBOR Rate": The offered rate for deposits in United States Dollars for
----------
delivery of such deposits on the first day of an Interest Period, for the
number of days comprised therein, which appears on the Reuters Screen LIBO
Page as of 11:00 a.m., London time, on the day that is two Business Days
preceding the first day of the Interest Period. If at least two rates
appear on the Reuters Screen LIBO page, the rate for such
11
<PAGE>
Interest Period shall be the arithmetic mean of such rates (rounded to the
nearest 1/100th). If fewer than two rates appear, the rate for such
Interest Period shall be determined by the Bank based on rates offered to
banks for United States Dollar deposits in the interbank Eurodollar market.
"Reuters Screen LIBO Page" means the display designated as page "LIBO" on
the Reuters Monitor Money Rates Service (or such other page as may replace
the LIBO Page on that service for the purpose of displaying London
interbank offered rates of major banks for United States Dollar deposits).
"LIBOR Rate Advance": Any Advance as to which the Borrower elects an
------------------
interest rate per annum based upon the LIBOR Rate.
"Reserve Adjusted LIBOR Rate": With respect to each LIBOR Rate Advance, the
---------------------------
rate per annum (rounded to the nearest 1/100th) equal to the rate obtained
by dividing (a) the LIBOR Rate for the first day of the applicable Interest
Period, by (b) a percentage equal to 1.00 minus the Eurocurrency Reserve
Rate. The Reserve Adjusted LIBOR Rate as to any LIBOR Rate Advance then
outstanding shall be adjusted automatically on and after the date as to
which any change in the reserve requirement percentage referred to above is
published by the Board of Governors of the Federal Reserve System (or any
successor thereto), regardless of whether such change falls within an
existing Interest Period.
"Reference Rate": The per annum interest rate publicly announced from time
--------------
to time as such by or on behalf of the Bank, which is not necessarily the
lowest rate charged by the Bank; and the Bank may lend to its customers at
per annum rates that are at, above or below the Reference Rate. The
Reference Rate shall be adjusted automatically from time to time
simultaneously with any change in the Reference Rate.
"Reference Rate Advance": Any Advance as to which the interest rate per
----------------------
annum is based upon the Reference Rate.
2. Interest Period Elections. The Borrower shall make Interest Period Elections,
-------------------------
from time to time, and the Borrower shall be entitled to select a one-month
Interest Period reset daily or a fixed Interest Period of 1, 2, 3 or 6 months in
duration.
3. Determination of Rates. When the Borrower has chosen to make periodic
----------------------
Interest Period Elections, then not later than 12:00 noon (Denver time) two
Business Days prior to the Business Day on which any LIBOR Rate Advance is made
or is to be made or which is the first day of the selected Interest Period
therefor, the Borrower shall give notice to the Bank specifying the duration of
the fixed Interest Period as specified above. If, upon the expiration of any
fixed Interest Period, the Borrower has failed to elect the duration of a new
fixed Interest Period, the Advance shall automatically bear interest on the
one-month Interest Period reset daily rate basis. The Bank's records shall be
rebuttably presumptive evidence of the dates for each Interest Period and the
interest rate for each such period as well as the dates and amounts of payments
of principal and interest on the Note.
4. Interest Rate Not Ascertainable/Prepayments. The following provisions apply
-------------------------------------------
to all Advances:
(a) If it becomes unlawful for the Bank to make any LIBOR Rate Advance,
or the Bank determines (which will be binding on the Borrower) that: (i)
adequate and reasonable means do not exist for determining the interest
rate applicable for any LIBOR Rate Advance; or (ii) the Bank cannot obtain
funds in the amount or for the maturity in the market relating to any LIBOR
Rate Advance, the Bank will not be required to make or continue to maintain
any such LIBOR Rate Advance and all such LIBOR Rate Advances then existing
shall automatically convert to Reference Rate Advances bearing interest at
the Reference Rate, with the Borrower being required to pay the Make-Whole
Fee described in sub-section (b) (ii) below upon such conversion. In
addition, if there is a change in law or regulation as a result of which
the Bank determines that the interest rate applicable to any LIBOR Rate
Advance no longer represents the effective cost to the Bank for funding
such LIBOR Rate Advance, the Borrower will pay to the Bank an amount
sufficient to cause the Bank to receive interest at the rate that reflects
the increase in effective rate caused by the change.
12
<PAGE>
(b) (i) The Borrower understands that upon the making by the Bank of any
LIBOR Rate Advance, the Bank intends to enter into funding arrangements
with third parties (based in whole or in part on such LIBOR Rate Advance)
on terms and conditions which could result in losses to the Bank if the
LIBOR Rate Advance is not made or does not remain outstanding for the
entire Interest Period. Therefore, if either (A) after the Borrower
requests an LIBOR Rate Advance, the LIBOR Rate Advance is not made on the
first day of the specified Interest Period for any reason (including, but
not limited to, the failure of the Borrower to comply with one or more of
the conditions precedent to any Advance) other than a wrongful failure by
the Bank to make the LIBOR Rate Advance, or (B) such LIBOR Rate Advance is
prepaid in whole or in part prior to the last day of the applicable
Interest Period, whether as a result of acceleration of or demand under the
Note, voluntary prepayment, mandatory prepayment, termination of this
arrangement, operation of law or otherwise (the full amount of the Advance
requested in the case of clause (i)(A) above and the full amount of the
Advance prepaid in the case of clause (i)(B) above (each being referred to
as an "Affected Amount")), the Borrower agrees to pay on demand to the
Bank, as liquidated damages and not as a penalty and in addition to any
other payments required hereunder, the Make-Whole Fee applicable to the
Affected Amount.
(ii) The Make-Whole Fee applicable to each Affected Amount shall be
the sum of (A) the present value of the excess, if any, of (1) the amount
of interest that would have accrued on the Affected Amount during the
remaining portion of the applicable Interest Period, calculated at the
interest rate that otherwise would have been applicable to the Affected
Amount, over (2) the amount of interest that would accrue on the Affected
Amount during the remaining portion of the applicable Interest Period,
calculated using the Reserve Adjusted LIBOR Rate that would be applicable
to a loan in the Affected Amount having a maturity corresponding with the
last day of the applicable Interest Period, plus (B) all out-of-pocket
costs and expenses (including, without limitation, any interest paid by the
Bank to lenders of funds borrowed by it to make or carry any LIBOR Rate
Advance and, to the extent not capable of being determined in accordance
with clause (A)(2) above, any loss sustained by the Bank in connection with
the re-deployment of funds with respect to any such LIBOR Rate Advance)
incurred by the Bank. Present value, as used above, will be determined in
accordance with standard financial practice, using the Reserve Adjusted
LIBOR Rate applicable under clause (A)(2) above as the discount factor.
(iii) The Make-Whole Fee will be determined (A) in the case of
situations falling within clause (i)(A) above, on the first day of the
Interest Period that would have applied to the Affected Amount, and (B) in
the case of situations falling within clause (i)(B) above, the date on
which the Affected Amount is prepaid.
5. Bank's Funding. The Bank shall be entitled to fund and maintain its funding
--------------
of all or any part of the Advances in any manner it elects; it being understood,
however, that for purposes of this Exhibit A, all determinations hereunder shall
be made as if the Bank had actually funded and maintained each LIBOR Rate
Advance during the Interest Period for such Advance through the purchase of
deposits having a term corresponding to such Interest Period and bearing an
interest rate equal to the Reserve Adjusted LIBOR Rate for such Interest Period.
13
<PAGE>
EXHIBIT B
CERTIFICATE OF COMPLIANCE
of
KOALA CORPORATION
"Borrower"
As Of The Period Ending ___________________________
This Certificate is submitted to U.S. Bank National Association ("Bank") in
connection with the Revolving Credit Agreement dated as of December 16, 1998, as
it may be amended from time to time (the "Agreement") between Bank and Borrower.
Capitalized terms used herein are defined in the Agreement.
The undersigned hereby certifies to Bank that the undersigned is familiar with
the following financial information which has been taken from Borrower's books
and records which are complete and accurate and that the following calculations
of the financial covenants specified in the Agreement are true and correct:
FINANCIAL COVENANT COMPLIANCE
-----------------------------
as of the Quarter Period ending _______________________
<TABLE>
<CAPTION>
In compliance
-------------
Covenant Required Actual Yes/No
-------- -------- ------ ------
<S> <C> <C> <C>
Debt/Annualized Cash Flow Less than or equal to 3.50:1 thru 9/30/99 ________________ __________
3.00:1 thereafter
Annualized Cash Flow/Interest Expense Greater than or equal to 4.00:1 ________________ __________
</TABLE>
The undersigned further certifies that (a) Borrower is in compliance with all of
the covenants contained in the Agreement, and (b) there has been no Event of
Default under the Agreement which has not been cured or waived, and no Potential
Default has occurred.
By:__________________________
Title:_______________________
Date:________________________
14
