<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 14, 1998
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
KOALA CORPORATION
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
<TABLE>
<C> <S> <C>
COLORADO 3089 84-1238908
(STATE OF INCORPORATION) (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
<TABLE>
<S> <C>
MARK A. BETKER
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
5031 SOUTH ULSTER STREET, SUITE 300 5031 SOUTH ULSTER STREET, SUITE 300
DENVER, COLORADO 80237 DENVER, COLORADO 80237
(303) 770-3500 (303) 770-3500
(ADDRESS AND TELEPHONE NUMBER (NAME, ADDRESS AND TELEPHONE
OF PRINCIPAL EXECUTIVE OFFICE) NUMBER OF AGENT FOR SERVICE)
COPIES TO:
DOUGLAS R. WRIGHT, ESQ. JOHN R. SHORT, ESQ.
JEFFREY A. SHERMAN, ESQ. BLACKWELL SANDERS PEPER MARTIN LLP
PARCEL MAURO PC 720 OLIVE STREET, SUITE 2400
1801 CALIFORNIA STREET, SUITE 3600 ST. LOUIS, MISSOURI 63101
DENVER, COLORADO 80202 (314) 421-3850
(303) 292-6400
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER SHARE(1) PRICE(1) FEE(1)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock(2)........................... 2,070,000 $14.50 $30,015,000 $8,854.43
- ----------------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
(1) Calculated pursuant to Rule 457(c) promulgated under the Securities Act of
1933, as amended, and based upon the closing sale price of the Common
Stock on the Nasdaq National Market on August 13, 1998.
(2) These shares will be offered to the public in the registrant's public
offering (including 270,000 shares that the underwriters have the option
to purchase from the registrant to cover over-allotments, if any).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALES OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE LAWS OF ANY SUCH +
+STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED AUGUST 14, 1998
PRELIMINARY PROSPECTUS
1,800,000 SHARES
[LOGO]
KOALA CORPORATION
COMMON STOCK
Of the 1,800,000 shares of Common Stock being offered hereby (the
"Offering"), 1,000,000 shares are being sold by Koala Corporation ("Koala" or
the "Company") and 800,000 shares are being sold by the Selling Shareholder.
See "Principal and Selling Shareholders." The Company will not receive any of
the proceeds from the sale of shares of Common Stock by the Selling
Shareholder. The Company's Common Stock is listed for trading on the Nasdaq
National Market under the symbol "KARE." On August 13, 1998, the last reported
sale price of the Common Stock was $14.50 per share. See "Price Range of Common
Stock."
-----------
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN MATTERS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<CAPTION>
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT (1) COMPANY (2) SHAREHOLDER
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share........................ $ $ $ $
Total(3)......................... $ $ $ $
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
(1) The Company and the Selling Shareholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses of the Offering payable by the Company estimated
at $250,000.
(3) The Company has granted to the Underwriters a 45-day option to purchase up
to 270,000 additional shares of Common Stock on the same terms as set forth
above solely to cover over-allotments, if any. If the Underwriters exercise
this option in full, the total Price to Public, Underwriting Discount and
Proceeds to Company will be $ , $ and $ , respectively. See
"Underwriting."
-----------
The shares of Common Stock are offered by the Underwriters, subject to prior
sale, when, as and if delivered to and accepted by them, and subject to certain
other conditions, including their right to reject any order in whole or in
part. It is expected that delivery of the certificates for the Common Stock
will be made on or about , 1998, in St. Louis, Missouri.
A.G. EDWARDS & SONS, INC. CRAIG-HALLUM CAPITAL GROUP, INC.
The date of this Prospectus is , 1998
<PAGE>
[ARTWORK/PHOTOS]
KOALA BEAR KARE, KOALA KARE, BOOSTER BUDDY AND THE KOALA LOGO ARE REGISTERED
TRADEMARKS OF KOALA CORPORATION. THE COMPANY HAS APPLIED TO REGISTER THE
TRADEMARK HAPPY FACES IN PUBLIC PLACES. ALL OTHER COMPANY AND PRODUCT NAMES
REFERENCED HEREIN ARE REGISTERED TRADEMARKS OR TRADEMARKS OF THEIR RESPECTIVE
OWNERS.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING STABILIZING AND SHORT COVERING TRANSACTIONS IN THESE SECURITIES OR
THE IMPOSITION OF PENALTY BIDS IN CONNECTION WITH THE OFFERING. IN CONNECTION
WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP MEMBERS (IF ANY)
MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE
NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M. SEE
"UNDERWRITING."
2
<PAGE>
SUMMARY
The following summary should be read in conjunction with, and is qualified in
its entirety by, the more detailed information and financial statements and the
notes thereto appearing elsewhere in this Prospectus. Unless otherwise
indicated, the information in this Prospectus assumes no exercise of the
Underwriters' over-allotment option or outstanding options, warrants or
convertible securities. References to the Company include its wholly-owned
subsidiaries Delta Play Company, Delta Play (U.S.), Inc. and Koala Foreign
Sales Corporation. Pro forma information contained in this Prospectus includes
information of Park Structures, Inc. and Park Structures Sales, Inc.
(collectively, "Park Structures"), the assets of which will be acquired
simultaneously with the closing of the Offering. Certain information contained
herein is derived from industry sources. Although the Company believes that
this information is reliable, it has not independently verified this
information.
THE COMPANY
Koala Corporation ("Koala" or the "Company") is a leading designer, producer
and worldwide marketer of innovative commercial products, systems and solutions
that create attractive family-friendly environments for businesses and other
public venues. The Company produces family convenience products, children's
activity products and children's modular play equipment. The Koala Bear Kare
Baby Changing Station, the Company's initial product, has been installed in
approximately 300,000 public restrooms worldwide. The Baby Changing Station has
provided the foundation for the Company's growth and brand name recognition.
The Company's sales have grown from $3.8 million in 1993 to $13.6 million in
1997, representing a compound annual growth rate of 37.2%. Net income has grown
from $1.0 million in 1993 to $2.4 million in 1997, representing a compound
annual growth rate of 25.8%.
The Company markets its products, systems and custom solutions to a wide
range of businesses and public facilities that serve customers and visitors who
bring children to their establishments. The Company's customers include Walt
Disney World, The Mayo Clinic, Target Stores, McDonalds, Pizza Hut, Burger King
franchises and many other customers in the retail, health care, supermarket,
entertainment venue and numerous other markets. Management believes that the
Koala Bear Kare brand is widely recognized among family-friendly businesses and
their customers.
The Company believes that parents increasingly travel, shop and dine out with
their children due to societal changes and demographic trends, including the
strict time constraints of two-income and single parent households. The Company
believes that businesses increasingly need to create an accommodating and
positive environment for children in order to attract customers, and to
increase sales and customer loyalty. Koala has developed and acquired family
convenience and children's activity products to help businesses achieve this
objective. The Company's family convenience products include the Koala Bear
Kare Baby Changing Station, the Koala Infant Seat Kradle, the Koala Highchair
and the Booster Buddy Booster Seat. Koala's children's activity products are
marketed under the name Koala Kare Systems. These products, which include
manipulative activities and colorful blocks, letters, numbers and designs, are
designed for use in commercial waiting areas of businesses such as auto
dealers, retail stores, physicians and other professional services providers.
The children's modular play market is comprised of indoor and outdoor areas
for child play. The Company believes that many of the same demographic trends
in the family convenience and children's activity segments are driving demand
for children's modular play equipment. The children's indoor modular play
market includes quick service restaurants, shopping malls, day care centers and
family entertainment centers. The Company works with each individual customer
to create custom designs that utilize modular components such as tunnels,
walkways, ladders and ball pits either alone or in combination with a themed
environment such as a pirate's ship or jungle tree house. The Company will
enter the children's outdoor modular play market through the acquisition of
Park Structures, a producer of customized children's outdoor modular play
systems. The children's outdoor modular play market includes schools, parks,
amusement parks, day care centers and apartment complexes.
3
<PAGE>
The Company's primary business objective is to grow its sales and earnings by
continuing to develop as a leading provider of family-friendly products,
systems and solutions. The Company's key strategic initiatives are summarized
below.
. Capitalize on Brand Name Recognition. The Company believes that the Koala
Bear Kare brand name has achieved significant recognition that can be
leveraged in marketing the Company's various product lines.
. Maximize Market Penetration. The Company intends to continue to increase
market penetration through an integrated marketing and product cross-
selling effort.
. Acquire Complementary Businesses and Products. The Company intends to
continue to pursue acquisitions as a means to add complementary
businesses and expand its product offerings.
. Maintain Low Production Costs and High Quality. The Company seeks to
maintain low production costs either through outsourcing or using Company
personnel where it is more cost-effective. The Company believes that
outsourcing to qualified suppliers where appropriate enables it to focus
its resources on marketing and sales while maintaining quality
production.
. Develop New Solutions. The Company intends to develop new solutions and
to improve and enhance its existing products in response to customer
needs.
. Expand International Marketing. The Company intends to continue to expand
its international marketing activities through the addition of
manufacturer's representatives and dealers and location of Koala
employees in key foreign locations to supervise international sales
activity.
The Company is a Colorado corporation formed in July 1993. The Company's
principal executive offices are located at 5031 South Ulster Street, Suite 300,
Denver, Colorado 80237, its telephone number is (303) 770-3500, and its web
site is http://koalabear.com.
RECENT DEVELOPMENTS
On August 14, 1998, the Company entered into an agreement to purchase the
assets of Park Structures in consideration for up to $18.7 million. Park
Structures produces and markets children's outdoor modular play systems for
municipalities, parks, public and private schools, day care centers and private
developers. Closing of the Park Structures acquisition will occur
simultaneously with closing of the Offering.
The Park Structures acquisition is the Company's third business acquisition
in three years and further broadens the Company's product lines. The
acquisition complements the Company's June 1997 acquisition of a line of
children's indoor modular play systems and also affords the Company an
opportunity to sell its family convenience and children's activity products
into new markets. Park Structures will receive $12.7 million in cash at closing
and is entitled to receive up to an additional $6.0 million, of which $4.5
million is payable in cash and $1.5 million is payable in Common Stock, if
certain earnings targets are met. Over the four years ended December 31, 1997,
Park Structures' sales have increased at a compound annual average rate of
34.0%. See "Park Structures Acquisition."
4
<PAGE>
THE OFFERING
Common Stock offered by:
<TABLE>
<C> <S>
The Company.................... 1,000,000 shares
The Selling Shareholder........ 800,000 shares
Total........................ 1,800,000 shares
Common Stock outstanding after
the Offering.................... 3,527,362 shares(1)
Use of proceeds.................. Acquisition of Park Structures, working
capital and general corporate purposes. See
"Park Structures Acquisition," "Use of
Proceeds" and "Business."
Nasdaq National Market symbol.... KARE
</TABLE>
- --------
(1) Excludes 381,000 shares of Common Stock issuable upon the exercise of
outstanding options at a weighted average exercise price of $14.06 per
share, of which options to purchase 115,000 shares are currently
exercisable. See "Management."
RISK FACTORS
For a discussion of certain factors that should be considered in evaluating
an investment in the Common Stock, see "Risk Factors."
5
<PAGE>
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The summary financial information set forth below is derived from the
consolidated financial statements of the Company, the combined financial
statements of Park Structures and the financial statements of Delta Play, Ltd.
Such information should be read in conjunction with such financial statements
and the notes thereto and the reports of the independent public accountants.
<TABLE>
<CAPTION>
PRO FORMA AS
HISTORICAL KOALA ADJUSTED(1)
-------------------------------------------------- -----------------------
SIX MONTHS
ENDED JUNE
YEAR ENDED DECEMBER 31, 30, YEAR ENDED SIX MONTHS
------------------------------------ ------------- DECEMBER 31, ENDED JUNE
1993(2) 1994 1995 1996 1997 1997 1998(3) 1997(4) 30, 1998
------- ------ ------ ------ ------- ------ ------ ------------ ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales................... $3,842 $5,178 $6,537 $8,938 $13,621 $5,292 $8,444 $23,741 $11,760
Gross profit............ 2,406 3,346 3,986 5,697 8,093 3,378 4,814 11,629 6,220
Income from operations.. 1,465 1,918 2,357 2,699 3,661 1,718 2,144 4,900 2,695
Net income.............. $ 973 $1,257 $1,575 $1,896 $ 2,436 $1,158 $1,409 $ 3,109 $ 1,770
Net income per share:
--basic............... $ 0.40 $ 0.52 $ 0.66 $ 0.78 $ 0.97 $ 0.47 $ 0.56 $ 0.89 $ 0.50
--diluted............. $ 0.40 $ 0.52 $ 0.65 $ 0.75 $ 0.96 $ 0.46 $ 0.54 $ 0.88 $ 0.49
Weighted average common
shares outstanding:
--basic............... 2,405 2,402 2,399 2,431 2,504 2,483 2,527 3,504 3,527
--diluted............. 2,406 2,402 2,411 2,523 2,548 2,511 2,596 3,548 3,596
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1998
----------------------
KOALA-- PRO FORMA
ACTUAL AS ADJUSTED(1)
------- --------------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital.......................................... $ 4,587 $ 7,645
Total assets............................................. 16,391 29,698
Total liabilities........................................ 2,156 2,156
Shareholders' equity..................................... 14,235 27,542
</TABLE>
- --------
(1) Adjusted to reflect the Park Structures acquisition and sale of 1,000,000
shares of Common Stock offered by the Company hereby at an assumed offering
price of $14.50 per share less underwriting discount and estimated offering
expenses payable by the Company and anticipated application of the net
proceeds therefrom. See "Use of Proceeds" and Unaudited Pro Forma
Consolidated Financial Statements and notes thereto.
(2) Results of operation for 1993 are pro forma, which give effect to the
Company's initial public offering and merger with JBJ Industries, Inc.
(3) Results for the six months ended June 30, 1998 reflect a full period of
operations of the Company's children's indoor modular play division, which
was acquired effective June 1, 1997. See "Management's Discussion and
Analysis of Financial Condition and Results of Operation."
(4) Includes results of operations of Delta Play, Ltd. for the five months
ended May 31, 1997. Includes a payment of management bonuses by Delta Play,
Ltd. of $219,106 and fees to related entities of $226,461 by Park
Structures that will not occur in the future. Excluding these payments, net
income would have been $3,397,000, and net income per share basic and
diluted would have been $0.97 and $0.96, respectively. See Unaudited Pro
Forma Consolidated Financial Statements and notes thereto.
6
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following risk factors should be considered carefully in evaluating the
Company and its business before purchasing shares of Common Stock offered
hereby. This Prospectus contains certain forward-looking statements that
involve substantial risks and uncertainties. When used in this Prospectus, the
words "may," "will," "expect," "anticipate," "continue," "estimate,"
"project," "intend," "believe" and similar expressions are intended to
identify forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 (the "Securities Act") and Section 21E of the
Securities Exchange Act of 1934 (the "Exchange Act") regarding events,
conditions and financial trends that may affect the Company's future plan of
operations, business strategy, operating results and financial position.
Prospective investors are cautioned that any forward-looking statements are
not guarantees of future performance and are subject to risks and
uncertainties and that actual results could differ materially from the results
expressed in or implied by these forward-looking statements as a result of
various factors, many of which are beyond the Company's control. These factors
are described under the headings "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business" and in the risk
factors set forth below.
ABILITY TO INTEGRATE AND MANAGE PARK STRUCTURES
The Park Structures acquisition, which will expand the Company's modular
play equipment product line, is the Company's largest acquisition to date. The
Company's ability to realize any long-term advantages from the Park Structures
acquisition will depend in large part on the Company's successful integration
and management of the operations of Park Structures. Risks relating to such
integration include increased seasonality associated with products sold by
Park Structures and the risk of loss of services of management or other
employees of Park Structures or significant dealers who sell the Park
Structures products. In connection with the acquisition of Park Structures,
the Company will enter into an employment agreement with Alan Bayman, the
President of Park Structures. There can be no assurance that the Company will
be able to successfully integrate Park Structures, the failure of which could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Park Structures Acquisition."
MANAGEMENT OF GROWTH
The Company has recently experienced significant growth both internally and
as a result of acquisitions. A continuing period of significant growth could
place a strain on the Company's management, operations and other resources.
The Company's ability to manage its growth will require it to continue to
invest in its operational, financial and information systems and to attract,
retain, motivate and effectively manage its employees. The inability of the
Company's management to manage growth effectively could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business."
RISKS ASSOCIATED WITH ACQUISITION STRATEGY
A part of the Company's business strategy is to acquire other companies,
assets or product lines that complement or expand its existing business.
Acquisitions involve a number of risks that could materially affect the
Company, including the diversion of management's attention, the assimilation
of the operations and personnel of the acquired companies, the amortization of
acquired intangible assets and the potential loss of key personnel of the
acquired companies. Future acquisitions may entail the payment of
consideration in excess of book value, may result in the issuance of
additional shares of the Company's Common Stock or the incurrence of
additional indebtedness, all of which could have a dilutive effect on the
Company's net income per share. In addition, products offered by the Company
following a future acquisition may have lower gross profit margins than the
Company's current product lines. There can be no assurance that any
acquisition by the Company will not have a material adverse effect on the
Company's business, financial condition and results of operations. Other than
the Park Structures acquisition, the Company currently has no agreements or
understandings with respect to any potential acquisitions. See "Business--
Business Strategy."
7
<PAGE>
LIMITED DIVERSIFICATION; UNCERTAINTY OF ACCEPTANCE OF NEW PRODUCTS
A substantial amount of the Company's sales since inception have been
derived from marketing the Koala Bear Kare Baby Changing Station. Although the
Company has diversified through the addition of other family convenience
products, children's activity products and children's modular play equipment
and plans to introduce additional products, the Baby Changing Station will
continue to be an important component of the Company's sales. Until the
Company further diversifies its business and products, changes in competition
and other factors affecting the market for the Baby Changing Station could
have a material adverse effect on the Company's business, financial condition
and results of operations. In addition, the possibility exists that any new
products introduced by the Company in the future will not be accepted in the
marketplace. If this happens, the Company's reputation may suffer, and the
Company may incur substantial losses due to production, marketing and other
costs. See "Management's Discussion and Analysis of Financial Condition and
Results of Operation--Koala Overview" and "Business--History" and "--
Products."
COMPETITION
The markets for the Company's products are highly competitive and include
numerous domestic and foreign competitors, including well-known manufacturers
of consumer and commercial child safety equipment, furniture and other
juvenile products that are substantially larger and have greater financial,
marketing and other resources than the Company. There can be no assurance
there will not be new entrants into the Company's markets or that the Company
will be able to compete successfully in the future. See "Business--
Competition."
DEPENDENCE UPON KEY PERSONNEL
The Company's future success will depend to a great extent upon the
continued service of certain senior management personnel and the Company's
continuing ability to attract, assimilate and retain highly qualified
personnel. Competition for such personnel is intense, and there can be no
assurance that the Company can retain its key personnel or that it can
attract, assimilate and retain such employees in the future. Although the
Company has non-disclosure and non-compete agreements with many of its
employees, including its executive officers, it does not have employment
agreements with any of its executive officers. The Company maintains a key-
person life insurance policy in the amount of $1 million on Mark A. Betker,
its Chairman, Chief Executive Officer and President. The loss of the services
of Mr. Betker or other key personnel or the inability to hire or retain
qualified personnel in the future could have a material adverse effect upon
the Company's business, financial condition and results of operations. See
"Management."
DEPENDENCE UPON OUTSIDE MANUFACTURERS
A large number of the components for the Company's products are manufactured
to the Company's specifications by outside suppliers. Although the Company
owns the significant tooling and molds used in the manufacture of the
Company's products, it does not have any long term agreements or contracts
with such suppliers, most of which are the single source of supply to the
Company. The Company's ability to assemble and distribute its products depends
upon its ability to obtain an adequate uninterrupted supply of component
parts. Although the Company believes that an adequate supply of such component
parts is available, there can be no assurance that a temporary interruption in
the supply of such component parts to the Company will not occur. Any
interruption in the supply of component parts from outside suppliers could
have a material adverse effect on the Company's business, financial condition
or results of operations. Moreover, if the Company's tooling or molds are
damaged, the Company could suffer additional delays and costs until such
tooling or molds are repaired or replaced. Although the Company has business
interruption insurance to protect itself against such interruptions, such
insurance may not prevent such interruptions from having a material adverse
effect upon the Company's business, financial condition and results of
operations. See "Business--Design and Manufacturing."
8
<PAGE>
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
As part of its growth strategy, the Company is seeking opportunities to
further expand its products and systems distribution into international
markets. Sales to customers outside of North America accounted for
approximately 18% and 23% of the Company's sales in 1997 and the six months
ended June 30, 1998, respectively. In addition, the Company operates a
manufacturing and assembly facility in Vancouver, British Columbia, Canada.
The Company's international operations are subject to a wide range of general
business risks, including fluctuations in currency exchange rates; unexpected
changes in legal and regulatory requirements; export restrictions, tariffs and
other trade barriers; political and economic instability; restrictions on
repatriation of funds or profits from foreign markets; longer payment cycles
and problems in collecting accounts receivable; difficulty in protecting the
Company's intellectual property; potentially adverse tax consequences,
including limitations on the Company's ability to claim a foreign tax credit
against its U.S. federal income taxes and regulation by foreign regulatory
authorities. These and other factors associated with international operations
may have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company is subject to the Foreign Corrupt Practices Act ("FCPA"), which
generally prohibits U.S. companies and their intermediaries from bribing
foreign officials for the purpose of obtaining or keeping business. The
Company may be exposed to liability under the FCPA as a result of past or
future actions taken without the Company's knowledge by dealers and other
intermediaries. Any liability the Company incurs under the FCPA could be
material.
PRODUCT LIABILITY RISKS
The Company's products are designed for use with infants and children. The
Company carries product liability insurance in an amount that management deems
adequate to cover risks associated with such use. There can be no assurance,
however, that existing or future insurance coverage will be sufficient to
cover all product liability risks. Defending a product liability claim could
significantly divert management's attention. A partially or completely
uninsured claim against the Company, if successful, could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business--Product Warranties and Insurance."
GOVERNMENT REGULATIONS
The Company's products may be subject to the provisions of the Federal
Consumer Product Safety Act and the Federal Hazardous Substances Act (the
"Acts") and the regulations promulgated thereunder. The Acts authorize the
Consumer Product Safety Commission (the "CPSC") to protect the public from
products which present a substantial risk of injury. The CPSC can require the
repurchase or recall by the manufacturer of articles which are found to be
defective and impose fines or penalties on the manufacturer. Similar laws
exist in some states and cities and in other countries in which the Company
markets its products. Any recall of its products could have a material adverse
effect on the Company. To date, the Company has not recalled any of its
products. See "Business--Regulation."
TRADEMARKS; LACK OF PATENT PROTECTION
The Company owns several trademarks, including the Koala Bear Kare logo set
forth on the cover of this Prospectus, to identify the Company and its
products and believes that such trademarks provide a significant competitive
advantage. Although the Company intends to vigorously defend its trademarks,
no assurance can be given either that such trademarks can be defended or that
such trademarks will not become commonly used. Further, although the Company
has design patents that cover the design and appearance of certain of its
existing products, such patents may not provide meaningful protection against
entry by competitors into the Company's markets. See "Business--Patents and
Trademarks."
9
<PAGE>
VARIABILITY OF QUARTERLY OPERATING RESULTS
The Company's sales and earnings may fluctuate from quarter to quarter based
on several factors such as the number of new commercial construction starts,
production delays, public budget processes, supply costs and general economic
conditions. Demand for the Company's products can vary significantly from
quarter to quarter due to revisions in customer budgets or schedules and other
factors beyond the Company's control. Due to all of the foregoing factors, it
is possible that in some future period, the Company's results of operations
could fall below the expectations of securities analysts and investors. In
this event, the market price of the Common Stock could be materially adversely
affected. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Quarterly Data."
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded to
accept only two-digit entries to represent years. For example, the year "1998"
would be represented by "98." These systems and products will need to be able
to accept four digit entries to distinguish years beginning with 2000 from
prior years. As a result, systems and products that do not accept four digit
year entries will need to be upgraded or replaced to comply with such "Year
2000" requirements. The Company believes that its computer systems are Year
2000 compliant. There can be no assurance that the computer systems of
vendors, customers or other entities on which the Company relies will be Year
2000 compliant. There can be no assurance that unanticipated or undiscovered
Year 2000 compliance problems will not have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000."
ABSENCE OF DIVIDENDS
The Company has never paid cash dividends and does not intend to pay any
cash dividends in the foreseeable future. The Company intends to retain all
earnings, if any, to invest in the Company's operations. The payment of future
dividends is within the discretion of the Board of Directors and will depend
upon the Company's future earnings, cash requirements, financial condition and
other factors that the Board of Directors may deem relevant. In addition, the
Company's credit agreement restricts the payment of cash dividends. See
"Dividend Policy."
VOLATILITY OF STOCK PRICE
The market price of the shares of Common Stock is subject to wide
fluctuations in response to factors such as actual or anticipated operating
results, announcements of new products developed by the Company, its
competitors or their customers, government regulatory action, general market
conditions and other factors. In addition, the stock market has from time to
time experienced significant price and volume fluctuations that have often
been unrelated to the operating performance of particular companies. Many
factors that have influenced trading prices, such as actual or anticipated
operating results, growth rates, changes in estimates by analysts, market
conditions in the industry, announcements by competitors, regulatory actions,
the number of shares of Common Stock available for sale on the securities
markets and general economic conditions, will vary from period to period. Any
such event could result in a material adverse effect on the market price of
the Common Stock. See "Price Range of Common Stock."
ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER PROVISIONS
The Company's Articles of Incorporation authorizes the issuance of up to
1,000,000 shares of Preferred Stock. The Preferred Stock may be issued in
series with the material terms of any series determined solely by the Board of
Directors. Such terms would likely include dividend rights, conversion
features, voting rights, redemption rights and liquidation preferences. The
Company does not currently anticipate that it will issue any Preferred Stock.
However, if the Company does issue any series of Preferred Stock in the
future, it is likely that
10
<PAGE>
such shares will have dividend privileges and liquidation preferences superior
to those of the Common Stock. Further, the Preferred Stock may be issued with
voting, conversion or other terms determined by the Board of Directors
including, among others, dividend payment requirements, redemption provisions,
preferences as to dividends and distributions, and preferential voting rights.
The issuance of Preferred Stock may have the effect of delaying or preventing
a change in control, may decrease the amount of earnings and assets available
for distribution to the holders of the Common Stock or may adversely affect
the rights and powers, including voting rights, of the holders of the Common
Stock. See "Description of Securities."
LIMITATION ON DIRECTOR LIABILITY
The Company's articles of incorporation provide, as permitted by Colorado
law, that a director of the Company shall not be personally liable to the
Company or its shareholders for monetary damages for breach of fiduciary duty
as a director, with certain exceptions. In addition, the Company's articles of
incorporation provide for indemnification of the directors and officers to the
fullest extent permitted by Colorado law. See "Management--Director Liability"
and "--Indemnification."
PARK STRUCTURES ACQUISITION
On August 14, 1998, the Company entered into an agreement to purchase the
assets of Park Structures in consideration for up to $18.7 million. Park
Structures, based in southern Florida, produces and markets children's outdoor
modular play systems for municipalities, parks, public and private schools,
day care centers and private developers. Closing of the Park Structures
acquisition will occur simultaneously with closing of the Offering. The Park
Structures acquisition is the Company's third business acquisition in three
years and further broadens the Company's product lines. The acquisition
complements the Company's June 1997 acquisition of a line of children's indoor
modular play systems and also affords the Company an opportunity to sell its
family convenience and children's activity products into new markets. Over the
four years ended December 31, 1997, Park Structures' sales have increased at a
compound annual average rate of 34.0% from $2.6 million for the year ended
December 31, 1993 to $8.2 million for the year ended December 31, 1997. See
"Business--Park Structures" and "--Products".
Park Structures will receive $12.7 million in cash at closing and is
entitled to receive up to an additional $6.0 million, of which $4.5 million is
payable in cash and $1.5 million is payable in Common Stock, if certain
earnings targets are met. Of such additional consideration, Park Structures
will be entitled to receive (a) up to $1.5 million in cash by October 15,
1998, based upon the Park Structures assets generating earnings before
interest, taxes and amortization ("EBITA") of at least $2.0 million for the
nine months ended September 30, 1998, (b) up to $2.0 million in cash and $1.5
million in Common Stock by March 1, 1999, based upon the Park Structures
assets generating EBITA of at least $3.0 million for the 12 months ended
December 31, 1998, and (c) up to $1.0 million in cash by August 29, 1999,
based upon the Park Structures assets generating EBITA for the six months
ended June 30, 1999 that is greater than 120% of audited EBITA for the six
months ended June 30, 1998. The additional consideration will be reduced to
the extent the earnings targets are not met. The purchase price is subject to
adjustment based on the amount of current assets and other assets of Park
Structures as of the closing and the amount of warranty liability of Park
Structures assumed by the Company as of the closing.
11
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
1,000,000 shares of Common Stock offered by the Company at an assumed price of
$14.50 per share are approximately $13.3 million (approximately $17.0 million
if the Underwriters' over-allotment option is exercised in full) after
deducting the underwriting discount and other estimated offering expenses, all
of which are payable by the Company. Of the net proceeds, $12.7 million is
intended to be used to complete the Park Structures acquisition and the
remainder will be used for working capital and general corporate purposes.
Pending application to such purposes, the net proceeds will be invested in
short-term, investment-grade, interest-bearing securities. The Company's
management will have discretion over the application of such net proceeds. The
Company will not receive any of the proceeds from the sale of 800,000 shares
of Common Stock by the Selling Shareholder. See "Park Structures Acquisition."
PRICE RANGE OF COMMON STOCK
The Common Stock of the Company trades on the Nasdaq National Market under
the symbol "KARE." The table below sets forth for the quarters indicated the
high and low per share sale prices of the Common Stock.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
1995
First quarter............................................. $ 6.750 $ 5.000
Second quarter............................................ 9.125 5.375
Third quarter............................................. 9.875 7.625
Fourth quarter............................................ 12.625 8.125
1996
First quarter............................................. $19.250 $10.625
Second quarter............................................ 19.125 16.375
Third quarter............................................. 21.000 13.750
Fourth quarter............................................ 17.000 12.250
1997
First quarter............................................. $14.375 $10.750
Second quarter............................................ 16.375 9.875
Third quarter............................................. 17.250 14.625
Fourth quarter............................................ 18.250 14.125
1998
First quarter............................................. $18.750 $14.000
Second quarter............................................ 20.125 15.750
Third quarter (through August 13, 1998)................... 16.875 14.125
</TABLE>
The last reported sale price for the Common Stock on the Nasdaq National
Market on August 13, 1998 was $14.50. As of June 30, 1998, there were
approximately 105 holders of record of Common Stock. The Company believes that
as of such date there were approximately 2,500 beneficial holders of Common
Stock.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends or distributions
on its Common Stock. The Company anticipates that for the foreseeable future
all earnings will be retained for use in the Company's operations and that no
cash dividends will be paid to shareholders. Any payment of cash dividends in
the future on the Common Stock will be dependent upon the Company's financial
condition, results of operations, current and anticipated cash requirements,
as well as other factors that the Board of Directors deems relevant. In
addition, the Company's credit agreement restricts the payment of dividends.
12
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1998 and pro forma as adjusted to reflect the issuance and sale of
1,000,000 shares of Common Stock offered by the Company hereby at an assumed
price per share of $14.50 and the application of the net proceeds therefrom as
set forth under "Use of Proceeds." This table should be read in conjunction
with the consolidated financial statements of the Company and related notes
thereto and the Unaudited Consolidated Pro Forma Financial Statements and
notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1998
-----------------------
PRO FORMA
ACTUAL AS ADJUSTED(1)
------- --------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Long-term debt, less current maturities................ $ -- $ --
Shareholders' equity:
Preferred Stock, 1,000,000 shares authorized; none
outstanding........................................... -- --
Common Stock, $0.10 par value, 10,000,000 shares au-
thorized; 2,527,362 shares issued and outstanding
(actual); and 3,527,362 shares (pro forma as adjust-
ed)(2)............................................... 253 353
Additional paid-in capital............................ 5,308 18,515
Other comprehensive income(3)......................... (49) (49)
Retained earnings..................................... 8,723 8,723
------- -------
Total shareholders' equity........................... 14,235 27,542
------- -------
Total capitalization............................... $14,235 $27,542
======= =======
</TABLE>
- --------
(1) Pro Forma As Adjusted reflects the Park Structures acquisition and the
issuance and sale of 1,000,000 shares of Common Stock offered by the
Company hereby at an assumed price per share of $14.50 and the application
of the net proceeds therefrom. See Unaudited Consolidated Pro Forma
Financial Statements and notes thereto.
(2) Does not include 381,000 shares of Common Stock issuable upon the exercise
of outstanding options at a weighted average exercise price of $14.06 per
share, of which options to purchase 115,000 shares are currently
exercisable. See "Management."
(3) Consists of translation of foreign currency.
13
<PAGE>
KOALA CONSOLIDATED SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected consolidated financial data of the Company as of and for each
of the last five fiscal years ended December 31, 1997 set forth below have
been derived from the Company's audited consolidated financial statements. The
selected consolidated financial data as of and for each of the six-month
periods ended June 30, 1998 and June 30, 1997 have been derived from the
unaudited financial statements of the Company which, in the opinion of the
management of the Company, include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation. The results of
operations for the six-month period ended June 30, 1998 are not necessarily
indicative of results that may be expected for the full year. This data should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations of Koala" and the consolidated financial
statements of the Company and notes thereto that appear elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------- ----------------
1993(1) 1994 1995 1996 1997 1997 1998(2)
------- ------ ------ ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales................... $3,842 $5,178 $6,537 $ 8,938 $13,621 $ 5,292 $ 8,444
Cost of sales........... 1,436 1,832 2,551 3,241 5,528 1,914 3,630
------ ------ ------ ------- ------- ------- -------
Gross profit............ 2,406 3,346 3,986 5,697 8,093 3,378 4,814
Selling, general and
administrative
expenses............... 855 1,342 1,543 2,892 4,231 1,598 2,539
Amortization of
intangibles............ 86 86 86 106 201 62 131
------ ------ ------ ------- ------- ------- -------
Income from operations.. 1,465 1,918 2,357 2,699 3,661 1,718 2,144
Other (income) expense.. (6) (44) (109) 159 (115) (78) (40)
------ ------ ------ ------- ------- ------- -------
Income before income
taxes.................. 1,471 1,962 2,466 2,540 3,776 1,796 2,184
Provision for income
taxes.................. 498 705 891 644 1,340 638 775
------ ------ ------ ------- ------- ------- -------
Net income.............. $ 973 $1,257 $1,575 $ 1,896 $ 2,436 $ 1,158 $ 1,409
====== ====== ====== ======= ======= ======= =======
Net income per share:
--basic............... $ 0.40 $ 0.52 $ 0.66 $ 0.78 $ 0.97 $ 0.47 $ 0.56
--diluted............. $ 0.40 $ 0.52 $ 0.65 $ 0.75 $ 0.96 $ 0.46 $ 0.54
Weighted average common
shares outstanding:
--basic............... 2,405 2,402 2,399 2,431 2,504 2,483 2,527
--diluted............. 2,406 2,402 2,411 2,523 2,548 2,511 2,596
<CAPTION>
DECEMBER 31, JUNE 30,
---------------------------------------- ----------------
1993(1) 1994 1995 1996 1997 1997 1998(2)
------- ------ ------ ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......... $1,532 $2,721 $4,417 $ 5,644 $ 3,945 $ 2,515 $ 4,587
Total assets............ 5,349 6,616 8,250 10,351 14,957 13,157 16,391
Total liabilities....... 302 328 388 573 2,107 1,620 2,156
Shareholders' equity.... 5,047 6,288 7,862 9,778 12,850 11,537 14,235
</TABLE>
- --------
(1) Results of operation for 1993 are pro forma, which give effect to the
Company's initial public offering and merger with JBJ Industries, Inc.
(2) Results for the six months ended June 30, 1998 reflect a full period of
operations of the Company's children's indoor modular play division, which
was acquired effective June 1, 1997. See "Management's Discussion and
Analysis of Financial Condition and Results of Operation."
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF KOALA
With the exception of historical matters, the matters discussed herein are
forward-looking statements that involve risks and uncertainties. Forward-
looking statements include, but are not limited to, statements concerning
anticipated trends in sales and net income, the mix of the Company's sales,
projections concerning operations and available cash flow. The Company's
actual results could differ materially from the results discussed in such
forward-looking statements. Factors that could cause or contribute to such
differences include those discussed below, as well as those discussed in "Risk
Factors" and elsewhere in this Prospectus.
KOALA OVERVIEW
Koala Corporation is a leading designer, producer and worldwide marketer of
innovative commercial products, systems and solutions that create attractive
family-friendly environments for businesses and other public venues. The
Company produces family convenience products, children's activity products and
children's modular play equipment. The Koala Bear Kare Baby Changing Station,
the Company's initial product, has been installed in approximately 300,000
public restrooms worldwide. The Baby Changing Station has provided the
foundation for the Company's growth and brand name recognition. The Company's
sales have grown from $3.8 million in 1993 to $13.6 million in 1997,
representing a compound annual growth rate of 37.2%. Net income has grown from
$1.0 million in 1993 to $2.4 million in 1997, representing a compound annual
growth rate of 25.8%.
The Company markets its products, systems and custom solutions to a wide
range of businesses and public facilities that serve customers and visitors
who bring children to their establishments. Koala markets its products through
an integrated program of direct sales and distribution through a network of
independent manufacturer's sales representatives and dealers. Since 1995, the
Company has increased its sales and marketing efforts through the addition of
manufacturer's sales representatives, dealers and Company sales
representatives.
The Company's sales have been derived primarily from the sale of its family
convenience products, which include Baby Changing Stations, disposable
sanitary liners for the Baby Changing Stations, Child Protection Seats, Infant
Seat Kradles and Booster Buddy seats. One of the Company's strategies has been
to reduce its dependence on Baby Changing Stations through the acquisition and
development of complementary products. In furtherance of this strategy, the
Company acquired certain assets of a manufacturer of commercial-use children's
activities products in March 1996 and a provider of custom children's indoor
modular play equipment in June 1997. The Company will further diversify its
product offerings through the acquisition of Park Structures, a producer of
children's outdoor modular play equipment. As a result of these acquisitions
and introduction of new products such as the Koala Highchair in 1997, sales of
Baby Changing Stations are expected to represent less than half of the
Company's sales in 1998 and thereafter.
The Company's gross profit margins are affected by product mix, with the
Baby Changing Station and other family convenience products typically
providing higher gross profit margins than the children's activity products
and children's modular play equipment. In addition, sales made through dealers
provide lower gross profit margins than direct sales due to the expense
associated with the manufacturer's sales representatives and dealers. To the
extent the Company acquires additional companies or product lines, its gross
profit margins may be lower than those currently achieved from sales of the
Company's current product lines. Although new product introductions or
acquisitions may decrease the overall gross profit margins, the Company
believes that the addition of new products will provide opportunities for
revenue diversification and increased profitability, while also reducing the
Company's reliance on the Baby Changing Station.
COMPONENTS OF SALES AND EXPENSE
The Company recognizes sales at the time its products are shipped. Cost of
sales consists of components manufactured for the Company and direct labor and
manufacturing overhead incurred by the Company. All major
15
<PAGE>
components for the family convenience products currently are manufactured and
assembled by outside vendors. Direct labor and manufacturing overhead relate
to the assembly of the products. Prior to September 1996, the Company
performed the assembly operations for the Baby Changing Stations, Child
Protection Seats and Infant Seat Kradles.
Selling, general and administrative expense consists primarily of
commissions paid to manufacturer's sales representatives and other
miscellaneous selling expenses, executive and office salaries, related payroll
taxes and advertising expenses.
The Company provides limited warranties for its products. The Company has
experienced minimal returns and warranty claims, and therefore no accrual has
been made for future claims.
RESULTS OF OPERATIONS
The following table sets forth certain income statement data stated as a
percentage of sales:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
------------------- ------------
1995 1996 1997 1997 1998
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Sales..................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales............................. 39.0 36.3 40.6 36.2 43.0
----- ----- ----- ----- -----
Gross profit.............................. 61.0 63.7 59.4 63.8 57.0
Selling, general and
administrative expenses.................. 23.6 32.3 31.0 30.2 30.1
Amortization of intangibles............... 1.3 1.2 1.5 1.2 1.5
----- ----- ----- ----- -----
Income from operations.................... 36.1 30.2 26.9 32.4 25.4
Other (income) expense.................... (1.6) 1.8 (0.8) (1.5) (0.5)
----- ----- ----- ----- -----
Income before income taxes................ 37.7 28.4 27.7 33.9 25.9
Provision for income taxes................ 13.6 7.2 9.8 12.0 9.2
----- ----- ----- ----- -----
Net income................................ 24.1% 21.2% 17.9% 21.9% 16.7%
===== ===== ===== ===== =====
</TABLE>
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997
Sales increased 59.6%, or $3.1 million, to $8.4 million for the six months
ended June 30, 1998 compared to $5.3 million for the six months ended June 30,
1997. A majority of the increase resulted from sales of children's indoor
modular play equipment, a product line acquired effective June 1, 1997.
Focused sales and marketing programs that the Company implemented for the
family convenience and children's activity product lines also contributed to
the increased sales.
Gross profit increased 42.5%, or $1.4 million, to $4.8 million for the six
months ended June 30, 1998 compared to $3.4 million for the six months ended
June 30, 1997. As a percentage of sales, gross profit decreased in the 1998
period compared to the 1997 period primarily because of a change in product
mix that included sales of children's indoor modular play equipment along with
a higher proportion of sales of family convenience and children's activity
products through dealer channels, where lower gross profit margins are
realized. Gross profit was also impacted by higher depreciation charges
arising from capitalized tooling expenditures from new products added in 1997.
Selling, general and administrative expenses increased 58.9%, or $941,000,
to $2.5 million for the six months ended June 30, 1998 compared to $1.6
million for the six months ended June 30, 1997. Sales and marketing expense
increased 60.3%, or $622,000, to $1.7 million for the six months ended June
30, 1998 compared to $1.1 million for the six months ended June 30, 1997.
These cost increases were due to the inclusion of the children's indoor
modular play equipment line and the higher level of sales achieved and
included costs for various marketing programs, commissions paid to
manufacturer's sales representatives and salaries of sales and
16
<PAGE>
marketing personnel added subsequent to the 1997 period. General and
administrative expense increased 56.4%, or $320,000, to $886,000 for the six
months ended June 30, 1998 compared to $566,000 for the six months ended June
30, 1997. The increase in general and administrative expense was primarily the
result of the inclusion of the children's indoor modular play equipment line
and the addition of a general manager and controller to Koala's administrative
staff.
The Company's effective tax rates were 35.5% for both the six months ended
June 30, 1998 and 1997.
Net income increased 21.7%, or $251,000, to $1.4 million for the six months
ended June 30, 1998 compared to $1.2 million for the six months ended June 30,
1997. As a percentage of sales, net income declined during the 1998 period
compared to the 1997 period primarily due to the inclusion of the children's
indoor modular play equipment line in the product mix. Net income per share
(diluted) increased 17.4%, or $.08, to $.54 for the six months ended June 30,
1998 compared to $.46 for the six months ended June 30, 1997. The percentage
increase in net income per share was lower than the percentage increase in net
income as a result of an increase of 85,000 shares in the weighted average
number of shares outstanding.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Sales increased 52.4%, or $4.7 million, to $13.6 million in 1997 compared to
$8.9 million in 1996, primarily as a result of seven months of operations from
the children's indoor modular play equipment line and continued strong demand
for the Company's other products. The sales and marketing strategy implemented
by the Company for its other product lines contributed to the additional sales
revenue for 1997 and also provided diversification of the Company's product
line. The Company continued to increase sales and marketing efforts through
focused marketing programs and the addition of sales personnel during 1997.
Gross profit increased 42.1%, or $2.4 million, to $8.1 million in 1997
compared to $5.7 million for 1996. As a percentage of sales, gross profit
decreased in 1997 compared to 1996 primarily because of the change in product
mix with the addition of the children's indoor modular play equipment line
along with increased sales of products to dealers at lower margins. These
gross margin reductions were offset somewhat by lower costs of raw materials
and component parts and the change to subcontracted assembly in September
1996.
Selling, general and administrative expenses for 1997 increased 46.3%, or
$1.3 million, to $4.2 million in 1997 compared to $2.9 million for 1996. Sales
and marketing expense increased 76.4%, or $1.1 million, to $2.5 million in
1997 compared to $1.4 million in 1996. These increases were due to the
inclusion of the children's indoor modular play equipment line and the higher
level of sales achieved, and included costs for various marketing programs,
commissions paid to manufacturer's sales representatives and salaries of the
sales and marketing personnel added during 1997. General and administrative
expense increased 17.3%, or $254,000, to $1.7 million in 1997 compared to $1.5
million in 1996. The relatively small increase in general and administrative
expense compared to the sales increase was primarily the result of cost
reductions obtained by more efficient management of administrative functions.
These cost reductions offset the cost increases resulting from the inclusion
of general and administrative expense associated with the children's indoor
modular play equipment line for seven months of 1997. The Company also
incurred approximately $100,000 in non-recurring personnel recruiting and
employee relocation costs in 1996.
The Company's effective tax rates were 35.5% in 1997 compared to 25.4% in
1996. The Company realized a tax benefit in 1996 from the tax deduction
generated by the exercise of non-qualified stock options by a former officer
of the Company.
Net income increased 28.5%, or $540,000, to $2.4 million in 1997 compared to
$1.9 million in 1996. As a percentage of sales, net income decreased in 1997
compared to 1996 primarily due to the inclusion of children's indoor modular
play equipment in the product mix. Net income per share (diluted) for 1997
increased 28.0%, or $.21, to $0.96 per share in 1997 compared to $0.75 per
share in 1996. The percentage increase in net income per share was slightly
lower than the percentage increase in net income as a result of an increase of
24,883 shares in the weighted average number of shares outstanding.
17
<PAGE>
Year Ended December 31, 1996 Compared to Year Ended December 30, 1995
Sales increased 36.7%, or $2.4 million, to $8.9 million in 1996, compared to
$6.5 million in 1995, as a result of continued growth in demand for the
Company's products. Sales of the Baby Changing Station accounted for the
majority of the growth in the Company's sales. Sales of the Booster Buddy,
Child Protection Seat and Infant Seat Kradle increased during the year, and
the addition of the children's activity product line beginning in April 1996
contributed to the increase in total sales.
Gross profit increased 42.9%, or $1.7 million, to $5.7 million in 1996
compared to $4.0 million in 1995. As a percentage of sales, gross profit
increased due to price reductions achieved in the cost of raw materials and
component parts and the change to subcontracted assembly in September 1996,
which reduced overhead costs.
Selling, general and administrative expenses increased 87.4%, or $1.4
million, to $2.9 million in 1996 compared to $1.5 million for 1995. As a
percentage of sales, selling, general and administrative expenses increased
only 8.7 percentage points because the Company increased sales without a
proportionate increase in general and administrative overhead. The increase in
selling, general and administrative expense was primarily due to increased
sales, marketing and administrative salaries, which includes the salary for
the chief financial officer added in 1996, as well as approximately $100,000
in non-recurring personnel recruiting and employee relocation costs. In
addition, the Company experienced increased advertising and other costs
associated with sales and marketing, including travel, telephone, consultants
and contract labor. The Company also increased its use of independent
manufacturer's representatives, which resulted in an increase in sales
commissions. The Company made the investment in these increased levels of
selling, general and administrative expenses in order to support the expanded
sales and marketing efforts begun in 1995.
The Company's effective income tax rates were 25.4% and 36.1% in 1996 and
1995, respectively. The Company realized a tax benefit in 1996 from the tax
deduction generated by the exercise of non-qualified stock options by a former
officer of the Company. The Company's effective tax rate also declined in 1996
due to the Company's move to Colorado, which has lower state income tax return
rates than Minnesota.
Net income for 1996 increased 20.4%, or $321,000, to $1.9 million in 1996
compared to $1.6 million in 1995. The additional expenses of the Company in
connection with expansion of sales and marketing, as well as the non-recurring
expenses incurred in 1996, contributed to a decline in net income as a
percentage of sales in 1996 compared to 1995. Net income per share (diluted)
increased 15.4%, or $.10 per share, to $.75 per share in 1996 compared to $.65
per share in 1995. The percentage increase in net income per share was lower
than the percentage increase in net income primarily as a result of an
increase of 112,000 shares in the weighted average number of shares
outstanding.
18
<PAGE>
QUARTERLY DATA
The following table sets forth certain unaudited quarterly historical
financial data for each of the Company's last ten quarters ended June 30,
1998. This unaudited quarterly information has been prepared on the same basis
as the annual information presented elsewhere in this Prospectus and, in the
Company's opinion, includes all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the selected
quarterly information. This information should be read in conjunction with the
financial statements and notes thereto included elsewhere in this Prospectus.
The operating results for any quarter shown are not necessarily indicative of
results for any future period.
QUARTER ENDED
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MAR. 31, JUNE 30, SEP. 30, DEC. 31, MAR. 31, JUNE 30, SEP. 30, DEC. 31, MAR. 31, JUNE 30,
1996 1996 1996 1996 1997 1997 1997 1997 1998 1998
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales................... $1,871 $2,435 $2,433 $2,199 $2,251 $3,040 $4,049 $4,280 $4,014 $4,430
Gross profit............ 1,148 1,533 1,539 1,477 1,528 1,849 2,348 2,367 2,272 2,542
Operating income........ 633 809 830 427 781 936 1,016 928 978 1,167
Net income.............. 428 530 557 381 530 628 668 610 635 774
Net income per share
(diluted).............. $ 0.17 $ 0.21 $ 0.22 $ 0.15 $ 0.21 $ 0.25 $ 0.26 $ 0.24 $ 0.25 $ 0.30
</TABLE>
Due to customer budgeting and ordering patterns, the Company's sales tend to
be stronger in the second and third quarters than in the first and fourth
quarters. In the fourth quarter of 1996, net income was adversely affected by
the cost of the Company's move from Minnesota to Colorado. Beginning with the
second quarter of 1997, the quarterly financial data includes the operations
of Delta Play Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company finances its business activities primarily from cash provided by
operating activities. Cash provided by operating activities for 1996 and 1997
was $1.3 million and $3.5 million, respectively, and cash provided by
operating activities for the six months ended June 30, 1998 and 1997 was
$383,000 and $1.7 million, respectively. The decrease in cash provided by
operating activities for the six months ended June 30, 1998 compared to the
six months ended June 30, 1997 is due primarily to a combination of an
increase in inventories of raw materials and finished goods during the six
months ended June 30, 1998, a decrease in accounts payable and increases in
prepaid expenses during the 1998 period and the receipt of a large tax refund
in March 1997.
Working capital as of June 30, 1998, December 31, 1997 and December 31, 1996
was $4.6 million, $3.9 million and $5.6 million, respectively, and cash
balances were $1.8 million, $1.8 million and $3.4 million, respectively, at
the same dates.
The Company has used its operating cash flow primarily to expand sales and
marketing activities, for acquisition and development of new products, for
capital expenditures and for working capital. Net cash used by investing
activities was $875,000 in 1996, $5.2 million in 1997, and $4.9 million and
$350,000 for the six months ended June 30, 1997 and 1998, respectively. In
1996, the Company used $501,000 to purchase children's activity assets, with
substantially all of the balance devoted to capital expenditures. In the 1997
periods, substantially all of the cash was used to purchase the children's
indoor modular play equipment assets, with the balance primarily devoted to
capital expenditures. This is the principal reason for the decrease in working
capital and cash balances at December 31, 1997. Net cash used in the six
months ended June 30, 1998 relate to capital expenditures for leasehold
improvements related to a new facility in British Columbia, tooling, computer
hardware, computer software, patents and intangibles. The Company does not
anticipate any extraordinary capital expenditures in the near future.
The Company obtained a $2.0 million unsecured line of credit from a bank in
June 1997. The Company borrowed $500,000 on the line to fund operations after
the acquisition of the children's modular play equipment
19
<PAGE>
line in July 1997 and repaid the loan from subsequent cash flow in the same
month. Management expects to use the credit facility periodically for short-
term working capital needs and for short-term financing of future
acquisitions. The interest rate on amounts borrowed under the line of credit
ranges from LIBOR plus 2.25% to LIBOR plus 2.75%. There were no amounts
outstanding under the credit facility as of June 30, 1998.
Approximately $12.7 million of the net proceeds from this Offering will be
used to fund the Park Structures acquisition. Park Structures is entitled to
receive up to an additional $1.5 million in cash on or before October 15, 1998
if certain earnings targets for the nine months ended September 30, 1998 are
met, up to an additional $2.0 million in cash on or before March 31, 1999 if
certain 1998 earnings targets are met and up to an additional $1.0 million in
cash if certain earnings targets for the six months ended June 30, 1999 are
met. See "Park Structures Acquisition." Any such payments will be funded from
existing cash balances, cash flow from operations and short-term borrowings
under the line of credit. The Company believes that the working capital
provided by the Offering and cash flow from operations will be sufficient to
fund its operations for the foreseeable future.
YEAR 2000
The Company believes that its critical data processing systems are currently
ready for the year 2000. The Company has initiated communications with all of
its significant suppliers and customers to determine the extent to which the
Company's operations are vulnerable to those third parties' failure to make
their own systems Year 2000 compliant. Although the Company has not received
responses from all of these suppliers and customers, it does not foresee any
significant problems with this issue; however, the Company is developing
contingency plans to mitigate any business interruptions due to year 2000
issues.
NEW ACCOUNTING STANDARDS
SFAS No. 128, Earnings per Share, was issued in February 1997 and was
adopted by the Company effective for 1997. Earnings per share amounts for 1996
were restated in accordance with the provisions of SFAS No. 128. See Note 1 to
the Company's consolidated financial statements.
The FASB issued SFAS No. 131, Disclosure about Segments of an Enterprise and
Related Information, on June 30, 1997. This statement establishes additional
standards for segment reporting in the financial statements and is effective
for the Company's fiscal year ended December 31, 1998. Management intends to
comply with the disclosure requirements of this statement and does not
anticipate a material impact on the results of operations of each segment.
20
<PAGE>
PARK STRUCTURES COMBINED SELECTED FINANCIAL DATA
(IN THOUSANDS)
The selected financial data of Park Structures as of and for each of the
last two fiscal years ended December 31, 1997 and the six months ended June
30, 1998 have been derived from the audited combined financial statements of
Park Structures. The selected financial data of Park Structures as of and for
the six-month period ended June 30, 1997 have been derived from the unaudited
combined financial statements of Park Structures which, in the opinion of the
management of Park Structures, include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation. The results
of operations for the six-month period ended June 30, 1998 are not necessarily
indicative of results that may be expected for the full year. This data should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations of Park Structures" and the combined
financial statements of Park Structures and notes thereto that appear
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------- ------------------
1996 1997 1997 1998
------ ------ ----------- ------
(UNAUDITED)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales....................................... $7,145 $8,242 $3,386 $3,316
Cost of sales............................... 4,910 5,560 2,286 1,910
------ ------ ------ ------
Gross profit................................ 2,235 2,682 1,100 1,406
Selling, general and administrative expense. 1,330 1,332 596 699
------ ------ ------ ------
Income from operations...................... 905 1,350 504 707
Other income (expense)...................... (622) (237) (89) 57
------ ------ ------ ------
Net income before taxes(1).................. $ 283 $1,113 $ 415 $ 764
====== ====== ====== ======
</TABLE>
- --------
(1) Park Structures has made an election under Subchapter S of the Internal
Revenue Code, and accordingly, no provision or liability for federal or
state income taxes is included.
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------- ------------------
1996 1997 1997 1998
------ ------ ----------- ------
(UNAUDITED)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total Assets................................... $2,703 $3,275 $2,658 $4,012
</TABLE>
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF PARK STRUCTURES
PARK STRUCTURES OVERVIEW
Park Structures produces and markets children's outdoor modular play
equipment. Park Structures' customers include municipalities, parks, public
and private schools, day care centers and private developers. Sales are
primarily made through a network of approximately 40 national and
international dealers, except in the south Florida area, where direct sales
are made. Generally, Park Structures' sales cycle begins with the solicitation
of customers and responses to customers' bid specification proposals during
the period from November to March. Orders are received and the children's
modular play equipment is manufactured from April to October. As a result,
Park Structures typically carriers a large backlog in the spring and early
summer months. Park Structures historically has recorded approximately 67% of
its sales during the second six months of the year.
COMPONENTS OF REVENUE AND EXPENSES
Park Structures recognizes sales at the time its products are shipped. Cost
of sales consists of components manufactured for and by Park Structures and
direct labor and manufacturing overhead incurred by Park Structures. Certain
major components such as plastic molding and aluminum castings are
manufactured by outside vendors using Park Structures' proprietary molds and
tools.
Selling, general and administrative expenses consist primarily of executive
and office salaries, related payroll taxes, advertising expenses and other
miscellaneous selling expenses.
Other (income) expense consists primarily of interest income earned on cash
balances, interest expense on borrowed funds and fees paid to a related entity
for consulting services.
RESULTS OF OPERATIONS
The following table sets forth certain income statement data stated as a
percentage of sales:
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS
DECEMBER ENDED JUNE
31, 30,
------------ ------------
1996 1997 1997 1998
----- ----- ----- -----
<S> <C> <C> <C> <C>
Sales............................................ 100.0% 100.0% 100.0% 100.0%
Cost of sales.................................... 68.7 67.5 67.5 57.6
----- ----- ----- -----
Gross profit..................................... 31.3 32.5 32.5 42.4
Selling, general and
administrative expenses......................... 18.6 16.1 17.6 21.1
----- ----- ----- -----
Income from operations........................... 12.7 16.4 14.9 21.3
Other (income) expense........................... 8.7 2.9 2.6 (1.7)
----- ----- ----- -----
Net income....................................... 4.0% 13.5% 12.3% 23.0%
===== ===== ===== =====
</TABLE>
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997
Sales decreased 2.1%, or $70,000, to $3.3 million for the six months ended
June 30, 1998 compared to $3.4 million for the six months ended June 30, 1997.
Sales were adversely affected by the relocation of Park Structures' production
facility in January 1998 and the relocation of the powder coating operation to
the new production facility in June 1998. Park Structures disposed of the
previously used powder coating equipment in May 1998 and utilized an outside
company to perform this service until June 1998. As a result, Park Structures'
backlog increased to $3,067,000 from $1,590,000 for the six months ended June
30, 1998 and 1997, respectively.
22
<PAGE>
Gross profit increased 27.8%, or $306,000, to $1.4 million for the six
months ended June 30, 1998 compared to $1.1 million for the six months ended
June 30, 1997 primarily due to significant decreases in costs of certain
component parts. These cost reductions were realized late in 1997 and are
primarily attributable to competitive bidding of vendors.
Selling, general and administrative expenses increased 17.2%, or $103,000,
to $699,000 for the six months ended June 30, 1998 compared to $596,000 for
the six months ended June 30, 1997. Sales and marketing expense increased
$27,000, or 28.9%, to $119,000 for the six months ended June 30, 1998 from
$92,000 for the six months ended June 30, 1997. This increase was due to an
increase in catalogue distribution and trade magazine publications. The other
significant increase is the $46,000 increase in rent expense to $72,000 for
the six months ended June 30, 1998 from $26,000 for the six months ended June
30, 1997. This was attributable to the new, larger production facility.
Other (income) expenses consisted of a fee to a related entity which
decreased from $76,000 for the six months ended June 30, 1997 to $0 for the
six months ended June 30, 1998. This fee was paid pursuant to an agreement
with a shareholder. During the six months ended June 30, 1998, Park Structures
recognized a $62,000 gain on the sale of assets related to the disposition of
the Park Structures' powder coating facility. This asset was fully depreciated
at the time of disposition and was replaced in June 1998 when Park Structures
relocated its powder coating operations to the new production facility.
Net income increased 84.1%, or $349,000, to $764,000 from $415,000 for the
six months ended June 30, 1997 and 1998, respectively, as a result of the
aforementioned factors.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Sales increased 15.3%, or $1.1 million, to $8.2 million in 1997 compared to
$7.1 million in 1996, primarily as a result of continued growth in demand for
Park Structures' products due to increased marketing efforts.
Gross profit increased 20.0%, or $446,000, to $2.7 million in 1997 compared
to $2.2 million in 1996. Inasmuch as gross profit margins remained fairly
constant, this increase directly relates to the increase in sales.
Selling, general and administrative expenses remained constant at $1.3
million in 1997 and 1996. Advertising expense increased by 54.1%, or $93,000,
to $265,000 in 1997 compared to $172,000 in 1996. This was attributable to an
increase in catalogue distribution and an increase in national advertising,
primarily in trade magazine publications. This increase was partially offset
by a decrease in bad debt expense. In 1996, $52,000 was written off because a
sales representative filed a petition for bankruptcy. There were no
significant amounts deemed uncollectible during 1997. The remaining increase
in advertising expense was offset by a decrease in salaries and benefits by
7.6%, or $65,000 to $784,000 in 1997 compared to $849,000 in 1996.
Other (income) expense consisted of a fee to a related entity, which
decreased $373,000, to $226,000 in 1997 from $599,000 in 1996. This fee was
paid pursuant to an agreement with an individual who subsequently became a
shareholder of Park Structures.
Net income increased $830,000 to $1.1 million in 1997 compared to $283,000
in 1996, as a result of the aforementioned reasons.
LIQUIDITY AND CAPITAL RESOURCES
Park Structures has financed its operations historically through proceeds
from a related party advance and internally generated cash. In May 1998, Park
Structures entered into an agreement with a bank for a $250,000 line of credit
which expires in June 1999. No advances have been made under this line, which
bears interest at the prime rate plus 0.50%.
23
<PAGE>
Park Structures' net increase (decrease) in cash and cash equivalents was
$293,000, ($204,000), ($372,000) and ($69,000) for the years ended 1996 and
1997 and the six months ended June 30, 1997 and 1998, respectively.
The increase in cash for the year ended 1996 was due to a related party
advance of $508,000 which was partially utilized to fund the net cash used in
operations of $93,000 and to distribute $121,000 to the Company's shareholder.
The decrease in cash for 1997 was primarily due to net repayments to the
related party of $341,000 as well as $623,000 paid for leasehold improvements
on the new operating facility. These uses were offset by $761,000 of net cash
provided by operating activities primarily due to the $830,000 increase in net
income during 1997.
The decrease for the six months ended June 30, 1997 is attributable to
$20,000 net cash used by operating activities. Primarily due to a $163,000
increase accounts receivable and a $168,000 decrease in accounts payable. The
net cash used in financing activities of $353,000 related to the repayment of
related party loans of $430,000 which was partially funded with a $70,000
advance on the line of credit.
The decrease during the six months ended June 30, 1998 was a combination of
the $270,000 net cash provided by operating activities. This was primarily
attributable to the net income for the period. This cash was offset by net
cash used in investing activities of $173,000 for the purchase of equipment
and furniture for the new operating facility and the net cash used in
financing activities of $164,000 for the repayment of related party loans and
shareholder distributions of $24,000 and $140,000, respectively.
YEAR 2000
Park Structures is currently evaluating its computer systems to identify
potential problems relating to the Year 2000 date change. Park Structures does
not expect the cost to modify its computer systems to address Year 2000 issues
will be material to its results of operations, and does not anticipate any
material disruption in its operations as a result of any Year 2000 issues.
Park Structures does not have any information concerning the potential impact
of Year 2000 issues on any of its suppliers or customers.
24
<PAGE>
BUSINESS
Koala Corporation is a leading designer, producer and worldwide marketer of
innovative commercial products, systems and solutions that create attractive
family-friendly environments for businesses and other public venues. The
Company produces family convenience products, children's activity products and
children's modular play equipment. The Koala Bear Kare Baby Changing Station,
the Company's initial product, has been installed in approximately 300,000
public restrooms worldwide. The Baby Changing Station has provided the
foundation for the Company's growth and brand name recognition. The Company's
sales have grown from $3.8 million in 1993 to $13.6 million in 1997,
representing a compound annual growth rate of 37.2%. Net income has grown from
$1.0 million in 1993 to $2.4 million in 1997, representing a compound annual
growth rate of 25.8%.
The Company markets its products, systems and custom solutions to a wide
range of businesses and public facilities that serve customers and visitors
who bring children to their establishments. The Company's customers include
Walt Disney World, The Mayo Clinic, Target Stores, McDonalds, Pizza Hut,
Burger King franchises and many other customers in the retail, health care,
supermarket, entertainment venue and numerous other markets. Management
believes that the Koala Bear Kare brand is widely recognized among family-
friendly businesses and their customers.
The Company provides high quality products with design features that cater
to the needs of its customers. The Company believes that competition in its
various product categories is fragmented and that Koala benefits from offering
a broad selection of products to its customers. The Company intends to
continue providing family-friendly products, systems and solutions through
strategic initiatives including: capitalizing on brand recognition; maximizing
market penetration; acquiring complementary businesses and products;
maintaining low cost, high quality production; developing new solutions and
enhanced products; and expanding its international marketing.
On August 14, 1998, the Company agreed to purchase the assets of Park
Structures, a manufacturer and marketer of outdoor children's modular play
equipment. Park Structures sells its products to municipalities, parks, public
and private schools, day care centers and private developers. Park Structures'
line of children's outdoor modular play equipment complements the Company's
existing line of children's indoor modular play equipment, and the acquisition
provides additional market opportunities for the Company.
HISTORY
The Company was formed in 1987 to produce and market a newly-designed baby
changing station. This product has formed the foundation for the Company's
growth, and the Company believes that it is the market leader in baby changing
station products in terms of units sold. During the 1990's, Koala has
developed from a single product company into a diversified designer, producer
and marketer of family convenience products, children's activity products and
children's modular play equipment. The Company introduced the Child Protection
Seat in 1991 and the Infant Seat Kradle in 1993. In 1994, the Company acquired
the rights to the Booster Buddy booster seat. The Company commenced its
offering of children's activity systems in 1996, following the acquisition of
a producer of activity products. This acquisition initiated the development of
the Koala Kare System, which allows businesses to create custom activity
systems to suit individual space requirements and customer needs. The Company
continued to expand its product offerings in 1997 through new product
introductions, including the Koala Highchair, and the acquisition of Delta
Play, a custom manufacturer of creatively themed, modular indoor children's
play systems. With the acquisition of Park Structures, the Company will enter
the outdoor children's modular play market. As a result of the Company's
product diversification efforts, the Baby Changing Station, while continuing
to be a growth opportunity for the Company, is expected to represent less than
half of Koala's sales in 1998 and thereafter.
25
<PAGE>
INDUSTRY OVERVIEW
The Family Convenience and Children's Activity Market. The Company believes
that parents increasingly travel, shop and dine out with their children due to
societal changes and demographic trends, including the strict time constraints
of two-income and single parent households. A March 1998 national market
research study conducted for the Company by the Howell Research Group reported
that seven out of ten parents (68%) interviewed shopped with their children
either all the time (27%) or most of the time (41%). According to the study,
the impact of child-friendly facilities is very positive. The majority of
women and a large number of the men interviewed and who shopped at child-
friendly stores shopped more frequently and spent more time and money at these
stores. The Company believes that businesses increasingly need to create an
accommodating and positive environment for children in order to attract
customers, increase sales and create customer loyalty. The Company has
developed and acquired family convenience and children's activity products to
help businesses meet these needs.
The United States Department of Justice estimates that there are over
5,000,000 public facilities in the United States of the type targeted by the
Company, including restaurants, retail stores and shopping centers. The
Company estimates that the market for its children's activity products
includes approximately 1,500,000 facilities. The Company currently targets
over 60 categories of facilities to purchase its family convenience and
children's activity products, including quick service restaurants, airports,
stadiums, convention centers, supermarkets and other retail establishments.
The Children's Modular Play Market. The children's modular play market is
comprised of indoor and outdoor areas for child play. Customers for indoor
children's modular play equipment include many of the same businesses that
purchase family convenience and children's activity products, such as quick
service restaurants, shopping malls, day care centers and family entertainment
centers. The Company believes that many of the same demographic trends in the
family convenience and children's activity segments are driving demand for
indoor children's modular play products. In addition, the Company believes
that customers increasingly are looking for theming and custom-designed
equipment in order to create a family-friendly atmosphere for their
businesses.
The children's outdoor modular play market for products produced by Park
Structures includes municipalities, schools, parks, amusement parks, day care
centers and apartment complexes. The Company believes that this market has
expanded for a number of reasons. Unlike the products of Park Structures, many
existing outdoor play structures are not accessible to people with
disabilities or the structures or their underlying surfaces do not comply with
current safety codes. In addition, wood structures, which were popular in the
1970s and 1980s, and are not as popular today because of safety and
maintenance concerns and because they tend to deteriorate over time.
Therefore, the Company believes that municipal risk managers and others who
control the buying decisions regarding outdoor play systems, are seeking to
replace or expand their existing equipment.
BUSINESS STRATEGY
The Company's primary business objective is to grow its sales and earnings
by continuing to develop as a leading provider of family-friendly products,
systems and solutions. The Company's key strategic initiatives are summarized
below.
Capitalize on Brand Name Recognition. The Company believes that the Koala
Bear Kare brand name has achieved significant recognition with businesses and
their customers through the reputation of its Koala Bear Kare Baby Changing
Station. The Company intends to continue to leverage this brand recognition
through the marketing of its other family convenience and children's activity
products and children's modular play systems under the Koala Bear Kare name.
Maximize Market Penetration. The Company intends to continue to increase
market penetration through an integrated marketing effort that includes
manufacturer's representative and dealer sales, direct sales, trade shows and
trade magazine advertising. In 1997, the Company strengthened its existing
distribution network through the addition of more than 200 new manufacturer's
representatives and over 800 new dealers. The Company also intends to expand
cross-selling its products to new and existing customers and to expand the
categories of facilities that purchase its products.
26
<PAGE>
Acquire Complementary Businesses and Products. The Company has established a
formal acquisition program and regularly evaluates strategic acquisitions as a
means of adding complementary businesses and product lines. The Company has
completed several acquisitions and believes that there are opportunities to
acquire products or business lines that would complement current operations,
expand current product offerings and provide additional opportunities to
leverage the Company's marketing efforts.
Maintain Low Production Costs and High Quality. The Company has a "buy or
build" philosophy that seeks to maintain low production costs without
compromising quality. As a result, a substantial portion of its manufacturing
and assembly functions currently are outsourced, and certain design functions
are handled by the Company. The Company believes that outsourcing to qualified
suppliers where appropriate enables it to focus its resources on marketing and
sales while maintaining quality control through frequent contacts with its
suppliers.
Develop New Solutions. Koala seeks to develop new solutions in order to meet
customer expectations and expand its business. For example, the Koala
Highchair was designed and developed with unique features in response to
restaurants' concerns about the cleanliness and ease of use provided by their
existing highchairs. The Company also continually seeks to improve and enhance
its existing products and systems in response to customer needs.
Expand International Marketing. The Company sells its products worldwide.
Sales to customers outside of North America have increased from 12% of sales
in 1996 to 18% of sales in 1997. The Company intends to continue the expansion
of its international marketing activities by adding dealers and locating Koala
employees in selected markets around the world to supervise international
sales activity. In addition, the Company plans to increase its international
sales through increased cross-selling of its products and the marketing of the
outdoor modular play equipment of Park Structures.
PARK STRUCTURES
The Park Structures acquisition continues the Company's expansion into
children's modular play equipment and complements the Company's existing line
of indoor modular play equipment. Park Structures, based in southern Florida,
provides the Company with a distribution presence in the eastern United
States. The Company believes there is an opportunity to market its existing
products through the Park Structures distribution channels and to market its
products as well as the Park Structures products both to domestic customers
and to customers in Europe and Latin America. Park Structures sells its
products primarily to smaller municipalities and other governmental agencies,
parks, public and private schools, day care centers, developers and apartment
complexes. These markets represent a new distribution opportunity for the
Company. The Company believes that it will be able to increase the penetration
of Park Structures' products to larger municipal markets due to the Company's
greater marketing and financial resources. Koala intends to explore the
opportunity to cross-sell its existing products into the Park Structures
markets and to introduce the Park Structures products to its children's
activity and indoor modular play customers.
PRODUCTS
The Company currently markets three groups of products: family convenience,
children's activity and children's modular play equipment products. These
products are sold to businesses and other customers located in all 50 states
and in approximately 50 foreign countries.
Family Convenience Products. The Company currently markets the following
family convenience products: the Koala Bear Kare Baby Changing Station, the
Koala Bear Kare Child Protection Seat, the Koala Bear Kare Infant Seat Kradle,
the Booster Buddy booster seat and the Koala Bear Kare Highchair. The Company
also markets disposable sanitary paper liners to be used with its Baby
Changing Stations. All of these products, except
27
<PAGE>
for the Infant Seat Kradle and the sanitary paper liners, are constructed out
of durable polyethylene plastic and are highly resistant to accidental damage
or vandalism. These products are described below.
Koala Bear Kare Baby Changing Station. Introduced in 1987, the Baby
Changing Station reinforced the need for publicly accessible baby changing
tables. The changing station provides customers with a safer and more
sanitary alternative to changing their children's diapers and encourages
customers to stay in a place of business instead of leaving to take care of
the baby. Today, there are approximately 300,000 units installed worldwide.
The changing station fits in very small restrooms and is available in a
vertical, horizontal or counter-top design to accommodate a variety of
space requirements. A changing station unit is steel reinforced to provide
added safety and weight capacity. Each unit features child protection
straps with snap-lock fasteners that hold the child securely in place.
Stations are equipped with built-in sanitary liner dispensers. Liners are
biodegradable 3-ply paper and provide the same protection for an infant
that toilet seat covers provide adults. The paper liners are sold
separately to businesses with changing stations and provide the Company a
recurring revenue stream from its customers.
Koala Bear Kare Child Protection Seat. The Child Protection Seat is
designed for parents who need to use a restroom or dressing room in a
public place but are unable to fit their baby's stroller in the stall with
them. The protection seat mounts on the wall or door of a public restroom
stall or dressing room, offering customers a safer and more sanitary
alternative to leaving a child unattended or on the floor. The baby is kept
securely in place by child protection straps with snap-lock fasteners and a
uniquely designed tilt-back, polyethylene seat. The unit's compact folding
design fits easily in the smallest restrooms or dressing rooms and mounts
to a variety of surfaces.
Koala Bear Kare Infant Seat Kradle. The Infant Seat Kradle is effectively
a highchair for infants who are too small for high chairs. This product
permits parents in restaurants and other businesses to put their infant
carriers or car seats at table height. The Infant Seat Kradle consists of a
metal frame with a nylon mesh cradle and protection straps to hold the
infant carrier securely in place. The unit folds into a flat profile for
storage in tight spaces and, when open, takes up no more floor space than a
highchair.
Booster Buddy Booster Seat. The Booster Seat is designed to permit
children from the ages of 2 to 7 to enjoy movies, sports, theater and other
spectator events. The product reverses to provide two different height
levels for children and is equipped with a cup holder, a candy/popcorn
holder and built-in handle for easy carrying. The booster seat features an
easy-cleaning lightweight molded polyethylene design weighing only three
pounds. Seats stack together in an upright stand for easy storage and
accessibility to patrons.
Koala Bear Kare Highchair. The Highchair features a seamless molded
polyethylene construction that prohibits food and dirt from collecting in
hard-to-clean places, resulting in a more sanitary product. Its unique,
recessed two-wheel design allows for smooth movement and easy maneuvering,
yet eliminates accidental rolling. The polyethylene construction results in
a longer life and easier cleaning than wooden highchairs. The highchair is
stackable and easy to store.
Children's Activity Products. The Company's children's activity products
consist of the Koala Bear Kare Block and Maze Activity Table, Koala Bear Kare
Wonder Wall and Koala Bear Kare Activity Center Carpet. These products, which
include manipulative activities and colorful blocks, letters, numbers and
designs, are designed for use in commercial waiting areas of businesses such
as grocery stores, auto dealers, retail stores, physicians and other
professional services providers. These products are solidly constructed to
withstand heavy use and include hygienic maintenance features. The Company
markets these products individually or under the name Koala Kare Systems. The
Koala Kare Systems allow businesses to create custom activity systems to suit
individual space requirements and customer needs. These systems range from
individual activity tables in doctor's offices to large children's activity or
play areas in supermarkets comprising several thousand square feet where
children are supervised in a controlled environment. Selected activity
products with interactive video machines and other interactive products create
a children's activity setting that allows parents to shop while their children
are entertained and educated in a safe, clean and child-friendly environment.
28
<PAGE>
Children's Modular Play Equipment. The Company currently markets modular and
custom themed children's indoor play equipment. The Company works with each
individual customer to create and produce custom designs that use traditional
modular components such as tunnels, walkways, ladders and ball pits either
alone or in combination to create a themed environment such as a pirate's ship
or jungle tree house. These products are designed for use in family
entertainment centers, quick-service restaurants and shopping malls.
The acquisition of Park Structures will expand the Company's product
offerings into children's outdoor modular play equipment. Park Structures
designs, manufactures and markets modular and custom outdoor play equipment
for municipalities and other governmental agencies, parks, public and private
schools, day care centers, developers and apartment complexes. The Park
Structures products consist of traditional modular outdoor playground
equipment such as decks, elevated climbing areas and slides. These components
are available in a wide variety of sizes, configurations and color options.
Park Structures custom designs its systems to meet customer requirements.
MARKETING AND SALES
Family Convenience and Children's Activity Products. The Company's marketing
strategy for its family convenience and child activity products consists of
extending the Koala Bear Kare brand name, introducing new concepts and
creating new groups of customers for its products around a theme of Happy
Faces in Public Places. The Company uses a combination of dealer sales and
direct sales to market these products.
Since 1995, the Company has increased its marketing budget in an effort to
increase sales of its products to a wider target market. In 1997, the Company
expanded its distribution network, which consists of manufacturer's sales
representatives and dealers, through the addition of more than 200 new
manufacturer's sales representatives and over 800 new dealers. The
manufacturer's sales representatives promote the Company's products to the
dealers, who purchase the products from the Company and resell them to
customers. The manufacturer's representatives receive commissions from the
sale of the Company's products. Most dealers are not granted any exclusive
rights for products or territory. Dealer sales have accounted for a minority
of the Company's domestic sales and a majority of the Company's foreign sales.
The Company's current distribution network consists of approximately 2,100
dealers served by over 300 manufacturer's sales representatives that serve
selected market segments. In addition, the Company markets directly to
national accounts who prefer to buy directly from manufacturers and other end
users that do not qualify as national accounts or are not served by dealers.
International dealers currently are served by factory sales managers who are
experienced in international sales. The Company intends to continue the
expansion of its international marketing activities by adding dealers and
locating Koala employees in selected markets around the world to supervise
international sales activity. In addition, the Company plans to increase its
international sales through increased cross-selling of its products and the
marketing of the outdoor modular play equipment of Park Structures.
The Company supports its marketing and sales activities through attendance
at numerous national and international industry trade shows in various market
segments and at local focused trade shows. The Company also invests in focused
advertising in trade magazines to promote its products to potential customers.
The theme of this advertising identifies the advantages to potential customers
in being family-friendly to promote increased business through increased
customer loyalty.
The Company conducts an active public relations program aimed at providing
information about the concept of being family-friendly and illustrating the
benefits of the Company's family convenience and children's activity products
for existing and prospective customers. The Company assists industry
publications in creating editorial content or news stories about the emerging
trends around families' decisions where to shop, eat or visit. In addition,
Company sales managers host educational seminars for decision makers at key
industry trade shows.
Children's Modular Play Equipment. The Company markets and sells its custom
indoor modular play equipment through trade show attendance, trade journal
advertising and regular contact by Company salespeople with designers of
projects in various markets. Park Structures sells nationwide and
internationally through a
29
<PAGE>
network of approximately 40 independent dealers and through an in-house sales
person who covers six counties in South Florida. Park Structures' marketing
programs include attendance at national industry and regional trade shows, a
focused media advertising campaign, incentive programs designed to stimulate
growth and the publication of a catalogue depicting the products and
capabilities of Park Structures.
DESIGN AND MANUFACTURING
The Company has a "buy or build" philosophy that seeks to maintain low
production costs either through outsourcing or using Company personnel where
it is more cost-effective and does not compromise quality. As a result, a
substantial portion of its manufacturing and assembly functions currently are
outsourced, and certain design functions are handled by the Company. The
Company believes that outsourcing to qualified suppliers where appropriate
enables it to focus its resources on marketing and sales while maintaining
quality control through frequent contacts with its suppliers.
Family Convenience and Children's Activity Products. Koala develops the
concepts for its family convenience and children's activity products in
response to the needs of its customers. Following development of prototypes,
the Company outsources the design of the tooling for the production of these
products to independent designers. Product designs are incorporated into molds
and tooling owned by the Company. The Company provides these molds and tooling
to its suppliers in connection with the manufacture of the Company's products.
In the manufacturing process, components are molded to the Company's
specifications using various plastic molding processes, assembled and
delivered to the Company for shipment to customers. The Company uses a number
of manufacturers for its products. The Company believes that alternative
sources of supply are available for these products if necessary.
Children's Modular Play Equipment. The Company's design engineers custom
design its children's indoor modular play systems using computer aided design
technologies applied to modular components. The Company owns all of the
significant molds and tooling used in the manufacture of specialized
components used in the play equipment. Components for these systems are
manufactured to the Company's specifications and purchased from outside
vendors. The Company fabricates certain metal and fiberglass components at its
plant located near Vancouver, British Columbia, Canada. These components are
then assembled by the Company at the plant and shipped to customers.
Like the Company, Park Structures custom designs its children's outdoor play
systems by applying computer aided design technologies to modular components.
Park Structures subcontracts the plastic molding, fabrication and plastisol
coating of deck platforms and aluminum casting to outside subcontractors. Park
Structures owns all of the significant molds and tooling for these functions.
Park Structures fabricates the majority of the steel playground parts and
assembles its modular play equipment at its plant. The Company believes there
are alternative sources of supply for the manufacture of the modular play
equipment components.
COMPETITION
Family Convenience Products. The Company's family convenience products are
marketed to commercial customers and not to consumers. Presently, the
commercial products division of Rubbermaid Incorporated and a number of
companies with limited financial and operational resources sell family
convenience products to the commercial markets. Such competition has not had a
material impact on the Company. The Company is not aware of any companies
marketing diaper changing stations intended for the commercial market that
have a greater market share than the Company. The Company believes that there
is an under served market for family convenience products. Koala believes that
it is the only company focused on marketing a wide variety of family
convenience products to the commercial market. The Company believes that its
Koala Bear Kare products have brand name recognition that provides the Company
with a significant competitive advantage. The Company competes principally on
the basis of brand name recognition, quality, customer service and price.
30
<PAGE>
Children's Activity Products. Competition in the children's activity product
area is mainly from small businesses that make similar products and from
efforts by individual businesses to create their own activity areas. The
Company competes in this market through its ability to offer custom designed
products to its customers under its Koala Kare Systems program and on the
basis of product quality and service.
Children's Modular Play Equipment. Competition in children's indoor modular
play equipment is primarily from Little Tikes Commercial Play Systems, Inc.
("Little Tikes"), a unit of Rubbermaid Incorporated, Miracle Recreation
Equipment Company and several companies with limited financial and operational
resources. The Company competes in the children's indoor modular play market
on the basis of quality, safety, service and its ability to provide a custom
themed unit designed to meet the unique needs of the customer. Competition in
children's outdoor modular play equipment is primarily from Game Time, Inc., a
subsidiary of PlayCore, Inc., Miracle Recreation Equipment Company, Landscape
Structures, Inc., Little Tikes and several companies with limited financial
and operational resources. The Company believes that Park Structures competes
primarily on the basis of design, quality, safety, price and customer service.
PRODUCT WARRANTIES AND INSURANCE
For its family convenience and children's activity products, the Company
provides a replacement guarantee for one year from purchase protecting against
damage from natural disasters or vandalism, subject to a $100 deductible. The
Company also provides a five year limited warranty on parts and labor covering
any defects in workmanship. For its children's modular play equipment, the
Company provides warranties ranging from a one year limited warranty on parts
and labor covering defects in workmanship to a lifetime warranty on certain
metallic parts. The Company has experienced minimal returns and warranty
claims. The Company carries product liability insurance in an amount that the
Company deems adequate. Product liability claims against the Company and Park
Structures to date have been immaterial.
PATENTS AND TRADEMARKS
The Company has registered various trademarks, including the "Koala Bear
Kare" name and several variations of the Koala Bear Kare logo that is featured
on the Company's products. The Company believes that the various Koala Bear
Kare trademarks are widely recognized and important to the Company. Each of
the Company's products marketed under this trademark prominently displays a
blue and white sticker with one of the Company's trademarks. The Company has
also registered the trademark "Booster Buddy" and the registration of the
trademarks "Delta Play" and "Happy Faces in Public Places" currently are being
sought. Park Structures does not have registered trademarks but believes that
it has proprietary rights to its play equipment designs.
The Company holds design patents for certain of its products. These patents
prevent competitors from duplicating the design elements of the Company's
products, but the Company does not believe that such patents provide
significant barriers to entry.
REGULATION
The Company may be subject to the provisions of, among other laws, the
Federal Consumer Product Safety Act and the Federal Hazardous Substances Act
(the "Acts"), which empower the Consumer Product Safety Commission (the
"CPSC") to require the repair, replacement or refund of the purchase price of
products that present a substantial risk of injury to the public, and in the
event the CPSC finds that no feasible consumer product safety standard under
the Acts would adequately protect the public, to order such product banned.
The CPSC may also issue civil and criminal penalties for knowing violations of
the Acts. Any such determination by the CPSC is subject to court review.
Similar laws exist in some states and cities in the United States and in many
jurisdictions throughout the world.
The Company's indoor modular play equipment and the outdoor modular play
equipment of Park Structures are designed and inspected to meet the safety
guidelines of the CPSC and the American Society for Testing and
31
<PAGE>
Materials ("ASTM") for commercial playground systems. The Company conducts in-
house testing and inspection to ensure that they comply with the CPSC and ASTM
guidelines. Park Structures is a member of the International Play Equipment
Manufacturers Association ("IPEMA"), a member driven international trade
organization that represents and promotes an open market for manufacturers of
playground equipment.
The Company's operations in the United States do not involve manufacturing
or other activities that would subject it to laws and regulations concerning
environmental issues. The Company's assembly plant in Vancouver, British
Columbia performs light fabrication activities utilizing paint, metal and
fiberglass. The Company has obtained the necessary permits to conduct these
activities, and the Company believes that they have been conducted in
compliance with Canadian environmental laws and regulations. Park Structures
engages in manufacturing and assembly operations at its leased facility in
Florida. The Company believes that the Park Structures operations are
conducted in compliance with federal and state environmental laws and
regulations.
EMPLOYEES
The Company had approximately 90 full-time employees at June 30, 1998, with
30 located in the United States and 60 located in Canada. The Company's
employees are not covered by any collective bargaining agreements. In July
1998, the Company's Canadian employees held an election regarding potential
representation by the International Wood and Allied Workers of Canada. The
election did not result in a sufficient vote to certify the union. The union
has reapplied for certification. Management believes that relations with its
employees are good. Park Structures had 90 employees at June 30, 1998. The
Park Structures employees are not covered by any collective bargaining
agreements.
PROPERTIES
The Company leases approximately 900 square feet of office space in Denver,
Colorado for its corporate office and 15,000 square feet of office and
warehouse space in Denver, Colorado for sales, receiving and shipping
operations. These leases expire in 2001. In addition, the Company leases a
67,000 square foot plant near Vancouver, British Columbia, where it conducts
its indoor modular play equipment manufacturing and assembly operations. This
lease expires in 2003. Park Structures leases a 100,000 square foot facility
in Coral Springs, Florida for its manufacturing and assembly operations. This
lease expires in 2002, with two options to renew the lease for additional five
year terms. The Company believes that its current facilities and those of Park
Structures are adequate for its existing needs.
LEGAL PROCEEDINGS
The Company and Park Structures are and have been a party to litigation in
the ordinary course of their businesses. The Company does not believe that any
current litigation will have a material adverse effect upon its business,
financial condition or results of operations.
32
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table lists the names, ages and positions of the directors and
executive officers of the Company as of June 30, 1998.
<TABLE>
<CAPTION>
DIRECTOR/OFFICER
NAME AGE COMPANY POSITION SINCE
---- --- ---------------- ----------------
<S> <C> <C> <C>
Mark A. Betker.......... 47 Chairman, President, Chief 1995
Executive Officer and Director
Jeffrey L. Vigil........ 44 Treasurer and Vice President of 1996
Finance and Administration
James A. Zazenski....... 33 Executive Vice President and 1997
General Manager
Michael C. Franson...... 43 Director 1994
Thomas W. Gamel......... 58 Director 1993
John T. Pfannenstein.... 41 Director 1993
Ellen S. Robinson....... 35 Director 1997
</TABLE>
Mark A. Betker has served as Chief Executive Officer, President and a
Director since joining the Company in November 1995, and as Chairman since
December 1996. From 1986 to 1995, Mr. Betker was executive vice president of
Windsor Industries Inc., a world-wide manufacturer of building maintenance
equipment. Mr. Betker received a M.B.A. degree from Regis University and a
B.A. degree from the University of Wisconsin.
Jeffrey L. Vigil has served as the Company's Treasurer and Vice President of
Finance and Administration since May 1996. From 1980 to 1989 and from 1993 to
1996, Mr. Vigil held various positions at Energy Fuels Corporation, a
privately owned Colorado natural resources company, including Accounting
Manager, Contract Administrator, Controller and Vice President of Finance.
From 1990 to 1993 Mr. Vigil was a self-employed financial consultant. From
1976 until 1979, Mr. Vigil served as an auditor with Arthur Anderson LLP. Mr.
Vigil is a certified public accountant and received a B.A. degree in
Accounting from the University of Wyoming.
James A. Zazenski has served as the Company's Executive Vice President and
General Manager since June 1997. From 1984 to 1997, Mr. Zazenski held various
positions at Windsor Industries, Inc., the last of which was Vice President of
Marketing. Mr. Zazenski received an M.B.A. degree and a B.A. degree from the
University of Colorado at Denver.
Michael C. Franson is a Director of the Company. He is currently an
Executive Vice President and principal of The Wallach Company, Inc., an
investment banking firm located in Denver, Colorado where he has worked since
1988. Mr. Franson received a M.B.A. degree from the Graduate School of
Business at the University of Oregon and an undergraduate degree from
California State University at Chico.
Thomas W. Gamel is a Director of the Company. Since 1992, Mr. Gamel has
served as Chairman of Rockmont Capital Partners, Ltd., formerly Rockmont Value
Investors, Ltd. ("Rockmont"), a privately-held investment company based in
Denver, Colorado. He has been an owner and director of Timpte Industries,
Inc., a diversified holding company since 1970, and is an owner and director
of several other private companies. Mr. Gamel received a B.A. degree from the
University of Notre Dame.
John T. Pfannenstein is a Director of the Company. From 1993 to 1995, he
served as the Company's Chairman of the Board, and from 1993 to May 1996 he
served as the Company's Treasurer. Mr. Pfannenstein co-founded Rockmont in
1992 and has served as its President since that time. Mr. Pfannenstein
received a B.A. degree from St. John's University (Minnesota).
33
<PAGE>
Ellen S. Robinson is a Director of the Company. Ms. Robinson served as
President of Ascent Sports, Inc. from June 1996 until July 1998, where she
oversaw the business operations of the Colorado Avalanche professional hockey
team and the Denver Nuggets professional basketball team. From 1988 to 1996,
Ms. Robinson was the vice president of customer development, general manager
and area marketing manager for the Pepsi Cola Bottling Company in Denver. Ms.
Robinson also serves as a director of a number of private non-profit
businesses. Ms. Robinson received a B.A. degree from the Wharton School of
Business at the University of Pennsylvania and a certificate in international
business from the University of Colorado.
Each director holds office until the next annual meeting of shareholders and
until his or her successor is duly elected and qualified. There are no family
relationships among directors or executive officers except that John T.
Pfannenstein and Jeffrey L. Vigil are brothers-in-law.
BOARD COMMITTEES
The Board of Directors has an Audit Committee, which consists of Mr.
Franson, Mr. Pfannenstein and Ms. Robinson. The purpose of the Audit Committee
is to recommend the appointment of the independent auditors for the Company,
review the scope of the audit, examine the auditors' reports, make appropriate
recommendations to the Board of Directors as a result of such review and
examination, and make inquiries into the effectiveness of the financial and
accounting functions and controls of the Company. The Audit Committee held two
meetings during 1997. The Company has no nominating or compensation
committees.
EXECUTIVE COMPENSATION
The following table sets forth the compensation for the years ended December
31, 1995, 1996 and 1997 for the Chief Executive Officer of the Company and the
other executive officer who received compensation of $100,000 or more during
the year ended December 31, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------- ------------
NUMBER OF
OTHER ANNUAL SECURITIES
COMPENSATION UNDERLYING
NAME AND POSITION YEAR SALARY ($) BONUS ($) ($) OPTIONS (#)
- ----------------- ---- ---------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Mark A. Betker.......... 1997 159,230 27,659 -- --
Chief Executive Officer 1996 175,000 27,850 -- (2) --
1995 22,884(1) -- -- (2) 250,000
Jeffrey L. Vigil........ 1997 103,595 3,000 -- 10,000
Vice President 1996 53,846 -- -- --
Finance and
Administration 1995 -- -- -- --
</TABLE>
- --------
(1) Does not include consulting fees paid to Mr. Betker prior to his
employment by the Company in the amount of $18,000.
(2) Does not include an estimated $20,000 of housing costs, temporary living
expenses, nor certain out-of-pocket travel expenses incurred by Mr. Betker
related to travel to and relocation in Denver.
34
<PAGE>
OPTION GRANTS DURING 1997
<TABLE>
<CAPTION>
NUMBER OF % OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES IN EXERCISE OR BASE
NAME GRANTED (#) FISCAL YEAR PRICE ($/SH) EXPIRATION DATE
- ---- ---------- ------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Mark A. Betker..... -0- n/a n/a n/a
Jeffrey L. Vigil... 10,000(1) 32.2% $13.00 January 29, 2007
</TABLE>
- --------
(1) Options vest at a rate of 2,000 shares per year, on the anniversary date
of the grant, over the next five year period. The anniversary date of the
grant is January 29, 1997.
AGGREGATE OPTION EXERCISES IN 1997
AND YEAR-END OPTION VALUES
The following table summarizes the value of the unexercised options held by
the executive officers named in the summary compensation table as of December
31, 1997. There were no options exercised by any officers or directors of the
Company during 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING THE VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT "IN-THE-MONEY"
DECEMBER 31, 1997 OPTIONS AT DECEMBER 31, 1997(1)
------------------------- ---------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE ($) UNEXERCISABLE ($)
- ---- ----------- ------------- --------------- -----------------
<S> <C> <C> <C> <C>
Mark A. Betker..... 100,000 150,000 600,000 900,000
Jeffrey L. Vigil... -0- 10,000 -0- 42,500
</TABLE>
- --------
(1) "Value of Unexercised "In-the-Money' Options" is equal to the difference
between the closing bid price per share of the Company's Common Stock as
reported by Nasdaq on December 31, 1997, the last day of trading in 1997
($17.25 per share), and the option exercise price, multiplied by the
number of shares subject to such options.
COMPENSATION OF DIRECTORS
The Company does not pay employees or affiliates additional compensation for
services as a director. The Company pays each non-employee, unaffiliated
director an annual retainer of $5,000 and a fee of $1,000 per meeting
attended. The Board of Directors has also authorized payment of reasonable
travel and out-of-pocket expenses incurred by directors in attending board
meetings.
The Company's directors who are not employees of the Company are eligible to
be granted non-qualified stock options. The Company's directors who are also
employees of the Company are eligible to be granted incentive stock options.
During the year ended December 31, 1997, the Company granted 1,000 options to
Mr. Franson and 1,000 options to Ms. Robinson.
STOCK OPTION PLAN
The Company has approved the adoption of two stock option plans which allow
for the issuance of stock options to officers, employees and directors, and to
consultants who render bona fide services to the Company. In August 1993, the
Company adopted a Stock Option Plan (the "1993 Plan") which provides for the
issuance of options to purchase up to 100,000 shares of the Company's Common
Stock. In November 1995, the Company adopted another stock option plan. That
plan was amended and restated in May 1998 (the "Amended Plan"). The Amended
Plan provides for the issuance of options exercisable for up to 650,000 shares
of the Company's Common Stock. The purposes of both the 1993 Plan and the
Amended Plan are to advance the interest of the Company and its shareholders
by affording employees, directors and consultants ("Eligible Persons") upon
whose judgment, initiative and efforts the Company may rely for the successful
conduct of its business, an
35
<PAGE>
opportunity for investment in the Company and the incentive advantages
inherent in stock ownership in the Company. The 1993 Plan and the Amended Plan
(collectively, the "Plans") authorize the Board of Directors of the Company to
grant options to purchase shares of Common Stock to Eligible Persons selected
by the Board while considering criteria such as employment position or other
relationship with the company, duties and responsibilities, ability,
productivity, length of service or association, morale, interest in the
Company, recommendations by supervisors and other matters. There are currently
approximately 95 individuals who may be deemed Eligible Persons to receive
options under the Plans.
The Plans are administered by the Board, which selects the optionees and
determines: (i) the number of shares of Common Stock to be subject to each
option; (ii) the type of each option to be granted (non-qualified or incentive
stock option); (iii) the time at which each option is to be granted; (iv) the
purchase price for the option shares; (v) the option period; and (vi) the
period over which the option vests.
The Amended Plan permits the Board to designate certain options granted
under the Amended Plan as incentive stock options (an "Incentive Stock
Option"). An option designated by the Board as an Incentive Stock Option is
intended to qualify as an "incentive stock option" within the meaning of
Section 422 of the Internal Revenue Code. The purchase price of the Incentive
Stock Option may generally not be less than 100% of the fair market value of
the stock at the time the option is granted (110% if the optionee owns more
than 10% of the total voting shares of the Company). In addition, the
aggregate fair market value, determined at the time of grant, of the shares
under any Incentive Stock Option which are exercisable for the first time by
any one individual in any calendar year may not exceed $100,000. An Incentive
Stock Option may only be granted to an Eligible Person who is an employee of
the Company.
With respect to options that are not Incentive Stock Options ("Non-Qualified
Stock Options"), the exercise price may be less than the fair market value of
the applicable shares on the date of grant. The period within which any option
must be exercised may not be later than ten years from the date on which the
option was granted. An employee generally must exercise an option within three
months after the termination of his employment with the Company. At the time
of exercise the optionee must pay to the Company the full purchase price of
the shares in cash, shares of the Company's Common Stock having a fair market
value equal to the purchase price, or a combination of cash and shares.
DIRECTOR LIABILITY
The Company's articles of incorporation provide that a director shall not be
personally liable to the Company or its shareholders for monetary damages for
breach of fiduciary duty as a director, except for liability: (i) for any
breach of the director's duty of loyalty to the Company or its shareholders;
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law; (iii) under the Colorado statutory
provision making directors personally liable for unlawful dividends, unlawful
stock repurchases or redemptions, and loans and guarantees of loans to
directors by the Company; or (iv) for any transaction for which the director
derived an improper personal benefit. This provision of the Company's articles
of incorporation does not affect the availability of equitable remedies such
as injunctive relief to prevent or remedy a director's breach of the duty of
care.
INDEMNIFICATION
Sections 7-109-102 and 7-109-107 of the Colorado Business Corporation Act
provide that a corporation may indemnify its current and former officers,
directors, employees and agents against reasonable expenses (including
attorneys' fees), judgments, penalties, fines and amounts paid in settlement
which, in each case, were incurred in connection with actions, suits, or
proceedings in which such persons are parties by reason of the fact that they
are or were an officer, director, employee or agent of the corporation, if:
(i) they acted in good faith; (ii) in the case of conduct in an official
capacity with the corporation; the conduct was in the corporation's best
interests; (iii) in all other cases, the conduct was at least not opposed to
the corporation's best interests; and (iv) in the case of a criminal
proceeding, they had no reasonable cause to believe the conduct was unlawful.
The
36
<PAGE>
corporation may not indemnify an officer, director, employee or agent of the
corporation: (i) in connection with a proceeding by the corporation or
enforcing rights of the corporation in which such person is adjudged liable to
the corporation or (ii) in connection with any proceeding charging improper
personal benefit, whether or not acting in an official capacity, in which such
person is adjudged liable on the basis that personal benefit was improperly
received. Unless limited by its articles of incorporation, a corporation shall
be required to indemnify an officer, director, employee, or agent who was
wholly successful in defense of a proceeding, against reasonable attorneys'
fees.
The articles of incorporation of the Company provide that the Company will
exercise, to the extent permitted by law, its power of indemnification, and
that the foregoing right of indemnification shall not be exclusive of other
rights to which a person shall be entitled as a matter of law.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
37
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth, as of June 30, 1998, the number of shares of
Common Stock beneficially owned by (i) each person known by the Company to be
the beneficial owner of more than 5% of the outstanding share of Common Stock,
(ii) each director of the Company, (iii) each executive officer, (iv) all
directors and executive officers of the Company as a group, and (v) the
Selling Shareholder.
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING(1) SHARES OFFERING(1)
----------------- BEING ---------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT OFFERED NUMBER PERCENT
- ------------------------------------ --------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Rockmont Capital Limited
Liability Company(2)................ 1,073,000 42.5% 800,000 273,000 7.7%
700 Broadway, Suite 800
Denver, Colorado 80203
John T. Pfannenstein(2).............. 1,073,000 42.5 -- 273,000 7.7
700 Broadway, Suite 800
Denver, Colorado 80203
Thomas W. Gamel(2)................... 783,300 30.9 -- -0- *
700 Broadway, Suite 800
Denver, Colorado 80203
Mark A. Betker(3).................... 105,000 4.0 -- 105,000 2.9
5031 So. Ulster St., Suite 300
Denver, Colorado 80237
Jeffrey L. Vigil(4).................. 2,000 * -- 2,000 *
5031 So. Ulster St., Suite 300
Denver, Colorado 80237
Michael C. Franson(5)................ 1,400 * -- 1,400 *
1401 17th Street, Suite 750
Denver, Colorado 80202
Ellen S. Robinson(5)................. 1,000 * -- 1,000 *
1635 Clay Street
Denver, Colorado 80204
James A. Zazenski.................... -0- * -- -0- *
11600 E. 53rd Ave., Suite D
Denver, Colorado 80239
All directors and executive officers
as a group (7 persons)(6).......... 1,182,400 45.0 382,400 7.8
</TABLE>
- --------
* Less than one percent.
(1) Where the persons listed have the right to acquire additional shares of
Common Stock through the exercise of options or warrants within sixty (60)
days of June 30, 1998, such additional shares are deemed to be outstanding
for the purpose of computing the percentage of outstanding shares owned by
such person, but are not deemed to be outstanding for the purpose of
computing the percentage ownership interest of any other person. Unless
otherwise indicated, each of the following persons has sole voting and
investment power with respect to the shares of Common Stock set forth
opposite their respective names.
38
<PAGE>
(2) Rockmont Capital Limited Liability Company ("Rockmont Capital") is the
owner of 1,073,000 shares of the Company's Common Stock. John T.
Pfannenstein, who is a Director of the Company, owns a 17.5 percent
membership interest in and is the Manager of Rockmont Capital and,
accordingly, is deemed beneficial owner of all of the shares owned by
Rockmont Capital. Each of the following persons is an owner of a portion
of the membership interests of Rockmont Capital as indicated and is
thereby deemed the beneficial owner of a portion of the shares held by
Rockmont Capital as follows:
<TABLE>
<CAPTION>
PERSON'S MEMBERSHIP NUMBER OF SHARES PERCENT OF
NAME INTEREST BENEFICIALLY OWNED OUTSTANDING SHARES
---- ------------------- ------------------ ------------------
<S> <C> <C> <C>
David B. Gamel.......... 20.9% 223,800 8.85%
Leslie D. Gamel......... 20.9% 223,800 8.85%
Lara M. Gamel........... 20.9% 223,800 8.85%
Lisa Gamel Scott........ 10.4% 111,900 4.42%
Robert D. Scott......... 9.4% 101,660 4.02%
</TABLE>
David, Leslie and Lara Gamel, and Lisa Gamel Scott (who is the wife of
Robert D. Scott), who are all brother and sisters, have agreed that their
father, Thomas W. Gamel, a Director of the Company, has the exclusive right
to vote their membership interests in Rockmont Capital until October 12,
1998, and each has agreed not to dispose of any membership interest in
Rockmont Capital without the consent of the Manager of Rockmont Capital,
currently John T. Pfannenstein, until October 12, 1998. Accordingly,
Mr. Pfannenstein is deemed to be the beneficial owner of all shares of
Common Stock owned by Rockmont Capital, and Mr. Gamel is deemed to be the
beneficial owner of 783,300 shares of Common Stock owned by Rockmont
Capital.
(3) Includes options to acquire an aggregate of 100,000 shares of Common Stock
at exercise prices ranging from $9.25 to $13.25 per share.
(4) Consists of an option to acquire 2,000 shares of Common Stock at an
exercise price of $13.00 per share.
(5) Includes an option to acquire 1,000 shares of Common Stock at an exercise
price of $13.00 per share.
(6) Includes options to acquire 103,000 shares of Common Stock.
39
<PAGE>
DESCRIPTION OF SECURITIES
The articles of incorporation of the Company authorize the issuance of
10,000,000 shares of Common Stock, $.10 par value, and 1,000,000 shares of
Preferred Stock. The following description of the Company's Common Stock and
Preferred Stock is qualified in all respects by reference to the articles of
incorporation and bylaws of the Company, copies of which are exhibits to the
registration statement of which this Prospectus is a part. As of June 30,
1998, there were 2,527,362 shares of Common Stock outstanding, and
approximately 2,500 beneficial holders of the Common Stock.
COMMON STOCK
Holders of the Company's Common Stock are entitled to one vote for each
share held on each matter submitted to a vote of shareholders. Cumulative
voting for the election of directors is not permitted. Holders of Common Stock
have no preemptive rights. There are no conversion rights or redemption or
sinking fund provisions with respect to the Common Stock and such shares are
not subject to further calls or assessments by the Company. Holders of Common
Stock are entitled to participate pro rata in any dividends, if and when
declared, and in distributions upon any liquidation of the Company. The
Company does not intend to pay any cash dividends on its Common Stock in the
foreseeable future. See "Dividend Policy."
All of the outstanding shares of Common Stock are duly and validly
authorized and issued, fully paid and nonassessable. The additional shares of
Common Stock to be issued in connection with the Offering will be, upon
issuance against full payment of the purchase price therefor, duly and validly
authorized and issued, fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors has the authority, without further shareholder
approval, to issue up to 1,000,000 shares of Preferred Stock from time to time
in one or more series, to establish the number of shares to be included in
each such series, and to fix the designation, powers, preferences and rights
of the shares of each such series and the qualifications, limitations or
restrictions thereof. The issuance of Preferred Stock may have the effect of
delaying or preventing a change in control of the Company. The issuance of
Preferred Stock could decrease the amount of earnings and assets available for
distribution to the holders of Common Stock or could adversely affect the
rights and powers, including voting rights, of the holders of the Common
Stock. In certain circumstances, such issuances could have the effect of
decreasing the market price of the Common Stock. As of the closing of the
Offering, no shares of Preferred Stock will be outstanding and the Company
currently has no plans to issue any shares of Preferred Stock.
TRANSFER AGENT
The transfer agent and registrar for the Company's Common Stock is American
Securities Transfer & Trust, Inc., Denver, Colorado.
40
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, for which A.G. Edwards & Sons, Inc. and Craig-Hallum
Capital Group, Inc. are acting as the representatives (the "Representatives"),
have severally agreed to purchase from the Company and the Selling Shareholder
the shares of Common Stock offered hereby. Each Underwriter will purchase the
number of shares set forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
A.G. Edwards & Sons, Inc...........................................
Craig-Hallum Capital Group, Inc....................................
---------
Total............................................................ 1,800,000
=========
</TABLE>
The Underwriting Agreement provides that the Underwriters are obligated to
purchase all of the shares of Common Stock, if any are purchased.
The Company and the Selling Shareholder have been advised that the
Underwriters propose to offer the Common Stock to the public at the offering
price set forth on the cover page of this Prospectus and to certain dealers at
such price less a concession not in excess of $ per share and that the
Underwriter and such dealers may reallow a discount of not in excess of $
per share to other dealers. The offering price and the concession and discount
to dealers may be changed by the Representatives after the Offering.
In the Underwriting Agreement, the Company has granted the Underwriters an
option, expiring at the close of business on the 45th day subsequent to the
date of this Prospectus, to purchase up to an aggregate of 270,000 additional
shares of Common Stock at the offering price, less the underwriting discount
set forth on the cover page of this Prospectus. The Underwriters may exercise
such option solely to cover over-allotments, if any, in the sale of the
shares. To the extent the Underwriters exercise such option, the Underwriters
will have a firm commitment, subject to certain conditions, to purchase
approximately the same percentage of the option shares as the number of shares
to be purchased by it showing in the table above bears to 1,800,000, and the
Company will be obligated, pursuant to the option, to sell such shares to the
Underwriters, for which the Company will receive all of the proceeds.
The Company and the Selling Shareholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act or to contribute to payments that the Underwriters may be
required to make with respect thereof. The liability of the Selling
Shareholder under this indemnity is limited to the amount of its proceeds.
The Company and certain shareholders, who collectively will own shares
of Common Stock immediately following the Offering, have agreed that they will
not, directly or indirectly, offer, sell or otherwise dispose of any shares of
Common Stock, other than the shares offered pursuant to this Prospectus, for a
period of 180 days from the date of this Prospectus without the prior written
consent of A.G. Edwards & Sons, Inc.
In connection with the Offering, the Underwriters and selling group members
and their respective affiliates may engage in transactions that stabilize,
maintain or otherwise affect the market price of the Common Stock. Such
transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M, pursuant to which such persons may bid for or
purchase Common Stock for the purpose of stabilizing its market price. The
Underwriters also may create a short position for the account of the
Underwriters by selling more Common Stock in connection with the Offering than
it is committed to purchase from the Company and the Selling Shareholder, and
in such case may purchase Common Stock in the open market following completion
of the Offering to cover all or a portion of such short position. The
Underwriters may also cover all or a portion of such short position, up to
270,000 shares of Common Stock, by exercising the Underwriters' over-allotment
41
<PAGE>
option referred to above. In addition, A.G. Edwards & Sons, Inc., on behalf of
the Underwriters, may impose "penalty bids" under contractual arrangements
with the Underwriters whereby it may reclaim from an Underwriter (or dealer
participating in the Offering) for the account of the Underwriter, the selling
concession with respect to Common Stock that is distributed in the Offering
but subsequently purchased for the account of the Underwriters in the open
market. The Underwriters and selling group members may engage in passive
market making transactions in the Common Stock on the Nasdaq Stock Market in
accordance with Rule 103 of Regulation M. Any of the transactions described in
this paragraph may result in the maintenance of the price of the Common Stock
at a level above that which might otherwise prevail in the open market. None
of the transactions described in this paragraph is required, and, if it is
undertaken, it may be discontinued at any time.
The Underwriters have informed the Company that they do not intend to
confirm sales to any accounts over which it exercise discretionary authority.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company and the Selling Shareholder by Parcel Mauro PC, Denver, Colorado.
Certain legal matters will be passed upon for the Underwriters by Blackwell
Sanders Peper Martin LLP, St. Louis, Missouri.
EXPERTS
The balance sheets of the Company as of December 31, 1996, and the
statements of income, changes in shareholders' equity and cash flows for each
of the two years in the period ended December 31, 1996 included in this
Prospectus and in the Registration Statement, have been included herein in
reliance on the report of Blanski Peter Kronlage & Zoch, P.A., independent
public accountants, given on the authority of that firm as experts in auditing
and accounting.
The consolidated financial statements of Koala Corporation as of December
31, 1997 and for the year then ended appearing in this Prospectus and
Registration Statement have been audited by Ernst & Young, LLP, independent
auditors, to the extent indicated in their report thereon also appearing
elsewhere herein and in the Registration Statement. Such consolidated
financial statements have been included herein in reliance upon such reports
given upon the authority of such firm as experts in accounting and auditing.
The balance sheets of Delta Play Ltd. as of March 31, 1996 and 1997, and the
statements of income and retained earnings and statements of changes in
financial position for the years ended March 31, 1996 and 1997 appearing in
this Prospectus and Registration Statement have been audited by Ernst & Young,
chartered accountants, to the extent indicated in their report thereon also
appearing elsewhere herein and in the Registration Statement. Such financial
statements have been included herein in reliance upon such reports given upon
the authority of such firm as experts in accounting and auditing.
The balance sheets of Park Structures as of December 31, 1996 and 1997 and
June 30, 1998, and the statements of income, changes in shareholders' equity
and cash flows for each of the two years in the period ended December 31, 1997
and the six months ended June 30, 1998 included in this Prospectus and in the
Registration Statement, have been included herein in reliance on the report of
Goldstein Lewin & Co., independent public accountants, given on the authority
of that firm as experts in accounting and auditing.
42
<PAGE>
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission").
Such reports, proxy statements and other information may be inspected and
copied at the public reference facilities of the Commission, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and at its regional offices
located at: Seven World Trade Center, New York, New York 10048, and
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material may be obtained at prescribed rates from the Public Reference Section
of the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549. Those materials may also be obtained from The Nasdaq Stock Market, 1735
K Street, NW, Washington, D.C. 20006, or may be obtained electronically on the
Commission's home page on the Internet at http://www.sec.gov.
This Prospectus constitutes part of a Registration Statement filed by the
Company with the Commission under the Securities Act with respect to the
Common Stock offered hereby. This Prospectus omits certain of the information
contained in the Registration Statement, and reference is hereby made to the
Registration Statement and related exhibits and schedules for further
information with respect to the Company and the Common Stock offered hereby.
Any statements contained elsewhere in this Prospectus concerning the
provisions of any documents are not necessarily complete, and in each instance
reference is made to the copy of the document filed as an exhibit to the
Registration Statement.
43
<PAGE>
KOALA CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
KOALA CORPORATION
Independent Auditor's Reports............................................. F-2
Consolidated Balance Sheets as of December 31, 1996 and 1997 and June 30,
1998 (unaudited)......................................................... F-3
Consolidated Statements of Income for the Years Ended December 31, 1995,
1996, and 1997
and the Six Month Periods Ended June 30, 1997 and 1998 (unaudited)....... F-4
Consolidated Statements of Changes in Shareholders' Equity for the Years
Ended December 31, 1995, 1996 and 1997 and the Six Month Period Ended
June 30, 1998 (unaudited)................................................ F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1995, 1996 and 1997
and the Six Month Periods Ended June 30, 1997 and 1998 (unaudited)....... F-6
Notes to Consolidated Financial Statements................................ F-7
PARK STRUCTURES, INC.
Independent Auditor's Report.............................................. F-16
Combined Balance Sheets as of December 31, 1996 and 1997 and June 30, 1998
......................................................................... F-17
Combined Income Statements for the Years Ended December 31, 1996 and 1997
and the Six Month Periods Ended June 30, 1997 (unaudited) and 1998 ...... F-18
Combined Statement of Stockholder's Equity for the Years Ended December
31, 1996 and 1997
and the Six Month Period Ended June 30, 1998 ............................ F-19
Combined Statements of Cash Flows for the Years Ended December 31, 1996
and 1997
and the Six Month Periods Ended June 30, 1997 (unaudited) and 1998 ...... F-20
Notes to Combined Financial Statements.................................... F-22
DELTA PLAY, LTD.
Auditors' Report.......................................................... F-27
Balance Sheets as of March 31, 1996 and 1997.............................. F-28
Statements of Income and Retained Earnings for the Years Ended March 31,
1996 and 1997............................................................ F-29
Statements of Changes in Financial Position for the Years Ended March 31,
1996 and 1997............................................................ F-30
Notes to Financial Statements............................................. F-31
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Unuadited Pro Forma Consolidated Financial Statements Introduction........ F-39
Unuadited Pro Forma Consolidated Balance Sheet as of June 30, 1998........ F-40
Unaudited Pro Forma Consolidated Statement of Income for the Year Ended
December 31, 1997........................................................ F-41
Unaudited Pro Forma Consolidated Statement of Income for the Six Months
Ended June 30, 1998...................................................... F-42
Notes to Unaudited Pro Forma Consolidated Financial Statements............ F-43
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
We have audited the accompanying balance sheet of KOALA CORPORATION (a
Colorado corporation) as of December 31, 1996, and the related statements of
income, changes in shareholders' equity, and cash flows for the years ended
December 31, 1995 and 1996. 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 audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of KOALA CORPORATION, as of
December 31, 1996, and the results of its operations and its cash flows for
the years ended December 31, 1995 and 1996, in conformity with generally
accepted accounting principles.
Minneapolis, Minnesota Blanski Peter Kronlage & Zoch, P.A.
February 12, 1997
REPORT OF INDEPENDENT AUDITORS
We have audited the accompanying consolidated balance sheet of KOALA
CORPORATION (a Colorado corporation) as of December 31, 1997, and the related
consolidated statements of income, changes in shareholders' equity, and cash
flows for the year 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of KOALA
CORPORATION, at December 31, 1997, and the consolidated results of its
operations and its cash flows for the year then ended, in conformity with
generally accepted accounting principles.
Denver, Colorado Ernst & Young LLP
February 10, 1998
F-2
<PAGE>
KOALA CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1996 1997 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............. $ 3,442,601 $ 1,832,677 $ 1,841,825
Accounts receivable, trade (less
allowance for doubtful accounts of
$30,000 in 1996, $45,703 in 1997 and
$45,187 (unaudited) in 1998).......... 1,656,515 2,212,802 2,216,219
Refundable income taxes................ 338,200 74,523 --
Inventories............................ 443,680 1,103,355 1,433,994
Prepaid expenses....................... 82,460 416,120 838,805
Deferred income taxes.................. 10,900 14,314 14,314
----------- ----------- -----------
Total current assets..................... 5,974,356 5,653,791 6,345,157
----------- ----------- -----------
Property and equipment................... 863,285 1,561,324 1,857,263
Less accumulated depreciation and
amortization............................ 165,496 322,616 438,991
----------- ----------- -----------
697,789 1,238,708 1,418,272
----------- ----------- -----------
Other Assets:
Intangibles (net of accumulated
amortization of $295,360 in 1996,
$496,221 in 1997 and $626,979
(unaudited) in 1998).................. 3,679,057 8,064,301 8,627,364
----------- ----------- -----------
$10,351,202 $14,956,800 $16,390,793
=========== =========== ===========
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable....................... $ 273,511 $ 1,312,518 $ 1,642,556
Accrued expenses and income taxes...... 56,921 396,163 115,240
----------- ----------- -----------
Total current liabilities................ 330,432 1,708,681 1,757,796
----------- ----------- -----------
Deferred income taxes.................... 242,200 398,047 398,047
----------- ----------- -----------
Commitments and contingencies (Notes 3
and 4)
Shareholders' equity:
Preferred stock, no par value;
1,000,000 shares authorized; issued
and outstanding 0 in 1996 and 1997,
and 0 (unaudited) in 1998............ -- -- --
Common stock, $.10 par value;
10,000,000 shares authorized; issued
and outstanding 2,481,260 in 1996,
2,527,362 in 1997 and 1998
(unaudited)........................... 248,126 252,736 252,736
Additional paid-in capital............. 4,651,884 5,307,988 5,307,988
Other comprehensive income............. -- (25,124) (49,185)
Retained earnings...................... 4,878,560 7,314,472 8,723,411
----------- ----------- -----------
Total shareholders' equity............... 9,778,570 12,850,072 14,234,950
----------- ----------- -----------
$10,351,202 $14,956,800 $16,390,793
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
KOALA CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEAR ENDED DECEMBER 31, 30,
----------------------------------- -----------------------
1995 1996 1997 1997 1998
---------- ---------- ----------- ----------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Sales................... $6,537,440 $8,938,282 $13,621,292 $5,291,994 $8,443,575
Cost of sales........... 2,551,676 3,241,328 5,528,542 1,914,543 3,629,980
---------- ---------- ----------- ---------- ----------
Gross profit............ 3,985,764 5,696,954 8,092,750 3,377,451 4,813,595
Selling, general and
administrative
expenses............... 1,543,495 2,892,095 4,230,988 1,597,562 2,538,619
Amortization of
intangibles............ 86,375 105,677 200,861 62,626 130,758
---------- ---------- ----------- ---------- ----------
Income from operations.. 2,355,894 2,699,182 3,660,901 1,717,263 2,144,218
---------- ---------- ----------- ---------- ----------
Other (income) expense:
Interest income........ (109,249) (129,463) (115,708) (78,227) (40,184)
Relocation expenses.... 0 288,923 0 0 0
---------- ---------- ----------- ---------- ----------
(109,249) 159,460 (115,708) (78,227) (40,184)
---------- ---------- ----------- ---------- ----------
Income before income
taxes.................. 2,465,143 2,539,722 3,776,609 1,795,490 2,184,402
Provision for income
taxes.................. 890,447 644,182 1,340,697 637,399 775,463
---------- ---------- ----------- ---------- ----------
Net income.............. $1,574,696 $1,895,540 $ 2,435,912 $1,158,091 $1,408,939
========== ========== =========== ========== ==========
Net income per share.... $ 0.66 $ 0.78 $ 0.97 $ 0.47 $ 0.56
========== ========== =========== ========== ==========
Weighted average shares
outstanding............ 2,399,312 2,431,016 2,503,654 2,482,799 2,527,362
========== ========== =========== ========== ==========
Net income per share--
diluted................ $ 0.65 $ 0.75 $ 0.96 $ 0.46 $ 0.54
========== ========== =========== ========== ==========
Weighted average shares
outstanding--diluted... 2,411,416 2,523,265 2,548,148 2,510,951 2,596,394
========== ========== =========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
KOALA CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL OTHER
------------------ PAID-IN RETAINED COMPREHENSIVE
SHARES AMOUNT CAPITAL EARNINGS INCOME TOTAL
--------- -------- ---------- ---------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1994................... 2,399,312 $239,931 $4,639,179 $1,408,324 $ 0 $ 6,287,434
Net income.............. 1,574,696 1,574,696
-----------
Comprehensive income.... 1,574,696
--------- -------- ---------- ---------- -------- -----------
Balance, December 31,
1995................... 2,399,312 239,931 4,639,179 2,983,020 0 7,862,130
Net income.............. 1,895,540 1,895,540
-----------
Comprehensive income.... 1,895,540
Issuance of common
stock, exercise of
options and warrants
(cashless)............. 81,948 8,195 (8,195) 0
Issuance of 2,200
warrants............... 20,900 20,900
--------- -------- ---------- ---------- -------- -----------
Balance, December 31,
1996................... 2,481,260 248,126 4,651,884 4,878,560 0 9,778,570
Net income.............. 2,435,912 2,435,912
Foreign currency
translation adjustment. (25,124) (25,124)
-----------
Comprehensive income.... 2,410,788
Issuance of common stock
for acquisition of
Delta Play, Ltd........ 40,000 4,000 596,000 600,000
Issuance of common stock
for exercise of
warrants............... 6,102 610 60,104 60,714
--------- -------- ---------- ---------- -------- -----------
Balance, December 31,
1997................... 2,527,362 252,736 5,307,988 7,314,472 (25,124) 12,850,072
Net income (unaudited).. 1,408,939 1,408,939
Foreign currency
translation adjustment
(unaudited)............ (24,061) (24,061)
-----------
Comprehensive income.... 1,384,878
--------- -------- ---------- ---------- -------- -----------
Balance, June 30, 1998
(unaudited)............ 2,527,362 $252,736 $5,307,988 $8,723,411 ($49,185) $14,234,950
========= ======== ========== ========== ======== ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
KOALA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEAR ENDED DECEMBER 31, 30,
---------------------------------- -----------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- ----------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net income.............. $1,574,696 $1,895,540 $2,435,912 $1,158,091 $1,408,939
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation........... 55,162 83,148 163,133 43,026 116,375
Amortization........... 86,375 105,677 200,861 62,626 130,758
Loss on disposal of
property and
equipment............. 332 31,796 0 0 0
Deferred income taxes.. 115,852 (18,852) 152,433 0 0
(Increase) decrease in
assets:
Accounts receivable,
trade................ 16,498 (683,191) (416,618) (339,663) (3,417)
Refundable income
taxes................ (81,009) (172,815) 263,677 338,200 74,523
Inventories........... (168,641) (80,410) (106,791) (159,307) (330,639)
Prepaid expenses...... 25,528 (35,942) (313,293) (196,441) (422,685)
Increase (decrease) in
liabilities:
Accounts payable...... (40,882) 177,492 818,509 359,392 (444,337)
Accrued expenses...... (8,207) 20,983 157,125 351,266 54,509
Accrued income taxes.. 0 0 180,764 70,788 (201,057)
---------- ---------- ---------- ---------- ----------
Net cash provided by
operating activities... 1,575,704 1,323,426 3,535,712 1,687,978 382,969
---------- ---------- ---------- ---------- ----------
Cash flows from
investing activities:
Payments for capital
expenditures.......... (126,183) (367,264) (520,321) (271,433) (295,939)
Purchase of Activities
Unlimited, LLC........ 0 (501,188) 0 0 0
Purchase of Delta Play,
Ltd., net of cash
acquired.............. 0 0 (4,634,802) (4,592,219) 0
Payments for patents
and intangibles....... (3,966) (6,503) (21,730) (13,151) (53,821)
---------- ---------- ---------- ---------- ----------
Net cash used by
investing activities... (130,149) (874,955) (5,176,853) (4,876,803) (349,760)
---------- ---------- ---------- ---------- ----------
Cash flows from
financing activities:
Proceeds from exercise
of common stock
warrants.............. 0 0 39,633 0 0
---------- ---------- ---------- ---------- ----------
Net cash provided by
financing activities... 0 0 39,633 0 0
---------- ---------- ---------- ---------- ----------
Effect of exchange rate
changes on cash........ 0 0 (8,416) 0 (24,061)
---------- ---------- ---------- ---------- ----------
Net increase (decrease)
in cash................ 1,445,555 448,471 (1,609,924) (3,188,825) 9,148
Cash at beginning of
period................. 1,548,575 2,994,130 3,442,601 3,442,601 1,832,677
---------- ---------- ---------- ---------- ----------
Cash at end of period... $2,994,130 $3,442,601 $1,832,677 $ 253,776 $1,841,825
========== ========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
KOALA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Nature of operations:
Koala Corporation and its wholly owned subsidiaries (the "Company") is a
leading designer, producer and worldwide marketer of innovative commercial
products, systems and solutions that create attractive family-friendly
environments for businesses and other public venues. The Company produces
family convenience products, children's activity products and children's
indoor and outdoor modular play equipment.
Principles of consolidation:
The consolidated financial statements include the accounts of Koala
Corporation and all subsidiaries. All significant inter-company accounts and
transactions have been eliminated in consolidation. The operations of Delta
Play, Ltd. are included in the accompanying financial statements from June 1,
1997, the effective date of its acquisition. See note 10 below.
Relocation:
The Company completed the relocation of its executive offices from St. Paul,
Minnesota to Denver, Colorado during the third quarter of 1996. Total
relocation costs were approximately $289,000. The Company also established a
new manufacturing relationship with a Denver firm to manufacture and assemble
its products. Previously, the Company assembled its own products.
Use of estimates:
Management uses estimates and assumptions in preparing financial statements
in accordance with generally accepted accounting principles. Those estimates
and assumptions affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported revenue and
expenses. Actual results could vary from the estimates that were used.
Unaudited information:
The accompanying consolidated balance sheets, consolidated statements of
income, consolidated statements of changes in shareholders' equity and
consolidated statements of cash flows as of and for the six months ended June
30, 1997 and 1998 are unaudited and have been prepared on the same basis as
the audited consolidated financial statements included herein. In the opinion
of management, such unaudited consolidated financial statements include all
adjustments necessary to present fairly the information set forth therein,
which consists solely of normal recurring adjustments. The results of
operations for the interim period presented are not necessarily indicative of
the results for a full year.
Reclassification
Certain amounts in the financial statements for the years ended December 31,
1995 and 1996 have been reclassed to conform to the December 31, 1997
presentation. The amortization of intangibles has been reclassed to income
from operations for all periods presented.
Cash and cash equivalents:
Cash and cash equivalents include cash on hand, demand deposits, savings
accounts, and short-term investments with original maturities of three months
or less. Cash and cash equivalents include financial instruments that
potentially subject the Company to a concentration of credit risk. The Company
places its cash
F-7
<PAGE>
and temporary cash investments with high credit quality institutions. At
times, cash held in the Company's primary bank may be in excess of the FDIC
insurance limit. Cash in money market mutual funds is not federally insured.
The Company performs periodic evaluations of the relative credit standing of
these financial institutions.
As of December 31, 1996 and 1997, cash and cash equivalents approximate fair
value and consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1997
---------- ----------
<S> <C> <C>
Cash in primary banking institution................... $ 459,364 $ 863,084
Cash in money market mutual funds..................... 2,983,237 969,593
---------- ----------
$3,442,601 $1,832,677
========== ==========
</TABLE>
Inventories:
Inventories are stated at the lower of first-in, first-out cost (including
manufacturing overhead applied to finished goods) or market. As of December
31, 1996, 1997 and June 30, 1998, inventories consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1996 1997 1998
-------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials................................ $ 62,879 $ 605,066 $ 822,279
Finished goods............................... 380,801 498,289 611,715
-------- ---------- ----------
$443,680 $1,103,355 $1,433,994
======== ========== ==========
</TABLE>
Property and equipment:
Property and equipment is stated at the lower of depreciated cost or net
realizable value. Depreciation and amortization is being provided on the
straight-line method over the estimated useful lives of the assets. The
following is a schedule of estimated useful lives of property and equipment:
<TABLE>
<S> <C>
Furniture and fixtures............................................ 7 years
Tooling and molds................................................. 6-10 years
Shop and office equipment......................................... 3-10 years
</TABLE>
Intangibles:
Acquisition intangibles represent the excess of the cost of the companies
acquired over the fair value of their net assets at the date of acquisition.
Acquisition intangible costs are being amortized on the straight-line method
using an estimated useful life of up to 40 years.
Costs of obtaining patents and trademarks are capitalized and amortized on
the straight-line basis over 17 years for patents and 20 years for trademarks
once approval is granted. Costs are expensed if approval is denied.
Revenue recognition:
The Company recognizes revenues at the time its products are shipped.
Research and development costs:
Research and development costs are expensed when incurred. The Company's
research and development costs were not significant in 1995, 1996 or 1997.
F-8
<PAGE>
Advertising costs:
Advertising costs are expensed when incurred. Advertising expense for the
periods ended December 31, 1995, 1996, and 1997 was $492,871, $728,528, and
$405,178, respectively. Prepaid advertising costs at December 31, 1995, 1996,
and 1997 were $22,861, $29,508, and $35,724, respectively, and consist of
costs of advertising which have not taken place.
Income taxes:
The Company provides for deferred taxes on temporary differences arising
from assets and liabilities whose bases are different for financial reporting
and state, federal and foreign income tax purposes. The differences relate
primarily to depreciable and amortizable assets and the allowance for
uncollectible accounts.
The Company does not provide U.S. income taxes on the unremitted earnings of
its foreign subsidiary ($290,337 at December 31, 1997) because the Company
intends to reinvest such unremitted earnings. Where it is contemplated
earnings may be remitted from the foreign subsidiary, the credit for foreign
taxes already paid generally offsets applicable federal income taxes.
Net income per share:
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
Earnings per Share. Statement 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods were
restated to conform to the Statement 128 requirements.
There is no difference between after-tax earnings for calculation of basic
earnings per share versus diluted earnings per share. The reconciliation of
the weighted average shares outstanding for purposes of calculating basic
earnings per share versus diluted earnings per share is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
----------------------------- -----------------------
1995 1996 1997 1997 1998
--------- --------- --------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Weighted average shares
outstanding for basic
earnings per share...... 2,399,312 2,431,016 2,503,654 2,482,799 2,527,362
Effect of dilutive
securities:
Employee stock options. 11,914 79,448 39,666 26,244 69,032
Warrants............... 190 12,801 4,828 1,908 --
--------- --------- --------- --------- ---------
Dilutive potential common
shares.................. 12,104 92,249 44,494 28,152 69,032
--------- --------- --------- --------- ---------
Weighted average shares
outstanding for dilutive
earnings per share...... 2,411,416 2,523,265 2,548,148 2,510,951 2,596,394
========= ========= ========= ========= =========
</TABLE>
Foreign Currency Translation:
The financial statements of the Company's subsidiary located outside the
United States are measured using the local currency as the functional
currency. Assets and liabilities of this subsidiary are translated at the
rates of exchange at the balance sheet date. The resultant translation
adjustments are included in other comprehensive income, a separate component
of shareholders' equity. Income and expense items are translated at average
rates of exchange. Gains and losses on foreign currency transactions of these
subsidiaries are included in net earnings.
F-9
<PAGE>
Geographic Area Data:
The Company operates in one principal industry segment: the design,
manufacture and sale of children's protection and activity products. The
Company's products are sold primarily to commercial and governmental markets.
Geographically, sales, operating income and identifiable assets for non-
domestic entities for the year ended December 31, 1997 were $3,189,800,
$439,000 and $1,931,400, respectively. There were no material amounts of sales
or transfers among geographic areas during 1997.
2. CREDIT FACILITY:
The Company obtained a $2.0 million unsecured line of credit in June 1997.
The line of credit may be used for short-term working capital needs and future
acquisitions. There are no compensating balance requirements and the credit
facility requires compliance with financial loan covenants related to debt
levels compared to annualized cash flows from operations. The credit facility
terminates on June 24, 1999. There were no amounts outstanding under the
credit facility as of December 31, 1997.
3. COMMITMENTS AND CONTINGENCIES:
Operating lease:
The Company has entered into operating leases for facilities located in
Denver, Colorado, New Orleans, Louisiana and Delta, British Columbia, Canada.
The lease terms vary and run through July 31, 2001. All leases call for
monthly base rents, with the Company responsible for its share of common
building operating costs, payable on a monthly basis.
Facilities rent expense was $62,777, $85,146, and $187,719 for the years
ended December 31, 1995, 1996, and 1997, respectively. Total minimum operating
lease commitments for the years ending December 31 are:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
------------------------ --------
<S> <C>
1998.......................................................... $122,841
1999.......................................................... 85,440
2000.......................................................... 85,440
2001.......................................................... 42,931
--------
$336,652
========
</TABLE>
Warranties:
For its family convenience and children's activity products, the Company
provides a replacement guarantee for one year from purchase protecting against
damage from natural disasters or vandalism, subject to a $100 deductible. The
Company also provides a five year limited warranty on parts and labor covering
any defects in workmanship. For its children's modular play equipment, the
Company provides a one year limited warranty on parts and labor covering
defects in workmanship. The Company has experienced minimal returns and
warranty claims; therefore, as of December 31, 1995, 1996 and 1997, no accrual
has been made for future claims. The Company carries product liability
insurance in an amount that the Company deems adequate.
4. STOCK OPTIONS AND WARRANTS:
Options:
The Company adopted a Stock Option Plan (1993 Plan) in August 1993. The 1993
Plan provides that options to purchase up to 100,000 shares of common stock
may be granted. The Company adopted a second plan in November 1995 (1995 Plan)
which provides that additional options to purchase up to 400,000 shares of
common stock may be granted. The Company amended the 1995 Plan subsequent to
December 31, 1997. See footnote 12. The exercise price of each option is equal
to the market price of the Company's stock on the date of grant. The option
term varies, as well as the vesting periods, at the discretion of the Board of
Directors.
F-10
<PAGE>
The Company applies APB Opinion 25 in accounting for its stock based
compensation plans. Accordingly, no compensation cost has been recognized for
the plan in 1995, 1996 and 1997. Had compensation cost been determined on the
basis of fair value pursuant to FASB Statement No. 123, net income and
earnings per share would have been presented as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Net income:
As reported................................... $1,574,696 $1,895,540 $2,435,912
========== ========== ==========
Pro forma (FASB 123).......................... $1,490,760 $1,713,373 $2,259,337
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Basic earnings per share:
As reported................................................ $0.66 $0.78 $0.97
===== ===== =====
Pro forma (FASB 123)....................................... $0.62 $0.70 $0.90
===== ===== =====
Diluted earnings per share:
As reported................................................ $0.65 $0.75 $0.96
===== ===== =====
Pro forma (FASB 123)....................................... $0.62 $0.68 $0.89
===== ===== =====
</TABLE>
The fair value of each option granted is estimated on the grant date using
the Black-Scholes Model. The following assumptions were made in estimating
fair value:
<TABLE>
<CAPTION>
ASSUMPTION 1995 1996 1997
- ---------- ------------ ------------ -------
<S> <C> <C> <C>
Dividend yield................................ 0.00% 0.00% 0.00%
Risk-free interest rate:
5 year...................................... 5.38% 5.38% 5.71%
2 year...................................... 5.18% 5.18% --
Expected life................................. 2 to 5 years 2 to 5 years 5 years
Expected volatility........................... 30.47% 30.47% 38.70%
</TABLE>
F-11
<PAGE>
Following is a summary of the status of the plans:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Outstanding 12/31/94................................. 20,000 $ 5.50
Granted--1995...................................... 327,500 $10.46
-------
Outstanding 12/31/95................................. 347,500 $10.18
Surrendered--1996.................................. (46,783) $ 7.94
Exercised--1996.................................... (50,717) $ 7.93
-------
Outstanding 12/31/96................................. 250,000 $11.25
Granted--1997...................................... 33,000 $13.54
-------
Outstanding 12/31/97................................. 283,000 $11.52
Cancelled--1998 (unaudited)........................ (10,000)
Granted--1998 (unaudited).......................... 108,000 $13.54
-------
Outstanding 6/30/98 (unaudited)...................... 381,000 $14.06
-------
</TABLE>
In 1995, 1997 and 1998, no options were exercised. In 1996, 46,783 options
were exercised in a cashless exercise; 50,717 shares were issued.
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ -------
<S> <C> <C> <C>
Options exercisable...................................... 97,500 50,000 103,000
====== ====== =======
Weighted average fair value of options granted during the
year.................................................... $10.46 $ 0.00 $ 5.76
====== ====== =======
</TABLE>
A summary of the status of fixed options outstanding at December 31, 1997 is
as follows:
<TABLE>
<CAPTION>
EXERCISABLE
OUTSTANDING OPTIONS OPTIONS
---------------------------- ---------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
CONTRACTUAL EXERCISE EXERCISE
PRICE NUMBER LIFE PRICE NUMBER PRICE
- ----- ------- ----------- -------- ------ --------
<S> <C> <C> <C> <C> <C>
$9.25 to $11.25.................... 151,000 8.0 years $ 9.92 61,000 $ 9.92
$13.00 to $15.00................... 132,000 8.5 years $13.34 52,000 $13.24
</TABLE>
The Company acquired Activities Unlimited in March 1996. A portion of the
purchase price is in the form of options to purchase common stock of the
Company. Options are granted to the sellers of Activities Unlimited based on
operations during the first two years following the closing of the acquisition
(March 1997 and 1998). Options to purchase 1,000 shares will be granted for
each $25,000 of product line contribution, will be fully vested when granted
and will be exercisable at date of grant, expiring five years after date of
grant. The exercise price will be the fair market value of a share of stock on
the date of grant. As of December 31, 1997, 1,000 options had been granted
under this agreement.
Warrants:
The Company granted to the underwriter of its 1993 stock offering, for
nominal consideration, warrants to purchase up to 70,000 shares of its common
stock at $7.20 per share, beginning in October 1994 and expiring in October
1999. In January 1996, the underwriter exercised the warrants in a cashless
transaction, receiving 31,231 shares and surrendering 38,769 warrants.
F-12
<PAGE>
The Company acquired the assets of A & B Booster, Inc. in 1994. A portion of
the purchase price is in the form of warrants to purchase common stock at an
exercise price of $6.50 per share. Warrants were issuable to the sellers of A
& B Booster based on 100 shares of common stock of the Company for each whole
multiple of $10,000 of Booster Buddy sales in each of the three years
beginning August 1, 1994, 1995 and 1996. The warrants were exercisable at any
time prior to January 1, 1998. As of December 31, 1997, all warrants had been
surrendered and 6,102 shares of common stock had been issued. As of December
31, 1995 and 1996, there were 1,700 and 3,900 warrants outstanding,
respectively.
5.INCOME TAXES:
The components of the provision for income tax were:
<TABLE>
<CAPTION>
1995
----------------------------------------
FEDERAL FOREIGN STATE TOTAL
---------- -------- ------- ----------
<S> <C> <C> <C> <C>
Current tax expense................ $ 700,282 $ -- $74,313 $ 774,595
Deferred tax (benefit)............. 122,393 -- (6,541) 115,852
---------- -------- ------- ----------
Provision for income taxes......... $ 822,675 $ -- $67,772 $ 890,447
========== ======== ======= ==========
<CAPTION>
1996
----------------------------------------
FEDERAL FOREIGN STATE TOTAL
---------- -------- ------- ----------
<S> <C> <C> <C> <C>
Current tax expense................ $ 600,306 $ -- $62,728 $ 663,034
Deferred tax (benefit)............. (15,170) -- (3,682) (18,852)
---------- -------- ------- ----------
Provision for income taxes......... $ 585,136 $ -- $59,046 $ 644,182
<CAPTION>
1997
----------------------------------------
FEDERAL FOREIGN STATE TOTAL
---------- -------- ------- ----------
<S> <C> <C> <C> <C>
Current tax expense................ $ 963,764 $159,798 $64,702 $1,188,264
Deferred tax expense............... 152,406 -- 27 152,433
---------- -------- ------- ----------
Provision for income taxes......... $1,116,170 $159,798 $64,729 $1,340,697
========== ======== ======= ==========
</TABLE>
The Company's net deferred tax asset and liability consists of:
<TABLE>
<CAPTION>
1996
------------------------------
FEDERAL STATE TOTAL
--------- -------- ---------
<S> <C> <C> <C>
Deferred income tax asset (current)......... $ 9,850 $ 1,050 $ 10,900
Deferred income tax liability (non-current). (218,850) (23,350) (242,200)
--------- -------- ---------
$(209,000) $(22,300) $(231,300)
========= ======== =========
</TABLE>
<TABLE>
<CAPTION>
1997
------------------------------
FEDERAL STATE TOTAL
--------- -------- ---------
<S> <C> <C> <C>
Deferred income tax asset (current)......... $ 13,538 $ 776 $ 14,314
Deferred income tax liability (non-current). (376,459) (21,588) (398,047)
--------- -------- ---------
$(362,921) $(20,812) $(383,733)
========= ======== =========
</TABLE>
F-13
<PAGE>
The effective tax rate differs from the statutory rate as follows:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Federal statutory rate.................................... 34.0% 34.0% 34.0%
Foreign taxes in excess of federal statutory rate......... -- -- 4.6
Tax benefit of foreign tax credit......................... -- -- (4.4)
State income taxes net of federal effect.................. 2.5 2.4 1.7
Effect of difference in tax basis of goodwill............. (1.5) (1.5) (1.1)
Cumulative effect of change in estimated effective state
income tax rate.......................................... -- (3.3) --
Tax basis of non-qualified stock options exercised........ -- (5.6) --
Miscellaneous tax adjustments............................. 1.1 ( .6) .7
---- ---- ----
Effective tax rate........................................ 36.1% 25.4% 35.5%
==== ==== ====
</TABLE>
6. MAJOR SUPPLIERS:
For the periods ended December 31, 1995, 1996, and 1997, the Company
purchased a significant amount of component parts from three vendors which
accounted for approximately 64%, 69%, and 47% of the Company's total cost of
sales, respectively.
7. SUPPLEMENTAL CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Interest received................................. $109,249 $129,463 $104,839
======== ======== ========
Interest paid..................................... $ -- $ -- $ 989
======== ======== ========
Income taxes paid................................. $855,604 $835,849 $872,304
======== ======== ========
</TABLE>
8. 401(K) PLAN:
Effective January 1997, the Company adopted a 401(k) Plan for the benefit of
substantially all of its U.S. employees meeting specified eligibility
requirements. The Plan permits contributions by the Company but does not
require them. The Company made no contributions to the Plan during 1997.
9. PREFERRED STOCK:
During 1996 the shareholders voted to amend the Articles of Incorporation to
provide for the issuance of 1,000,000 shares of no par value preferred stock.
At December 31, 1996 and December 31, 1997, none were outstanding. The Board
of Directors is granted authority to determine dividends on the preferred
stock.
10. ACQUISITIONS:
On June 23, 1997, the Company acquired substantially all of the assets of
Delta Play, Ltd. (Delta), a leading provider of custom children's indoor
modular play equipment based in Vancouver, British Columbia. The acquisition
was effective June 1, 1997 and was accounted for as a purchase. Results of
operations of Delta were included in the Company's consolidated statements of
income beginning on the effective date.
F-14
<PAGE>
As initial consideration, the Company paid $4,180,609 cash and issued 40,000
shares of the Company's common stock valued at $600,000. In addition, costs
related to the acquisition of approximately $456,000 were incurred and
capitalized as goodwill. The purchase agreement also provides for additional
consideration in the form of cash payments if certain operating performance
criteria are met by Delta over the twelve-month period from June 1, 1997 to
May 31, 1998. The range of additional consideration is C$900,000 (US$648,000)
to C$1,500,000 (US$1,080,000). If minimum performance is not achieved, no
additional consideration will be payable. Any subsequent payment will be
allocated to cost in excess of the fair value of assets acquired.
The pro forma unaudited results of operations for the twelve months ended
December 31, 1996 and 1997, assuming consummation of the purchase as of
January 1, 1996 and 1997, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1997
----------- -----------
<S> <C> <C>
Sales.................................................. $13,526,902 $15,499,336
Net income............................................. $ 2,167,408 $ 2,513,770
Net income per share (diluted)......................... $ 0.85 $ 0.98
</TABLE>
In March 1996, the Company acquired all of the operating assets of
Activities Unlimited, LLC for $500,000 paid in cash. The Company markets
children's recreational and activity products, including commercial-use
children's play tables featuring interlocking construction blocks, games,
mazes, wall activities and other manipulative products. Due to immateriality,
its pro forma effects were not considered in the table above.
11. COMPREHENSIVE INCOME:
As of January 1, 1998, the Company adopted Statement No. 130, Reporting
Comprehensive Income. Statement 130 establishes new rules for the reporting
and display of comprehensive income and its components; however, the adoption
of this Statement had no impact on the Company's net income or shareholders'
equity. Statement 130 requires foreign currency translation adjustments, which
prior to adoption were reported separately in shareholders' equity, to be
included in other comprehensive income. Prior year financial statements have
been reclassified to conform to the requirements of Statement 130.
12. SUBSEQUENT EVENTS (UNAUDITED):
On August 14, 1998, the Company signed an agreement to purchase the combined
assets of Park Structures, Inc. and Park Structures Sales, Inc. ("Park
Structures") in consideration for up to $18.7 million in cash and common stock
of Koala Corporation. Park Structures produces and markets children's outdoor
modular play systems for municipalities, parks, public and private schools,
day care centers and private developers. Closing of the Park Structures
acquisition will occur simultaneously with closing of a secondary public
offering of the Company's common stock. The Company plans to issue
approximately 1,000,000 shares of common stock pursuant to such offering.
The Company has determined the additional consideration pursuant to the
Delta purchase agreement will be paid in August 1998. The Company estimated
additional consideration totaling approximately $640,000 will be payable, and
accordingly has recorded $640,000 to intangibles and accounts payable at June
30, 1998.
In January 1998, the Company authorized the amendment and restatement of the
1995 Koala Corporation Stock Option Plan to grant an additional 250,000 shares
and allow the transfer of non-qualified stock options to family members
without Board of Directors approval or to non-employees with Board of
Directors approval. The amendment and restatement was approved by the
Company's shareholders' at its annual shareholders' meeting in May 1998.
F-15
<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 June 30, 1998 and December 31, 1997 and 1996, and the
related combined statements of income, retained earnings and stockholder's
equity and cash flows for the six months ended June 30, 1998 and each of the
two years in the period ended December 31, 1997. 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 June 30, 1998 and December 31, 1997 and 1996, and the
results of their operations and their cash flows for the six months ended June
30, 1998 and 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-16
<PAGE>
PARK STRUCTURES, INC. AND AFFILIATE
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1996 1997 1998
------------ ------------ ----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................ $ 537,609 $ 333,521 $ 265,135
Accounts receivable...................... 1,183,401 1,099,070 1,178,668
Other receivables........................ -- -- 53,410
Inventories.............................. 939,850 1,073,006 1,405,418
Prepaid expenses......................... -- 21,797 140,556
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 3,071,494
---------- ---------- ----------
Property and equipment, net............... 38,173 666,385 813,839
---------- ---------- ----------
Other assets:
Note receivable, net of current portion.. -- -- 33,750
Deferred rent expense, net of current
portion................................. -- 42,138 35,485
Deposits................................. 3,663 25,350 57,844
---------- ---------- ----------
3,663 67,488 127,079
---------- ---------- ----------
$2,702,696 $3,274,574 $4,012,412
========== ========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of capital lease obliga-
tions................................... $ -- $ 4,091 $ 4,269
Accounts payable and accrued expenses.... 601,242 338,233 433,998
Customers' deposits...................... -- 39,428 82,831
Loan from related party.................. 807,603 466,956 442,956
---------- ---------- ----------
Total current liabilities................. 1,408,845 848,708 964,054
---------- ---------- ----------
Capital lease obligations, net of current
portion.................................. -- 18,818 16,638
---------- ---------- ----------
Commitments and contingencies
Stockholder's equity:
Common stock............................. 1,000 1,000 1,000
Retained earnings........................ 1,292,851 2,406,048 3,030,720
---------- ---------- ----------
1,293,851 2,407,048 3,031,720
---------- ---------- ----------
$2,702,696 $3,274,574 $4,012,412
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-17
<PAGE>
PARK STRUCTURES, INC. AND AFFILIATE
COMBINED INCOME STATEMENTS
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
---------------------- -----------------------
1996 1997 1997 1998
---------- ---------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Sales, net..................... $7,145,279 $8,241,758 $3,385,932 $3,316,187
Cost of goods sold............. 4,909,576 5,559,611 2,285,504 1,909,868
---------- ---------- ---------- ----------
Gross profit................... 2,235,703 2,682,147 1,100,428 1,406,319
Selling, general and adminis-
trative expenses.............. 1,330,301 1,332,366 596,151 698,816
---------- ---------- ---------- ----------
Income from operations......... 905,402 1,349,781 504,277 707,503
---------- ---------- ---------- ----------
Other income and (expenses):
Interest income............... 9,224 31,640 8,119 8,129
Interest expense.............. (31,978) (41,763) (20,698) (12,922)
Fee to related entity......... (599,219) (226,461) (76,395) --
Gain on sale of assets........ -- -- -- 62,000
---------- ---------- ---------- ----------
Total other income and (ex-
penses)....................... (621,973) (236,584) (88,974) 57,207
---------- ---------- ---------- ----------
Net income..................... $ 283,429 $1,113,197 $ 415,303 $ 764,710
========== ========== ========== ==========
Pro forma net income data (un-
audited):
Net income, as reported....... $ 283,429 $1,113,197 $ 415,303 $ 764,710
Pro forma tax provision (Note
1)............................ 103,000 419,000 156,000 288,000
---------- ---------- ---------- ----------
Pro forma net income........... $ 180,429 $ 694,197 $ 259,303 $ 476,710
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-18
<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.......................... (140,038)
Net income............................. 764,710
--- --- ------ ----------
Balance, June 30, 1998................. 500 500 $1,000 $3,030,720
=== === ====== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE>
PARK STRUCTURES, INC. AND AFFILIATE
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------------- ---------------------
1996 1997 1997 1998
-------- ---------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activi-
ties:
Net income....................... $283,429 $1,113,197 $ 415,303 $ 764,710
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities:
(Gain) on sale of assets....... (62,000)
Depreciation................... 25,236 19,075 6,665 37,838
Changes in assets and liabili-
ties:
(Increase) decrease in:
Accounts receivable........... (664,153) 84,331 (163,124) (79,598)
Other receivables............. (53,410)
Inventories................... (179,876) (133,156) (23,138) (332,412)
Prepaid expenses.............. (21,797) (89,302) (118,759)
Deferred rent expense......... (55,445) 6,653
Deposits...................... (21,687) (58,345) (32,494)
Increase (decrease) in:
Accounts payable and accrued
liabilities................. 467,996 (263,009) (167,679) 95,765
Customer deposits............ (25,619) 39,428 60,001 43,403
-------- ---------- --------- ---------
Net cash provided by (used in)
operating activities............. (92,987) 760,937 (19,619) 269,696
-------- ---------- --------- ---------
Cash flows from investing activi-
ties:
Proceeds from sale of assets..... 12,000
Purchase of equipment and furni-
ture............................ (623,089) (185,292)
-------- ---------- --------- ---------
Net cash used in investing
activities....................... (623,089) (173,292)
-------- ---------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE>
PARK STRUCTURES, INC. AND AFFILIATE
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 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 $
Payments on line of credit....... (70,000)
Payments on capital lease obliga-
tions........................... (1,289) (2,002)
Payments received on note receiv-
able............................ 1,250
Proceeds from related party
loans........................... 507,603 157,431 7,431
Repayment of related party loans. (498,078) (430,078) (24,000)
Distributions to stockholder..... (121,428) (140,038)
--------- -------- -------- ---------
Net cash provided by (used in) fi-
nancing activities............... 386,175 (341,936) (352,647) (164,790)
--------- -------- -------- ---------
Increase (decrease) in cash....... 293,188 (204,088) (372,266) (68,386)
Cash:
Beginning........................ 244,421 537,609 537,609 333,521
--------- -------- -------- ---------
Ending........................... $ 537,609 $333,521 $165,343 $ 265,135
========= ======== ======== =========
Supplementary disclosures:
Interest paid.................... $ 31,978 $ 41,763 $ 12,922 $ 20,698
========= ======== ======== =========
Supplementary schedule of noncash
investing and financing
activities:
Note received as payment for sale
of assets....................... $ -- $ -- $ -- $ 50,000
========= ======== ======== =========
Capital lease obligations incurred
for acquisition of equipment..... $ -- $ 24,198 $ -- $ --
========= ======== ======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE>
PARK STRUCTURES, INC. AND AFFILIATE
NOTES TO THE COMBINED FINANCIAL STATEMENT
(Information with respect to the six months ended June 30, 1997 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 $156,000 and $288,000 for the
six months ended June 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 June 30, 1997 and 1998.
F-22
<PAGE>
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
$92,405 and $119,213 during the six months ended June 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, JUNE 30,
1996 1997 1998
------------ ------------ ----------
<S> <C> <C> <C>
Raw materials........................... $743,598 $ 848,949 $1,127,427
Work in process......................... 175,856 200,771 249,100
Finished goods.......................... 20,396 23,286 28,891
-------- ---------- ----------
$939,850 $1,073,006 $1,405,418
======== ========== ==========
</TABLE>
NOTE 3: PROPERTY AND EQUIPMENT:
Property and equipment consists of:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30, (LIFE IN
1996 1997 1998 YEARS)
------------ ------------ -------- --------
<S> <C> <C> <C> <C>
Machinery & equipment............ $64,166 $104,674 $193,543 5
Vehicles......................... 69,372 69,372 69,372 5
Furniture & fixtures............. -- 2,655 29,194 7
Leasehold improvements........... -- -- 674,008 14
------- -------- --------
133,538 176,701 966,117
Less: accumulated depreciation... 95,365 114,440 152,278
------- -------- -------- ---
38,173 62,261 813,839
Construction in progress......... -- 604,124 --
------- -------- --------
$38,173 $666,385 $813,839
======= ======== ========
</TABLE>
F-23
<PAGE>
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%. As of June
30, 1998, no draws have been made under this line. 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,
$466,956 at December 31, 1997 and $442,956 at June 30, 1998. 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
$76,395 and $-0- for the six months ended June 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 June 30, 1998 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............................................................. $13,629
Obligation under capital lease, $168 due monthly through August,
2002, with a bargain purchase option exercisable at that date for
$101............................................................. 7,278
-------
20,907
Less: Current portion............................................. (4,269)
-------
$16,638
=======
</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 JUNE 30,
--------------------
<S> <C>
1999................................................................ $ 5,880
2000................................................................ 5,880
2001................................................................ 5,880
2002................................................................ 5,880
2003................................................................ 980
-------
Total minimum lease payments........................................ 24,500
Less: amount representing interest.................................. (3,593)
-------
Present value of net minimum lease payments......................... $20,907
=======
</TABLE>
F-24
<PAGE>
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 June 30, 1998.
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30,
--------------------
<S> <C>
1999................................................................ $209,007
2000................................................................ 209,007
2001................................................................ 200,785
2002................................................................ 132,000
--------
$750,799
========
</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 June 30, 1998 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 June 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
which 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:
The unaudited combined interim financial statements for the six months ended
June 30, 1997 are presented for comparative purposes only and have been
prepared on a basis substantially consistent with that of the audited
financial statements included herein.
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 results of its operations and
cash flows for the six months ended June 30, 1997. The results of operations
and cash flows for the six month period is not necessarily indicative of the
results of operations and cash flows for the full year.
F-25
<PAGE>
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-26
<PAGE>
AUDITOR'S REPORT
To the Shareholders of
Delta Play Ltd.
We have audited the balance sheets of Delta Play Ltd. as at March 31, 1997
and 1996 and the statements of income and retained earnings and changes in
financial position 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance 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.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the company as at March 31, 1997 and 1996
and the results of its operations and the changes in its financial position
for each of the years in the two year period ended March 31, 1997 in
accordance with accounting principles generally accepted in Canada. As
required by the British Columbia Company Act, we report that, in our opinion,
these principles have been applied on a consistent basis.
Vancouver, Canada, / s / Ernst & Young
June 11, 1997 Chartered Accountants
(except as to note 9 which is
as of June 23, 1997).
F-27
<PAGE>
DELTA PLAY LTD.
INCORPORATED UNDER THE LAWS OF BRITISH COLUMBIA
BALANCE SHEETS
<TABLE>
<CAPTION>
AS AT MARCH 31,
-------------------
1997 1996
--------- ---------
(IN CANADIAN
DOLLARS)
<S> <C> <C>
ASSETS
Current:
Cash....................................................... -- 403,379
Accounts receivable (notes 3 and 6)........................ 344,604 317,947
Prepaid expenses and deposits.............................. 35,143 30,122
Inventory (note 4)......................................... 823,613 616,091
--------- ---------
Total current assets........................................ 1,203,360 1,367,539
--------- ---------
Fixed assets (note 5)....................................... 115,097 105,931
Due from related parties (note 6)........................... 462,129 83,666
--------- ---------
1,780,586 1,557,136
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current:
Bank overdraft............................................. 8,266 --
Accounts payable and accrued liabilities [note 6].......... 450,314 138,330
Customer deposits.......................................... 140,749 274,864
Bonuses payable (note 6)................................... 550,000 345,000
Income taxes payable....................................... 99,119 74,000
--------- ---------
Total current liabilities................................... 1,248,448 832,194
--------- ---------
Deferred income taxes....................................... 62,000 62,000
Due to related parties (note 6)............................. 188,703 306,237
--------- ---------
Total liabilities........................................... 1,499,151 1,200,431
--------- ---------
Contingencies (note 8)......................................
Shareholders' equity
Share capital (note 7)...................................... 102 101
Retained earnings........................................... 281,333 356,604
--------- ---------
Total shareholders' equity.................................. 281,435 356,705
--------- ---------
1,780,586 1,557,136
========= =========
</TABLE>
On behalf of the Board:
Director Director
See accompanying notes.
F-28
<PAGE>
DELTA PLAY LTD.
STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
----------------------
1997 1996
---------- ----------
(IN CANADIAN DOLLARS)
<S> <C> <C>
Sales................................................... $6,257,104 $3,662,645
Cost of goods sold (schedule 1) (note 6)................ 3,828,135 2,260,355
---------- ----------
Gross profit............................................ 2,428,969 1,402,290
---------- ----------
Expenses:
Sales expenses (schedule 2) (note 6).................... 538,305 446,233
Administrative expenses (schedule 3) (note 6)........... 696,415 559,228
Management, employee bonuses and other fees (note 6).... 730,000 420,000
---------- ----------
1,964,720 1,425,461
---------- ----------
Income (loss) before income taxes....................... 464,249 (23,171)
---------- ----------
Income tax provision:
--current.............................................. 138,019 74,000
--deferred............................................. -- (75,000)
---------- ----------
138,019 (1,000)
---------- ----------
Net income (loss) for the year.......................... 326,230 (22,171)
Retained earnings, beginning of year.................... 356,604 614,040
Dividends (note 7)...................................... (401,501) (95,292)
Redemption of shares (note 7)........................... -- (139,973)
---------- ----------
Retained earnings, end of year.......................... $ 281,333 $ 356,604
========== ==========
</TABLE>
See accompanying notes.
F-29
<PAGE>
DELTA PLAY LTD.
STATEMENTS OF CHANGES IN FINANCIAL POSITION
<TABLE>
<CAPTION>
YEAR ENDED MARCH
31,
--------------------
1997 1996
--------- ---------
(IN CANADIAN
DOLLARS)
<S> <C> <C>
Operating activities:
Net income (loss) for the year........................... $ 326,230 $ (22,171)
Add charges not requiring a current cash payment:
Depreciation and amortization........................... 27,158 30,827
Deferred income taxes................................... -- (75,000)
Net change in non-cash working capital balances related
to operations........................................... 168,488 83,327
--------- ---------
Cash provided by operating activities.................... 521,876 16,983
--------- ---------
Investing activities:
Purchase of fixed assets................................. (38,499) --
Proceeds from sale of assets (note 6).................... 2,475 --
--------- ---------
Cash used in investing activities........................ (36,024) --
--------- ---------
Financing activities:
Dividends................................................ (401,501) (95,292)
Redemption of shares (note 7)............................ -- (140,000)
Due from (to) related parties............................ (495,996) 43,800
--------- ---------
Cash used in financing activities........................ (897,497) (191,492)
--------- ---------
Decrease in cash during year............................. (411,645) (174,509)
Cash (bank overdraft), beginning of year................. 403,379 577,888
--------- ---------
Cash (bank overdraft), end of year....................... $ (8,266) $ 403,379
========= =========
</TABLE>
See accompanying notes.
F-30
<PAGE>
DELTA PLAY LTD.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
IN CANADIAN DOLLARS
1. BUSINESS OPERATIONS:
The Company is incorporated under the laws of the province of British
Columbia. The Company designs and manufactures modular soft playgrounds and
accessories.
2. ACCOUNTING POLICIES:
These financial statements have been prepared in accordance with accounting
principles generally accepted in Canada which conform in all material respects
to United States accounting principles as required by the United States
Securities and Exchange Commission. These financial statements have been
prepared in Canadian dollars unless otherwise stated.
The following is a summary of the significant accounting policies used in
the preparation of these financial statements.
Inventory:
Inventory is valued at the lower of cost, determined on a first in first out
basis, and net realizable value for work in progress and replacement cost for
materials.
Depreciation and amortization:
Fixed assets are recorded at cost and are depreciated over their estimated
useful lives on a declining balance basis at the following annual rates:
<TABLE>
<S> <C>
Automotive equipment..................................................... 30%
Computer equipment....................................................... 30%
Office furniture......................................................... 20%
Tools.................................................................... 20%
Plant equipment.......................................................... 20%
</TABLE>
Management's estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Management believes that the estimates utilized in
preparing its financial statements are reasonable and prudent. Actual results
could differ from those estimates.
Fair values of financial instruments:
The fair values of financial instruments approximate carrying values unless
otherwise indicated.
Foreign exchange:
The Company follows the temporal method of accounting for the translation of
foreign currency amounts into Canadian dollars. Under this method, all
monetary assets and liabilities expressed in foreign currencies are translated
at rates of exchange in effect at the year end, and non-monetary assets and
liabilities are translated at historical rates of exchange. Revenue and
expense items expressed in foreign currencies are translated at the rate of
exchange prevailing on the date of the transaction.
Gains and losses arising on foreign currency translation are included in
income.
F-31
<PAGE>
Revenue recognition:
Revenues from product sales are recorded upon shipment.
3. ACCOUNTS RECEIVABLE:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Trade......................................................... $288,804 $276,448
Other......................................................... 55,800 41,499
-------- --------
$344,604 $317,947
======== ========
</TABLE>
While the Company sells its products to many customers, four customers
[1996--three customers] represent approximately 71% [1996--52%] of the year
end balance of trade accounts receivable.
4. INVENTORY:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Materials.................................................. $628,812 $578,091
Work in progress........................................... 194,801 38,000
-------- --------
$823,613 $616,091
======== ========
</TABLE>
5. FIXED ASSETS:
<TABLE>
<CAPTION>
ACCUMULATED
DEPRECIATION
AND NET BOOK
COST AMORTIZATION VALUE
-------- ------------ --------
<S> <C> <C> <C>
1997
Automotive equipment.......................... $ 41,097 $ 30,570 $ 10,527
Computer equipment............................ 13,607 8,246 5,361
Office furniture.............................. 23,549 11,994 11,555
Tools......................................... 4,867 4,346 521
Plant equipment............................... 153,815 66,682 87,133
-------- -------- --------
$236,935 $121,838 $115,097
======== ======== ========
1996
Automotive equipment.......................... $ 41,097 $ 26,058 $ 15,039
Computer equipment............................ 15,207 5,606 9,601
Office furniture.............................. 24,124 9,033 15,091
Tools......................................... 4,867 4,215 652
Plant equipment............................... 115,316 49,768 65,548
-------- -------- --------
$200,611 $ 94,680 $105,931
======== ======== ========
</TABLE>
F-32
<PAGE>
6.RELATED PARTY TRANSACTIONS:
[a] Amounts due from related parties and due to related parties are without
interest or stated terms of repayment and comprise the following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Due from related parties:
401566 B.C. Ltd.--controlling shareholder................ $462,129 $ --
Wash-a-Ball Solutions.................................... -- 83,666
-------- --------
$462,129 $ 83,666
======== ========
Due to related parties:
Safeplay Designs Inc..................................... $188,488 $255,163
Director................................................. 215 51,074
-------- --------
$188,703 $306,237
======== ========
</TABLE>
The amounts due from 401566 B.C. Ltd. include an amount of U.S. $317,195.
Safeplay Designs Inc. is a company whose shareholder is related to a
director of the Company.
As the amounts are not expected to be repaid within the next twelve months,
they have been classified as non-current assets and liabilities, respectively.
As collateral for any amounts borrowed from 401566 B.C. Ltd. in the future,
the Company has provided a Security Agreement providing a charge against all
assets of the Company.
[b] On May 1, 1996, the Company sold its design business and certain fixed
assets to Safeplay Designs Inc. for $2,476, using the provisions of Section 85
of the Income Tax Act (Canada). As consideration, the Company received a non-
interest bearing demand promissory note in the amount of $2,475 and one Class
E, non-voting preferred share of Safeplay Designs Inc. No gain or loss
resulted on the sale transaction.
During the year, the Company was charged $528,215 [1996--$60,000] by
Safeplay Designs Inc. for design services rendered and is included in cost of
goods sold--labour. At March 31, 1997, $140,400 remains outstanding and is
included in accounts payable and accrued liabilities. In addition, the Company
was charged $23,750 [1996--$Nil] by Safeplay Designs Inc. for accounting
services. The Company charged Safeplay Designs Inc. $23,837 [1996--$Nil] for
various administrative services and $13,750 [1996--$Nil] for rental of office
space, of which $19,713 remains outstanding and is included in accounts
receivable.
[c] Included in accounts payable and accrued liabilities at March 31, 1997
is an amount of $13,008 [March 31, 1996--$11,303] due to a director for
reimbursement of various costs.
[d] During the year the Company provided bonuses aggregating $730,000
[1996--$420,000] to officers and employees of which $550,000 [1996--
$345,000] remains outstanding as at March 31, 1997.
F-33
<PAGE>
7. SHARE CAPITAL:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Authorized:
100,000 Class A, voting non-participating common shares without par
value.............................................................. $ $
90,000 Class B, non-voting participating common shares without par
value..............................................................
90,000 Class C, non-voting participating common shares without par
value..............................................................
90,000 Class D, non-voting participating common shares without par
value..............................................................
90,000 Class E, non-voting participating common shares without par
value..............................................................
90,000 Class F, non-voting participating common shares without par
value..............................................................
90,000 Class G, non-voting participating common shares without par
value..............................................................
90,000 Class H, non-voting participating common shares without par
value..............................................................
90,000 Class I, non-voting participating common shares without par
value..............................................................
90,000 Class J, non-voting participating common shares without par
value..............................................................
90,000 Class K, non-voting participating common shares without par
value..............................................................
100,000 Class L, non-voting participating common shares with a par
value of $0.01 each................................................
Issued and outstanding:
55 [1996--55] Class A shares........................................ 55 55
16 [1996--16] Class B shares........................................ 16 16
24 [1996--24] Class D shares........................................ 24 24
3 [1996--3] Class F shares......................................... 3 3
3 [1996--3] Class G shares......................................... 3 3
16 [1996--Nil] Class L shares....................................... 1 --
--- ---
102 101
=== ===
</TABLE>
During the year ended March 31, 1996, the Company redeemed 11 Class A common
shares and 16 Class E common shares for $140,000. The excess of the redemption
amount over the par value of the shares, aggregating $139,973, was charged to
retained earnings.
On November 22, 1996, the Company amended its authorized share capital to
include 100,000 Class L, non-voting participating common shares with a par
value of $0.01 each.
On November 28, 1996, the Company declared and paid a stock dividend on the
Class D, non-voting participating common shares in the amount of $0.01 per
share. The stock dividend was paid by allotting and issuing as fully paid, 16
Class L, non-voting participating common shares with a par value of $0.01
each.
The Class A common shares are not entitled to dividends. Dividends may be
paid on a class of participating shares to the exclusion of any or all of the
other participating shares. In the event of liquidation, dissolution or
winding up of the Company, the distribution of assets will be made first to
the holders of the Class A shares to the extent of their paid-in amount,
secondly to holders of the Class D common shares, thirdly to the holders of
the Class L common shares and thereafter, pari passu to the holders of the
remaining classes of participating shares. The amounts to be paid will include
any declared but unpaid dividends.
8. CONTINGENCIES:
The Company is involved in a legal action against a third party for
collection of an account receivable arising in the normal course of business.
The third party has initiated a counter claim for an unspecified amount
alleging misrepresentation with respect to the contract price.
F-34
<PAGE>
The Company has commenced foreclosure proceedings against a third party for
collection of an accounts receivable arising in the normal course of business.
The third party has commenced a legal action against the Company for
approximately $140,000 alleging misrepresentation with respect to the contract
price.
The outcome of these claims is not determinable at this time and the amount
of liability, if any, cannot be reasonably estimated. Accordingly, no
provision has been recorded in these financial statements.
9.SUBSEQUENT EVENTS:
On June 23, 1997, the Company sold its assets and business undertakings to
Koala Corporation, a publicly traded company based in Denver, Colorado. The
purchase price was approximately cash of U.S. $4.1 million and shares of Koala
Corporation with a value of approximately U.S. $0.6 million.
F-35
<PAGE>
SCHEDULE 1
DELTA PLAY LTD.
SCHEDULE OF COST OF GOODS SOLD
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
---------------------
1997 1996
---------- ----------
(IN CANADIAN DOLLARS)
<S> <C> <C>
Freight and duty......................................... $ 209,805 $ 91,747
Labour (Note 6).......................................... 1,524,870 834,976
Materials................................................ 1,659,988 988,502
Overhead (Note 6)........................................ 433,472 345,130
---------- ----------
Total cost of goods sold................................. $3,828,135 $2,260,355
========== ==========
</TABLE>
See accompanying notes.
F-36
<PAGE>
SCHEDULE 2
DELTA PLAY LTD.
SCHEDULE OF SALES EXPENSES
<TABLE>
<CAPTION>
YEARS ENDED MARCH
31,
-----------------
1997 1996
-------- --------
(IN CANADIAN
DOLLARS)
<S> <C> <C>
Advertising................................................... $117,949 $100,513
Bad debt expense.............................................. 30,332 109,819
Commission.................................................... 84,194 10,900
Promotion..................................................... 42,113 77,581
Salaries...................................................... 94,448 98,208
Telephone..................................................... 35,754 23,838
Travel........................................................ 133,515 25,374
-------- --------
Total sales expenses.......................................... $538,305 $446,233
======== ========
</TABLE>
See accompanying notes.
F-37
<PAGE>
SCHEDULE 3
DELTA PLAY LTD.
SCHEDULE OF ADMINISTRATIVE EXPENSES
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
----------------------
1997 1996
---------- ----------
(IN CANADIAN DOLLARS)
<S> <C> <C>
Bank charges............................................ $ 2,964 $ 1,507
Cost recovery (Note 6).................................. (23,837) --
Courier................................................. 24,245 7,738
Depreciation and amortization........................... 27,158 30,827
Insurance............................................... 106,725 66,278
Interest income......................................... (17,885) (36,731)
Management salaries..................................... -- 64,988
Miscellaneous........................................... 1,270 2,617
Office.................................................. 90,221 65,636
Postage................................................. 5,906 4,249
Professional fees (Note 6).............................. 56,311 48,518
Travel.................................................. 52,005 14,844
Wages and benefits...................................... 313,398 255,278
Workers' compensation................................... 57,934 33,479
---------- ----------
Total administrative expenses........................... $ 696,415 $ 559,228
========== ==========
</TABLE>
See accompanying notes.
F-38
<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 six months ended June 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
(F-2), Park Structures (F-16) and Delta Play, Ltd. (F-27). 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-39
<PAGE>
KOALA CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(ALL AMOUNTS IN US DOLLARS)
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
---------------------------------------------------------
KOALA PARK PRO FORMA
CORPORATION STRUCTURES ADJUSTMENTS PRO FORMA
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
(A) (B)
ASSETS
Current Assets:
Cash................... $ 1,841,825 $ 265,135 $ 67,500 (c) $ 2,174,460
Accounts receivable,
net of allowance for
doubtful accounts..... 2,216,219 1,232,078 (53,410)(d) 3,394,887
Inventory.............. 1,433,994 1,405,418 0 2,839,412
Prepaid expenses....... 838,805 168,863 (28,307)(d) 979,361
Deferred income taxes.. 14,314 0 0 14,314
----------- ---------- ----------- -----------
Total current assets.... 6,345,157 3,071,494 (14,217) 9,402,434
----------- ---------- ----------- -----------
Equipment, net of
accumulated
depreciation........... 1,418,272 813,839 0 2,232,111
----------- ---------- ----------- -----------
Other Assets:
Other Assets
Intangibles and
patents, net of
accumulated
amortization.......... 8,627,364 0 9,378,540 (e) 18,005,904
Deposits and other..... 0 127,079 (69,235)(d) 57,844
----------- ---------- ----------- -----------
Total other assets...... 8,627,364 127,079 9,309,305 18,063,748
----------- ---------- ----------- -----------
$16,390,793 $4,012,412 $ 9,295,088 $29,698,293
=========== ========== =========== ===========
LIABILITIES & SHAREHOLD-
ERS' EQUITY
Liabilities:
Current Liabilities:
Accounts payable and
accrued expenses...... $ 1,642,556 $ 964,054 $ (964,054)(d) $ 1,642,556
Accrued income taxes... 115,240 0 0 115,240
----------- ---------- ----------- -----------
Total current liabili-
ties................... 1,757,796 964,054 (964,054) 1,757,796
----------- ---------- ----------- -----------
Long-Term Liabilities... 0 16,638 (16,638)(d) 0
----------- ---------- ----------- -----------
Deferred income taxes... 398,047 0 0 398,047
----------- ---------- ----------- -----------
Shareholders' Equity:
Preferred stock........ 0 0 0 0
Common stock........... 252,736 1,000 99,000 (c)(f) 352,736
Additional paid in cap-
ital.................. 5,307,988 0 13,207,500 (c)(f) 18,515,488
Translation of foreign
currency.............. (49,185) 0 0 (49,185)
Retained earnings...... 8,723,411 3,030,720 (3,030,720)(f) 8,723,411
----------- ---------- ----------- -----------
Total shareholders' eq-
uity................... 14,234,950 3,031,720 10,275,780 27,542,450
----------- ---------- ----------- -----------
$16,390,793 $4,012,412 $ 9,295,088 $29,698,293
=========== ========== =========== ===========
</TABLE>
See notes to unaudited pro forma consolidated financial statements
F-40
<PAGE>
KOALA CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(ALL AMOUNTS IN US DOLLARS)
<TABLE>
<CAPTION>
FOR THE 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 0 375,129 (k) 575,990
----------- ---------- ---------- --------- -----------
Operating income........ 3,660,901 139,343 1,349,781 (250,129) 4,899,896
----------- ---------- ---------- --------- -----------
Other (income) expenses. (115,708) 0 10,123 (41,763)(l) (147,348)
Fees paid to related en-
tities................. 0 0 226,461 0 (r) 226,461
----------- ---------- ---------- --------- -----------
Income before provision
for income taxes....... 3,776,609 139,343 1,113,197 (208,366) 4,820,783
Provision for income
taxes.................. 1,340,697 49,467 419,000 (97,785)(m) 1,711,379
----------- ---------- ---------- --------- -----------
Net income.............. $ 2,435,912 $ 89,876 $ 694,197 $(110,581)(r) $ 3,109,404
=========== ========== ========== ========= ===========
Net income per share.... $ 0.97 (r) $ 0.89
=========== ===========
Weighted average shares
outstanding............ 2,503,654 (n) 3,503,654
=========== ===========
Net income per share--
diluted................ $ 0.96 (r) $ 0.88
=========== ===========
Weighted average shares
outstanding--diluted... 2,548,148 (n) 3,548,148
=========== ===========
</TABLE>
See notes to unaudited pro forma consolidated financial statements
F-41
<PAGE>
KOALA CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(ALL AMOUNTS IN US DOLLARS)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 1998
---------------------------------------------------
KOALA PARK PRO FORMA
CORPORATION STRUCTURES ADJUSTMENTS PRO FORMA
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
(o) (p)
Net sales.................. $8,443,575 $3,316,187 $ 0 $11,759,762
Cost of sales.............. 3,629,980 1,909,868 0 5,539,848
---------- ---------- --------- -----------
Gross profit............... 4,813,595 1,406,319 0 6,219,914
---------- ---------- --------- -----------
Selling, general and admin-
istrative expenses........ 2,538,619 698,816 0 3,237,435
Amortization of intangibles
and patents............... 130,758 0 156,312 (k) 287,070
---------- ---------- --------- -----------
Operating income........... 2,144,218 707,503 (156,312) 2,695,409
---------- ---------- --------- -----------
Other (income) expenses.... (40,184) (57,207) 49,078 (q) (48,313)
---------- ---------- --------- -----------
Income before provision for
income taxes.............. 2,184,402 764,710 (205,390) 2,743,722
Provision for income taxes. 775,463 288,000 (89,441)(m) 974,022
---------- ---------- --------- -----------
Net income................. $1,408,939 $ 476,710 $(115,949)(r) $ 1,769,700
========== ========== ========= ===========
Net income per share....... $ 0.56 (r) $ 0.50
========== ===========
Weighted average shares
outstanding............... 2,527,362 (n) 3,527,362
========== ===========
Net income per share--di-
luted..................... $ 0.54 (r) $ 0.49
========== ===========
Weighted average shares
outstanding--diluted...... 2,596,394 (n) 3,596,394
========== ===========
</TABLE>
See notes to unaudited pro forma consolidated financial statements
F-42
<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 June 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 six
months ended June 30, 1998 gives effect to the consolidated results of
operations for the six months ended June 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:
Balance Sheet
(a) Represents the unuadited consolidated balance sheet of Koala Corporation
as of June 30, 1998.
(b) Represents the combined balance sheet of Park Structures as of June 30,
1998.
(c) The Company will finance the acquisition of Park Structures by issuing
1,000,000 shares of Koala Corporation common stock at an assumed market
value of $14.50 per share pursuant to this offering. Gross proceeds of
$14.5 million are used to pay acquisition costs of $13,240,000 (see below)
and stock offering costs of $1,192,500. The remaining $67,500 is recorded
as cash and will be utilized for working capital needs. The issuance of
stock is reflected by increasing common stock by $100,000 and additional
paid in capital by $13,207,500 ($14,500,000, less $100,000 allocated to
common stock, less $1,192,500 acquisition 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.................................. $12,000,000
Payment for leasehold improvements........................... 650,000
Additional amounts paid for current assets
and other assets, in excess of minimum...................... 440,000
Estimated direct costs of acquisition........................ 150,000
-----------
Total acquisition costs (preliminary)........................ $13,240,000
===========
</TABLE>
Park Structures is entitled to receive up to an additional $6.0 million,
of which $4.5 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
$19,240,000. 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 would be $150,500 per year, or $0.04 per diluted share. For the six
months ended June 30, 1998, the impact on pro forma net income after taxes
would be $75,250, or $0.02 per diluted share.
F-43
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED):
(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 June 30, 1998.
Income Statements
(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 (5) 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 $62,505 for the five
month period ended May 31, 1997, and the adjustment for Park Structures is
$312,624 for the twelve month period ended December 31, 1997. On the June
30, 1998 pro forma income statement, the entire amount of the adjustment
equaling $156,312 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 1,000,000 shares
issued in connection with this offering
(o) Represents the unaudited consolidated results of operations of Koala
Corporation for the six months ended June 30, 1998.
(p) Represents the combined results of operations of Park Structures for the
six months ended June 30, 1998.
(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 $12,922 on liabilities not assumed by Koala.
F-44
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED):
(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.
The effect of adjustment of these items on the December 31, 1997 pro forma
income statement would be as follows:
<TABLE>
<S> <C>
Pro forma net income before taxes................................ $4,820,783
Management bonuses............................................... 219,106
Fees to related entities......................................... 226,461
----------
Adjusted pro forma net income before taxes....................... 5,266,350
Provision for income taxes @ 35%................................. 1,869,554
----------
Adjusted net income.............................................. $3,396,796
Adjusted net income per share.................................... $ 0.97
Adjusted net income per share--diluted........................... $ 0.96
</TABLE>
F-45
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY DISTRIBUTIONS MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THE
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITY OTHER THAN THE SECURITIES OFFERED HEREBY, NOR DOES IT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE
SUBSEQUENT TO THE DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 7
Park Structures Acquisition............................................... 11
Use of Proceeds........................................................... 12
Price Range of Common Stock............................................... 12
Dividend Policy........................................................... 12
Capitalization............................................................ 13
Koala Selected Financial Data............................................. 14
Management's Discussion and Analysis of Financial Condition and Results of
Operations of Koala...................................................... 15
Park Structures Combined Selected Financial Data.......................... 21
Management's Discussion and Analysis of Financial Condition and Results of
Operations of Park Structures............................................ 22
Business.................................................................. 25
Management................................................................ 33
Principal and Selling Shareholders........................................ 38
Description of Securities................................................. 40
Underwriting.............................................................. 41
Legal Matters............................................................. 42
Experts................................................................... 42
Additional Information.................................................... 43
Index to Financial Statements............................................. F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1,800,000 SHARES
KOALA CORPORATION
COMMON STOCK
----------------
PROSPECTUS
----------------
A.G. EDWARDS & SONS, INC.
CRAIG-HALLUM CAPITAL GROUP, INC.
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 24. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
The Registrant's Articles of Incorporation require the Registrant to
indemnify all of its present and former officers and directors, or any person
who may have served at the Registrant's request as an officer or a director of
another corporation in which the Registrant owns shares of capital stock or of
which the Registrant is a creditor, and the personal representatives of all
such persons, against expenses actually and necessarily incurred in connection
with the defense of any legal proceeding in which any such person was made a
party by reason of having served in such capacity, unless such person is
adjudged to be liable for negligence or misconduct in the performance of any
duty owed to the Registrant.
The Registrant's Articles of Incorporation provide that no director of the
Registrant shall be liable to the Registrant or any of its shareholders for
damages caused by a breach of a fiduciary duty by such director except for the
breach of the duty of loyalty, acts or omissions not in good faith or which
involve intentional misconduct or knowing violation of the law, acts as
specified in the Colorado Business Corporation Act, or any transaction from
which such director received an improper personal benefit.
Sections 7-109-102 and 7-109-107 of the Colorado Business Corporation Act
authorize the indemnification against reasonable expenses of current and
former directors made party to a proceeding if the director conducted himself
in good faith, in the case of conduct in his official capacity with the
corporation, the director reasonably believed that his conduct was in the best
interests of the corporation, in the case of a criminal proceeding, the
director had no reasonable cause to believe that his conduct was unlawful, and
in all other cases, the director reasonably believed that his conduct was at
least not opposed to the corporation's best interest. A corporation may not
indemnify a director in connection with a proceeding (1) in which a director
was adjudged liable to the corporation or, (2) charging that the director
derived an improper personal benefit in which the director was adjudged
liable. Section 7-109-107 provides that a corporation may indemnify an officer
to the same extent that it may indemnify a director.
The above discussion of the Registrant's Articles of Incorporation and the
Colorado Business Corporation Act is only a summary and is qualified in its
entirety by the full text of each of the foregoing.
Reference is made to the Underwriting Agreement, the proposed form of which
is filed as Exhibit 1.1, in which the Underwriters agree, under certain
circumstances, to indemnify the directors and officers of the Registrant and
certain other persons against certain civil liabilities.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses expected to be incurred in
connection with the issuance and distribution of the Securities offered
hereby.
<TABLE>
<S> <C>
SEC registration fee............................................. $ 8,854
NASD filing fee.................................................. 3,502
Nasdaq Listing Fee............................................... 17,500
Legal fees and expenses.......................................... 75,000*
Accounting fees and expenses..................................... 50,000*
Registrar and transfer agent fees................................ 2,000*
Printing and engraving........................................... 90,000*
Miscellaneous.................................................... 3,144*
--------
TOTAL.......................................................... $250,000
========
</TABLE>
- --------
* Estimated.
II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The Company made the following sales of securities within the past three
years without registering such securities under the Securities Act:
In June 1997, the Company issued 40,000 shares of Common Stock to Delta Play
Ltd. in connection with the acquisition of Delta Play Ltd. The shares were
issued under an exemption from registration under Section 4(2) of the
Securities Act of 1933 (the "Securities Act"). No underwriter or placement
agent was involved in the transaction. The certificates representing the
shares bear a legend restricting the sale or transfer of the shares without
registration under the Securities Act or an exemption therefrom.
ITEM 27. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1.1* Underwriting Agreement
3.1* Articles of Incorporation of Koala Corporation
3.2* Bylaws of Koala Corporation
4.1 Specimen Common Stock Certificate(1)
5.1** Opinion of Parcel Mauro PC
10.1 Incentive Stock Option Plan dated August 19, 1993(1)
10.2* Koala Corporation 1995 Stock Option Plan, as amended
10.3 Industrial Lease dated August 1, 1996 between Buckhead Industrial
Properties, Inc. and Koala Corporation(2)
10.4 Credit Agreement with U.S. Bank National Association(4)
10.5 Agreement for Sale and Purchase of Assets dated June 23, 1997
between Delta Play, Ltd., et al. and Koala Corporation(3)
10.6 Registration Rights Agreement dated June 23, 1997 between Delta
Play, Ltd., and Koala Corporation(4)
10.7* Agreement for Sale and Purchase of Assets dated August 14, 1998
between Park Structures, Inc. et al and Koala Corporation
10.8* Indenture dated March 31, 1998 among Vanal Development Corp., Delta
Play Company and Koala Corporation
21.1* Subsidiaries
23.1* Consent of Ernst & Young LLP
23.2* Consent of Blanski Peter Kronlage & Zoch, P.A.
23.3* Consent of Goldstein Lewin & Co.
23.4* Consent of Ernst & Young Chartered Accountants
23.5** Consent of Parcel Mauro PC (contained in Exhibit 5.1)
24.1* Power of Attorney (on page II-4)
27.1* Financial Data Schedule
</TABLE>
- --------
* Filed herewith.
** To be filed by amendment.
(1) Incorporated by reference to the exhibits included in the Company's
Registration Statement on Form SB-2, Registration No. 33-68482C.
II-2
<PAGE>
(2) Incorporated by reference to Exhibit 10.11 of the Company's Form 10-KSB
for the year ended December 31, 1996.
(3) Incorporated by reference to Exhibit 2.1 of the Company's Form 8-K filed
on July 8, 1997.
(4) Incorporated by reference to Exhibit 4.1 of the Company's Form 8-K filed
on July 8, 1997.
ITEM 28. UNDERTAKINGS.
(e) Indemnification. Insofar as indemnification for liabilities arising
under the Securities Act may be permitted to directors, officers and
controlling persons of the small business issuer pursuant to the foregoing
provisions, or otherwise, the small business issuer has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business issuer
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the small business issuer will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
(f) Rule 430A.
The Registrant hereby undertakes that it will:
(i) For determining any liability under the Securities Act, treat the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by the small business issuer under Rule 424(b)(1) or (4) or
497(h) under the Securities Act as part of this Registration Statement as of
the time the Commission declared it effective.
(ii) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of Prospectus as a new
registration statement for the securities offered in the registration
statement, and that offering of the securities at that time as the initial
bona fide offering of those securities.
II-3
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form SB-2 and authorized this
registration statement to be signed on its behalf by the undersigned in
Denver, Colorado, on August 7, 1998.
KOALA CORPORATION
/s/ Mark A. Betker
By: _________________________________
Name: Mark A. Betker
Title: Chairman of the Board,
President and Chief
Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below on this Registration Statement
hereby constitutes and appoints Mark A. Betker and Jeffrey L. Vigil, and each
of them, as his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution for him and her and in his and her name, place
and stead, in any and all capacities (until revoked in writing) to sign any
and all amendments (including pre-effective amendment and post-effective
amendments and amendments thereto) to this Registration Statement on Form SB-2
of Koala Corporation and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorneys-
in-fact and gents, each acting alone or his substitute, may lawfully do or
cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ Mark A. Betker Chairman of the Board, August 7, 1998
____________________________________ President and Chief
Mark A. Betker Executive Officer
/s/ Jeffrey L. Vigil Vice President of August 7, 1998
____________________________________ Finance and
Jeffrey L. Vigil Administration
(Principal Financial
and Accounting
Officer)
Director August 7, 1998
____________________________________
Michael C. Franson
/s/ Thomas W. Gamel Director August 7, 1998
____________________________________
Thomas W. Gamel
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ John T. Pfannenstein Director August 7, 1998
____________________________________
John T. Pfannenstein
/s/ Ellen S. Robinson Director August 7, 1998
____________________________________
Ellen S. Robinson
</TABLE>
II-5
<PAGE>
EXHIBIT 1.1
1,800,000 Shares
Common Stock
($0.10 Par Value)
UNDERWRITING AGREEMENT
----------------------
A.G. Edwards & Sons, Inc.
Craig-Hallum Capital Group, Inc.
As Representatives of the Several Underwriters
c/o A.G. Edwards & Sons, Inc.
One North Jefferson Avenue
St. Louis, Missouri 63103
The undersigned, Koala Corporation, a Colorado corporation (the
"Company"), and the person listed on Schedule I hereto (the "Selling
Shareholder"), hereby address you as the representatives (the "Representatives")
of each of the persons, firms and corporations listed on Schedule II hereto
(collectively, the "Underwriters"). The Company and the Selling Shareholder
hereby confirm their agreement with the several Underwriters as follows:
1. DESCRIPTION OF SHARES. The Company proposes to issue and sell to
the Underwriters 1,000,000 shares of its Common Stock, par value $0.10 per share
(the "Common Stock"), and the Selling Shareholder proposes to sell to the
Underwriters a total of 800,000 shares of Common Stock, as set forth on Schedule
I hereto (such 1,800,000 shares of Common Stock are herein referred to as the
"Firm Shares"). Solely for the purpose of covering over-allotments in the sale
of the Firm Shares, the Company further proposes to grant to the Underwriters
the right to purchase up to an additional 270,000 shares of Common Stock (the
"Option Shares"), as provided in Section 3 of this Agreement. The Firm Shares
and the Option Shares are herein sometimes referred to as the "Shares" and are
more fully described in the Prospectus hereinafter defined.
2. PURCHASE, SALE AND DELIVERY OF FIRM SHARES. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company agrees and the Selling
Shareholder agrees, severally and not jointly, to sell to the Underwriters, and
each such Underwriter agrees, severally and not jointly, (a) to purchase from
the Company and from the Selling Shareholder, pro rata, at a purchase price of
$_______ per share, the number of Firm Shares set forth opposite the name of
such Underwriter in Schedule II hereto and (b) to purchase from the Company any
additional number of Option Shares which such Underwriter may become obligated
to purchase pursuant to Section 3 hereof.
The Company and the Selling Shareholder will deliver definitive
certificates for the Firm Shares at the office of A.G. Edwards & Sons, Inc., 77
Water Street, New York, New York ("Edwards' Office"), or such other place as you
and the Company may mutually agree upon, for the accounts of the Underwriters
against payment to the Company and the Selling Shareholder of the
<PAGE>
purchase price for the Firm Shares sold by them to the several Underwriters by
wire transfer in same day funds payable to the order of the Company and the
Selling Shareholder, respectively, and delivered to One North Jefferson Avenue,
St. Louis, Missouri 63103, or at such other place as may be agreed upon between
you and the Company (the "Place of Closing"), at 10:00 a.m., St. Louis time, on
___________, 1998, or at such other time and date not later than five (5) full
business days thereafter as you and the Company may agree, such time and date of
payment and delivery being herein called the "Closing Date."
The certificates for the Firm Shares so to be delivered will be made
available to you for inspection at Edwards' Office (or such other place as you
and the Company may mutually agree upon) at least one (1) full business day
prior to the Closing Date and will be in such names and denominations as you may
request at least two (2) full business days prior to the Closing Date.
It is understood that an Underwriter, individually, may (but shall not
be obligated to) make payment on behalf of the other Underwriters whose funds
shall not have been received prior to the Closing Date for Shares to be
purchased by such Underwriter. Any such payment by an Underwriter shall not
relieve the other Underwriters of any of their obligations hereunder.
It is understood that the Underwriters propose to offer the Shares to
the public upon the terms and conditions set forth in the Registration Statement
hereinafter defined.
3. PURCHASE, SALE AND DELIVERY OF THE OPTION SHARES. The Company
hereby grants an option to the Underwriters to purchase from it on a pro rata
basis up to 270,000 Option Shares at the same per share purchase price and on
the same terms and conditions as the Firm Shares; provided, however, that such
option may be exercised only for the purpose of covering any over-allotments
which may be made by them in the sale of the Firm Shares. No Option Shares shall
be sold or delivered unless the Firm Shares previously have been, or
simultaneously are, sold and delivered.
The option is exercisable on behalf of the several Underwriters by
you, as Representatives, at any time, and from time to time, before the
expiration of forty-five (45) days from the date of this Agreement, for the
purchase of all or part of the Option Shares covered thereby, by notice given by
you to the Company in the manner provided in Section 13 hereof, setting forth
the number of Option Shares as to which the Underwriters are exercising the
option, and the date of delivery of said Option Shares, which date shall not be
more than five (5) business days after such notice unless otherwise agreed to by
the parties. You may terminate the option at any time, as to any unexercised
portion thereof, by giving written notice to the Company to such effect.
You, as Representatives, shall make such allocation of the Option
Shares among the Underwriters as may be required to eliminate purchases of
fractional Shares.
Delivery of the Option Shares with respect to which the option shall
have been exercised shall be made to or upon your order at Edwards' Office (or
at such other place as you and the Company may mutually agree upon), against
payment by you of the per share purchase price to the Company by wire transfer
in same day funds payable to the order of the Company. Such payment and delivery
shall be made at 10:00 a.m., St. Louis time, on the date designated in the
notice given
2
<PAGE>
by you as above provided for, unless some other date and time are agreed upon,
which date and time of payment and delivery are called the "Option Closing
Date." The certificates for the Option Shares so to be delivered will be made
available to you for inspection at Edwards' Office at least one (1) full
business day prior to the Option Closing Date and will be in such names and
denominations as you may request at least two (2) full business days prior to
the Option Closing Date. On the Option Closing Date, the Company shall provide
the Underwriters such representations, warranties, agreements, covenants,
opinions, letters, certificates and other documents with respect to the Option
Shares as are required to be delivered on the Closing Date with respect to the
Firm Shares.
4. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY AND THE
SELLING SHAREHOLDER.
(a) The Company represents and warrants to and agrees with each
Underwriter that:
(i) A registration statement (Registration No. ___________) on Form
SB-2 with respect to the Shares, including a preliminary prospectus, and such
amendments to such registration statement as may have been required prior to the
date of this Agreement, has been carefully prepared by the Company pursuant to
and in conformity with the requirements of the Securities Act of 1933, as
amended (the "Act"), and the Rules and Regulations (the "Rules and Regulations")
of the Securities and Exchange Commission (the "Commission") thereunder and has
been filed with the Commission under the Copies of such registration statement,
including any amendments thereto; each related preliminary prospectus (meeting
the requirements of Rule 430 or 430A of the Rules and Regulations) contained
therein and the financial statements, exhibits and schedules thereto have
heretofore been delivered by the Company to you. If such registration statement
has not become effective under the Act, a further amendment to such registration
statement, including a form of final prospectus, necessary to permit such
registration statement to become effective will be filed promptly by the Company
with the Commission. If such registration statement has become effective under
the Act, a final prospectus containing information permitted to be omitted at
the time of effectiveness by Rule 430A of the Rules and Regulations will be
filed promptly by the Company with the Commission in accordance with Rule 424(b)
of the Rules and Regulations. The term "Registration Statement" as used in this
Agreement means the registration statement as amended at the time it becomes or
became effective under the Act (the "Effective Date"), including financial
statements and all exhibits and schedules thereto and, if applicable, the
registration statement filed pursuant to Rule 462(b) of the Rules and
Regulations increasing the size of the offering registered under the Act and the
information deemed to be included therein by Rule 430A of the Rules and
Regulations. The term "Prospectus" as used in this Agreement means (i) the
prospectus as first filed with the Commission pursuant to Rule 424(b) of the
Rules and Regulations or (ii) if no such filing is required, the form of final
prospectus included in the Registration Statement at the Effective Date or (iii)
if a Term Sheet (as such term is defined in Rule 434(b) of the Rules and
Regulations) is filed with the Commission pursuant to Rule 424(b)(7) of the
Rules and Regulations, the Term Sheet and the last Preliminary Prospectus filed
with the Commission prior to the time the Registration Statement became
effective, taken together. The term "Preliminary Prospectus" as used in this
Agreement shall mean a preliminary prospectus as contemplated by Rule 430 or
430A of the Rules and Regulations included at any time in the Registration
Statement.
(ii) The Commission has not issued, and is not to the knowledge of the
Company threatening to issue, an order preventing or suspending the use of any
Preliminary Prospectus or the
3
<PAGE>
Prospectus nor instituted proceedings for that purpose. Each Preliminary
Prospectus at its date of issue, the Registration Statement and the Prospectus
and any amendments or supplements thereto contain or will contain, as the case
may be, all statements which are required to be stated therein by, and in all
material respects conform or will conform, as the case may be, to the
requirements of, the Act and the Rules and Regulations. Neither the Registration
Statement nor any amendment thereto, as of the applicable Effective Date, and
neither the Prospectus nor any supplement thereto contains or will contain, as
the case may be, any untrue statement of a material fact or omits or will omit,
as the case may be, to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; provided, however, that the Company
makes no representation or warranty as to information contained in or omitted
from the Registration Statement or the Prospectus, or any such amendment or
supplement, in reliance upon, and in conformity with, information relating to
the Underwriters and furnished to the Company in writing by or on behalf of the
Underwriters expressly for use therein.
(iii) The filing of the Registration Statement and the execution and
delivery of this Agreement have been duly authorized by the Board of Directors
of the Company; this Agreement constitutes a valid and legally binding agreement
of the Company enforceable in accordance with its terms (except to the extent
the enforceability of the indemnification and contribution provisions of Section
7 hereof may be limited by public policy considerations as expressed in the Act
as construed by courts of competent jurisdiction, and except as enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
and other laws affecting creditors' rights generally and by general principles
of equity); the issuance and sale of the Shares by the Company and the
execution, delivery and performance of this Agreement and the consummation of
the transactions herein contemplated will not result in a violation of the
Company's articles of incorporation or bylaws or result in a breach or violation
of any of the terms and provisions of, or constitute a default under, or result
in the creation or imposition of any lien, charge or encumbrance upon any
properties or assets of the Company or any of its subsidiaries under any
statute, any bond, debenture, note or other evidence of indebtedness, or any
agreement, indenture, mortgage, deed of trust, sale and leaseback arrangement,
joint venture or other instrument to which the Company or any of its
subsidiaries is a party or by which they are bound or to which any such
properties or assets is subject, or any order, rule or regulation of any court
or governmental agency or body having jurisdiction over the Company or any of
its subsidiaries or their properties, except to such extent as does not have a
Material Adverse Effect (as defined in Section 15 below); no consent, approval,
authorization, order, registration or qualification of or with any court or
governmental agency or body is required for the consummation of the transactions
herein contemplated, except such as may be required by the National Association
of Securities Dealers, Inc. (the "NASD") or under the Act or the Rules and
Regulations or any state securities laws.
(iv) Except as described in the Prospectus, neither the Company nor any
of its subsidiaries have sustained since the date of the latest audited
financial statements included in the Prospectus any material loss or
interference with its business from fire, explosion, flood or other calamity,
whether or not covered by insurance, or from any labor dispute or court or
governmental action, order or decree. Subsequent to the respective dates as of
which information is given in the Registration Statement and the Prospectus,
neither the Company nor any of its subsidiaries have incurred any material
liabilities or material obligations, direct or contingent, other than in the
ordinary course of business, or entered into any material transactions not in
the ordinary course of
4
<PAGE>
business, and there has not been any material change in the capital stock or
long-term debt of the Company or any material adverse change in the condition
(financial or other), net worth, business, affairs, management, prospects or
results of operations of the Company. The Company and each of its subsidiaries
have filed all necessary federal, state and foreign income and franchise tax
returns and paid all taxes shown as due thereon; all tax liabilities are
adequately provided for on the books of the Company, except to such extent as
would not be or cause a Material Adverse Effect; the Company and each subsidiary
have made all necessary payroll tax payments and are current and up-to-date with
respect thereto as of the date of this Agreement; and the Company has no
knowledge of any tax proceeding or action pending or threatened against the
Company or any of its subsidiaries which might result in a Material Adverse
Effect.
(v) Except as described in the Prospectus, there is not now pending
or, to the knowledge of the Company, threatened or contemplated, any action,
suit or proceeding to which the Company is a party before or by any court or
public, regulatory or governmental agency or body which might be expected to
result (individually or in the aggregate) in Material Adverse Effect; and there
are no contracts or documents of the Company or its subsidiaries which would be
required to be filed as exhibits to the Registration Statement under the Act or
the Rules and Regulations which have not been filed as exhibits to the
Registration Statement.
(vi) All of the outstanding shares of capital stock of the Company have
been duly authorized and validly issued and are fully paid, non-assessable and
are not subject to any preemptive or similar right which has not been waived;
and the Shares have been duly authorized and, when issued and delivered to the
Underwriters against payment therefor as provided by this Agreement, will be
validly issued, fully paid and non-assessable, and the issuance of such Shares
will not be subject to any preemptive or similar rights.
(vii) Except as disclosed in the Prospectus, no holder of any security
of the Company has any right (not heretofore waived) to require registration of
shares of Common Stock or any other security of the Company because of the
filing of the Registration Statement or the consummation of the transactions
contemplated hereby and, except as disclosed in the Prospectus, no person has
the right to require registration under the Act of any shares of Common Stock or
other securities of the Company. No person has the right, contractual or
otherwise, to cause the Company to permit such person to underwrite the sale of
any of the Shares. Except as disclosed in the Prospectus, there are no
outstanding subscriptions, rights, warrants, options, calls, convertible
securities, commitments of sale or liens related to or entitling any person to
purchase or otherwise to acquire any shares of, or any security convertible into
or exchangeable or exercisable for, the capital stock of, or other ownership
interest in, the Company.
(viii) The Company and each of its subsidiaries have been duly
incorporated and are validly existing as corporations in good standing under the
laws of their respective jurisdictions of incorporation, with full power and
authority (corporate and other) to own, lease and operate their properties and
conduct their business as described in the Registration Statement; the Company
and each of its subsidiaries are duly qualified to do business as foreign
corporations and are in good standing in each state or other jurisdiction in
which their respective ownership or leasing of property or conduct of business
legally requires such qualification, except where the failure to be so qualified
would not have a Material Adverse Effect on the ability of the Company or its
subsidiaries to conduct their business as described in the Registration
Statement.
5
<PAGE>
(ix) Delta Play (US), Inc., Delta Play Company and Koala Foreign Sales
Corporation are the only subsidiaries of the Company. The Company owns directly
100% of the outstanding capital stock of such subsidiaries, free and clear of
any security interest, claim, lien, limitation on voting rights or encumbrances,
and all of such securities have been duly authorized, validly issued, are fully
paid and non-assessable and were not issued in violation of any preemptive or
similar rights. There are no outstanding subscriptions, rights, warrants, calls,
commitments of sale or options to acquire or instruments convertible into or
exchangeable for, any such shares of capital stock or other equity interests of
such subsidiaries.
(x) Each of Blanski Peter Kronlage Zoch, P.A. and Ernst & Young LLP,
the accounting firms which have certified the financial statements filed with
the Commission as a part of the Registration Statement, is an independent public
accounting firm within the meaning of the Act and the Rules and Regulations.
(xi) The consolidated financial statements and schedules of the
Company, including the notes thereto, filed with and as a part of the
Registration Statement, are accurate in all material respects and present fairly
the consolidated financial position of the Company and its subsidiaries as of
the respective dates thereof and the consolidated results of operations and
statements of cash flow for the respective periods covered thereby, all in
conformity with generally accepted accounting principles applied on a consistent
basis throughout the periods involved, except as otherwise disclosed in the
Prospectus. The selected financial data included in the Registration Statement
and Prospectus present fairly the information shown therein and have been
compiled on a basis consistent with that of the audited financial statements in
the Registration Statement and Prospectus.
(xii) The Company maintains and keeps accurate books and records
reflecting its assets and maintains internal accounting controls which provide
reasonable assurance that (1) transactions are executed in accordance with
management's authorization, (2) transactions are recorded as necessary to permit
the preparation of the Company's consolidated financial statements and to
maintain accountability for the assets of the Company, (3) access to the assets
of the Company is permitted only in accordance with management's authorization,
and (4) the recorded accounts of the assets of the Company are compared with
existing assets once each calendar year.
(xiii) Neither the Company nor any of its subsidiaries is (i) in
violation of its articles of incorporation or bylaws or (ii) in default in the
performance of any obligation, agreement or condition contained in any bond,
debenture, note or any other evidence of indebtedness or in any other contract,
indenture, mortgage, deed of trust, sale and leaseback arrangement, joint
venture or other instrument, in each case material to the conduct of the
business of the Company and its subsidiaries taken as a whole, to which the
Company or any of its subsidiaries is a party or by which it or any of its
properties is bound, except where such defaults, individually or in the
aggregate, would not have a Material Adverse Effect.
(xiv) Neither the Company nor any of its subsidiaries is in violation of
any other laws, ordinances or governmental rules or regulations to which it is
subject, and neither the Company nor any of its subsidiaries has failed to
obtain any other license, permit, franchise, easement, consent, or other
governmental authorization necessary to the ownership, leasing and operation of
its properties or to the conduct of its business, which violation or failure
would have a Material Adverse Effect. Neither the Company nor, to the Company's
knowledge, any employee or agent of the Company or
6
<PAGE>
any of its subsidiaries has made any payment of funds in violation of any law,
rule or regulation, which payment of funds is of a character required to be
disclosed in the Prospectus.
(xv) The Company and its subsidiaries own or posses, or can acquire on
reasonable terms, adequate patents, patent licenses, software, software
licenses, trademarks, service marks, trade name and copyrights necessary to
conduct the business now operated by them, and neither Company nor any of its
subsidiaries has received any notice of infringement of or conflict with
asserted rights of others with respect to any patents, patent licenses,
software, software licenses, trademarks, service marks, trade names or
copyrights which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would have a Material Adverse Effect.
(xvi) The Company and its subsidiaries have good and marketable title to
all property owned by them, free and clear of all liens, encumbrances,
restrictions and defects, except such as are described in the Registration
Statement or do not interfere with the use made and proposed to be made of such
property; and any property held under lease or sublease by the Company or its
subsidiaries is held under valid, subsisting and enforceable leases or subleases
with such exceptions as are not material and do not interfere with the use made
and proposed to be made of such property, and neither the Company nor any of its
subsidiaries has notice or knowledge of any material claim of any sort which has
been, or may be, asserted by anyone adverse to the Company's or any subsidiary's
rights as lessee or sublessee under any lease or sublease described above, or
affecting or questioning the Company's or any subsidiary's rights to the
continued possession of the leased or subleased premises under any such lease or
sublease in conflict with the terms thereof.
(xvii) Except as described in the Prospectus, there is no factual basis
for any action, suit or other proceeding involving the Company or any of its
subsidiaries or any of their material assets for any failure of the Company or
its subsidiaries, or any predecessor thereof, to comply with any requirements of
federal, state or local regulation relating to air, water, solid waste
management, hazardous or toxic substances, or the protection of health or the
environment. Except as described in the Prospectus, none of the property owned
or leased by the Company or its subsidiaries is, to the knowledge of the
Company, contaminated with any waste or hazardous substances, and neither the
Company nor any of its subsidiaries is deemed an "owner or operator" of a
"facility" or "vessel" which owns, possesses, transports, generates or disposes
of a "hazardous substance" as those terms are defined in (S)9601 of the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,42
U.S.C. (S)9601 et seq.
(xviii) No labor disturbance exists with the employees of the Company or
any of its subsidiaries or is imminent which would have a Material Adverse
Effect. Except as described in the Registration Statement and Prospectus, none
of the employees of the Company and its subsidiaries is represented by a union,
and, to the knowledge of the Company, no union organizing activities are taking
place. Neither the Company nor any subsidiaries have violated any Federal, state
or local law or foreign law relating to discrimination in hiring, promotion or
pay of employees, nor any applicable wage or hour laws, nor any provision of the
Employee Retirement Income Security Act of 1979, as amended, or the rules and
regulations thereunder, or analogous foreign laws or regulations, which might
result in a Material Adverse Effect.
(xix) The Company and each of its subsidiaries maintains insurance
covering in all material respects their properties, personnel and business. Such
insurance insures against such
7
<PAGE>
losses and risks as are adequate in accordance with the Company's perception of
customary industry practice to protect in all material respects the Company and
its subsidiaries and their businesses. Neither the Company nor any of its
subsidiaries has received notice from any insurer or agent of such insurer that
substantial capital improvements or other expenditures will have to be made in
order to continue such insurance. All such insurance is outstanding and duly in
force on the date hereof and will be outstanding and duly in force on the
Closing Date, with such exceptions as would not have a Material Adverse Effect.
(xx) The Company has entered into an Asset Purchase Agreement (the
"Purchase Agreement") dated __________, 1998, between the Company and Park
Structures, Inc. ("Park") for the purchase of all property, plant, equipment,
leasehold improvements, accounts receivable, inventory, molds, patents,
trademarks, tradenames and all other assets necessary to or used in the business
of Park, as well as the assignment to the Company of all contract rights
associated with Park's existing manufacturing plant lease agreement. The
Purchase Agreement has been duly authorized, executed and delivered by the
Company and, to the knowledge of the Company, by Park. The Company is not, and,
to the knowledge of the Company, Park is not, in material breach of the
respective representations, warranties or covenants in the Purchase Agreement,
whether or not such breach has been waived, and the Company is not aware of any
fact, circumstance or event that would impede, delay or prevent the consummation
of the transactions contemplated in the Purchase Agreement.
(xxi) The Company has not taken and will not take, directly or
indirectly, any action designed to or which might reasonably be expected to
cause or result in stabilization or manipulation of the price of the Common
Stock, and the Company is not aware of any such action taken or to be taken by
affiliates of the Company.
(xxii) The Company is not, and upon the sale of the Shares to be issued
and sold by it hereunder and application of the net proceeds from such sale as
described in the Prospectus under the caption "Use of Proceeds," will not be, an
"investment company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940, as amended.
(xxiii) The Company has filed an application to list the Shares on The
Nasdaq Stock Market National Market System and has received notification that
the listing has been approved, subject to official notice of issuance of the
Shares.
(xxiv) Each of the Company's directors and executive officers has
executed and delivered a letter in the form of Schedule VI hereto.
(b) The Selling Shareholder represents and warrants to and agrees with
each Underwriter and the Company that:
(i) All authorizations and consents necessary for the execution and
delivery by it of this Agreement and the sale and delivery of the Shares to be
sold by such Selling Shareholder hereunder have been given and are in full force
and effect on the date hereof and will be in full force and effect on the
Closing Date.
(ii) Such Selling Shareholder has full legal right, power and
authority, and any approval required by law, except such as may be required
under the Act or the Rules and Regulations or as
8
<PAGE>
may be required by the NASD or under state securities laws in connection with
the purchase and distribution of the Shares by the Underwriters, to enter into
this Agreement, the Power of Attorney and Custody Agreement (as defined herein)
and to sell, assign, transfer and deliver the Shares to be sold by such Selling
Shareholder.
(iii) Such Selling Shareholder has, and immediately prior to the Closing
Date such Selling Shareholder will have, good and valid title to such Shares to
be sold by such Selling Shareholder hereunder, free and clear of all liens,
mortgages, pledges, encumbrances, claims, equities and security interests
whatsoever; and, upon delivery of and payment for such Shares hereunder, the
several Underwriters will acquire good and valid title to such Shares to be sold
by such Selling Shareholder hereunder, free and clear of all liens, mortgages,
pledges, encumbrances, claims, equities and security interests whatsoever.
(iv) The consummation by such Selling Shareholder of the transactions
contemplated herein and the fulfillment by such Selling Shareholder of the terms
hereof will not result in a violation or breach of any terms or provisions of,
or constitute a default under, the Articles of Organization or Operating
Agreement of the Selling Shareholder, or any statute, any bond, debenture, note
or other evidence of indebtedness, or any agreement, indenture, mortgage, deed
of trust, sale and leaseback arrangement, joint venture or other instrument to
which such Selling Shareholder is a party or by which such Selling Shareholder
is bound, or to which any of the property or assets of such Selling Shareholder
is subject, or of any order, rule or regulation applicable to such Selling
Shareholder of any court or of any regulatory body of an administrative agency
or other governmental body having jurisdiction over such Selling Shareholder or
the property or assets of such Selling Shareholder.
(v) Such Selling Shareholder has not taken and will not take, directly
or indirectly, any action designed to or which might be reasonably expected to
cause or result in stabilization or manipulation of the price of the Common
Stock, and such Selling Shareholder is not aware of any such action taken or to
be taken by affiliates of such Selling Shareholder.
(vi) When the Registration Statement becomes effective and at all times
subsequent thereto, such information in the Registration Statement and
Prospectus and any amendments or supplements thereto as specifically refers to
such Selling Shareholder will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading.
(vii) Certificates in negotiable form representing all of the Shares
to be sold by such Selling Shareholder hereunder have been placed in the
custody of __________ (the "Custodian") under a Power of Attorney and Custody
Agreement in the forms heretofore furnished to you (the "Custody Agreement"),
duly executed and delivered by such Selling Shareholder, with the Custodian
having the authority to deliver the Shares to be sold by such Selling
Shareholder hereunder, and that such Selling Shareholder has duly appointed
_____________ as such Selling Shareholder's attorney-in-fact (the "Attorney-in-
Fact") with the Attorney-in-Fact having authority to execute and deliver this
Agreement on behalf of such Selling Shareholder, to determine the purchase price
to be paid by and number of shares sold to the Underwriters as provided in
Section 2, to authorize the delivery of the Shares to be sold by it hereunder
and otherwise to act on
9
<PAGE>
behalf of such Selling Shareholder in connection with the transactions
contemplated by this Agreement and such Custody Agreement.
(viii) The Shares represented by the certificates held in custody for
such Selling Shareholder under the Custody Agreement are subject to the
interests of the Underwriters hereunder, and the arrangements made by such
Selling Shareholder for such custody, and the appointment by such Selling
Shareholder of the Custodian and of the Attorney-in-Fact under the Custody
Agreement are to that extent irrevocable.
(ix) The obligations of such Selling Shareholder hereunder shall not be
terminated by operation of law.
(x) Such Selling Shareholder is not prompted to sell shares of Common
Stock by any information concerning the Company which is not included in the
Registration Statement.
(xi) Such Selling Shareholder has executed and delivered to the
Representative a letter in the form of Schedule VII hereto.
(xii) In order to document the Underwriters' compliance with the
reporting and withholding provisions of applicable federal tax laws with respect
to the transactions herein contemplated, such Selling Shareholder has delivered
or, prior to the Closing Date, will deliver to you a properly completed and
executed United States Treasury Department Form W-9 (or other applicable form or
statement specified by Treasury Department regulations in lieu thereof).
(c) Any certificate signed by any officer of the Company and delivered
to you or to counsel for the Underwriters shall be deemed a representation and
warranty by the Company to each Underwriter as to the matters covered thereby;
and any certificate signed by or on behalf of the Selling Shareholder as such
and delivered to you or to counsel for the Underwriters shall be deemed a
representation and warranty by the Selling Shareholder to each Underwriter as to
the matters covered thereby.
5. ADDITIONAL COVENANTS. The Company and, where expressly indicated,
the Selling Shareholder, covenant and agree with the several Underwriters that:
(a) If the Registration Statement is not effective under the Act, the
Company will use its best efforts to cause the Registration Statement to become
effective as promptly as possible, and it will notify you, promptly after it
shall receive notice thereof, of the time when the Registration Statement has
become effective. The Company (i) will prepare and timely file with the
Commission under Rule 424(b) of the Rules and Regulations, if required, a
Prospectus containing information previously omitted at the time of
effectiveness of the Registration Statement in reliance on Rule 430A of the
Rules and Regulations or otherwise or a Term Sheet, as applicable; (ii) will not
file any amendment to the Registration Statement or supplement to the Prospectus
of which the Underwriters shall not previously have been advised and furnished
with a copy or to which the Underwriters shall have reasonably objected in
writing or which is not in compliance with the Rules and Regulations; and (iii)
will promptly notify you after it shall have received notice thereof of the time
when any amendment to the Registration Statement becomes effective or when any
supplement to the Prospectus has been filed.
10
<PAGE>
(b) The Company will advise the Underwriters promptly, after it shall
receive notice or obtain knowledge thereof, of any request of the Commission for
amendment of the Registration Statement or for supplement to the Prospectus or
for any additional information, or of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or the use of
the Prospectus or of the institution or threatening of any proceedings for that
purpose, and the Company will use its best efforts to prevent the issuance of
any such stop order preventing or suspending the use of the Prospectus and to
obtain as soon as possible the lifting thereof, if issued.
(c) The Company will cooperate with the Underwriters and their counsel
in endeavoring to qualify the Shares for sale under the securities laws of such
jurisdictions as they may have designated and will make such applications, file
such documents, and furnish such information as may be necessary for that
purpose, provided the Company shall not be required to qualify as a foreign
corporation or to file a general consent to service of process in any
jurisdiction where it is not now so qualified or required to file such a consent
or to subject itself to taxation as doing business in any jurisdiction where it
is not now so taxed. The Company will, from time to time, file such statements,
reports, and other documents, as are or may be required to continue such
qualifications in effect for so long a period as the Underwriters may reasonably
request.
(d) The Company will deliver to, or upon the order of, the
Underwriters, without charge from time to time, as many copies of any
Preliminary Prospectus as they may reasonably request. The Company will deliver
to, or upon the order of, the Underwriters without charge as many copies of the
Prospectus, or as it thereafter may be amended or supplemented, as they may from
time to time reasonably request. The Company consents to the use of such
Prospectus by the Underwriters and by all dealers to whom the Shares may be
sold, both in connection with the offering or sale of the Shares and for such
other purposes and for such period of time thereafter as the Prospectus is
required by law to be delivered in connection with the offering or sale of the
Shares. The Company will deliver to the Underwriters at or before the Closing
Date two signed copies of the Registration Statement and all amendments thereto
including all exhibits filed therewith, and will deliver to the Underwriters
such number of copies of the Registration Statement, without exhibits, and of
all amendments thereto, as they may reasonably request.
(e) If, during the period in which a prospectus is required by law to
be delivered by an Underwriter or dealer, any event shall occur as a result of
which, in the judgment of the Company or in your judgment or in the opinion of
counsel for the Underwriters, it becomes necessary to amend or supplement the
Prospectus in order to make the statements therein, in light of the
circumstances existing at the time the Prospectus is delivered to a purchaser,
not misleading, or, if it is necessary at any time to amend or supplement the
Prospectus to comply with any law, the Company promptly will prepare and file
with the Commission an appropriate amendment to the Registration Statement or
supplement to the Prospectus so that the Prospectus as so amended or
supplemented will not, in the light of the circumstances when it is so
delivered, be misleading, or so that the Prospectus will comply with law.
(f) The Company will make generally available to its shareholders and
will file as an exhibit in a report pursuant to the Securities Exchange Act of
1934, as amended (the "1934 Act"), as soon as it is practicable to do so, but in
any event not later than 15 months after the Effective Date of the Registration
Statement, an earnings statement in reasonable detail, covering a period of at
least 12 consecutive months beginning after the Effective Date of the
Registration Statement, which
11
<PAGE>
earnings statement shall satisfy the requirements of Section 1l(a) of the Act
and Rule 158 of the Rules and Regulations and will advise the Underwriters in
writing when such statement has been so made available.
(g) The Company will, for a period of five (5) years from the Closing
Date, deliver to the Underwriters at their principal executive offices a
reasonable number of copies of annual reports, quarterly reports, current
reports and copies of all other documents, reports and information furnished by
the Company to its shareholders or filed with any securities exchange pursuant
to the requirements of such exchange or with the Commission pursuant to the Act
or the 1934 Act. The Company will deliver to the Underwriters similar reports
with respect to any significant subsidiaries, as that term is defined in the
Rules and Regulations, which are not consolidated in the Company's financial
statements. Any report, document or other information required to be furnished
under this paragraph (g) shall be furnished as soon as practicable after such
report, document or information becomes available.
(h) The Company will apply the proceeds from the sale of the Shares as
set forth in the description under "Use of Proceeds" in the Prospectus, which
description complies in all respects with the requirements of Item 504 of
Regulation S-B.
(i) The Company will supply you with copies of all correspondence to
and from, and all documents issued to and by, the Commission in connection with
the registration of the Shares under the Act.
(j) Prior to the Closing Date (and, if applicable, the Option Closing
Date), the Company will furnish to you, as soon as they have been prepared,
copies of any unaudited interim financial statements of the Company for any
periods subsequent to the periods covered by the financial statements appearing
in the Registration Statement and the Prospectus.
(k) Prior to the Closing Date (and, if applicable, the Option Closing
Date), neither the Company nor any Selling Shareholder will issue any press
releases or other communications, directly or indirectly, and will hold no press
conferences with respect to the Company, the financial condition, results of
operations, business, properties, assets or liabilities of the Company, or the
offering of the Shares, without your prior written con sent.
(l) The Company will use its best efforts to maintain the quotation of
the Shares on The Nasdaq Stock Market National Market System.
(m) The Company will maintain and keep accurate books and records
reflecting its assets and will maintain internal accounting controls which
provide reasonable assurance that (1) transactions are executed in accordance
with management's authorization, (2) transactions are recorded as necessary to
permit the preparation of the Company's financial statements and to maintain
accountability for the assets of the Company, (3) access to the assets of the
Company is permitted only in accordance with management's authorization, and (4)
the recorded accounts of the assets of the Company are compared with existing
assets at reasonable intervals.
(n) For a period of 180 days from the effective date, the Company will
not directly or indirectly offer, sell, contract to sell or otherwise dispose of
any shares of the Company's Common Stock, any securities convertible into or
exchangeable for such Common Stock or any other rights to
12
<PAGE>
acquired such shares, except for sales of shares of Common Stock pursuant to the
exercise of options under the Company' Stock Option Plans outstanding on the
date of this Agreement.
6. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The several obligations
of the Underwriters to purchase and pay for the Shares, as provided herein,
shall be subject to the accuracy in all material respects, as of the date hereof
and as of the Closing Date (and, if applicable, the Option Closing Date), of the
representations and warranties of the Company and the Selling Shareholder
contained herein, to the performance in all material respects by the Company and
the Selling Shareholders of their covenants and obligations hereunder, and to
the following additional conditions:
(a) All filings required by Rule 424 and Rule 430A of the Rules and
Regulations shall have been made. No stop order suspending the effectiveness of
the Registration Statement, as amended from time to time, shall have been issued
and no proceeding for that purpose shall have been initiated or, to the
knowledge of the Company or any Underwriter, threatened or contemplated by the
Commission, and any request of the Commission for additional information (to be
included in the Registration Statement or the Prospectus or otherwise) shall
have been complied with to the reasonable satisfaction of the Underwriters.
(b) No Underwriter shall have disclosed in writing to the Company on
or prior to the Closing Date (and, if applicable, the Option Closing Date), that
the Registration Statement or Prospectus or any amendment or supplement thereto
contains an untrue statement of fact which, in the opinion of counsel to the
Underwriters, is material, or omits to state a fact which, in the opinion of
such counsel, is material and is required to be stated therein or is necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading.
(c) On the, Closing Date (and, if applicable, the Option Closing
Date), you shall have received the opinion of Parcel, Mauro & Spaanstra, counsel
for the Company, addressed to you and dated the Closing Date (and, if
applicable, the Option Closing Date), to the effect that:
(i) The Company and each of its subsidiaries have been duly
incorporated and are validly existing as a corporation in good standing under
the laws of its state of incorporation, with full power and authority (corporate
and other) to own, lease and operate its properties and conduct its business as
described in the Registration Statement; the Company and each of its
subsidiaries is duly qualified to do business as a foreign corporation in good
standing in each state or other jurisdiction in which its ownership or leasing
of property or conduct of business legally requires such qualification, except
where the failure to be so qualified would not have a material adverse effect on
the ability of the Company or such subsidiaries to conduct its or their business
as described in the Registration Statement.
(ii) The Company has duly and validly authorized capital stock as set
forth under the heading "Capitalization" in the Prospectus; all outstanding
shares of Common Stock of the Company and the Shares conform to the description
thereof in the Prospectus under the heading "Description of Securities," and the
outstanding shares of Common Stock have been duly authorized and are validly
issued, fully paid and non-assessable; the Shares to be sold by the Company have
been duly authorized and, when delivered and paid for in accordance with this
Agreement, will be
13
<PAGE>
validly issued, fully paid and non-assessable, and the shareholders of the
Company have no preemptive or similar rights with respect to the Shares.
(iii) The Company owns directly 100% of the outstanding capital stock of
Delta Play (US), Inc., Delta Play Company and Koala Foreign Sales Corporation,
and all such securities have been duly authorized, validly issued, are fully
paid and nonassessable and, to the knowledge of such counsel, are owned by the
Company free and clear of any security interest, claim, limitation on voting
rights or encumbrances and were not issued in violation of any preemptive or
similar rights; to the knowledge of such counsel, there are no outstanding
subscriptions, rights, warrants, calls, commitments of sale or options to
acquire, or instruments convertible into or exchangeable for, any such shares of
capital stock or other equity interests of such subsidiaries.
(iv) Such counsel has been advised by the staff of the Commission that
the Registration Statement has become effective under the Act and, to the
knowledge of such counsel, no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose have
been instituted or are pending or contemplated under the Act.
(v) The Registration Statement and the Prospectus, and each Amendment
or supplement thereto (other than the financial statements and related schedules
and any other financial data therein, as to which such counsel need express no
belief), as of their respective Effective Date or issue date, comply as to form
and appear on their face to be appropriately responsive in all material respects
to the requirements of the Act and the applicable Rules and Regulations.
(vi) The descriptions in the Registration Statement and Prospectus of
contracts and other documents filed as exhibits to the Registration Statement
are accurate in all material respects; all other material agreements between the
Company and third parties expressly referenced in the Prospectus are legal,
valid and binding obligations of the Company.
(vii) No authorization, approval, consent, order, registration or
qualification of or with of any court or governmental body, authority or agency
is required with respect to the Company in connection with the transactions
contemplated by this Agreement, except such as may be required under the Act or
the Rules and Regulations or as may be required by the NASD or under state
securities laws in connection with the purchase and distribution of the Shares
by the Underwriters.
(viii) The filing of the Registration Statement has been duly authorized
by the Board of Directors of the Company. This Agreement has been duly
authorized, executed and delivered by the Company and constitutes a valid and
legally binding agreement of the Company enforceable in accordance with its
terms (except to the extent the enforceability of the indemnification and
contribution provisions of Section 7 hereof may be limited by public policy
considerations as expressed in the Act as construed by courts of competent
jurisdiction, and except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other laws affecting
creditors' rights generally or by the availability of equitable remedies,
regardless of whether such enforcement is considered in a proceeding in equity
or at law). The execution, delivery and performance of this Agreement and the
consummation of the transactions herein contemplated will not result in a
violation of the Company's articles of incorporation or bylaws or result in a
breach or violation of any of the terms and provisions of, or constitute a
default under, or result in the creation or imposition of any lien, charge or
encumbrance upon any properties or assets
14
<PAGE>
of the Company under any statute, any bond, debenture, note or other evidence of
indebtedness, or any agreement, indenture, mortgage, deed of trust, sale and
leaseback arrangement, joint venture or any other instrument known to such
counsel to which the Company or any of its subsidiaries is a party or by which
it is bound or to which any of the properties or assets of the Company or any of
its subsidiaries is subject, or any order, rule or regulation known to such
counsel of any court or governmental agency or body having jurisdiction over the
Company and its subsidiaries or their properties, except, in the case of any
such violation, breach, default, creation or imposition, to such extent as does
not materially adversely affect the business of the Company and its subsidiaries
taken as a whole.
(ix) To the knowledge of such counsel, (A) there are no material
(individually or in the aggregate) legal, governmental or regulatory proceedings
pending or threatened to which the Company or any of its subsidiaries is a party
or of which the business or properties of the Company or its subsidiaries is the
subject which are not disclosed in the Registration Statement and Prospectus;
(B) there are no contracts or documents of a character required to be described
in the Registration Statement or the Prospectus or to be filed as an exhibit to
the Registration Statement which are not described or filed as required; and (C)
there are no statutes or regulations required to be described in the
Registration Statement or Prospectus which are not described as required.
(x) To the knowledge of such counsel, the Company and its subsidiaries
holds all licenses, certificates, permits and approvals from all state, federal
and other regulatory authorities, and have satisfied in all material respects
the requirements imposed on the Company and their subsidiaries by regulatory
bodies, administrative agencies or other governmental bodies, agencies or
officials, that are required for the Company and its subsidiaries lawfully to
own, lease and operate their properties and conduct their business as described
in the Prospectus, and, to the knowledge of such counsel, the Company and its
subsidiaries are conducting their business in compliance in all material
respects with all of the laws, rules and regulations of each jurisdiction in
which they conduct their business.
(xi) The statements made in the Registration Statement under the
captions "Risk Factors--Limitation on Director Liability; Anti-Takeover Effects
of Certain Charter Provisions," "Business--Park Structures Acquisition" and
"Description of Securities" and in Item 24 of Part II of the Registration
Statement, to the extent that they constitute summaries of documents referred to
therein or matters of law or legal conclusions, have been reviewed by such
counsel and are accurate summaries and fairly present the information disclosed
therein.
(xii) The Company is not, and upon the sale of the Shares to be issued
and sold by it hereunder and application of the net proceeds from such sale as
described the Prospectus under the caption "Use of Proceeds," will not be, an
"investment company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940, as amended.
(xiii) The Company had and has the corporate power and authority to
execute, deliver and perform the Purchase Agreement, subject to the conditions
of closing set forth therein. The Purchase Agreement constitutes a legal, valid
and binding obligation of the Company and, to the knowledge of such counsel,
Park. To the knowledge of such counsel, the execution, delivery and performance
of the Purchase Agreement, the consummation of the transactions contemplated
therein and compliance with the terms and provisions thereof do not and will not
conflict with or
15
<PAGE>
result in the creation or imposition of any lien, claim, charge, encumbrance or
restriction, or constitute (with or without notice or lapse of time or both) a
breach of violation of any of the terms, provisions or conditions of, or a
default under, the articles of incorporation or by-laws of the Company or any of
its subsidiaries and do not and will not conflict with or result in the creation
or imposition of any lien, claim, charge, encumbrance or restriction, or
constitute (with or without notice or lapse of time or both) a breach or
violation of any of the terms, provisions or conditions of, or a default under,
any contract, indenture, mortgage, deed of trust, loan or credit agreement,
note, lease or any other agreement or instrument known to such counsel, to which
the Company or any of its subsidiaries is a party, by which any of them are
bound, or any franchise, license, permit or applicable law, rule, regulation,
judgment, order or decree of any government, government instrumentality, court
or arbitrator, domestic or foreign, known to such counsel, having jurisdiction
over the Company or any of its subsidiaries or any of their respective
properties, which conflict, creation, imposition, breach, violation or default
would have, either singly or in the aggregate, a material adverse effect on the
condition, financial or otherwise, earnings, business or results of operations
of the Company and its subsidiaries taken as a whole.
Such counsel shall also state that, during the course of the preparation by
the Company of the Registration Statement and the Prospectus, such counsel has
participated in conferences with your representatives and counsel and with
officers and representatives of the Company, at which conferences the contents
of the Registration Statement and the Prospectus were discussed, reviewed and
revised, and, although (except as provided above) such counsel is not passing
upon, and does not assume any responsibility for, the accuracy, completeness or
fairness of the statements made in the Registration Statement and the
Prospectus, on the basis of the information that was developed during the course
thereof, considered in the light of such counsel's understanding of applicable
law and the experience it has gained through its practice thereunder, such
counsel has no reason to believe that, as of the effective date of the
Registration Statement, either the Registration Statement or the Prospectus
(other than the financial statements and related schedules and any other
financial data therein, as to which such counsel need express no belief)
contained or, as of the Closing Date (or, if applicable, the Option Closing
Date), contains any untrue statement of a material fact or omitted or, as of the
Closing Date (or, if applicable, the Option Closing Date), omits to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and such counsel does
not know of any amendment to the Registration Statement required to be filed or
of any contracts or other documents of a character required to be filed as an
exhibit to the Registration Statement or required to be described in the
Registration Statement or the Prospectus which are not filed or described as
required by the Act and the Rules and Regulations.
In rendering the foregoing opinion, such counsel may rely, provided that
the opinion shall state that you and they are entitled to so rely, (1) as to
matters involving laws of any jurisdiction other than Colorado or the United
States, upon opinions addressed to the Underwriters of other counsel
satisfactory to them, and (2) as to all matters of fact, upon certificates of
public officials and of the executive of officers of the Company.
(d) On the Closing Date (and, if applicable, the Option Closing Date),
you shall have received the opinion of Parcel, Mauro & Spaanstra, P.C., counsel
to the Selling Shareholder, addressed to you and dated the Closing Date (and, if
applicable, the Option Closing Date), to the effect that:
16
<PAGE>
(i) The Selling Shareholder has duly authorized, executed and
delivered the Custody Agreement, appointing ______________________ as such
Selling Shareholder's Custodian with authority to take custody of and deliver
the Shares as represented by certificates on behalf of such Selling Shareholder
in connection with the transactions contemplated by this Agreement and the
Custody Agreement and appointing ______________________ as such Selling
Shareholder's Attorney-in-Fact with authority to execute and deliver this
Agreement on behalf of such Selling Shareholder and otherwise to act on behalf
of such Selling Shareholder in connection with the transactions contemplated by
this Agreement and the Custody Agreement; such Custody Agreement and constitutes
a valid and legally binding agreement of each such Selling Shareholder in
accordance with its terms (except to the extent the enforceability thereof may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws affecting creditors' rights generally or by the availability of
equitable remedies, regardless of whether such enforcement is considered in a
proceeding in equity or at law).
(ii) This Agreement has been duly authorized, executed and delivered by
or on behalf of the Selling Shareholder, and is a valid and legally binding
agreement of the Selling Shareholder enforceable in accordance with its terms
(except to the extent the enforceability of the indemnification provisions of
Section 7 hereof may be limited by public policy considerations as expressed in
the Act and as construed by courts of competent jurisdiction and except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors' rights generally
or by the availability of equitable remedies, regardless of whether such
enforcement is considered in a proceeding in equity or at law).
(iii) The Selling Shareholder has full legal right, power and authority
to enter into this Agreement, the Custody Agreement and to sell, assign,
transfer and deliver the Shares to be sold by such Selling Shareholder.
(iv) No consent, approval, authorization or order of any court, or
governmental agency or body is required for consummation of the transactions
contemplated by this Agreement in connection with the Shares to be sold by the
Selling Shareholder hereunder except such as may be required under the Act or
the Rules and Regulations or as may be required by the NASD or under state
securities laws in connection with the purchase and distribution of the Shares
by the Underwriters.
(v) The Selling Shareholder has good and valid title to the Shares
being sold by such Selling Shareholder hereunder, free and clear of any and all
"adverse claims" (as such term is defined in Section __________ of the Uniform
Commercial Code as in force in the State of Colorado), and has transferred to
the Underwriters good and valid title to the Shares being sold by such Selling
Shareholder on the Closing Date (and, if applicable, the Option Closing Date),
free and clear of any and all adverse claims.
In rendering the foregoing opinion, such counsel may rely, provided that
the opinion shall state that you and they are entitled to so rely, (1) as to
matters involving laws of any jurisdiction other than Missouri or the United
States, upon opinions addressed to the Underwriters of other counsel
satisfactory to them, and (2) as to all matters of fact, upon certificates of
the Selling Shareholder.
17
<PAGE>
(e) You shall have received on the Closing Date from _______________,
counsel for Park, a copy of the opinion delivered by such counsel to the Company
pursuant to the Purchase Agreement, together with a letter from such counsel
addressing such opinion to the Underwriters.
(f) You shall have received on the Closing Date (and, if applicable,
the Option Closing Date), from Blackwell Sanders Peper Martin LLP, counsel to
the Underwriters, such opinion or opinions, dated the Closing Date (and, if
applicable, the Option Closing Date) with respect to the incorporation of the
Company, the validity of the Shares and other related matters as you may
reasonably require; the Company and Selling Shareholder shall have furnished to
such counsel such documents as they reasonably request for the purpose of
enabling them to pass on such matters.
(g) On the date of the Prospectus at a time prior to the effectiveness
of this Agreement and on the Closing Date (and, if applicable, the Option
Closing Date), you shall have received from Ernst & Young LLP a letter or
letters, dated the date of this Agreement and the Closing Date (and, if
applicable, the Option Closing Date), respectively, in form and substance
satisfactory to you, confirming that they are independent public accountants
with respect to the Company within the meaning of the Act and the published
Rules and Regulations, and the answer to Item 509 of Regulation S-B set forth in
the Registration Statement is correct insofar as it relates to them, and stating
to the effect set forth in Schedule III hereto.
(h) On the date of the Prospectus at a time prior to the effectiveness
of this Agreement and on the Closing Date, you shall have received from Blanski
Peter Kronlage & Zoch, P.A., a letter or letters, dated the date of this
Agreement and the Closing Date respectively, in form and substance satisfactory
to you, confirming that they are independent public accountants with respect to
the Company within the meaning of the Act and the published Rules and
Regulations, and the answer to Item 509 of Regulation S-B set forth in the
Registration Statement is correct insofar as it relates to them, and stating to
the effect set forth in Schedule IV hereto.
(i) On the date of the Prospectus at a time prior to the effectiveness
of this Agreement and on the Closing Date, you shall have received from
Goldstein Lewin & Co. a letter or letters, dated the date of this Agreement and
the Closing Date, respectively, in form and substance satisfactory to you,
confirming that they are independent public accountants with respect to Park and
the Company within the meaning of the Act and the published Rules and
Regulations, and the answer to Item 509 of Regulation S-B set forth in the
Registration Statement is correct insofar as it relates to them, and stating to
the effect set forth in Schedule V hereto.
(j) On the date of the Prospectus at a time prior to the effectiveness
of this Agreement and on the Closing Date, you shall have received from Ernst &
Young Chartered Accountants a letter dated the date of this Agreement and the
Closing Date, respectively, in form and substance satisfactory to you,
confirming that they are independent public accountants with respect to Delta
Play Ltd. and the Company within the meaning of the Act and published Rules and
Regulations, and the answer to Item 509 of Regulation S-B set forth in the
Registration Statement is correct insofar as it relates to them, and stating to
the effect set forth on Schedule VI hereto.
(k) Except as contemplated in the Prospectus (i) the Company shall not
have sustained since the date of the latest audited financial statements
included in the Prospectus any loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by insurance, or from
any labor dispute or court or, governmental action, order or decree; and (ii)
subsequent to the respective dates as of which information is given in the
Registration Statement and the Prospectus, the Company shall not have incurred
any liability or obligation, direct or contingent, or entered into transactions,
and there shall not have been any change in the capital stock or long-term debt
of the Company or any change in the condition (financial or other), net worth,
business, affairs, management, prospects or results of operations of the
Company, the effect of which, in any such case described in clause (i) or (ii),
is in your judgment so material or adverse as to make it impracticable or
inadvisable to proceed with the public offering or the delivery of the
18
<PAGE>
Shares being delivered on such Closing Date (and, if applicable, the Option
Closing Date) on the terms and in the manner contemplated in the Prospectus.
(l) There shall not have occurred any of the following: (i) a
suspension or material limitation in trading in securities generally on the New
York Stock Exchange or The Nasdaq Stock Market or the establishing on such
exchange by the Commission or by such exchange or on such market by the NASD of
minimum or maximum prices which are not in force and effect on the date hereof;
(ii) a suspension or material limitation in trading in the Company's securities
on The Nasdaq Stock Market; (iii) a general moratorium on commercial banking
activities declared by either federal or state authorities; (iv) the outbreak or
escalation of hostilities involving the United States or the declaration by the
United States of a national emergency or war, if the effect of any such event
specified in this clause (iv) in your judgment makes it impracticable or
inadvisable to proceed with the public offering or the delivery of the Shares in
the manner contemplated in the Prospectus; (v) any calamity or crisis, change in
national, international or world affairs, act of God, change in the
international or domestic markets, or change in the existing financial,
political or economic conditions in the United States or elsewhere, if the
effect of any such event specified in this clause (v) makes it impracticable or
inadvisable to proceed with the public offering or the delivery of the Shares in
the manner contemplated in the Prospectus; or (vi) the enactment, publication,
decree, or other promulgation of any federal or state statute, regulation, rule,
or order of any court or other governmental authority, or the taking of any
action by any federal, state or local government or agency in respect of fiscal
or monetary affairs, if the effect of any such event specified in this clause
(vi) in your judgment makes it impracticable or inadvisable to proceed with the
public offering or the delivery of the Shares in the manner contemplated in the
Prospectus.
(m) You shall have received certificates, dated the Closing Date (and,
if applicable, the Option Closing Date) and signed by the President and the
Chief Financial Officer of the Company stating that (i) they have carefully
examined the Registration Statement and the Prospectus as amended or
supplemented and nothing has come to their attention that would lead them to
believe that either the Registration Statement or the Prospectus, or any
amendment or supplement thereto as of their respective effective or issue dates,
contained, and the Prospectus as amended or supplemented at such Closing Date,
contains any untrue statement of a material fact, or omits to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and that (ii) all representations and warranties made herein by the
Company are true and correct in all material respects at such Closing Date, with
the same effect as if made on and as of such Closing Date, and all agreements
herein to be performed by the Company on or prior to such Closing Date have been
duly performed in all material respects.
(n) The Company and the Selling Shareholder shall not have failed,
refused, or been unable, at or prior to the Closing Date (and, if applicable,
the Option Closing Date) to have performed in all material respects any
agreement on its part to be performed or any of the conditions herein contained
and required to be performed or satisfied by it at or prior to such Closing
Date.
(o) The Company and the Selling Shareholder shall have furnished to
you at the Closing Date (and, if applicable, the Option Closing Date) such other
certificates as you may have reasonably requested as to the accuracy, on and as
of such Closing Date (and, if applicable, the Option Closing Date), of the
representations and warranties of the Company and the Selling
19
<PAGE>
Shareholder herein and as to the performance by the Company and the Selling
Shareholder of their obligations hereunder.
(p) The Shares shall have been duly approved for quotation, subject to
official notice of issuance, on The Nasdaq Stock Market National Market.
(q) The letters in the form set forth on Schedule VII hereto and dated
the date hereof or earlier have been executed and delivered to you by the
Company's directors and executive officers and by the Selling Shareholder.
All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
to you and to Blackwell Sanders Peper Martin LLP, counsel for the several
Underwriters. The Company and Selling Shareholder will furnish you with such
conformed copies of such opinions, certificates, letters and documents as you
may request.
If any of the conditions specified above in this Section 6 shall not
have been satisfied at or prior to the Closing Date (and, if applicable, the
Option Closing Date) or waived by you in writing, this Agreement may be
terminated by you on notice to the Company and the Selling Shareholder.
7. INDEMNIFICATION. (a) The Company will indemnify and hold harmless
each Underwriter and each person, if any, who controls any Underwriter within
the meaning of the Act, against any losses, claims, damages or liabilities,
joint or several, to which such Underwriter or such controlling person may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, or in any blue sky
application or other document executed by the Company or based on any
information furnished in writing by the Company, filed in any jurisdiction in
order to qualify any or all of the Shares under the securities laws thereof
("Blue Sky Application"), or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and will reimburse each Underwriter
and each such controlling person for any legal or other expenses reasonably
incurred by such Underwriter or such controlling person in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the Company shall not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in the Registration Statement, such Preliminary Prospectus or the
Prospectus, or such amendment or supplement, or any Blue Sky Application in
reliance upon and in conformity with information furnished in writing to the
Company by you or by any Underwriter through you, expressly for use therein; and
provided, further, that if any Preliminary Prospectus or the Prospectus
contained any alleged untrue statement or allegedly omitted to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading and such statement or omission shall have been corrected
in a revised Preliminary Prospectus or in the Prospectus or in an amended or
supplemented Prospectus, the Company shall not be liable to any Underwriter or
controlling person under this subsection (a) with respect to such alleged untrue
statement or alleged omission to the extent that any such loss, claim, damage or
liability of such
20
<PAGE>
Underwriter or controlling person results from the fact that such Underwriter
sold Shares to a person to whom there was not sent or given, at or prior to the
written confirmation of such sale, such revised Preliminary Prospectus or
Prospectus or amended or supplemented Prospectus. This indemnity agreement shall
be in addition to any liabilities which the Company may otherwise have.
(b) The Selling Shareholder will indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of the Act, against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter or controlling person may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or any Blue Sky Application or arise out of or
are based upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission was
made in the Registration Statement, such Preliminary Prospectus or the
Prospectus, or such amendment or supplement, or any Blue Sky Application, in
reliance upon and in conformity with information furnished in writing to the
Company or any Underwriter by the Selling Shareholder expressly for use therein;
and will reimburse any legal or other expenses reasonably incurred by each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of the Act, in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the indemnity
contained in this subsection (b) with respect to any Preliminary Prospectus
shall not inure to the benefit of any Underwriter (or to the benefit of any
person controlling such Underwriter) in respect of any action or claim asserted
by a person who purchased any Shares from such Underwriter, if, within the time
required by the Act such person was not sent or given a copy of the Prospectus,
as then amended or supplemented. This indemnity agreement shall be in addition
to any liabilities which the Selling Shareholder may otherwise have.
(c) Each Underwriter will indemnify and hold harmless the Company,
each of its directors, each of its officers who have signed the Registration
Statement and, each person, if any, who controls the Company within the meaning
of the Act, and the Selling Shareholder, against any losses, claims, damages or
liabilities, joint or several, to which the Company or any such director,
officer or controlling person or any such Selling Shareholder may become
subject, under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the Registration Statement, any Preliminary Prospectus, the Prospectus, any
amendment or supplement thereto, or any Blue Sky Application or arise out of or
are based upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading, in
each case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in the
Registration Statement, such Preliminary Prospectus or the Prospectus, such
amendment or supplement, or any Blue Sky Application in reliance upon and in
conformity with information furnished in writing to the Company by any such
Underwriter expressly for use therein; and will reimburse any legal or other
expenses reasonably incurred by Company or any such director, officer or
controlling person or the Selling Shareholder in connection with investigating
or defending any such loss, claim, damage,
21
<PAGE>
liability or action. This indemnity agreement shall be in addition to any
liabilities which the Underwriters may otherwise have.
(d) Any party which proposes to assert the right to be indemnified
under this Section 7 shall, within ten (10) days after receipt of notice of
commencement of any action, suit or proceeding against such party in respect of
which a claim is to be made against an indemnifying party under this Section 7,
notify each such indemnifying party of the commencement of such action, suit or
proceeding, enclosing a copy of all papers served, but the omission so to notify
such indemnifying party of any such action, suit or proceeding shall not relieve
such indemnifying party from any liability which it may have to any indemnified
party otherwise than under this Section 7. In case any such action, suit or
proceeding shall be brought against any indemnified party and it shall notify
the indemnifying party of the commencement thereof, the indemnifying party shall
be entitled to participate in, and, to the extent that it shall wish, jointly
with any other indemnifying party, similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party, and
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party for any legal or other expenses, other than
reasonable costs of investigation, subsequently incurred by such indemnified
party in connection with the defense thereof. The indemnified party shall have
the right to employ its own counsel in any such action, but the fees and
expenses of such counsel shall be at the expense of such indemnified party
unless (i) the employment of counsel by such indemnified party at the expense of
the indemnifying party has been authorized by the indemnifying party, (ii) the
indemnified party shall have been advised by such counsel in a written opinion
that there may be a conflict of interest between the indemnifying party and the
indemnified party in the conduct of the defense, or certain aspects of the
defense, of such action (in which case the indemnifying party shall not have the
right to direct the defense of such action with respect to those matters or
aspects of the defense on which a conflict exists or may exist on behalf of the
indemnified party) or (iii) the indemnifying party shall not in fact have
employed counsel to assume the defense of such action, in any of which events
such fees and expenses to the extent applicable shall be borne by the
indemnifying party. An indemnifying party shall not be liable for any settlement
of any action or claim effected without its consent. Each indemnified party, as
a condition of such indemnity, shall cooperate in good faith with the
indemnifying party in the defense of any such action or claim. In no event shall
any indemnifying party be liable for the fees and expenses of more than one
counsel (except to the extent that local counsel, in addition to such counsel,
is required for effective representation) to represent all indemnified parties
with respect to a single action or separate but substantially similar actions in
the same jurisdiction arising out of the same general allegations, which counsel
shall be designated in writing by the Representative, on behalf of any
Underwriters and its controlling persons (and shall be reasonably acceptable to
the Company), and by the Company, on behalf of itself and any of its officers,
directors and its controlling persons and on behalf of any Selling Shareholders
(and shall be reasonably acceptable to the Representative).
(e) If the indemnification provided for in this Section 7 is for any
reason, other than pursuant to the terms thereof, judicially determined (by the
entry of a final judgment or decree by a court of competent jurisdiction and the
expiration of time to appeal or the denial of the lost right to appeal) to be
unavailable to an indemnified party under subsections (a), (b) or (c) above in
respect of any losses, claims, damages or liabilities (or actions in respect
thereof) referred to therein, then each indemnifying party shall, in lieu of
indemnifying such indemnified party, contribute to the
22
<PAGE>
amount paid or payable by such indemnified party as a result of such losses,
claims, damages or liabilities (or actions in respect thereof) in such
proportion as is appropriate to reflect the relative benefits received by the
Company, the Selling Shareholder and the Underwriters from the offering of the
Shares. If, however, the allocation provided by the immediately preceding
sentence is not permitted by applicable law, then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault, as applicable, of the Company, the Selling Shareholder and
the Underwriters in connection with the statements or omissions which resulted
in such losses, claims, damages or liabilities (or actions in respect thereof),
as well as other relevant equitable considerations. The relative benefits
received by, as applicable, the Company, the Selling Shareholder and the
Underwriters shall be deemed to be in the same proportion as the total net
proceeds from the offering (before deducting expenses) received by the Company
and the Selling Shareholder bear to the total underwriting discounts and
commissions received by the Underwriters, in each case as set forth in the table
on the cover page of the Prospectus. The relative fault shall be determined by
reference to, among other things, whether the untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company, the Selling Shareholder or the Underwriters
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company, the
Selling Shareholder and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this subsection (e) were determined by
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to above in this subsection (e). The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to above
in this subsection (e) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
subsection (e), no Underwriter shall be required to contribute any amount in
excess of the underwriting discounts and commissions applicable to the Shares
purchased by such Underwriter. No person guilty of fraudulent misrepresentation
(within the meaning of Section ll(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (e) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
8. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. All
representations, warranties, and agreements of the Company and the Selling
Shareholder contained in Sections 7 and 11 herein or in certificates delivered
pursuant hereto, and the agreements of the Underwriters contained in Section 7
hereof, shall remain operative and in full force and effect regardless of any
termination or cancellation of this Agreement or any investigation made by or on
behalf of any Underwriter or any controlling person, the Company or any of its
officers, directors or any controlling persons, or the Selling Shareholder, and
shall survive delivery of the Shares to the Underwriters hereunder.
9. SUBSTITUTION OF UNDERWRITERS. (a) If any Underwriter shall
default in its obligation to purchase the Shares which it has agreed to purchase
hereunder, you may in your discretion arrange for you or another party or other
parties to purchase such Shares on the terms contained herein. If within thirty-
six (36) hours after such default by any Underwriter you do not arrange for the
purchase of such Shares, then the Company and the Selling Shareholder shall be
entitled to a
23
<PAGE>
further period of thirty-six (36) hours within which to procure another party or
parties reasonably satisfactory to you to purchase such Shares on such terms. In
the event that, within the respective prescribed periods, you notify the Company
and the Selling Shareholder that you have so arranged for the purchase of such
Shares, or the Company and the Selling Shareholder notify you that they have so
arranged for the purchase of such Shares, you or the Company and the Selling
Shareholder shall have the right to postpone the Closing Date for a period of
not more than seven days, in order to effect whatever changes may thereby be
made necessary in the Registration Statement or the Prospectus, or in any other
documents or arrangements, and the Company agrees to file promptly any
amendments to the Registration Statement or the Prospectus which in your opinion
may thereby be made necessary. The term "Underwriter" as used in this Agreement
shall include any persons substituted under this Section 9 with like effect as
if such person had originally been a party to this Agreement with respect to
such Shares.
(b) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters made by you or the
Company and the Selling Shareholder as provided in subsection (a) above, the
aggregate number of Shares which remains unpurchased does not exceed one tenth
(1/10th) of the total Shares to be sold on the Closing Date, then the Company
and the Selling Shareholder shall have the right to require each non-defaulting
Underwriter to purchase the Shares which such Underwriter agreed to purchase
hereunder and, in addition, to require each non-defaulting Underwriter to
purchase its pro rata share (based on the number of Shares which such
Underwriter agreed to purchase hereunder) of the Shares of such defaulting
Underwriter or Underwriters for which such arrangements have not been made; but
nothing herein shall relieve a defaulting Underwriter from liability for its
default.
(c) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters made by you or the
Company and the Selling Shareholder as provided in subsection (a) above, the
number of Shares which remains unpurchased exceeds one tenth of the total Shares
to be sold on the Closing Date, or if the Company and the Selling Shareholder
shall not exercise the right described in subsection (b) above to require the
non-defaulting Underwriters to purchase Shares of the defaulting Underwriter or
Underwriters, then this Agreement shall thereupon terminate, without liability
on the part of any non-defaulting Underwriter or the Company and the Selling
Shareholder except for the expenses to be borne by the Company and the
Underwriters as provided in Section 11 hereof and the indemnity and contribution
agreements in Section 7 hereof; but nothing herein shall relieve a defaulting
Underwriter from liability for its default.
10. EFFECTIVE DATE AND TERMINATION OF AGREEMENT. (a) This Agreement
shall become effective at 1:00 p.m., St. Louis time, on the first business day
following the Effective Date of the Registration Statement, or at such earlier
time after the Effective Date of the Registration Statement as you in your
discretion shall first release the Shares for offering to the public; provided,
however, that the provisions of Section 7 and 11 shall at all times be
effective. For the purposes of this Section 10(a), the Shares shall be deemed to
have been released to the public upon release by you of the publication of a
newspaper advertisement relating to the Shares or upon release of telegrams,
facsimile transmissions or letters offering the Shares for sale to securities
dealers, whichever shall first occur.
24
<PAGE>
(b) This Agreement may be terminated by you at any time before it
becomes effective in accordance with Section 10(a) by notice to the Company and
the Selling Shareholder; provided, however, that the provisions of this Section
10 and of Section 7 and Section 11 hereof shall at all times be effective. In
the event of any termination of this Agreement pursuant to Section 9 or this
Section 10(b) hereof, the Company and the Selling Shareholder shall not then be
under any liability to any Underwriter except as provided in Section 7 or
Section 11 hereof.
(c) This Agreement may be terminated by you at any time at or prior
to the Closing Date by notice to the Company and the Selling Shareholder if any
condition specified in Section 6 hereof shall not have been satisfied on or
prior to the Closing Date. Any such termination shall be without liability of
any party to any other party except as provided in Sections 7 and 11 hereof.
(d) This Agreement also may be terminated by you, by notice to the
Company and the Selling Shareholder, as to any obligation of the Underwriters to
purchase the Option Shares, if any condition specified in Section 6 hereof shall
not have been satisfied at or prior to the Option Closing Date or as provided in
Section 9 hereof.
If you terminate this Agreement as provided in Sections 10(b), 10(c) or
10(d), you shall notify the Company and the Selling Shareholder by telephone or
telegram, confirmed by letter.
11. COSTS AND EXPENSES. The Company will bear and pay the costs and
expenses incident to the registration of the Shares and public offering thereof,
including, without limitation, (a) the fees and expenses of the Company's
accountants and the fees and expenses of counsel for the Company, (b) the
preparation, printing, filing, delivery and shipping of the Registration
Statement, each Preliminary Prospectus, the Prospectus and any amendments or
supplements thereto (except as otherwise expressly provided in Section 5(d)
hereof) and the printing, delivery and shipping of this Agreement, the Agreement
Among Underwriters, the Selected Dealer Agreement, Underwriters' Questionnaires,
and Custody Agreements, (c) the furnishing of copies of such documents (except
as otherwise expressly provided in Section 5(d) hereof) to the Underwriters, (d)
the registration or qualification of the Shares for offering and sale under the
securities laws of the various states, including the reasonable fees and
disbursements of Underwriters' counsel relating to such registration or
qualification, (e) the fees payable to the NASD and the Commission in connection
with their review of the proposed offering of the Shares, (f) all printing and
engraving costs related to preparation of the certificates for the Shares,
including transfer agent and registrar fees, (g) all initial transfer taxes, if
any, (h) all fees and expenses relating to the authorization of the Shares for
trading on The Nasdaq Stock Market National Market, (i) all travel expenses,
including air fare and accommodation expenses, of representatives of the Company
in connection with the offering of the Shares and (j) all of the other costs and
expenses incident to the performance by the Company of the registration and
offering of the Shares; provided, however, that the Underwriters will bear and
pay the fees and expenses of the Underwriters' counsel (other than fees and
disbursements relating to the registration or qualification of the Shares for
offering and sale under the securities laws of the various states), the
Underwriters' out-of-pocket expenses, and any advertising costs and expenses
incurred by the Underwriters incident to the public offering of the Shares; and
provided, further, that the Selling Shareholder will bear and pay the fees and
expenses of the Selling Shareholder's counsel.
25
<PAGE>
If this Agreement is terminated by you in accordance with the provisions
of Section 10(c), the Company shall reimburse the Underwriters for all of their
out-of-pocket expenses, including the reasonable fees and disbursements of
counsel to the Underwriters.
12. DEFAULT OF SELLING SHAREHOLDER. Failure or refusal by the
Selling Shareholder to sell and deliver on the Closing Date the Shares agreed to
be sold and delivered by such Selling Shareholder shall in no manner relieve the
Company of its obligations under this Agreement. If the Selling Shareholder
should fail or refuse to sell and deliver its Shares, the Underwriters, at your
option, will have the right to elect to purchase or not to purchase the Shares
to be sold by the Company. In the event the Underwriters purchase the Shares of
the Company pursuant to this Section 12, the Closing Date shall be postponed for
a period of not more than seven (7) days in order that the Registration
Statement and Prospectus or other documents may be amended or supplemented to
the extent necessary under the provisions of the Act and the Rules and
Regulations or under the securities laws of any jurisdiction. If the
Underwriters determine not to purchase the Shares of the Company, this Agreement
shall terminate and neither the Company nor the Underwriters shall be under any
obligation under this Agreement except as provided in Section 7 hereof and
except for the obligation of the Company to pay for such expenses as are set
forth in Section 11 hereof. Nothing herein shall relieve the defaulting Selling
Shareholder from liability for its default or from liability under Section 7
hereof or for expenses imposed by this Agreement upon such Selling Shareholder.
13. NOTICES. All notices or communications hereunder, except as
herein otherwise specifically provided, shall be in writing and if sent to the
Underwriters shall be mailed, delivered, sent by facsimile transmission, or
telegraphed and confirmed c/o A.G. Edwards & Sons, Inc. at One North Jefferson
Avenue, St. Louis, Missouri 63103, Attention: Syndicate, facsimile number (314)
955-7387, or if sent to the Company shall be mailed, delivered, sent by
facsimile transmission, or telegraphed and confirmed to the Company at 5031
South Ulster Street, facsimile number (303) 770-3934, Attention: Chairman and
Chief Executive Officer, or if sent to the Selling Shareholder shall be mailed,
delivered, sent by facsimile transmission or telegraphed and confirmed to such
Selling Shareholder, c/o the Attorney-in-Fact at the above address of the
Company. Notice to any Underwriter pursuant to Section 7 shall be mailed,
delivered, sent by facsimile transmission, or telegraphed and confirmed to such
Underwriter's address as it appears in the Underwriters' Questionnaire furnished
in connection with the offering of the Shares or as otherwise furnished to the
Company and the Selling Shareholder.
14. PARTIES. This Agreement shall inure to the benefit of and be
binding upon the Underwriters and the Selling Shareholder, and the Company and
their respective successors and assigns. Nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any person, corporation or
other entity, other than the parties hereto and their respective successors and
assigns and the controlling persons, officers and directors referred to in
Section 7, any legal or equitable right, remedy or claim under or in respect of
this Agreement or any provision herein contained; this Agreement and all
conditions and provisions hereof being intended to be and being for the sole and
exclusive benefit of the parties hereto and their respective successors and
assigns and said controlling persons and said officers and directors, and for
the benefit of no other person, corporation or other entity. No purchaser of any
of the Shares from any Underwriter shall be construed a successor or assign by
reason merely of such purchase.
26
<PAGE>
In all dealings with the Company and the Selling Shareholder under this
Agreement, you shall act on behalf of each of the several Underwriters, and the
Company, and the Selling Shareholder shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of the Underwriters, made or
given by you on behalf of the Underwriters, as if the same shall have been made
or given in writing by the Underwriters.
15. Material Adverse Effect. For purposes of Section 4 of this
Agreement, "Material Adverse Effect" shall mean any material adverse effect on
the condition (financial or other), net worth, earnings, business, prospects,
management or properties of the Company and its subsidiaries, taken as a whole.
16. COUNTERPARTS. This Agreement may be executed by any one or more
of the parties hereto in any number of counterparts, each of which shall be
deemed to be an original, but all such counterparts shall together constitute
one and the same instrument.
17. PRONOUNS. Whenever a pronoun of any gender or number is used
herein, it shall, where appropriate, be deemed to include any other gender and
number.
18. APPLICABLE LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Missouri.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
27
<PAGE>
If the foregoing is in accordance with your understanding, please so
indicate in the space provided below for that purpose, whereupon this letter
shall constitute a binding agreement among the Company, each of the Selling
Shareholders and the Underwriters.
KOALA CORPORATION
By:______________________________________________
Title:___________________________________________
Selling Shareholder
By:______________________________________________
As Attorney-in-Fact acting on behalf of the
Selling Shareholder named in Schedule I to
this Agreement
Accepted in St. Louis,
Missouri as of the date
first above written, on
behalf of ourselves and each
of the several Underwriters
named in Schedule II hereto.
A.G. EDWARDS & SONS, INC.
CRAIG-HALLUM CAPITAL GROUP, INC.
By: A.G. EDWARDS & SONS, INC.
By:______________________________
Title:___________________________
28
<PAGE>
SCHEDULE I
NAME OF NUMBER OF
SELLING SHAREHOLDER FIRM SHARES
Rockmont Capital 800,000
Limited Liability Company
29
<PAGE>
SCHEDULE II
NAME OF NUMBER OF
UNDERWRITER FIRM SHARES
A.G. Edwards & Sons, Inc.
Craig-Hallum Capital Group, Inc.
-------------------
Total 1,800,000
30
<PAGE>
SCHEDULE III
Pursuant to Section 6(g) of the Underwriting Agreement, Ernst & Young
LLP shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with respect
to the Company within the meaning of the Act and the applicable published rules
and regulations thereunder.
(ii) In their opinion, the financial statements and any supplementary
financial information and schedules audited by them and included in the
Prospectus or the Registration Statement comply as to form in all material
respects with the applicable accounting requirements of the Act and the
applicable Rules and Regulations thereunder.
(iii) They have made a review in accordance with standards established
by the American Institute of Certified Public Accounts ("AICPA") of the
unaudited consolidated interim statements of income, balance sheets and
statements of cash flows included in the Prospectus. On the basis of specified
procedures including inquiries of officials of the Company who have
responsibility for financial and accounting matters regarding whether the
unaudited consolidated interim financial statements referred to in paragraph
(vi)(A) below comply as to form in all material respects with the applicable
accounting requirements of the Act, and the related published rules and
regulations, nothing came to their attention that caused them to believe that
the unaudited consolidated interim financial statements do not comply as to form
in all material respects with the applicable accounting requirements of the Act
and the related published rules and regulations;
(iv) The unaudited selected financial information with respect to the
consolidated results of operations and consolidated financial position of the
Company for the fiscal years audited by them included in the Prospectus agrees
with the corresponding amounts (after restatements where applicable) in the
audited financial statements for such fiscal years which were included in the
Company's Annual Reports on Form 10-KSB and the Company's Registration Statement
on Form SB-2 (File No. 333-___________) for such fiscal years;
(v) They have compared the information in this Prospectus under
selected captions with the disclosure requirements of Regulation S-K, and on the
basis of limited procedures specified in such letter nothing came to their
attention as a result of the foregoing procedures that caused them to believe
that this information does not conform in all material respects with the
disclosure requirements of Items 301, 302 and 402, respectively, of Regulation
S-K;
(vi) On the basis of limited procedures, not constituting an audit in
accordance with generally accepted auditing standards, consisting of a reading
of the unaudited financial statements and other information referred to below,
performing the procedures specified by the AICPA for a review of interim
financial information as discussed in SAS No. 71, Interim Financial Information,
on the latest available interim financial statements of the Company, inspection
of the minute books of the Company since the date of the latest audited
financial statements included in the Prospectus, inquiries of officials of the
Company responsible for financial and accounting matters and such other
inquiries and procedures as may be specified in such letter, nothing came to
their attention that caused them to believe that:
31
<PAGE>
(A) any material modifications should be made to the unaudited
consolidated statements of income, consolidated balance sheets and consolidated
statements of cash flows included in the Prospectus for them to be in conformity
with generally accepted accounting principles, or the unaudited consolidated
statements of income, consolidated balance sheets and consolidated statements of
cash flows included in the Prospectus do not comply as to form in all material
respects with the applicable accounting requirements of the Act and the related
published Rules and Regulations thereunder;
(B) the unaudited pro forma condensed financial statements included
in the Prospectus do not comply as to form in all material respects with the
applicable accounting requirements of the Act and the published Rules and
Regulations thereunder or the pro forma adjustments have not been properly
applied to the historical amounts in the compilation of those statements;
(C) as of a specified date not more than five days prior to the date
of such letter, there have been any changes in consolidated capital stock or any
increase in consolidated long-term debt of the Company, or any decreases in
working capital, net assets, shareholders' equity or other items specified by
the Representatives, or any changes in any items specified by the
Representatives, in each case as compared with amounts shown in the latest
consolidated balance sheet included in the Prospectus, except in each case for
changes, increases or decreases which the Prospectus discloses have occurred or
may occur or which are described in such letter; and
(D) for the period from the date of the latest financial statements
included in the Prospectus to the specified date referred to in Clause (C) there
were any decreases in consolidated net revenues or operating profit or the total
or per share amounts of net income or any other changes in any other items
specified by the Representatives, in each case as compared with the comparable
period of the preceding year and with any other period of corresponding length
specified by the Representative, except in each case for changes, decreases or
increases which the Prospectus discloses have occurred or may occur or which are
described in such letter; and
(vii) In addition to the examination referred to in their report(s) included
in the Prospectus and the limited procedures, inspection of minute books,
inquiries and other procedures referred to in paragraphs (iii) and (vi) above,
they have carried out certain specified procedures, not constituting an audit in
accordance with generally accepted auditing standards, with respect to certain
amounts, percentages and financial information specified by the Representatives,
which are derived from the general accounting records of the Company, which
appear in the Prospectus, or in Part II of, or in exhibits and schedules to, the
Registration Statement specified by the Representatives, and have compared
certain of such amounts, percentages and financial information with the
accounting records of the Company and have found them to be in agreement.
32
<PAGE>
SCHEDULE IV
Pusuant to Section 6(h) of the Underwriting Agreement, Blanski Peter
Kronlage & Zoch, P.O. shall furnish letters to the Underwriters to the effect
that:
(i) They are independent certified public accountants with respect to
the Company within the meaning of the Act and the applicable published rules and
regulations thereunder.
(ii) In their opinion, the consolidated financial statements and any
supplementary financial information and schedules audited by them and included
in the Prospectus or the Registration Statement comply as to form in all
material respects with the applicable accounting requirements of the Act and the
applicable Rules and Regulations thereunder.
(iii) The unaudited selected financial information with respect to the
consolidated results of operations and consolidated financial position of the
Company for the periods audited by them included in the Prospectus agrees with
the corresponding amounts (after restatements where applicable) in the audited
consolidated financial statements for such periods which were included in the
Company's annual reports on Form 10-KSB and the Company's Registration Statement
on Form SB-2 (File No. 333-_________).
33
<PAGE>
SCHEDULE V
Pursuant to Section 6(i) of the Underwriting Agreement, Goldstein Lewin
& Co shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with respect
to Park and the Company within the meaning of the Act and the applicable
published Rules and Regulations thereunder.
(ii) In their opinion, the financial statements and any supplementary
financial information and schedules of Park comply as to form in all material
respects with the applicable accounting requirements of the Act and the
applicable Rules and Regulations.
(iii) The unaudited selected financial information with respect to the
results of operations and financial position of Park for the periods included in
the Prospectus agrees with the corresponding amounts (after restatements where
applicable) in audited financial statements for such periods included in the
Company's Registration Statement on Form SB-2 (File No. 333-_____________) for
such periods.
(iv) On the basis of limited procedures, not constituting an audit in
accordance with generally accepted auditing standards, consisting of a reading
of the most recent unaudited financial statement of Park, performing the
procedures specified by the American Institute of Certified Public Accountants
("AICPA") for a review of interim financial information as discussed in SAS No.
71, Interim Financial Information, on the latest available interim financial
statement of Park, inspection of the minute books of Park since the date of the
latest audited financial statements included in the Prospectus, inquiries of
officials of Park responsible for financial and accounting matters and such
other inquiries and procedures as may be specified in such letter, nothing came
to their attention that caused them to believe that:
(A) as of a specified date not more than five days prior to
the date of such letter, there have been any changes in the capital stock or any
increase in the long-term debt of Park, or any decreases in working capital, net
assets, shareholders' equity or other items specified by the Representatives, or
any changes in any items specified by the Representatives, in each case as
compared with amounts shown in the latest balance sheet included in the
Prospectus, except in each case for changes, increases or decreases which the
Prospectus discloses have occurred or may occur or which are described in such
letter; and
(B) for the period from the date of the latest financial
statements included in the Prospectus to the specified date referred to in
Clause (A) there were any decreases in net revenues or operating profit or the
total or per share amounts of net income or any other changes in any other items
specified by the Representatives, in each case as compared with the comparable
period of the preceding year and with any other period of corresponding length
specified by the Representatives, except in each case for changes, decreases or
increases which the Prospectus discloses have occurred or may occur or which are
described in such letter; and
34
<PAGE>
In addition to the examination referred to in their report(s) included
in the Prospectus and the limited procedures, inspection of minute books,
inquiries and other procedures referred to in paragraphs (iii) above, they have
carried out certain specified procedures, not constituting an audit in
accordance with generally accepted auditing standards, with respect to certain
amounts, percentages and financial information specified by the Representatives,
which are derived from the general accounting records of Park, which appear in
the Prospectus, or in Part II of, or in exhibits and schedules to, the
Registration Statement specified by the Representatives, and have compared
certain of such amounts, percentages and financial information with the
accounting records of Park and have found them to be in agreement.
35
<PAGE>
SCHEDULE VI
Pursuant to Section 6(j) of the Underwriting Agreement, Ernst & Young
Chartered Accountants shall furnish letters to the Underwriters to the effect
that:
(i) They are independent certified public accountants with respect to
Delta Play Ltd. and the Company within the meaning of the Act and the applicable
published Rules and Regulations thereunder.
(ii) In their opinion, the financial statements and any supplementary
financial information and schedules audited by them and included in the
Prospectus or the Registration Statement comply as to form in all material
respects with the applicable accounting requirements of the Act and the
applicable Rules and Regulations thereunder.
<PAGE>
SCHEDULE VII
(Form of Lock-up Letter)
KOALA COPORATION
1,800,000 SHARES
COMMON STOCK, PAR VALUE $0.10 PER SHARE
A.G. Edwards & Sons, Inc.
Craig-Hallum Capital Group, Inc.
As Representatives of the Several Underwriters
c/o A.G. Edwards & Sons, Inc.
One North Jefferson Avenue
St. Louis, Missouri 63103
Ladies and Gentlemen:
The undersigned shareholder of Koala Corporation, a Colorado
corporation (the "Company"), wishes to facilitate the offering (the "Offering")
of 1,800,000 shares of Common Stock, par value $0.10 per share (the "Common
Stock"), of the Company. The Shareholder recognizes that the Offering will be of
benefit to the Company and the Shareholder.
In consideration of the foregoing and in order to induce you, as the
representatives (the "Representatives") of certain underwriters (the
"Underwriters") to enter into an underwriting agreement with the Company and the
selling shareholder (the "Underwriting Agreement") relating to the Offering and
to complete the purchase of the shares of Common Stock pursuant to such
Underwriting Agreement, the Shareholder hereby agrees with the Underwriters as
follows:
1. During the term of this Agreement, as specified in paragraph 2
hereof, such Shareholder shall not, directly or indirectly, offer, sell,
contract to sell or otherwise dispose of any shares of the Company's Common
Stock or any securities convertible into or exercisable or exchangeable for, or
any rights to purchase or acquire Common Stock or the beneficial ownership
thereof (collectively the "Subject Securities"), without your prior written
consent as Representative of the Underwriters.
2. This Agreement shall become effective upon the later of: (i) the
effective date of the Registration Statement filed by the Company with the
Securities and Exchange Commission on Form SB-2 (SEC Registration No. 333-
_______) in connection with the Offering, as such Registration Statement may be
amended from time to time (the "Registration Statement") or (ii) the execution
hereof by the Shareholder. This Agreement shall terminate without any prior
notice upon the earlier of (i) the date which is one hundred and eighty (180)
days after the effective date of the Registration Statement or (ii) the
termination or cancellation of the Underwriting Agreement for any reason prior
to the sale of the Common Stock to the Underwriters. Notwithstanding the
foregoing, this Agreement shall terminate immediately upon any abandonment of
the Registration Statement.
37
<PAGE>
3. This Agreement shall be construed and enforced in accordance
with the laws of the State of Missouri. The Underwriters shall be entitled to
all legal and equitable remedies in enforcing this Agreement, including without
limitation an injunction against any sale of shares of the Common Stock in
contravention of this Agreement. If at any time subsequent to the date of this
Agreement any provision hereof shall be held by any court of. competent
jurisdiction to be illegal, void or unenforceable, such provision shall be of no
force and effect, but the illegality or unenforceability of such provision shall
have no effect upon and shall not impair the legality or enforceability of, any
other provision of this Agreement.
4. This Agreement may be executed in one or more counterparts, each
of which shall be an original, but all of which taken together shall constitute
one and the same instrument.
5. All of the terms and provisions of this Agreement shall inure to
the benefit of and be binding upon the respective heirs, successors, personal
representatives and permitted assigns of the parties hereto.
If the foregoing correctly sets forth the agreement between the
undersigned and the Underwriters, please indicate your acceptance in the space
provided below for that purpose.
Very truly yours,
_________________________________________
(Signature)
Print Name:______________________________
Date:____________________________________
Agreed to and accepted as of the date above written:
A.G. Edwards & Sons, Inc.
Craig-Hallum Capital Group, Inc.
By: A.G. Edwards & Sons, Inc.
By:_________________________
Name:_______________________
Title:______________________
38
<PAGE>
ARTICLES OF INCORPORATION EXHIBIT 3.1
OF
KOALA CORPORATION
The undersigned, being of the age of eighteen years or more and desiring to
act as an incorporator of a corporation pursuant to the laws of the State of
Colorado, does hereby adopt these Articles of Incorporation:
ARTICLE I
The name of this corporation shall be: Koala Corporation.
ARTICLE II
The corporation shall have perpetual existence.
ARTICLE III
The purpose for which this corporation is organized is to transact all
lawful business, as the Board of Directors may deter-mine from time to time, for
which corporations may be incorporated pursuant to the Colorado Corporation
Code.
ARTICLE IV
4.1) Authorized Capital. The Corporation is authorized to issue two
------------------
classes of shares, Common Stock and Preferred Stock. The Corporation is
authorized to issue 11,000,000 shares of stock, of which 10,000,000 shares are
common stock, each having a par value of $0.10 per share ("Common Stock"), and
1,000,000 shares are preferred stock, each having no par value ("Preferred
Stock"). From time to time, said shares may be issued by the Corporation for
such consideration expressed in dollars (not less than the par value thereof, in
the case of Common Stock), in money paid, property received or labor done, as
may be fixed by the Board of Directors. All of said stock, when issued, shall
be fully paid and nonassessable for any purpose.
(a) Preferred Stock.
---------------
The Board of Directors is authorized, subject to limitations prescribed by
law and the provisions of this Article IV, to provide for the issuance of the
shares of Preferred Stock in series, and by adopting and filing Articles of
Amendment to these Articles of Incorporation pursuant to Section 7-106-102 of
the Colorado Business Corporation Act (the "Act") to establish the number of
shares to be included in each such series, and to fix the voting rights, powers,
designations, preferences, rights and qualifications, limitations or
restrictions granted and imposed upon each series. The Board of Directors may,
at any time and from time to time, as permitted by the Act, increase or decrease
the number of shares of any series of Preferred Stock.
The Board of Directors is expressly authorized to vary the provisions
relating to the foregoing matters between the various series of Preferred Stock.
All shares of Preferred Stock of any one series shall be identical in all
respects with all shares of such series, except that shares of any one series
<PAGE>
issued at different times may differ as to the dates from which dividends
thereon shall be payable and, if cumulative, shall cumulate.
The authority of the Board of Directors with respect to each series shall
include, but not be limited to, determination of the following:
(1) The number of shares constituting the series and the
distinctive designation of that series;
(2) The dividend rate on the shares of that series, if any,
whether dividends shall be cumulative, and if so, from which
date or dates;
(3) Whether that series shall have voting rights, in addition to
the voting rights provided by law, and, if so, the terms of
such voting rights (if no voting rights are specified, the
shares of that series shall not be entitled to voting rights;
if voting rights are specified, such voting rights shall,
unless explicitly stated otherwise, entitle the holder of the
shares of such series to vote together with the Common Stock
of the Corporation and any other series of Preferred Stock
which, collectively, shall form a single voting group; except
that each series shall be entitled to vote as a separate
voting group to the extent required by law);
(4) Whether that series shall have conversion privileges, and, if
so, the terms and conditions of such conversion, including
provisions for adjustment of the conversion rate in such
events as the Board of Directors shall determine;
(5) Whether or not the shares of that series shall be redeemable,
and, if so, the terms and conditions of such redemption,
including the date or dates upon or after which they shall be
redeemable, and the amount per share payable in case of
redemption, which amount may vary under different conditions
and at different redemption dates;
(6) Whether that series shall have a sinking fund for the
redemption or purchase of shares of that series, and, if so,
the terms and amount of such sinking fund; and
(7) The rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding
up of the Corporation.
(b) Common Stock.
------------
(1) Subject to the rights of the holders of outstanding shares of
any series of Preferred Stock designated by the Board of
Directors pursuant to paragraph (a) of this Article IV, the
holders of Common Stock shall be entitled to receive, when
and as declared by the Board of Directors, out of any assets
of the Corporation legally available therefor, such
-2-
<PAGE>
dividends as may be declared from time to time by the Board
of Directors.
(2) Subject to the rights of the holders of outstanding shares of
any series of Preferred Stock designated by the Board of
Directors pursuant to paragraph (a) of this Article IV, upon
the liquidation, dissolution or winding up of the
Corporation, the assets of the Corporation legally available
therefor shall be distributed to the holders of Common Stock.
(3) Each holder of record of Common Stock shall have one vote for
each share of Common Stock standing in his name on the books
of the corporation and entitled to vote, except that in the
election of directors he shall have the right to vote such
number of shares for as many persons as there are directors
to be elected. Cumulative voting shall not be allowed in the
election of directors or for any other purpose.
4.2) Preemptive Rights. Shareholders of this Corporation shall have no
-----------------
preemptive rights to acquire unissued, additional, or treasury shares of this
Corporation, or securities convertible into shares or carrying stock purchase
warrants or privileges.
4.3) Majority Vote. Without limiting the right of the shareholders under
-------------
applicable provisions of the Act to approve any other action by the affirmative
vote of the majority of shares of each voting group entitled to vote thereon,
the following action may be taken by the Corporation upon resolution of the
Board of Directors recommending such action and upon the recommendation's
receiving the affirmative vote of a majority of the total shares of each voting
group entitled to vote thereon:
(a) Amendment to Articles of Incorporation of the Corporation;
(b) A sale, lease, exchange, or other disposition of all or
substantially all of the property and assets of the
Corporation, if not in the usual and regular course of its
business;
(c) Adoption of a plan of merger, a plan of consolidation, or a
plan of exchange of shares;
(d) Voluntary dissolution of the Corporation by act of the
Corporation or the revocation of voluntary dissolution
proceedings by act of the Corporation.
ARTICLE V
The address of the initial registered office of this corporation shall be
1600 Colorado National Bldg., Suite 1600 950 Seventeenth Street, Denver,
Colorado 80202 and the initial registered agent at such address shall be William
R. Neff, Esq.
-3-
<PAGE>
ARTICLE VI
The number of directors shall be as fixed from time to time by the Bylaws
of this corporation. The number constituting the initial Board of Directors
shall be two, inasmuch as initially the outstanding shares of the corporation
will be held of record by no more than two shareholders. The name and address
of the person who is to serve as the director until the first annual meeting of
shareholders or until his successor is elected and qualifies are:
John T. Pfannenstein 1290 Broadway, Suite 500
Denver, Colorado 80203
T. W. Gamel 1290 Broadway, Suite 500
Denver, Colorado 80203
ARTICLE VII
A. The corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action,
suit, or proceeding, whether civil, criminal, administrative, or investigative
(other than an action by or in the right of the corporation), by reason of the
fact that he is or was a director or officer of the corporation or is or was
serving at the request of the corporation as a director or officer of another
corporation, partnership, joint venture, trust, or other enterprise, against
expenses (including attorneys' fees), judgments, penalties, fines, and amounts
paid in settlement actually and reasonably incurred by him in connection with
such action, suit, or proceeding, if he acted in good faith and in a manner he
reasonably believed to be in the best interests of the corporation (in the case
of conduct in his official capacity with the corporation) or in a manner he
reasonably believed to be at least not opposed to the corporation's best
interests (in all cases other than in the case of conduct in his official
capacity with the corporation), and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit, or proceeding by judgment, order, settlement,
or conviction or upon a plea of nolo contendere or its equivalent shall not of
itself create a presumption that the person did not meet the standard of conduct
set forth in this paragraph (A) of Article VII.
B. The corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director or officer of the corporation or
is or was serving at the request of the corporation as a director or officer of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if he
met the standard of conduct set forth in paragraph (A) of this Article VII.
C. Notwithstanding the foregoing provisions of paragraphs (A) and (B) of
this Article VII, the corporation may not indemnify a director or officer in
connection with a proceeding by or in the right of the corporation in which the
director or officer was adjudged liable to the corporation or in connection with
any proceeding charging improper personal benefit to the director or officer,
whether or not involving action in his official capacity, in which he was
adjudged liable on the basis that personal benefit was improperly received by
him.
-4-
<PAGE>
D. To the extent that a director or officer of a corporation has been
successful on the merits in defense of any action, suit, or proceeding referred
to in (A) or (B) of this Article VII or in defense of any claim, issue, or
matter therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith.
E. Nothing in this Article VII shall limit or deny a director or officer
of the corporation from applying to a court of competent jurisdiction for
mandatory indemnification as provided by the Colorado Corporation Code, as
amended, as from time to time in effect.
F. Any indemnification under paragraphs (A) or (B) of this Article VII
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the director
or officer is proper in the circumstances because he has met the applicable
standard of conduct set forth in paragraphs (A) or (B) above. Such
determination shall be made by the Board of Directors by a majority vote of a
quorum consisting of directors who were not parties to such action, suit, or
proceeding, or, by the shareholders or by independent legal counsel in a written
opinion if such quorum is not obtainable or, even if obtainable, if a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, or by the shareholders.
G. Expenses (including attorneys' fees) incurred in defending a civil or
criminal action, suit, or proceeding may be paid by the corporation in advance
of the final disposition of such action, suit, or proceeding upon receipt of an
undertaking by or on behalf of the director or officer to repay such amount
unless it is ultimately determined that he is entitled to be indemnified by the
corporation as authorized in this Article VII and such director or officer
furnishes the corporation a written affirmation of his good faith belief that he
has met the standard of conduct required herein.
H. The indemnification provided by this Article VII shall not be deemed
exclusive of any other rights to which those indemnified herein or other persons
may be entitled under the Colorado Corporation Code, any bylaw, agreement, vote
of shareholders or disinterested directors, or otherwise, and any procedure
provided for by any of the foregoing, both as to action in his official capacity
and as to action in another capacity while holding such office, and shall
continue as to a person who has ceased to be a director or officer and shall
inure to the benefit of heirs, executors, and administrators of such a person.
I. The corporation may purchase and maintain insurance on behalf of any
person who is or was a director or officer of the corporation or who is or was
serving at the request of the corporation as a director or officer of another
corporation, partnership, joint venture, trust, or other enterprise or any other
person against any liability asserted against him and incurred by him in any
such capacity or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
provisions of this Article VII.
J. Notwithstanding the above provisions, a director shall have no
personal liability to the corporation or to its shareholders for monetary
damages for breach of fiduciary duty as a director; except that this provision
shall not eliminate the liability of a director to the corporation or to its
shareholders for monetary damages for: Any breach of the director's duty of
loyalty to the corporation or to its shareholders; acts or omissions not in good
faith or which involve intentional
-5-
<PAGE>
misconduct or a knowing violation of law; acts specified in section 7-5-114 of
the Colorado Corporation Code; or any transaction from which the director
derived an improper personal benefit.
ARTICLE VIII
The name and address of the incorporator is:
William R. Neff Otten, Johnson, Robinson, Neff &
Ragonetti, P.C.
1600 Colorado National Building
950 Seventeenth Street
Denver, Colorado 80202
IN WITNESS WHEREOF, the incorporator has signed and verified these Articles
of Incorporation this 9th day of June, 1993.
/s/ William R. Neff
------------------------------------------
William R. Neff
-6-
<PAGE>
KOALA CORPORATION EXHIBIT 3.2
BYLAWS
ARTICLE I - MEETINGS OF SHAREHOLDERS
Section 1. Annual Meeting. The annual meeting of the shareholders of
the company shall be held at the office of the company, or at such other place
within or without the State of Colorado as may be determined by the Board of
Directors and as may be designated in the notice of such meeting. The meeting
shall be held on the third Monday of May of each year for the election of
directors and the transaction of such other business as may come before said
meeting.
Section 2. Special Meetings. Special meetings of the shareholders may
be called at any time by the president, the Board of Directors, or the holders
of not less than one-tenth (1/10) of the shares entitled to vote at the meeting.
Section 3. Notice. Written or printed notice stating the place, day,
and hour of the shareholders' annual meeting, and in case of a special meeting
of the shareholders, the purpose or purposes for which such meeting is called,
shall be delivered not less than ten (10) nor more than fifty (50) days before
the date of the meeting, either personally or by mail, by or at the direction of
the president, the secretary, or the officer or persons calling such meeting,
except that if the authorized capital stock is to be increased, at least thirty
(30) days' notice shall be given. If mailed, such notice shall be deemed to be
delivered when deposited in the United States mail addressed to the shareholder
at his address as it appears on the stock transfer books of the company, with
postage prepaid thereon.
Section 4. Quorum. At all meetings of shareholders there shall be
present, either in person or by proxy, shareholders owning a majority of the
capital stock of the company in order to constitute a quorum.
Section 5. Voting. At all annual and special meetings of shareholders,
the right of any shareholder to vote shall be governed and determined as
prescribed by the laws of Colorado. A majority of those shares entitled to vote
and represented at the meeting, a quorum being present, shall be the act of the
meeting.
Section 6. Method of Voting. All voting shall be by voice, except that
when requested by any shareholder present or represented by proxy, vote shall be
had by ballot, each of which shall state the name of the shareholder voting and
the number of shares owned by him, and if such ballot be by proxy, it shall also
state the name of such proxy.
Section 7. Place of Special Meetings. Special meetings of share-
holders shall be held at the registered office of the company or at such other
place within or without the State of Colorado as the Board of Directors may
designate.
<PAGE>
ARTICLE II - DIRECTORS
Section 1. Election.
(a) The number of directors of this company shall be two (2).
(b) The directors shall be elected by ballot for the term of one
(1) year at the annual meeting of the shareholders, except as hereinafter
provided for the filling of vacancies. The directors shall be chosen by
plurality of the votes of the shareholders voting either in person or by proxy
at such annual meeting.
Section 2. Vacancies. Vacancies in the Board of Directors, including
vacancies occurring by reason of an increase in the number of directors of the
company, shall be filled for the unexpired term by a majority vote of the
remaining directors, though less than a quorum, at any special meeting called
for that purpose or any regular meeting of the Board.
Section 3. Removal. Any director may be removed without or with cause
at any time by the affirmative vote of a majority in interest of the holders of
record of the stock of the company having voting power at a special meeting of
the shareholders called for that purpose, and the vacancy in the Board caused by
such removal may be filled by the shareholders at such meeting.
Section 4. Rules and Regulations. The Board of Directors may adopt
such rules and regulations for the conduct of their meetings and the management
of the affairs of the company as they may deem proper, not inconsistent,
however, with these Bylaws.
Section 5. Meetings. Regular meetings of the Board of Directors shall
be held at such time, on such day, and at such hour as the Board shall, by
resolution unanimous consent, from time to time establish. All meetings not
held on regular meeting dates shall be considered special meetings. No notice
of regular meetings of the Board of Directors shall be given. Special meetings
may be held at any time at any place within or without the State of Colorado
upon call by the president and, on the written request of any director, the
secretary shall call a special meeting of the board. Written notice setting
forth the time, place, and purpose of any special meeting of the directors shall
be mailed at least four (4) days prior to the meeting to each director at his
business address; or it shall be delivered or sent by telegram at least forty-
eight (48)(48) hours prior to the meeting to the business address of each
director, except that if given by personal delivery or telegram on a Saturday,
Sunday, or holiday, it shall be delivered or sent to the residence address of
each director.
Section 6. Powers. The Board of Directors shall exercise all the
powers of this company and shall do all lawful acts and things not by statute
required to be done by the shareholders.
Section 7. Committees of Directors. The Board of Directors may, by
resolution passed by a majority of the whole Board, designate one (1) or more
committees, each committee to consist of two (2) or more of the directors of the
company. The Board may designate one (1) or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. Any such committee to the extent provided in the
resolution, shall have and may exercise the powers of the Board of Directors in
the management of
-2-
<PAGE>
the business and affairs of the company and may authorize the seal of the
company to be affixed to all papers which may require it; provided, however,
that in the absence or disqualification of any member of such committee or
committees, the member or members thereof present at any meeting and not
disqualified from voting whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Such committee
or committees shall have such name or names as may be determined from time to
time by resolution adopted by the Board of Directors. Each committee shall keep
regular minutes of its meetings and report the same to the Board of Directors
when requested.
ARTICLE III - OFFICERS
Section 1. Appointment. The Board of Directors, immediately after the
annual meeting, shall elect by a majority vote a chairman of the board, a
president, one (1) or more vice presidents, a secretary, and a treasurer, all of
whom shall serve for the term of one (1) year or until their successors are duly
elected and qualified. Each of said offices may be held by anyone, irrespective
of whether he is a member of the Board of Directors or a shareholder. Two (2)
or more of the offices may be held by one (1) person, except the offices of
president and secretary.
Section 2. Removal. Any officer may be removed with or without cause
at any time by the affirmative vote of a majority of the directors at any
special meeting of the Board of Directors called for that purpose, and the
vacancy created by such removal may be filled by the directors at such meeting.
Section 3. Other Officers. The Board of Directors may select such
other officer officers, employees, and agents as it deems necessary and shall
prescribe the authorities and duties of such officers, employees, and agents.
Section 4. Duties of Chairman of the Board. The chairman of the board
shall be the chief executive officer of the corporation and shall preside at all
meetings of the shareholders and Board of Directors. Except when by law the
signature of the president is required, the chairman shall possess the same
power as the president to sign all certificates, contracts, and other
instruments of the corporation which may be authorized by the Board of
Directors. He shall direct, promote, and build up the business of the company
and shall determine its business and financial policies and activities. He
shall be directly responsible to the Board of Directors.
Section 5. Duties of President. The president shall have such powers
and be subject to such duties as are provided by law or as may be conferred upon
him by vote or resolution of the Board of Directors. He shall be directly
responsible to the Board of Directors. He shall be the general manager of the
company, shall have and perform all duties and functions that are generally
accepted and recognized as associated with the office of general manager, and
shall make such reports to the Board of Directors and shareholders and perform
such other duties as are incident to his office or are properly required of him
by the Board of Directors.
-3-
<PAGE>
Section 6. Duties of Vice President. The vice president shall, in the
absence or incapacity of the president, perform the duties of that office.
Section 7. Duties of Secretary. The secretary shall have the custody
of the company's seal and books of record, shall complete the minutes of all
meetings of directors and shareholders, shall attend to the giving and serving
of all notices of the company, and shall keep a stock ledger as required by law
which shall be open for inspection.
Section 8. Duties of Treasurer. The treasurer shall have the care and
custody of all the funds and securities of the company and shall deposit the
same in the name of the company in such bank or banks as the directors may
designate. He shall keep full and accurate account of all receipts and
expenditures. He shall give such bond for the faithful performance of his
duties as the Board of Directors may require.
ARTICLE IV - CAPITAL STOCK
Section 1. Subscriptions. Subscriptions to the capital stock must be
paid to the treasurer at such time or times and in such installments as the
Board of Directors may require.
Section 2. Form of Certificates of Stock. The certificates of stock
shall be represented by consecutively numbered certificates signed in the name
of the company by its chairman or vice chairman of the board of directors or by
the president or a vice president and by the treasurer or assistant treasurer or
by the secretary or an assistant secretary, and shall be sealed with the seal of
the corporation, or with a facsimile thereof. Any or all signatures of the
company's officers on such certificate may also be facsimiles if the certificate
is countersigned by a transfer agent, or registered by a registrar, other than
the corporation itself or an employee of the corporation. In case any officer
who has signed or whose facsimile signature has been placed upon such
certificate shall have ceased to be such officer before such certificate is
issued, it may be issued by the corporation with the same effect as if he were
such officer at the date of its issue. Certificates of stock shall be in such
form consistent with law as shall be prescribed by the Board of Directors. No
certificate shall be issued until the shares represented thereby are fully paid.
Section 3. Transfers and Ownership. Transfers of shares of the capital
stock of the corporation shall be made by the registered owner thereof or by his
duly authorized attorney only on the books of the corporation maintained by the
secretary of the corporation or by the transfer clerk or transfer agent
appointed as provided in Section 4 of this Article of the Bylaws, and on
surrender of the certificate or certificates for such shares properly endorsed
and with all taxes thereon, if any, paid. The person in whose name shares of
stock stand on the books of the corporation shall be deemed by the corporation
to be the owner thereof for all purposes.
Section 4. Transfer Agent and Registrar. The Board of Directors may
appoint one (1) or more transfer agents or transfer clerks and one (1) or more
registrants and may require all certificates for shares to bear the signature or
signatures of any of them. In the absence of such appointment, the secretary of
the corporation shall serve as the transfer agent.
Section 5. Fixing Record Date.
-4-
<PAGE>
(a) In order that the corporation may determine the shareholders
entitled to notice of or to vote at any meeting of shareholders or any
adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion, or exchange of stock or for the purpose of
any other lawful action, the Board of Directors may fix, in advance, a record
date, which shall not be more than fifty (50) nor less than ten (10) days before
the date of such meeting, nor more than fifty (50) days prior to any other
action. A determination of shareholders of record entitled to notice of or to
vote at a meeting of shareholders shall apply to any adjournment of the meeting;
provided, how-ever, that the Board of Directors may fix a new record date for
the adjourned meeting.
(b) If the stock transfer books are not closed and no record date
is fixed, as provided in paragraph (a), for the determination of shareholders
entitled to notice of or to vote at a meeting of shareholders or shareholders
entitled to receive payment of a dividend, the date on which notice of the
meeting is mailed or the date on which the resolution of the Board of Directors
declaring the dividend is adopted, as the case may be, shall be the record date
for such determination of shareholders.
ARTICLE V - SEAL
The Seal of the corporation shall be in the form of a circle and shall bear
the name of the corporation and the state of its incorporation.
ARTICLE VI - AMENDMENT OF BYLAWS
These Bylaws may be amended at any regular or special meeting of the Board
of Directors.
ARTICLE VII - WAIVER OF NOTICE
Whenever any notice is required to be given to any shareholder or director
of the corporation under the provisions of the articles of incorporation or
bylaws of the corporation, a waiver thereof in writing signed by the person or
persons entitled to such notice, whether before, at, or after the time stated
therein, shall be equivalent to the giving of such notice.
-5-
<PAGE>
ARTICLE VIII - ACTION BY DIRECTORS OR SHAREHOLDERS
WITHOUT A MEETING
Any action required to be taken at a meeting of the directors, executive
committee or other committee of directors, or shareholders of the corporation,
or any action which may be taken at a meeting of the directors, executive
committee or other committee of directors, or shareholders, may be taken without
a meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the directors, executive or other committee members, or
shareholders entitled to vote with respect to the subject matter thereof. Such
consent shall have the same force and effect as a unanimous vote of the
directors, executive or other committee members, or shareholders, as the case
may be.
ARTICLE IX - FISCAL YEAR
The fiscal year of the company shall be the calendar year.
-6-
<PAGE>
KOALA CORPORATION EXHIBIT 10.2
1995 STOCK OPTION PLAN
AMENDED AND RESTATED AS OF
JANUARY 26, 1998
On May 21, 1996 the stockholders of Koala Corporation (the "Corporation")
approved the Corporation's 1995 Stock Option Plan (the "Original Plan"). The
effective date of the Original Plan was November 3, 1995. The maximum number of
shares authorized to be granted pursuant to Options (as defined below) under the
Original Plan was 400,000. As of January 26, 1998, 374,000 shares were subject
to outstanding Options or had been granted pursuant to the exercise of Options
under the Original Plan. Options granted prior to January 26, 1998 effective
date of New Plan] shall be governed by the Original Plan.
On May 19, 1998 the stockholders of the Corporation approved the
Corporation's 1995 Stock Option Plan as Amended and Restated as of January 26,
1998 (the "New Plan"). The effective date of the New Plan is January 26, 1998.
The New Plan is authorized to grant an additional 250,000 shares pursuant to
Options. The total number of shares that may be issued pursuant to Options
under the New Plan is 276,000. Options granted on or after January 26, 1998
shall be governed by the New Plan.
1. Purposes. The principal purposes of the Corporation's 1995 Stock
--------
Option Plan (the "Plan") are (a) to improve individual performance by providing
long-term incentives and rewards to the Corporation's employees, directors and
consultants, (b) to assist the Corporation in attracting, retaining and
motivating employees, directors and consultants with experience and ability, and
(c) to associate the interests of such persons with those of the Corporation's
shareholders.
Options granted under the New Plan may either be Incentive Stock Options
(as defined below) or Non-Qualified Stock Options (as defined below).
This Plan is separate from the Corporation's 1993 Stock Option Plan.
2. Definitions. For purposes of this Plan, the following capitalized
-----------
terms shall have the meanings indicated below:
a. "Board" - the Board of Directors of Koala Corporation.
b. "Capital Stock" - any of the Corporation's authorized but unissued
shares of voting common stock, par value of Ten Cents ($.10) per share.
c. "Code" - the Internal Revenue Code of 1986, as amended from time to
time.
d. "Committee" - (i) a group appointed by the Board consisting solely of
not less than two "non-employee" members of the Board within the meaning of
and to the extent required by the General Rules and Regulations promulgated
pursuant to Section 16 of the Exchange
<PAGE>
Act (the "Section 16 Regulations"), or (ii) if no such group is appointed,
all members of the Board.
e. "Corporation" - the Corporation and any of its Subsidiaries or
Parents.
f. "Exchange Act" - the Securities Exchange Act of 1934, as amended from
time to time.
g. "Disabled" - permanently and totally disabled as defined in section
22(e)(3) of the Code.
h. "Fair Market Value" - the price per share determined as follows: (a)
if the security is listed for trading on one or more national securities
exchanges (including the Nasdaq National Market System), the reported last
sales price on such principal exchange on the date in question, or if such
security shall not have been traded on such principal exchange on such
date, the reported last sales price on such principal exchange on the first
day prior thereto on which such security was so traded; or (b) if the
security is not listed for trading on a national securities exchange
(including the Nasdaq National Market System) but is traded in the
over-the-counter market, the mean of the highest and lowest bid prices for
such security on the date in question, or if there are no such bid prices
for such security on such date, the mean of the highest and lowest bid
prices on the first day prior thereto on which such prices existed; or (c)
if neither (a) nor (b) is applicable, by any means deemed fair and
reasonable by the Committee (as defined below), which determination shall
be final and binding on all parties. Fair Market Value shall be determined
without regard to any restriction other than a restriction which by its
terms will never lapse.
i. "Incentive Stock Option" - an "incentive stock option" as that term is
defined in subsection 422(b) of the Code, to purchase shares of Capital
Stock. An Incentive Stock Option shall only be granted pursuant to an
"Incentive Stock Option Agreement."
j. "Non-Qualified Stock Option" - an option, not intended to qualify as
an Incentive Stock Option, to purchase shares of Capital Stock. A Non-
Qualified Stock Option shall only be granted pursuant to a "Non-Qualified
Stock Option Agreement."
k. "Option" - an Incentive Stock Option or a Non-Qualified Stock Option.
l. "Option Agreement" - a written agreement pursuant to which the
Corporation grants an option to an Optionee and which sets the terms and
conditions of the option. The term shall refer to an Option Agreement
pertaining to an Incentive Stock Option (an "Incentive Stock Option
Agreement") or an Option Agreement pertaining to a Non-Qualified Stock
Option (a "Non-Qualified Stock Option Agreement").
m. "Option Date" - the date on which an Option is granted, which shall be
the date upon which an Option Agreement is duly executed by or on behalf of
the Corporation.
2
<PAGE>
n. "Option Stock" - the Capital Stock reserved for Options pursuant to
this Plan (subject to adjustment as described in section 8), or any other
class of stock of the Corporation which may be substituted therefor by
exchange, stock split or otherwise.
o. "Optionee" - the person to whom an option to purchase shares of Capital
Stock has been granted by means of an Incentive Stock Option or a Non-
Qualified Stock Option.
p. "Parent" - a corporation that, at the time of granting the Option,
directly or indirectly through related corporations, owns more than fifty
percent of the voting power of the shares entitled to vote for directors of
the Corporation. The term shall include a corporation which becomes such
after adoption of this Plan.
r. "Permitted Transferee" - the person to whom a Non-Qualified Stock
Option is transferred pursuant to subsection (f)(ii) of section 7.
s. "Plan" - the Original Plan, the New Plan or both, as the context may
require.
q. "Subsidiary" - any corporation in an unbroken chain of corporations
beginning with the Corporation, if, at the time of granting the option,
each of the corporations other than the last corporation in the chain owns
stock possessing fifty percent (50%) or more of the total combined voting
power of all classes of stock in one of the other corporations in such
chain. The term shall include any subsidiaries which become such after
adoption of this Plan.
t. "Successor" - the legal representative of the estate of a deceased
Optionee or the person or persons who have acquired the Option by the
Optionee's will or by the laws of descent and distribution.
3. Shares Available Under Plan. The maximum number of shares that may be
---------------------------
issued pursuant to options granted under the Plan is 650,000. The Corporation's
authorized Capital Stock in an amount equal to 650,000 shares is hereby made
available, and shall be reserved for issuance under this Plan. As of January
26, 1998, 374,000 shares were subject to outstanding Options or had been granted
pursuant to the exercise of Options under the Original Plan. The aggregate
number of shares available under this Plan shall be subject to adjustment on the
occurrence of any of the events and in the manner set forth in section 8.
Except as provided in section 8, in no event shall the number of shares reserved
be reduced below the number of shares issuable upon exercise of outstanding
Options. If an Option shall expire or terminate for any reason without having
been exercised in full, the unpurchased shares, shall (unless the Plan shall
have been terminated) become available for other Options under the Plan.
4. Administration. The Plan shall be administered by the Committee,
--------------
which shall have full and final authority in its discretion to interpret and
administer the Plan. Whenever the Committee is comprised of fewer than all of
the members of the Board, the Committee shall report all actions taken by it to
the Board.
3
<PAGE>
The Corporation shall grant Options pursuant to the Plan upon
determinations of the Committee as to which of the eligible persons shall be
granted Options, the number of shares to be Optioned, the exercise price of the
Option, and the term during which any such Options may be exercised. The
Committee may from time to time adopt rules and regulations for carrying out the
Plan and interpretations and constructions of any provision of the Plan, which
shall be final and conclusive.
5. Eligibility for Incentive Stock Options. All employees of the
---------------------------------------
Corporation are eligible to receive Incentive Stock Options. Incentive Stock
Options shall be granted in connection with the Optionee's employment with the
Corporation. A director of the Corporation who is not also an employee, and a
consultant to the Corporation who is not also an employee, shall not be eligible
to receive an Incentive Stock Option.
In selecting the employees to whom Options shall be granted, as well as
determining the number of shares subject to each Option, the Committee shall
take into consideration such factors as it deems relevant in connection with
accomplishing the purposes of the Plan. For any calendar year, the aggregate
Fair Market Value (determined at the Option Date) of the stock with respect to
which any Incentive Stock Options are exercisable for the first time by any
individual employee (under all stock option plans of the Corporation) shall not
exceed $100,000. An employee who has been granted an Option may, if he or she
is otherwise eligible, be granted an additional Option or Options if the
Committee shall so determine.
6. Eligibility for Non-Qualified Stock Options. Non-Qualified Stock
-------------------------------------------
Options may be granted to any employee, director or consultant of or to the
Corporation. No further restrictions are placed on the Committee in determining
eligibility for granting Non-Qualified Stock Options.
7. Terms and Conditions of Options. Whenever the Committee shall
-------------------------------
designate an Optionee, it shall communicate to the Secretary of the Corporation
the name of the Optionee, the number of shares to be subject to the Option, the
nature of the Option (Incentive Stock Option or Non-Qualified Stock Option) and
such other terms and conditions (including a vesting schedule, if any) as it
shall determine, not inconsistent with the provisions of this Plan. The
President or other officer of the Corporation shall then enter into an Option
Agreement with the Optionee, complying with and subject to the following terms
and conditions and setting forth such other terms and conditions of the Option
as determined by the Committee:
a. Type of Option. The Option Agreement shall state whether it is an
--------------
Incentive Stock Option or a Non-Qualified Stock Option.
b. Number of Shares and Option Price. The Option Agreement shall state
---------------------------------
the total number of shares of Option Stock to which it pertains. The price
of the Option Stock subject to an Incentive Stock Option shall be not less
than one hundred percent (100%) of the Fair Market Value of the Option
Stock at the Option Date. The price of the Option Stock subject to a Non-
Qualified Stock Option shall be determined by the Committee and may be less
than
4
<PAGE>
the Fair Market Value of the Option Stock at the Option Date. In the
event an Incentive Stock Option is granted to an employee who, at the
Option Date, owns more than ten percent (10%) of the voting power of all
classes of the Corporation's stock then outstanding, the price of the
Option Stock covered by such Option shall be not less than one hundred ten
percent (110%) of the Fair Market Value of the Option Stock at the Option
Date. The Option price shall be subject to adjustment as provided in
section 8 hereof.
c. Time and Manner of Exercise of Option. The vesting and time of
-------------------------------------
exercise of each Option shall be determined from time to time by the
Committee and shall be set forth in the Option Agreement with each
Optionee. During the Optionee's lifetime, an Incentive Stock Option, by
its terms, shall be exercisable only by the Optionee, except as provided in
subsection (f) of this section. No Option may be exercised after ten (10)
years from the Option Date; provided that no Incentive Stock Option granted
to an owner of more than ten percent (10%) of the voting power of all
classes of the Corporation's stock then outstanding may be exercised after
five (5) years from the Option Date.
d. Termination of Employment, Except Death or Disability. In the event
-----------------------------------------------------
that an Optionee shall cease to be employed by the Corporation for any
reason other than his or her death, disability or "for cause," such
Optionee shall have the right to exercise any outstanding Options which
were exercisable at the time of termination of employment at any time
within three (3) months after the termination of employment or until the
earlier expiration of the Option under this Plan or the Option Agreement.
Any exercisable Options not exercised within the three (3) month period
shall expire at the end of such period. In the event that the Optionee's
employment with the Corporation shall be terminated "for cause" including
but not limited to: (i) willful breach of any agreement entered into with
the Corporation; (ii) misappropriation of the Corporation's property,
fraud, embezzlement, other acts of dishonesty against the Corporation; or
(iii) conviction of any felony or crime involving moral turpitude, the
Option shall expire one day prior to the date of the Optionee's termination
of employment.
e. Death or Disability of Optionee. If the Optionee shall die or become
-------------------------------
Disabled (i) while in the employ of the Corporation, or (ii) within a
period of three (3) months after the termination of his or her employment
with the Corporation, except termination "for cause," as provided in
subsection (d) of this section, and in either case shall not have fully
exercised his or her Options, any Options granted pursuant to the Plan
which were exercisable at the date of termination of employment shall be
exercisable only on or before the earlier of (i) six (6) months following
his or her death or date of disability or (ii) the originally stated
expiration thereof. In the case of death, such Option shall be exercised
pursuant to subsection (g) of this section by the Optionee's Successor or
by a Permitted Transferee pursuant to subsection (f)(ii) of this section,
and only to the extent that such Options were exercisable at the time of
death.
5
<PAGE>
f. Transfer of Option.
------------------
(i) Incentive Stock Options. Each Incentive Stock Option granted
-----------------------
hereunder, by its terms, shall not be transferable by the
Optionee other than by will or by the laws of descent and
distribution, and shall be, during the Optionee's lifetime,
exercisable only by the Optionee or the Optionee's legally
appointed personal representative in the event the Optionee has
been found legally incompetent to manage his or her affairs.
Except as permitted by the preceding sentence, each Option
granted under the Plan and the rights and privileges thereby
conferred shall not be transferred, assigned or pledged in any
way (whether by operation of law or otherwise), and shall not be
subject to execution, attachment or similar process. Upon any
attempt to so transfer, assign, pledge, or otherwise dispose of
the Option, or of any right or privilege conferred thereby,
contrary to the provisions of the Option Agreement or the Plan,
or upon levy of any attachment or similar process upon such
rights and privileges, the Option, and such rights and
privileges, shall immediately become null and void.
(ii) Non-Qualified Stock Options. Each Non-Qualified Stock Option
---------------------------
granted hereunder shall, by it terms, be subject to the same
conditions contained in subsection (f)(i) of this section, except
that any Non-Qualified Stock Option granted hereunder may be
transferred for no consideration to (a) immediate family members
of the Optionee or to trusts or partnerships for the benefit of
such family members, without the consent of the Board, or (b) to
other persons or entities upon written consent of the Board.
g. Manner of Exercise of Options. An Option shall be exercisable only by:
-----------------------------
(i) written notice to the Corporation of intent to exercise the Option with
respect to a specified number of shares of Option Stock; (ii) tendering the
original Option Agreement to the Corporation; and (iii) payment to the
Corporation of the amount of the Option purchase price for the number of
shares of stock with respect to which the Option is then exercised.
Payment of the Option purchase price may be made in cash (including
certified check, bank draft or postal or express money order), by delivery
of shares of Capital Stock with a Fair Market Value equal to the Option
purchase price, by a combination of cash and such shares, whose value
together with such cash shall equal the Option purchase price or by any
other method of payment which the Committee shall approve and, in the case
of an Incentive Stock Option, which shall not be inconsistent with the
provisions of section 422 of the Code. An Option may be exercised in whole
or in part; provided, however, that there shall be no such exercise at any
one time as to fewer than one hundred (100) shares or all of the remaining
shares then purchasable by the Optionee or person exercising the Option.
When shares of Option Stock are issued to the Optionee pursuant to the
exercise of an Option, the fact of such issuance shall be noted on the
Option Agreement by the Corporation before the Option Agreement is returned
to the Optionee. When all shares of Option Stock covered by the Option
Agreement
6
<PAGE>
have been issued to the Optionee, or the Option shall expire, the
Option Agreement shall be surrendered to the Corporation for cancellation.
When shares of Option Stock are issued to the Optionee pursuant to the
exercise of an Incentive Stock Option, the Corporation may (but shall not
be required to) notify the Optionee of the period the Optionee must hold
the shares to obtain the preferred tax treatment of the Incentive Stock
Option.
h. Delivery of Certificate. Except where shares are held for unpaid
-----------------------
withholding taxes, between fifteen (15) and thirty (30) days after receipt
of the written notice and payment specified above, the Corporation shall
deliver to the Optionee certificates for the number of shares with respect
to which the Option has been exercised, issued in the Optionee's name;
provided, however, that such delivery shall be deemed effected for all
purposes when the Corporation, or the stock transfer agent for the
Corporation, shall have deposited such certificates in the United States
mail, postage prepaid, addressed to the Optionee at the address specified
in the written notice of exercise.
i. Certain Dispositions of Option Stock. Any Incentive Stock Options
------------------------------------
granted pursuant to this Plan shall require that if an Optionee or
Successor shall dispose of Option Stock by way of sale, exchange, gift,
transfer of legal title, or otherwise within (i) the two-year period
beginning on the Option Date, or (ii) the one-year period beginning on the
date on which the Option Stock was transferred to such individual pursuant
to the exercise of an Incentive Stock Option, such individual shall
promptly report the disposition to the Corporation in writing and shall
furnish the Corporation such details concerning the disposition as the
Corporation may reasonably request.
j. Other Provisions. The Option Agreements under this section shall
----------------
contain such other provisions as the Committee shall deem advisable.
8. Adjustments. In the event that the outstanding shares of the common
-----------
stock of the Corporation are changed into or exchanged for a different number or
kind of shares or other securities of the Corporation or of another corporation
by reason of any reorganization, merger, consolidation, recapitalization,
reclassification, stock split-up, combination of shares or dividends payable in
capital stock, appropriate adjustment shall be made in the number and kind of
shares as to which Options may be granted under the Plan and as to which
outstanding Options or portions thereof then unexercised shall be exercisable,
to the end that the proportionate interest of the participant shall be
maintained as before the occurrence of such event; such adjustment in
outstanding Options shall be made without change in the total price applicable
to the unexercised portion of such Options and with a corresponding adjustment
in the Option Price per share. No such adjustment shall be made which shall,
within the meaning of any applicable sections of the Code, constitute a
modification, extension or renewal of an Option or a grant of additional
benefits to a participant.
If the Corporation does not exercise its right under section 13 hereof to
accelerate the date of any Options and is a party to a merger, consolidation,
reorganization or similar corporate transaction and if, as a result of that
transaction, its shares of common stock are exchanged for: (i)
7
<PAGE>
other securities of the Corporation or (ii) securities of another corporation
which has assumed the outstanding options under the Plan or has substituted for
such Options its own Options, then each Optionee shall be entitled (subject to
the conditions stated herein or in such substituted Options, if any), in respect
of that Optionee's Options, to purchase that amount of such other securities of
the Corporation or of such other corporation as is sufficient to ensure that the
value of the Optionee's Options immediately before the corporate transaction is
equivalent to the value of such Options immediately after the transaction,
taking into account the Option Price of the Option before such transaction, the
Fair Market Value per share of the common stock immediately before such
transaction and the Fair Market Value immediately after the transaction, of the
securities then subject to that Option (or to the option substituted for that
Option, if any). Upon the happening of any such corporate transaction, the class
and aggregate number of shares subject to the Plan which have been heretofore or
may be hereafter granted under the Plan shall be appropriately adjusted to
reflect the events specified in this clause.
9. Rights as Stockholder. An Optionee or Successor shall not, by reason
---------------------
of any Option granted hereunder, have any right of a stockholder of the
Corporation with respect to the shares covered by his or her Option until such
shares shall have been issued to the Optionee or Successor.
10. No Obligation to Exercise Option. The granting of an Option shall
--------------------------------
impose no obligation upon the Optionee to exercise such Option. Neither shall
the Plan confer upon the Optionee any rights respecting continued employment nor
limit the Optionee's rights or the Corporation's rights to terminate such
employment.
11. Withholding Taxes. Whenever under the Plan shares of Option Stock are
-----------------
to be issued upon exercise of the Options granted hereunder and prior to the
delivery of any certificate or certificates for said shares by the Corporation,
the Corporation shall have the right to require the Optionee to remit to the
Corporation an amount sufficient to satisfy any federal and state withholding or
other employment taxes resulting from such exercise. In the event that
withholding taxes are not paid within five days after the date of exercise, to
the extent permitted by law the Corporation shall have the right, but not the
obligation, to cause such withholding taxes to be satisfied by reducing the
number of shares of Option Stock deliverable or by offsetting such withholding
taxes against amounts otherwise due from the Corporation to the Optionee. If
withholding taxes are paid by reduction of the number of shares deliverable to
the Optionee, such shares shall be valued at the Fair Market Value as of the
fifth business day following the date of exercise.
12. Purchase for Investment; Rights of Holder on Subsequent Registration.
--------------------------------------------------------------------
Unless the shares to be issued upon exercise of an Option granted under the Plan
have been effectively registered under the Securities Act of 1933 as now in
force or hereafter amended (the "1933 Act"), and, to the extent required under
applicable state securities laws, the Corporation shall be under no obligation
to issue any shares covered by any Option unless the person who exercises such
Option, whether such exercise is in whole or in part, shall give a written
representation and undertaking to the Corporation which is satisfactory in form
and scope to counsel for the Corporation and upon which, in the opinion of such
counsel, the Corporation may reasonably rely, that he or she is acquiring the
shares issued to
8
<PAGE>
him or her pursuant to such exercise of the Option for his or her own account as
an investment and not with a view to, or for sale in connection with, the
distribution of any such shares, and that he or she will make no transfer of the
same except in compliance with any rules and regulations in force at the time of
such transfer under the 1933 Act, or any other applicable law. Such shares may
be disposed of by an Optionee in the following manner only: (1) pursuant to an
effective registration statement covering such resale or reoffer, (2) pursuant
to an applicable exemption from registration as indicated in a written opinion
of counsel acceptable to the Company, or (3) in a transaction that meets all the
requirements of Rule 144 of the Securities and Exchange Commission. If shares of
stock covered by the Plan have been registered with the Securities and Exchange
Commission, no such restrictions on resale shall apply, except in the case of
Optionees who are directors, officers, or principal shareholders of the
Corporation. Such persons may dispose of shares only by one of the three
aforesaid methods. In the event that the Corporation shall, nevertheless, deem
it necessary or desirable to register under the 1933 Act or other applicable
statutes any shares with respect to which an Option shall have been exercised,
or to qualify any such shares for exemption from the 1933 Act or other
applicable statutes, then the Corporation shall take such action at its own
expense and may require from each participant such information in writing for
use in any registration statement, prospectus, preliminary prospectus or
offering circular as is reasonably necessary for such purpose and may require
reasonable indemnity to the Corporation and its officers and directors from such
holder against all losses, claims, damages and liabilities arising from such use
of the information so furnished and caused by any untrue statement of any
material fact required to be stated therein or necessary to make the statement
therein not misleading in light of the circumstances under which they were made.
13. Modification of Outstanding Options. The Committee, without the
-----------------------------------
consent of the Optionee, may accelerate the exercisability of an outstanding
Option upon the merger, consolidation, reorganization or similar transaction
with another entity and shorten the time period within which an Optionee must
exercise his or her Options. In addition, the Committee, at any time, may
authorize modification of any outstanding Option with the consent of the
participant when and subject to such conditions as are deemed to be in the best
interests of the Corporation and in accordance with the purposes of the Plan.
14. Foreign Employees. Without amending the Plan, the Committee may grant
-----------------
Options to eligible employees who are foreign nationals on such terms and
conditions different from those specified in this Plan as may in the judgment of
the Committee be necessary or desirable to foster and promote achievement of the
purposes of the Plan, and, in furtherance of such purposes the Committee may
make such modification, amendments, procedures, subplans and the like as may be
necessary or advisable to comply with provisions of laws in other countries in
which the Corporation operates or has employees.
15. Approval of Shareholders. The New Plan is expressly subject to
------------------------
approval of holders of the majority of the outstanding shares of common stock of
the Corporation, and if it is not so approved on or before twelve (12) months
after the date of adoption of the New Plan by the Board, the New Plan shall not
come into effect and the Original Plan shall remain in effect.
9
<PAGE>
16. Liquidation. Upon the complete liquidation of the Corporation, any
-----------
unexercised Options theretofore granted under this Plan shall be deemed
canceled, except as otherwise provided in section 8 in connection with a merger,
consolidation or reorganization of the Corporation.
17. Termination and Amendment of the Plan. The New Plan shall terminate
-------------------------------------
ten (10) years after January 26, 1998, the effective date of the New Plan, or at
such earlier time as the Board shall determine. Any termination shall not
affect any Options then outstanding under the Plan.
The Board may make such modifications of the Plan as it shall deem
advisable, but may not, without further approval of the stockholders of the
Corporation, except as provided in section 8 hereof, (a) increase the number of
shares reserved for Options under this Plan, (b) change the manner of
determining the Option price for Incentive Stock Options, (c) extend the term of
the Plan, (d) increase the maximum term of the Options provided for herein, or
(e) change the class of persons eligible to receive Options under the Plan.
10
<PAGE>
EXHIBIT 10.7
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.
-5-
<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;
-6-
<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;
-7-
<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
-8-
<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.
-9-
<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;
-10-
<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
-11-
<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.
-12-
<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
-13-
<PAGE>
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.
-14-
<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.
-15-
<PAGE>
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.
-16-
<PAGE>
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
-17-
<PAGE>
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
-18-
<PAGE>
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.
-19-
<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;
-20-
<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
-21-
<PAGE>
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
-22-
<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.
-23-
<PAGE>
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:
-24-
<PAGE>
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
-25-
<PAGE>
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 10.8
THIS INDENTURE dated for reference the 31st day of March, 1998
PURSUANT TO THE LAND TRANSFER FORM ACT
BETWEEN:
VANAC DEVELOPMENT CORP., a company duly incorporated under the laws of
the Province of British Columbia and having its registered office at
305 -1788 West 5th Avenue, in the City of Vancouver, in the Province
of British Columbia; V6J 1P2 (Inc. No.231923)
(hereinafter called the "Landlord")
OF THE FIRST PART
AND:
DELTA PLAY COMPANY, a company duly incorporated under the laws of the
Province of Nova Scotia and having its British Columbia address at
14666-64th Avenue, Suite 200, in the City of Surrey, in the Province
of British Columbia, V3S 1X7 (Inc. No. 3009539)
(hereinafter called the "Tenant")
OF THE SECOND PART
AND:
KOALA CORPORATION, a company duly incorporated under the laws of the
State of Colorado and having its offices at 1600 East 53rd Avenue,
Unit D, in the City of Denver, in the State of Colorado, CO 80239
(hereinafter called the "Guarantor")
OF THE THIRD PART
WITNESSETH that in consideration of the rents, covenants and agreements herein
reserved and contained on the part of the Tenant to be paid, observed and
performed, the Landlord by these presents does demise and lease unto the Tenant
the Premises hereinafter described, all on the terms, conditions and covenants
as hereinafter set forth.
ARTICLE 1 - THE PREMISES
------------------------
1.01 The Premises hereby leased are that building or portion of building
described as 7198 Progress Way constructed upon those lands and premises
situate, lying and being in the City of Delta, Province of British Columbia, and
more particularly described as:
Lot 11, District Lot 128, Group 2, New Westminster
Plan 87635 P.I.D.: 017-003-504
(hereinafter called the said "Lands")
<PAGE>
-2-
SUBJECT TO:
Permitted encumbrances as described in Schedule "B" hereto.
which building or portion of building for the purposes of this Lease is
understood to have an area of approximately 60,649 square feet of office
and warehouse space and is situate as outlined in red outline on the Plan
annexed hereto as Schedule "A". The Landlord shall, at its sole expense,
have the exact area of the Premises determined by a qualified surveyor or
architect.
(hereinafter referred to as the "Premises")
1.02 The Landlord doth further grant to the Tenant, its employees, customers,
licensees and invitees a non-exclusive right of access, subject to municipal
zoning regulations and by-laws and subject to such reasonable and appropriate
loading and parking regulations (being not inconsistent with any of the terms of
this Lease) as may from time to time be imposed by the Landlord, appurtenant to
and for the benefit of the Premises, for the purpose of ingress and egress,
loading and unloading, over that portion of the said Lands shown on the Plan
attached hereto as Schedule "A" (hereinafter called the "Common Area").
The Landlord doth further grant to the Tenant, its employees, customers,
licensees and invitees an exclusive right of parking over a portion or portions
of the Common Area as shall from time to time be designated by the Landlord.
Notwithstanding the foregoing, the Landlord shall provide the Tenant with not
less than 52 parking spaces for the Tenant's exclusive use. It is understood
and agreed that there shall be no additional rental charge other than costs of
maintenance and repair as herein provided with respect to such exclusive parking
areas.
EXCEPTING AND RESERVING HOWEVER, unto the Landlord the free passage and running
of water, sewage and electrical or other utility service for any other building
or portion of building on the said Lands or which may be constructed on the said
Lands or on land adjoining the said Lands in and through utility lines, sewers
and drains made through or under the Premises and the Common Area together with
the right to construct or lay down upon, under or through other portions of said
Lands driveways, gas and water mains, culverts, sewers and wires and cables with
power at all reasonable times to enter upon the said Lands for the purpose of
constructing and laying the same, or of examining the state of repair thereof,
and to repair or renew the same PROVIDED HOWEVER, that in carrying out any such
operations, the Landlord will not unreasonably disturb the Tenant's business
having due regard to the urgency of such construction or repairs nor cause any
damage to the Premises and will make good or pay reasonable compensation for all
damages caused to the Premises in the exercise of such rights and powers.
ARTICLE 2 - TERM OF LEASE
-------------------------
2.01 TO HAVE AND TO HOLD the Premises unto the Tenant for and during the term
of five (5) years, from the 1st day of June, 1998, (the "Commencement Date") and
to be fully completed and ended on the 31st day of May, 2003.
ARTICLE 3 - RENT
----------------
3.01 Yielding and paying therefor to the office of the Landlord at No.305 -
1788 West 5th Avenue, in the City of Vancouver, in the Province of British
Columbia, or at such other place as the Landlord may direct in writing, a basic
rent herein called the "Basic Rent" of lawful money of Canada payable in
consecutive monthly instalments in advance on the first day of each and every
month during the term hereof, said Basic Rent to be ascertained as follows:
<PAGE>
-3-
(a) For the portion of the term being from June 1, 1998 up to and including May
31, 2001 an annual basic rent of THREE HUNDRED TWENTY-FOUR THOUSAND FOUR
HUNDRED SEVENTY-TWO DOLLARS FIFTEEN CENTS ($324,472.15) payable in equal
consecutive monthly installments of TWENTY-SEVEN THOUSAND THIRTY-NINE
DOLLARS THIRTY-FIVE CENTS ($27,039.35) each, said payments to commence on
the 1st day of July, 1998;
(b) For the portion of the term being from June 1, 2001 up to and including May
31, 2003 an annual basic rent of THREE HUNDRED THIRTY-NINE THOUSAND SIX
HUNDRED THIRTY-FOUR DOLLARS AND FORTY CENTS ($339,634.40) payable in equal
consecutive monthly installments of TWENTY-EIGHT THOUSAND THREE HUNDRED AND
TWO DOLLARS EIGHTY-SEVEN CENTS ($28,302.87) each, said payments to commence
on the 1st day of June, 2001.
(c) Provided always that should the area of the Premises, as calculated and
certified by the Landlord's British Columbia Land Surveyor, by the
Commencement Date be found to vary from the anticipated area of 60,649
square feet, being the area upon which the aforementioned Basic Rents are
calculated, then the Basic Rents as stated in the foregoing subclauses (a)
and (b) shall be varied in direct proportion to the variation in actual
floor area in relation to the anticipated area of 60,649 square feet.
(d) The Landlord acknowledges a deposit from the Tenant in the amount of FIFTY-
EIGHT THOUSAND ONE HUNDRED THIRTY-FOUR DOLLARS SIXTY CENTS ($58,134.60).
Said deposit shall be applied as follows: TWENTY-EIGHT THOUSAND THREE
HUNDRED NINETY-ONE DOLLARS THIRTY-TWO CENTS ($28,391.32) shall be applied
to the Basic Rent payable under this clause for the month of July, 1998.
The balance of the deposit which is TWENTY-NINE THOUSAND SEVEN HUNDRED
FORTY-THREE DOLLARS TWENTY-EIGHT CENTS ($29,743.28) shall be applied to the
Basic Rent payable under this clause for the month of May, 2003; plus any
applicable GST.
Together with all other sums payable as rent or additional rent pursuant to the
terms hereof, and any and all governmental taxes payable by the Tenant by law or
by the terms of this Lease.
3.02 All payments required to be made by the Tenant under or in respect of
this Lease shall be deemed to be rent or additional rent hereunder and shall be
made to the Landlord, or to such agent or agents of the Landlord as the Landlord
shall hereinafter from time to time direct in writing to the Tenant. All rents
to be paid by the Tenant to the Landlord hereunder shall be paid without any
deduction, abatement or set-off whatsoever, it being the intention of this Lease
that all expenses, costs, payments and outgoings incurred in respect of the
Premises, the Common Area or for any other matter or thing affecting the
Premises and the Common Area shall, (unless otherwise expressly stipulated
herein to the contrary), be borne by the Tenant; save and except the Landlord's
specific obligations, pursuant to the terms of this Lease, [and all costs of
construction of the Premises and Common Area including related permits and
hook-up charges (except telephone hook-up charges)]; that the rental being
provided shall be absolutely net to the Landlord and free of all deduction,
abatement, set-off, realty taxes, attributable corporation capital taxes,
charges, rates, assessments, expenses, costs, payments or outgoings of every
nature arising from or related to the Premises and Common Area and that the
Tenant shall pay or reimburse the Landlord for all such taxes, (except
Landlord's income taxes on rents collected hereunder), charges, rates,
assessments, expenses, costs, payments and outgoings during the term hereby
demised and any extensions thereof. When rent or any other amount payable
hereunder by the Tenant to the Landlord shall be in arrears the same shall bear
interest at the rate or rates per annum being THE CANADIAN IMPERIAL BANK OF
COMMERCE prime lending rate as established from time to time plus 2% percentage
points from the due date of such amounts as are in arrears until paid; save and
except for real estate taxes
<PAGE>
-4-
payable pursuant to Article 5.20 hereof, which amounts if unpaid by the Tenant
to the Landlord by the due date, shall bear a penalty equal to the penalty
charged by the Governmental authority levying the taxes; and the Landlord shall
have all remedies for the collection of such interest and penalties if unpaid
after demand, as in the case of rent in arrears, but this stipulation for
interest and penalties shall not prejudice or affect any other remedies of the
Landlord under this Lease.
ARTICLE 4 - USE OF THE PREMISES
-------------------------------
4.01 The Tenant shall use and continuously occupy the Premises for the
purpose of manufacturing and assembling playground systems together with such
other lawful uses as are ancillary and appropriate to the normal course of such
use of the Premises and for no other purpose, without the prior written consent
of the Landlord, such consent not to be unreasonably withheld, and subject to
the provisions of Clause 5.07 of this Lease shall not permit any part of the
Premises to be used or occupied by any person other than the Tenant, its
employees, licensees, agents, customers and invitees.
4.02 It is understood and agreed between the parties that the Tenant shall
not be obliged to open for business during hours that are not permitted by
requisite laws, by-laws and regulations.
ARTICLE 5 - TENANT'S COVENANTS
------------------------------
5.01 To pay unto the Landlord the rent hereby reserved, and any other monies
deemed or indicated as additional rent hereunder, in the manner herein mentioned
without any deduction, abatement or set-off whatsoever. All rent in arrears
shall bear interest as provided in clause 3.02 hereof.
5.02 To pay all charges for water, light, electricity, power and gas and all
utilities supplied, delivered, provided to or made available upon the Premises
but not any hook-up or original connection (with the exception of telephone)
charges or other charges associated with the construction of the building in
which the Premises are situate.
5.03 To well and sufficiently maintain, service and repair the Premises,
including landscaped and parking areas included therein, (and if the Premises
forms a part of the building, to pay its proportionate share as determined by
the Landlord of the cost of such works related to the Common Area as may be
undertaken by the Landlord), and to maintain such in good and sufficient repair
and presentable appearance as a careful owner would do, (and, without limiting
the generality of the foregoing, including all building, roof areas, concrete
floors, partitioning, equipment, fixtures, heating, plumbing apparatus, electric
lighting fixtures and equipment, parking areas, driveways, loading areas,
walkways and landscaping located thereon at the commencement date or in the case
of subsequent landscaping after the initial placement thereof) save and except
only for repairs for which the Landlord is responsible as provided in this
Lease, reasonable wear and tear and damage by fires, earthquake or Act of God or
other casualty against which and to the extent which the Premises are insured
excepted; and to permit the Landlord, its agents or employees, to enter and view
the state of repair, to leave the Premises in good repair except as aforesaid,
all repairs to be in accordance with the standard of the specifications of the
Premises and to the approval of the Landlord, such approval not to be
unreasonably withheld;
And to engage at its sole cost a bonafide maintenance contractor to provide
routine preventative maintenance and any necessary repairs to all heating or air
conditioning systems servicing the Premises, such contractor to be subject to
the approval in writing of the Landlord prior to his engagement, however, such
approval is not to be unreasonably withheld.
If the Tenant shall fail to repair in accordance with the provisions hereof, the
Landlord, its agents or employees, may forthwith in emergency situations and
with notice appropriate to the circumstances
<PAGE>
-5-
in non-emergency situations enter the Premises and make the required repairs and
for that purpose the Landlord may bring and leave upon the Premises all
necessary tools, materials and equipment and the Landlord shall not be liable to
the Tenant for any inconvenience, annoyance or loss of business or any injury or
damages suffered by the Tenant by reason of the Landlord acting reasonably, such
repairs and the expense of such repairs shall be borne by the Tenant who shall
pay same to the Landlord forthwith upon demand as if such were rent reserved
under this Lease.
5.04 To restore forthwith at the Tenant's expense and with glass of the same
colour and quality any broken or damaged glass on the Premises.
5.05 Not to do or permit anything to be done whereby any policy of insurance
on the Premises or the building of which the Premises forms a part may become
void or voidable, PROVIDED HOWEVER, if the insurance rate shall be increased as
aforesaid, or if at any time hereafter the insurance cost to any other tenant in
respect of the aforesaid building is increased by virtue of the Tenant's use and
occupation of the Premises, the Tenant shall pay to the Landlord the amount by
which the insurance premiums shall be so increased. If notice of cancellation
shall be given respecting any insurance policy or if any insurance policy upon
the aforesaid building or any part thereof shall be cancelled or refused to be
renewed by an insurer by reason of the use or occupation of the Premises or any
part thereof by the Tenant or by any assignee or sub-Leassee of the Tenant or by
anyone permitted by the Tenant to be upon the Premises, the Tenant shall
forthwith remedy or rectify such use or occupation upon being requested to do so
in writing by the Landlord, and if the Tenant shall fail to do so forthwith or
shall fail forthwith to procure equivalent insurance to that cancelled or
refused, the Landlord may, at its option, determine this Lease and the Tenant
shall immediately deliver up possession of the Premises to the Landlord.
5.06 Not to do, suffer or permit any act or neglect which may in any manner
directly or indirectly, cause injury or damage to the Premises or the building
of which the Premises forms a part or to any fixtures or appurtenance thereof or
which may be or become nuisance or interference to any of the occupants of such
building, or which in the reasonable opinion of the Landlord, render the
Premises or any part thereof less desirable or injure the reputation thereof.
5.07 Not to assign, sublet or otherwise part with the Premises or any part
thereof or allow the Premises or any part thereof to become vested in or
occupied by any person other than the Tenant for the whole or any part of the
term herein without first obtaining the written consent of the Landlord, such
consent, subject to the provisions of the following paragraph, not to be
unreasonably withheld, it being understood that such consent will not be
withheld solely on the basis that the intended use of the Premises may vary
(unless substantially in conflict with other tenant's uses) from those uses
included in Article 4 hereto, PROVIDED that the Tenant may assign or sublet the
Premises without the Landlord's prior approval to any company being a company
that is a parent, subsidiary or an associate company of the Tenant without the
consent of the Landlord, PROVIDED that this clause 5.07 shall continue to be
applicable to such assignment or subletting; AND PROVIDED FURTHER that no such
assignment or subletting shall in any manner release the Tenant from any
covenant to be observed or performed by it.
With the exception of an assignment or subletting that forms part of the sale of
all or a portion of the Tenant's business as a going concern, if the Tenant
should wish to assign or sublet all or any portion of the Premises for all or
any portion of the unexpired balance of the term, in a case where the Landlord's
approval is required, the Tenant shall so notify the Landlord in writing and the
Landlord shall thereupon have a right, exercisable within a period of FOURTEEN
(14) days following receipt of the Tenant's notice, to recapture the space
described in the Tenant's notice.
The Landlord's notice of recapture shall terminate the Lease with respect to the
space described in the Tenant's notice as of the date stated in the Tenant's
notice. If the Tenant's notice shall cover all of the Premises, and the
Landlord shall give the recapture notice with respect thereto, the term of this
<PAGE>
-6-
Lease shall end on the date stated in Tenant's notice, as if that date had been
fixed for the expiration of the term. If this Lease be so terminated with
respect to less than the entire Premises, the rent shall be proportionately
adjusted on the basis of the number of square feet retained by the Tenant and
the rental rate applicable thereto.
5.08 To abide by and comply with, at its own expenses, all laws, by-laws,
rules and regulations of any Municipal or other Governmental authority which in
any manner relate to or affect the business of the Tenant or the use of the
Premises by the Tenant and save harmless the Landlord from all costs, charges or
damages to which the Landlord may be put or suffer by reason of any breach by
the Tenant of any such law, rule or regulation.
5.09.01 To provide and maintain in full force at the Tenant's sole expense,
for the common benefit of the Landlord and the Tenant, insurance as follows:
(a) Public liability and property damage insurance with respect to the Premises
and the Common Area and the use thereof, such insurance to be in form and
amounts satisfactory from time to time to the Landlord, provided that the
amount thereof shall be to a limit of not less than TWO MILLION DOLLARS
($2,000,000.00) inclusive for each occurrence of bodily injury or death and
property damage;
(b) Tenant's "all risks" legal liability in an amount sufficient to be carried
by a prudent Tenant;
(c) "All risks", including property insurance on the Tenant's improvements to
the replacement cost thereof; and
(d) Glass breakage insurance with respect to any glass on the Tenant's premise
unless the Tenant wishes to self insure, in which case the Tenant will be
responsible for replacement of any broken glass;
which policies of insurance shall name the Landlord as an additional assured
thereunder, such policy or policies to be in a form satisfactory to the
Landlord, and with insurers acceptable to the Landlord, such satisfaction and
acceptance not to be unreasonably withheld, and the Tenant shall deliver to the
Landlord certificates of all such policies of insurance and furnish certificates
or renewal of such insurance not less than FIVE (5) days prior to the expiration
of any such policy or policies; PROVIDED HOWEVER, that the Tenant may, at its
option, bring its obligations to insure pursuant to this clause, within the
coverage of any blanket policy or policies of insurance which it may now or
hereafter carry, by appropriate amendment, rider endorsement, or otherwise, so
long as the interest of the Landlord shall be as fully protected thereby as if
the Tenant had obtained individual policy or policies of insurance; all such
policy or policies of insurance shall contain a clause or endorsement to the
effect that it or they may not be terminated or materially amended or altered
except after TEN (10) days written notice thereof to the Landlord; as often as
any such policy or policies of insurance shall expire or terminate, renewal or
additional policies shall be procured by the Tenant in like manner, to the like
extent.
5.09.02 To pay to the Landlord, as additional rent, forthwith as requested by
the Landlord, the full cost (or if the Premises forms part of a building, its
proportionate share, as determined by the Landlord, of the cost) of insurance
placed by the Landlord from time to time during the term of the Lease and any
extensions thereof, for the common benefit of the Landlord and Tenant to
provide:
(a) "All risks" insurance and earthquake coverage, on the Premises or the
building of which the Premises forms a part, in an amount equal to the full
insurable value thereof, excluding excavating costs, the proceeds of such
policies to be payable to the Landlord and the Tenant as their respective
interests may appear; and
<PAGE>
-7-
(b) Rental income insurance in amounts sufficient to cover all loss or
abatement of rentals pursuant to Article 10 hereof, which would otherwise
have become due and payable from time to time hereunder;
and the Landlord shall deliver to the Tenant copies of all such certificates or
policies of insurance and furnish certificates of renewal of such insurance not
less than FIVE (5) days prior to the expiration of any such policy or policies,
PROVIDED HOWEVER, that the Landlord may, at its option, bring its obligations to
provide insurance to be paid for pursuant to this clause, within the coverage of
any blanket policy or policies of insurance of insurance which it may now or
hereafter carry by appropriate amendment, rider endorsement, or otherwise, so
long as the interest of the Tenant shall be as fully protected thereby as if the
Landlord had obtained individual policy or policies of insurance; as often as
any such policy or policies of insurance shall expire or terminate, renewal or
additional policies shall be procured by the Landlord in like manner and to the
like extent.
5.09.03 It is agreed by and between the parties hereunder that the Landlord
may, to the extent it so elects, estimate on an annual basis the costs to the
Landlord of operation, protection and maintenance of the Premises and the access
area as well as the costs of insurance, utilities and management fees that are
chargeable pursuant to the terms of the within lease, and the Tenant agrees that
upon the written request of the Landlord it will pay on a monthly basis on the
dates designated for the payment of Basic Rent its proportionate share, as shall
be reasonably determined by the Landlord of such costs. Landlord acknowledges
that its estimates for the costs set forth in this clause 5.09.03, together with
all other costs comprising additional rent to be paid by the Tenant, to be $1.60
per square foot per annum for the first twelve (12) months of this Lease. The
Landlord agrees to account to the Tenant on an annual basis as of February 28 of
each calendar year during the Term, or such other dates as agreed to in writing
by the parties hereto with respect to the actual amounts of such expenses
payable for a designated period by the Tenant and, taking into account monthly
payments actually paid by the Tenant on account thereof since the date of the
last accounting, will either charge or credit the Tenant for the difference
between the actual amount of expenses and the monies paid by the Tenant on
account thereof.
5.10 If, during the term of this Lease and any extensions thereof, any part
of the Premises including, without limiting the generality of the foregoing, the
Premises, water pipes, drainage pipes, electric equipment, boilers, engines, any
other apparatus or equipment which may be used for the purpose of heating or air
conditioning the said building, roof, stairways, passageways, entrances, inside
or outside walls get out of repair or become damaged or destroyed through the
negligence, or misuse or carelessness of the Tenant, its servants, agents,
employees invitees or anyone permitted by it to be on the Premises, or through
it or them in any way stopping up or injuring any of the aforesaid, to pay to
the Landlord forthwith upon demand to the extent such is not insured pursuant to
the provisions of clause 5.09.02 hereof, the expense of the necessary repairs,
replacements or alterations and if default be made in payment thereof by the
Tenant, such default shall be construed as default in payment of rent hereunder
and the Landlord may distrain therefor.
5.11 To pay the cost (or if the Premises forms part of the building, its
proportionate share as determined by the Landlord) of exterior painting,
decorating and maintenance of the Premises and the Common Area, including
without limiting the generality of the foregoing, landscaping if any, snow and
ice removal, from the roof of the Premises or the building of which the Premises
forms a part and shall not permit the Premises nor the said Lands to become
untidy, unsightly or hazardous or permit unreasonable quantities of waste or
refuse to accumulate thereon and shall comply with all by-laws applicable
thereto, but this paragraph shall not obligate the Tenant in respect of the
initial construction obligations of the Landlord under this Lease and any other
agreement between the parties. Tenant is not responsible for the costs of
exterior painting and decorating during the initial term of this Lease.
<PAGE>
-8-
5.12 Not to suffer or permit any builders' liens for work, labour, services
or material ordered by the Tenant or for the cost of which the Tenant may be in
any way obligated, in either case during the term of this Lease or any
extensions thereof, to attach to the Premises and that whenever any such lien
shall attach or claim therefore shall be filed, within TWENTY (20) days after
the Tenant has notice of the claim for liens, to procure the discharge thereof
by payment or by giving security or in such manner as is or may be required or
permitted by law; and further to allow the Landlord to post and keep posted on
the Premises any notice which the Landlord may wish to post under the provisions
of the Builders' Lien Act or any legislation which may replace such Act.
5.13 To waive all claims against the Landlord for damage to goods, wares and
merchandise in, upon or about the Premises and the said Lands and for injuries
to persons in or about the Premises and the said Lands from any cause whatsoever
arising at any time save and except for such action or causes of action as are
caused by the negligence or willful misconduct of the Landlord, its servants or
agents.
5.14 To indemnify and save harmless the Landlord from and against any and all
manner of action or causes of action which the Landlord may sustain, incur or be
put to by reason of or arising out of the use or occupation of the Premises and
the said Lands by the Tenant other than caused by the negligence or willful act
or breach of this Lease or any other agreement between the parties by the
Landlord, its servants or agents.
5.15 Not without the prior written consent of the Landlord (with such consent
not to be unreasonably withheld) to permit any oil or grease, or any
deleterious, environmentally objectionable, dangerous, poisonous or explosive
matter or substance to be brought into the Premises or to be discharged into the
Premises or the Lands upon which they are situate and into water ditches, water
courses, culverts, drains or sewers adjacent to the Premises except in strict
compliance with then current environmental laws, regulations, rules and permits
and will take all reasonable measures for insuring that any effluent discharge
will not be corrosive, poisonous or otherwise harmful or cause obstruction
within the said water ditches, water courses, culverts, drains or sewers to or
within the sewer disposal works or to the bacteriological process of sewage
purification.
5.16 Not to permit or allow any vehicles belonging to the Tenant, its
employees, or invitees unreasonably to cause obstruction on any roads in the
adjacent area, other than in designated parking areas and to use its best
efforts to ensure that persons doing business with the Tenant shall not permit
any vehicles to cause obstruction as aforesaid and to ensure that vehicles
belonging to the Tenant or to persons doing business with the Tenant shall
observe any regulations and instructions made or given by any Municipal
authority with respect to the parking of vehicles on such roads or spaces
reserved for the parking of vehicles.
5.17 To operate every device employed in the working of engines by steam or
other motive power and every other furnace or heating device employed in the
building or the Premises so as substantially to consume or burn the smoke
produced by such furnace or heating device and will not use or suffer to be used
negligently any such furnace or heating device so that the smoke produced
therefrom is not substantially consumed or burned and will not cause or permit
grit, dust or noxious offensive effluvia to be emitted from any engine, furnace
or apparatus on the Premises contrary to any law without using the best
practical means reasonably available for prevention or counteracting such
emission, provided that the Tenant shall not be in breach of this paragraph, if
the equipment in the building does not permit compliance with such laws as
aforesaid.
5.18 That the Tenant will not at any time during the term hereby granted or
any extensions thereof permit any sale by auction to be held upon the Premises
or any part thereof without the consent in writing of the Landlord, not to be
unreasonably withheld.
<PAGE>
-9-
5.19 If, after the Landlord has given the Tenant written notice of a breach
of any of the covenants herein contained and a reasonable time within which to
remedy such breach, and it becomes necessary to serve notice of breach, the
Tenant shall pay all reasonable costs, charges and expenses incurred by the
Landlord for the purpose of or incidental to the preparation and service of any
notice hereunder requiring the Tenant to remedy a breach of any of the covenants
herein contained together with such costs as may be incurred by the Landlord in
remedying such breach should the Landlord elect to do.
5.20 To pay and discharge as additional rent as required:
(a) Within TWENTY (20) days after written demand by the Landlord, all the
taxes, rates, duties and assessments whatsoever including without
limitation all that portion of real estate taxes as hereinafter described
that are payable in respect of the Premises, and portions of the said Lands
used or available for use in connection therewith from the date of
commencement of the term herein and including any tax levied in lieu of a
realty tax, that may be levied, charged or assessed on or against the
Premises and Common Area and the use thereof, together with any taxes
levied with respect to any property brought thereon by the Tenant and every
tax or licence fee payable in respect of any business carried on therein,
or in respect of the occupancy of the Premises by the Tenant whether such
taxes, duties, assessments or licence fees are charged by any Municipal,
school, parliamentary or other regulatory body, and whether or not they are
now existing or within the contemplation of the parties hereto and will
indemnify and keep indemnified the Landlord and its property from and
against payment of all loss, costs, charges and expenses occasioned by or
arising from any and every such tax, rate, duty, levy, charge, assessment
or license fee.
The portion of all such taxes payable by the Tenant hereunder shall be as
follows:
Firstly: All such taxes that are directly attributable to the Premises,
Secondly: All such taxes that are directly attributable to the portion of the
said Lands on which the Premises are situate,
Thirdly: All such taxes that are directly attributable to that portion of the
said Lands designed as Common Area which are for the exclusive use of
the Tenant,
Fourthly: The Tenant's proportionate share, as determined by the Landlord, of
all such taxes that are attributable to that portion of the said
Lands which are used in common with the tenants of the other premises
situate thereon.
(b) All rates, duties and assessments now charged or to be charged against
those improvements on the Premises deemed to be fixtures, machinery and
similar things of a commercial or industrial undertaking which may be
removed by the Tenant.
(c) All taxes, rates, duties and assessments now charged or to be charged
against personal property of the Tenant on the Premises.
(d) Upon the written request of the Landlord, the Tenant will pay monthly
payments on account of the Tenant's estimated taxes, rates and duties
payable under clause 5.20, together with its monthly instalment of Basic
Rent. Such payments shall be intended to be sufficient to enable the
Tenant to pay its portion of such estimated taxes by the date or dates when
such taxes are payable to the taxing authority. Annually, on the date as
set forth in clause 5.09.03 herein, on receipt by the Landlord of the
invoice or invoices relating to the charges hereunder, the Landlord will
calculate the actual amount payable and, taking into account any monthly
deposits made since the date of the last annual invoice, will either charge
or
<PAGE>
-10-
credit the Tenant for the difference between the actual amount and the
deposits paid, as the case may be.
(e) The Tenant covenants to pay upon demand, as additional rent, all costs
incurred by the Landlord, acting reasonably, in obtaining or attempting to
obtain a reduction in the amount of real estate taxes payable hereunder by
the Tenant. Notwithstanding the foregoing, the Landlord shall consult and
obtain the consent of the Tenant before commencing any attempt to obtain a
reduction in the amount of real estate taxes payable in respect of the
Lands.
(f) In the event that the Tenant shall have paid its portion of real estate
taxes payable hereunder for a particular tax year and the Landlord shall
thereafter receive a refund of any portion of such real estate taxes, the
Landlord shall forthwith make an appropriate refund to the Tenant.
Upon written request of the Landlord, the Tenant will promptly deliver to the
Landlord for inspection, receipts for payment of all Tenant's taxes which are
payable pursuant to this clause.
It is agreed that the Tenant shall have the right to contest at its own expense
the amount or validity of any such taxes, rates, levies and assessments by
appropriate legal proceedings but this shall not be deemed or in any way
construed as relieving, modifying or extending the Tenant's covenant to pay any
such taxes, rates, levies and assessments at the time and in the manner as in
this clause provided. The Landlord agrees to cooperate in such manner as may be
reasonably appropriate with the commencement and conduct of such contest
procedure.
The herein described taxes applicable to the Premises and those portions of the
said Lands on which they are situate shall be paid by the Tenant:
(a) During the first year of the term of this Lease from the date of
commencement of the term as described in clause 2.01 herein; and
(b) During the last year of the term of the Lease or any extension thereof to
the date when this Lease or any extension thereof is terminated.
5.21 If the Landlord is required by lawful authority or considers it
desirable to pay the Tenant's taxes which the Tenant fails or neglects to pay,
the Tenant shall pay the amount thereof to the Landlord forthwith after written
request therefor and if default be made in payment thereof by the Tenant, such
default shall be construed as default in payment of rent hereunder, and the
Landlord may distrain therefor.
5.22 To pay a management fee as additional rent to the Landlord on the amount
of THREE PERCENT (3%) of the basic annual rent. Payment to be made monthly in
advance during the term of this Lease and any extensions thereto.
ARTICLE 6 - LANDLORD'S COVENANTS
--------------------------------
The Landlord covenants with the Tenant:
6.01 For quiet enjoyment.
6.02 To cause to be forwarded forthwith on receipt to the Tenant, a copy of
real property assessment notices with respect to the said Lands and the
Premises.
6.03 To repair and/or replace as follows:
<PAGE>
-11-
The Landlord, at its sole expense, shall be responsible for necessary
replacement of the roof, (as distinct from the need to repair leaks which may
occur in the roof from time to time), necessary structural repairs to the
exterior walls, structural steel, foundations or actual structure of the
Premises, unless such repairs are occasioned by the negligence of the Tenant and
shall make same forthwith upon receipt of written notice of the need for such
repairs from the Tenant;
6.04 The Landlord, for repairs for which it is not responsible hereunder,
shall make available and hereby assigns to the Tenant the benefit of any
manufacturer's, supplier's or installer's warranties relating to the Premises or
any of its parts by assignment or in such other form as the Tenant may
reasonably require.
6.05 To place and maintain the insurance described in clause 5.09.02 hereof,
it being understood that the cost of such insurance is to be the responsibility
of the Tenant as provided in said clause 5.09.02.
ARTICLE 7 - IMPROVEMENTS AND ALTERATIONS
----------------------------------------
7.01 The Tenant agrees not to make any major alterations, additions or
improvements in or to the Premises, nor to erect, construct or install upon the
Premises alterations or improvements in addition to those now located thereon,
without obtaining the Landlord's prior written consent, such consent not to be
unreasonably withheld, PROVIDED HOWEVER, that in the case of very minor
alterations and improvements such consent will not be required and all such work
shall be done at the Tenant's sole expense and at such times and in such manner
as the Landlord may approve and in accordance with applicable municipal building
by-laws and regulations.
7.02 In the event that any alterations, additions or improvements are made to
the Premises by the Tenant, the Tenant shall, on the written request of the
Landlord, to be delivered to the Tenant not less than three (3) months prior to
the end of the Term or any extensions thereof, restore the Premises to a good
rentable condition not later than FIFTEEN (15) days prior to the end of the Term
or any extension thereof, PROVIDED THAT if the Landlord should prefer that such
alterations, additions and improvements, other than moveable business fixtures,
equipment and chattels, remain, such shall be the case and no compensation shall
be allowed to the Tenant for the same, and the Landlord may require the Tenant
to restore the Premises to such extent as the Landlord may reasonably require
although retaining as far as possible, the alterations, additions and
improvements, without in any case, any compensation to the Tenant therefor.
7.03 All business and trade fixtures, machinery and equipment, furniture and
heating, ventilating and air-conditioning units owned by the Tenant or installed
by the Tenant in the Premises at the Tenant's expense shall remain the property
of the Tenant but may, provided the Tenant is not in default hereunder, and only
with the prior written consent of the Landlord, such consent not to be
unreasonably withheld, and upon such terms and conditions as may reasonably be
imposed by the Landlord, be removed by the Tenant at any time during the Term,
provided always that the Tenant, at its own expense, shall repair any damage to
the Premises caused by such removal or by the original installation. The
Landlord may require the Tenant to remove all or any part of such property at
the expiration of this Lease, or any renewal or renewals thereof, and such
removal shall be done at the Tenant's expense and the Tenant shall, at its own
expense, repair any damage to the Premises caused by such removal. If the
Tenant does not remove its property forthwith after written notice by the
Landlord to that effect, such property shall, if the Landlord elects, be deemed
to become the Landlord's property and the Landlord may remove the same at the
expense of the Tenant and the cost of such removal and any necessary storage
charges shall be paid by the Tenant forthwith to the Landlord on written demand.
The Landlord shall not be responsible for any loss or damage to such property
because of such removal.
ARTICLE 8 - INDEMNIFICATION AND LIMITATION OF LIABILITY
-------------------------------------------------------
<PAGE>
-12-
8.01 It is agreed by and between the parties hereto that the Landlord shall
not be liable for any injury or damage to the Tenant, any agent or employee of
the Tenant, any person visiting or doing business with the Tenant or any other
person or to the property belonging to the Tenant or to any agent or employee of
the Tenant, or to the property of any person visiting or doing business with the
Tenant or to that of any other person while such property is on the Premises,
whether such property has been entrusted to any employee or agent of the
Landlord or not and without limiting the generality of the foregoing, for any
loss, injury, damage or expense resulting from fire, explosion, falling plaster,
steam, gas, electricity, water, rain or snow or overflow or leakage of water
from any part of the Premises or any building or buildings located on the said
Lands or from pipes, appliances, drains or plumbing works or from the roof,
street or subsurface or from any other place, or by any accident or misadventure
to or arising from the use and operation of machinery, elevator, heating
apparatus, electrical wiring and appliances, gas or other pipes and appliances
or any other fixtures, whether or not such damage is incurred by the act, or
default of the Landlord, its servants or agents, and in any manner whatsoever,
save and except for damages occasioned by the negligence or wilful misconduct
of the Landlord, its servants or agents.
8.02 The Tenant agrees to indemnify and save harmless the Landlord from and
against any and all manner of actions or causes of action, damages, loss, costs
or expenses which the Landlord may sustain, incur or be put to by reason of any
permitted advertising signs now existing or which may hereafter be erected by
the Tenant, upon, over, projecting from or above the Premises and shall pay the
premiums charged upon any bond of indemnity or liability insurance policy in
respect of such signs issued upon the demand of any Civic, Municipal, Government
or other authority.
ARTICLE 9 - SUBORDINATION
-------------------------
9.01 If required by the Landlord so to do, the Tenant shall subordinate this
Lease to any mortgages, including any deed of trust and mortgage and all
indentures supplemental thereto, or other encumbrance or encumbrances, together
with any renewal, extensions, or replacements thereto, which now or hereafter
during the said term of this Lease, affect or relate to this Lease, the
Premises, or the said Lands or any building or buildings now or hereafter
constructed on the said Lands, or any portion or portions thereof, PROVIDED that
any such subordination shall be on terms whereby the Tenant is entitled to
remain in possession of the Premises while not in default hereunder. The Tenant
agrees to execute promptly, and within a period of FIFTEEN (15) days of being so
requested by the Landlord at any time, and from time to time, any documents or
assurances which the Landlord may require to confirm such subordination,
PROVIDED ALWAYS, that so long as the Tenant is not in default under any of the
terms, covenants or conditions of this Lease, neither this Lease nor any of the
rights of the Tenant hereunder shall be terminated by reason of the bankruptcy
of the Landlord or any action or proceeding for foreclosure.
ARTICLE 10 - DAMAGE TO THE PREMISES
-----------------------------------
10.01 In the event that during the Term the Premises, or any part thereof,
shall be damaged or destroyed by fire, or any of the other perils insured
against under the provisions of this Lease, and the said damage or destruction
is not caused by any failure nor neglect on the part of the Tenant to perform or
observe any covenant or condition hereof, then and in every such event:
(a) If the damage or destruction is such that it does not render the Premises
wholly unfit for the use for which it is hereby demised, then this Lease
shall remain in full force and effect but until such damage or destruction
has been repaired to the extent of enabling the Tenant to use and occupy
the whole of the Premises, the rent shall abate in the proportion that the
portion to the Premises which are rendered unfit for occupancy bears to the
whole of the Premises. The Landlord shall have no obligation or liability
whatsoever to the Tenant, and
<PAGE>
-13-
the Tenant shall not be entitled to nor recover any damages whatsoever
against the Landlord for any loss occasioned by the said damage or
destruction, but the Landlord shall, with reasonable diligence after the
occurrence of the event causing said damage, cause the Premises to be
repaired to the same general condition in which it existed at the time of
such damage or destruction;
(b) If the damage or destruction is such that the Premises are rendered wholly
unfit for occupancy or it is impossible or unsafe to use and occupy the
same and if in either event the damage or destruction can be repaired with
reasonable diligence within ONE HUNDRED AND EIGHTY (180) days from the
happening of such damage or destruction, then, if such damage or
destruction can be lawfully repaired and for the amount of the net proceeds
of the said insurance, this Lease shall remain in full force and effect and
the Landlord shall, with reasonable diligence, cause such damage or
destruction to be repaired and the rent hereby reserved shall abate to the
extent that such shall be covered by insurance payable to the Landlord
pursuant to clause 5.09.02(b) hereof from the date of the happening of such
damage or destruction until the date the damage or destruction shall be
made good to the extent of enabling the Tenant to use and occupy the
Premises;
(c) If the damage or destruction is such that the Premises are rendered wholly
unfit for occupancy or it is impossible or unsafe to use and occupy the
same and if in either event the damage or destruction cannot be repaired
with reasonable diligence within ONE HUNDRED AND EIGHTY (180) days from the
happening of such damage or destruction then the Landlord or the Tenant
may, within THIRTY (30) days next succeeding such damage or destruction,
terminate this Lease by giving notice in writing to the other party of such
termination, in which event this Lease and the term hereby demised shall
cease and be at an end as of the date of such damage or destruction and the
rent and all other payments for which the tenant is liable under the terms
of this Lease shall be apportioned and paid in full to the date of such
damage or destruction and any necessary refund shall be made with respect
to payments already made;
(d) In the event that neither party shall exercise its option to terminate the
Lease as in sub-clause 10.01 (c) provided and if the damage or destruction
can be repaired for the amount of the net proceeds of the said insurance,
this Lease shall remain in full force and effect and the Landlord shall,
with reasonable diligence and without avoidable delay, cause such damage or
destruction to be repaired and the rent hereby reserved shall abate from
the date of the happening of such damage or destruction until the date when
the Landlord makes the Premises available to the Tenant to resume
occupancy.
10.02 Provided, however, if such damage or destruction is due to the
negligence or overt acts of the Tenant or its agents and/or servants, then
notwithstanding anything to the contrary hereinbefore contained, and so often as
the same shall occur:
(a) The Landlord may at its option and without prejudice to any rights of
action it may have against the Tenant either:
(i) forthwith rebuild and make the Premises fit for the purposes of the
Tenant; or
(ii) by notice in writing mailed to the Tenant at its last known address
forthwith determine and put an end to this Lease and may accordingly
deal with the Premises as fully and effectually as if these presents
had not been entered into.
(b) If the Landlord shall rebuild and make the Premises fit for the purposes of
the Tenant, the Tenant shall continue to pay rent to the Landlord as
hereinbefore provided notwithstanding such damage or destruction.
<PAGE>
-14-
ARTICLE 11 - EXPROPRIATION
--------------------------
11.01 If any part of the Premises shall be taken or expropriated for a public
or quasi-public use, and a part thereof remains which is suitable for the use
for which it is hereby demised, then this Lease shall, as to the part so taken,
terminate as of the date title shall vest in the expropriator and the rent
payable hereunder shall be adjusted so that the Tenant shall be required to pay
for the remainder of the term only such portion of such rent as the value of the
part remaining after the expropriation bears to the value of the entire Premises
at the date of expropriation. If the parties cannot agree on this value, the
matter may be submitted by either party to binding arbitration by a sole
arbitrator conducted pursuant to the Commercial Arbitration Act of British
Columbia. If all of the Premises are to be taken or expropriated, or so much
thereof, that the aforesaid use by the Tenant shall be substantially impaired,
this Lease, at the Tenant's option, shall thereupon terminate. All compensation
awarded or granted upon any such expropriation or taking shall go to the
Landlord and the Tenant as their interests may appear and as provided by the
laws of the Province of British Columbia.
ARTICLE 12 - BANKRUPTCY, INSOLVENCY OR EXECUTION
------------------------------------------------
12.01 In the event that the term hereby granted or any of the goods or
chattels of the Tenant shall be any time seized or taken in execution or in
attachment by any creditor of the Tenant, or if the Tenant shall become
insolvent or bankrupt, or make an assignment for the benefit of creditors, or
take the benefit of any Act for bankrupt or insolvent debtors, or being an
incorporated company, if proceedings be begun to wind up the said company,
whether compulsorily or voluntarily, and an order for winding up or other
termination of its corporate existance is made, or in case the Premises or any
part thereof become vacant or unoccupied for a period of THIRTY (30) days, or be
used by any other person or persons, or for any other purpose than as herein
provided, without the written consent of the Landlord, or, if a Receiver or
Receiver-Manager with respect to the Tenant is appointed, whether privately or
judicially, and whether or not he takes or obtains possession of the assets,
then and in every such case, at the option of the Landlord, the then current
month's rent and the rent for the THREE (3) months next following calculated at
the same rate as would have been payable by the Tenant had no bankruptcy or
other such event taken place, shall immediately become due and payable and this
Lease shall, at the option of the Landlord, cease and be void and the term
hereby created expire and be at an end, anything hereinbefore to the contrary
notwithstanding, and the Landlord may re-enter and take possession of the
Premises as though the Tenant or its servants or other occupant or occupants of
the Premises were holding over after the expiration of the said term, and the
term shall be forfeited and void.
ARTICLE 13 - DEFAULT
--------------------
13.01 It is agreed by and between the parties hereto that if and whenever the
rents payable hereunder or any of them, whether the same are demanded or not,
are not paid when they come due, or in the case of breach or non-observance or
non-performance by the Tenant of any covenant, agreement or stipulation herein
contained on its part to be kept, performed and observed, and any such rental or
other default on the part of the Tenant shall continue for FIFTEEN (15) days
after written notice thereof to the Tenant, or in the case that the Premises
shall be vacated or remain unoccupied for THIRTY (30) days, or if the term shall
be taken in execution or attachment for any cause whatever, then in any such
case the Landlord in addition to other remedies now or hereafter provided by
law, may at its option cancel and annul this Lease forthwith and/or may re-enter
and take possession of the Premises immediately by force, if necessary, without
any previous notice of intention to re-enter, and may re-enter and may remove
all persons and property therefrom and may use such force and assistance in
making such removal as the Landlord may deem advisable and the Tenant hereby
waives all claims for damage to or loss of any of the Tenant's property caused
by the Landlord in re-entering and taking possession of the Premises; and no
action taken by the Landlord
<PAGE>
-15-
in pursuance of this clause or the preceding Article 12 whether under what are
generally known as summary proceedings or otherwise shall be deemed to absolve,
relieve or discharge the Tenant from liability hereunder; and this proviso shall
extend and apply to all covenants whether positive or negative; and should the
Landlord terminate this Lease for any breach, in addition to any other remedies
it may have, it may recover from the Tenant all the damages it may incur by
reason of such breach, including the cost of recovering the Premises and
including the worth at the time of such termination of the excess, if any, of
the amount of rent and charges equivalent to the rent herein reserved, for the
remainder of the stated term over the then reasonable rental value of the
Premises for the remainder of the stated term.
ARTICLE 14 - OVERHOLDING
------------------------
14.01 If the Tenant shall continue to occupy the Premises after the
expiration of the term hereby granted or any extensions thereof and the Landlord
shall accept rent, the new tenancy thereby created shall be deemed to be a
monthly tenancy and shall be subject to the covenants and conditions contained
in this Lease insofar as the same are applicable to a tenancy from month to
month, save and except that the rental payable shall be as determined and
advised by the Landlord.
ARTICLE 15 - NON-WAIVER
-----------------------
15.01 The failure of the Landlord to insist upon strict performance of any
covenant or condition contained in this Lease or to exercise any right or option
hereunder shall not be construed nor operate as a waiver or relinquishment for
the future of any such covenant, condition, right or option and no waiver shall
be inferred from or implied by anything done or omitted by the Landlord save
only express waiver in writing. The acceptance of any rent or the performance
of any obligation hereunder by a person other than the Tenant shall not be
construed as an admission by the Landlord of any right, title or interest of
such person as a sub-tenant, assignee, transferee or otherwise in the place and
stead of the Tenant.
ARTICLE 16 - ADVERTISING SIGNS
------------------------------
16.01 The Tenant will not at any time during the Term affix or exhibit or
permit to be affixed or exhibited upon any part of the Premises any sign or
other advertising device or other matter or thing of whatever nature except such
as shall have complied with all by-laws and regulations applicable thereto and
first been approved in writing by the Landlord, such approval not to be
unreasonably withheld, and such shall at all times thereafter be in accordance
with such design and specifications as shall have been so approved, PROVIDED
ALWAYS that the Landlord shall, from time to time, and at all times hereafter be
at liberty to examine the said signs or devices and that the Tenant will repair,
renew, repaint or strengthen the same upon notice from the Landlord, if the same
is required and if the Tenant shall fail to comply with such notice, the
Landlord shall be at liberty to repair, renew, repaint or strengthen such signs
or devices and the cost, charges and expenses of such renewal, repainting and/or
strengthening shall be forthwith paid by the Tenant to the Landlord, but the
giving of such notice and the undertaking of such repairs or strengthening by
the Landlord shall not be deemed an acknowledgment or admission of any liability
or responsibility on the part of the Landlord; PROVIDED HOWEVER, that should the
Tenant at any time fail to pay any of the said costs, charges or expenses then
the Landlord may do so and a sum equal to the amount so paid shall forthwith
become due and payable to the Landlord by the Tenant and be collectable as if
the same were rent reserved under this Lease.
ARTICLE 17 - NOTICE AND DEMANDS
-------------------------------
17.01 Any notice required or contemplated by any provision of this Lease or
which the Landlord or Tenant may desire to give to the other shall be
sufficiently given, if to the Tenant by personal delivery or affixing to the
Premises, and to the Landlord by personal delivery or in the case
<PAGE>
-16-
of emergency by fax to such number as shall be supplied each to the other
confirmed by registered letter, and otherwise by registered letter, postage
pre-paid and mailed in one (1) of Her Majesty's Post Offices in Canada and
addressed to:
(a) The Tenant at the Municipal address of the Premises or such other address
as the Tenant may, from time to time in writing advise, or
(b) The Landlord at #305 - 1788 West 5th Avenue, Vancouver, in the Province of
British Columbia, V6J 1P2, or such other address as the Landlord may, from
time to time in writing advise;
and any such notice be effective as of the day of such personal delivery or
affixing of notice to the Tenant upon the Premises or as of the first business
day following delivery of the aforementioned fax; PROVIDED ALWAYS, that the
Landlord, if so requested in writing by a permitted assignee of the Tenant as
provided in clause 5.07 herein, shall forward a copy of any notice sent to the
Tenant to such permitted assignee, such copy to be mailed, faxed or delivered to
the said assignee at the address specified in the said notice.
ARTICLE 18 - MISCELLANEOUS
--------------------------
18.01 The Landlord, if requested by the Tenant, shall provide the Lease in
registrable form with respect to the execution thereof and the necessary proofs
of execution for the Land Titles Office, however, the costs of registration and
the providing of plans satisfactory to the Land Titles Office shall be the sole
responsibility and cost of the Tenant.
18.02 The Tenant covenants and agrees with the Landlord that it will, if and
whenever reasonably required by the Landlord acknowledge or consent to estopple
certificate or other instrument relating to this Lease and rentals payable
hereunder which may be required by or on behalf of any purchaser, bank or
Mortgagee from time to time of the said Premises; PROVIDED ALWAYS that the
rights of the Tenant as hereinbefore set out not be altered or varied by the
terms of such instrument or document in any way whatsoever and further provided
that the Tenant shall not in any way be financially obligated with respect to
any said instrument or document.
18.03 That wherever and whenever the approval or consent of the Landlord is
required to be obtained, such approval or consent may be given by any such
officer, Agent, committee, person or persons as may from time to time, be
nominated or appointed in writing by the Landlord for such purpose, and any such
power of nomination or appointment may be delegated by the Landlord, and such
nominees, appointees or delegatees shall subject to the provisions of this
Lease, have the right to withhold approval or consent to and may reject any
matter or thing submitted for approval or consent, and every such approval or
consent shall be given in writing and may contain such conditions and
stipulations as the Landlord may deem fit, all subject to the terms of this
Lease.
18.04 That all grants, covenants, conditions, provisos, agreements, rights,
powers, privileges and liabilities contained herein shall be read and construed
as granted to, made and reserved by, imposed upon and undertaken by the parties
hereto and their respective successors and assigns, subject to the consent of
the Landlord being obtained as hereinbefore provided to any assignment or sub-
lease by the Tenant, and that wherever the singular is used the same shall be
construed as meaning the plural where the circumstances so require and that the
Landlord may perform any act hereunder in person or by or through an Agent; but
shall remain primarily liable in respect thereof and that in case of more than
ONE (1) Tenant, the said grants, covenants, conditions, provisos, agreements,
rights, powers, privileges and liabilities shall be construed and held to be
several as well as joint.
<PAGE>
-17-
18.05 Upon the termination of this Lease, the Tenant may at its option
repaint the Premises in a colour approved by the Landlord, such approval not to
be unreasonably withheld.
18.06 Upon the termination of this Lease the Tenant shall, if required by the
Landlord and otherwise may, at its option remove all signs or other identifying
marks from the Premises PROVIDED that in either case, the Tenant shall repair
any damage resulting therefrom.
18.07 In any action between the Landlord and Tenant seeking enforcement of
any of the terms and provisions of this Lease or in connection with the
Premises, the prevailing party in such action shall be awarded in addition to
damages injunctive or other relief, its reasonable costs and expenses not
limited to taxable costs and a reasonable Solicitor's fee. In the event that
the Landlord is the prevailing party in action to enforce terms and provisions
of this Lease, the foregoing amounts shall be deemed to be rent payable under
this Lease.
18.08 Time is of the essence of this Lease.
18.09 This Lease shall be read and construed in accordance with the laws of
the Province of British Columbia.
18.10 The invalidity or unenforceability of any provision of this Lease or
any covenant herein contained shall not affect the validity or enforceability of
any other provision or covenant herein contained and any invalid provision or
covenant shall be deemed to be severable.
ARTICLE 19 - OPTION TO RENEW
----------------------------
19.01 Provided the Tenant duly and regularly pays the rent and performs all
and every covenant, proviso and agreement herein on the part of the Tenant to be
paid and performed, it shall have an option to renew this Lease for a further
term of five (5) years, said option to be exercised by giving notice thereof to
the Landlord not earlier than NINE (9) months and not later than SIX (6) months
prior to the expiration of the term hereby demised. The renewal term of the
Lease shall be under the same terms and conditions as those contained herein
save and except that there shall be no further option to renew and that the rent
or rents payable during such renewal term shall be the fair market rent or rents
for the Premises determined as follows:
(a) Upon exercise of the option, the parties shall agree upon the fair market
basic annual rent or rents to be paid during such renewal period, such rent
or rents to be in annual amounts not less than the basic annual rent
payable for the period commencing June 1, 2002 to May 31, 2003. If an
agreement is not reached by the Landlord and the Tenant prior to THREE (3)
months before the expiration of the Term, either party may forthwith submit
to arbitration the determination of fair market rental for basic annual
rent or rents to be payable during such renewal term and the basic annual
rent or rents so found by arbitration shall be at rates not less than that
payable for the last year of the expiring term as aforesaid. The
arbitration shall be conducted pursuant to the provisions of British
Columbia Commercial Arbitration Act and unless otherwise agreed by the
parties in writing, the cost of the arbitration shall also be a subject of
the arbitration award.
ARTICLE 20 - GUARANTEE
----------------------
20.01 As a condition of the granting of this Lease by the Landlord to the
Tenant, the Guarantor, in consideration of the sum of $1.00 now paid by the
Landlord and other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged by the Guarantor, hereby unconditionally
guarantees all the obligations of the Tenant under this Lease and accordingly
covenants and agrees with the Landlord that all the covenants, agreements and
other
<PAGE>
-18-
obligations of the Tenant under this Lease shall be fully performed, that
guarantee being upon the following terms:
(a) the liability of the Guarantor to the Landlord shall be for all purposes as
if the Guarantor was a primary obligor hereunder and not merely a surety
for the obligations of the Tenant and the Landlord shall not be obliged to
resort or exhaust any resource which it may have against the Tenant or any
other person before being entitled to claim against the Guarantor;
(b) no dealings between the Landlord and the Tenant of whatsoever kind, whether
with or without notice to the Guarantor, shall exonerate the Guarantor in
whole or in part, and in particular including, but not limiting the
generality of the foregoing, the Landlord may grant any indulgence,
release, postponement, or extension of time, waive any covenant or
provision of this Lease or any obligations of the Tenant, take or release
any securities of other guarantees for performance by the Tenant, and
otherwise deal with the Tenant or any other persons as the Landlord may see
fit without affecting, lessening, or limiting in any way the liability of
the Guarantor;
(c) any account settled or stated or any other settlement made between the
Landlord and the Tenant, and any determination made under any provision of
this Lease which is expressed to be binding upon the Tenant shall be
binding upon the Guarantor;
(d) the Guarantor shall make payment to the Landlord of any amount properly
payable by the Tenant to the Landlord but unpaid, subject to the provisions
of Article 13 hereof, and shall upon demand perform any other obligations
under this Lease which the Tenant has failed to perform, and any demand
made by the Landlord upon the Guarantor shall be deemed to have been
effectually made if sent as hereinbefore provided;
(e) no assignment of this Lease, sublease, or any other dealings therewith by
the Tenant whether with or without the consent of the Landlord, shall
exonerate the Guarantor;
(f) nothing whatsoever except the performance in full of all the obligations of
the Tenant under this Lease throughout the term of this Lease and any
extension thereof or overholding thereunder shall discharge the Guarantor
of this guarantee;
(g) in the event of the bankruptcy of the Tenant, or in the event of disclaimer
of this Lease under any statute, then at the sole discretion of the
Landlord, the Guarantor shall execute a new Lease of the Leased Premises
between the Landlord, as landlord and the Guarantor, as tenant, for the
term remaining unexpired at the date of that termination or that
disclaimer; and
(h) the Guarantor hereby expressly waives notice of the acceptance of this
guarantee and all notice of nonperformance, nonpayment, or non-observance
on the part of the Tenant of the terms, covenants, conditions and
provisions of the Lease.
ARTICLE 21 - REMOVAL OF COOLER & RENTAL ABATEMENT
-------------------------------------------------
21.01 The Landlord shall abate the gross rental (Basic Rent, operating costs
and taxes) equal to that portion of the Premises which, as of the date first
above written, is occupied by the cooler (approximately 1,763 square feet) until
the cooler is removed from the building which constitutes the Premises. The
Landlord covenants and agrees to cause the cooler to be removed from the
Premises on or before June 30, 1998.
ARTICLE 22 - LANDLORD IMPROVEMENTS
----------------------------------
<PAGE>
-19-
22.01 The Landlord will, at its sole cost, provide the improvements to the
Premises as detailed in Schedule "C" hereof.
ARTICLE 23 - LANDLORD'S REPRESENTATIONS AND WARRANTIES
------------------------------------------------------
23.01 The Landlord and the person(s) signing on the Landlord's behalf
represent and warrant that:
(a) the Landlord is duly organized, validly existing and in good standing under
the laws of the jurisdiction which such entity was organized;
(b) the Landlord has the authority to own its property and to carry on its
business as contemplated under this Lease;
(c) to the best of its knowledge, information and belief the Landlord is not in
breach of any law, statute, bylaw, ordinance or lawful requirement of any
governmental authority or any public utility lawfully acting in their
statutory power having jurisdiction over the improvements constricted on
the Lands (excluding compliance which is the responsibility of a tenant or
other occupant of the Lands);
(d) the Landlord has duly executed and delivered this Lease;
(e) the execution, delivery and performance by the Landlord of this Lease (i)
are within the powers of the Landlord, (ii) have been duly authorized by
all requisite action, or (iii) will not violate any provision of law or any
order of any court or agency of government, or any agreement or other
instrument which the Landlord is a party or by which it or any of its
property is bound;
(f) the Lease is a valid and binding obligation of the Landlord; and
(g) the Tenant's permitted use of the Lease Premises, as set out in clause 4.01
hereof, is in compliance with the zoning governing the Lands.
These representations and warranties will survive the termination of the Term.
IN WITNESS WHEREOF the parties hereto have executed this Lease as of the day and
year first above written.
DELTA PLAY COMPANY
By:
_____________________________________
Authorized Signatory
_____________________________________
NAME (PRINT)
_____________________________________
TITLE (PRINT)
<PAGE>
-20-
VANAC DEVELOPMENT CORP.
By:
/s/ RAYMOND HEUNG
_____________________________________
Authorized Signatory
Raymond Heung
_____________________________________
NAME (PRINT)
President
_____________________________________
TITLE (PRINT)
KOALA CORPORATION
By:
/s/ JEFFREY L. VIGIL
_____________________________________
Authorized Signatory
Jeffrey L. Vigil
_____________________________________
NAME (PRINT)
Vice President
_____________________________________
TITLE (PRINT)
DELTA PLAY CORPORATION
By:
/s/ R.M. ADANAC
_____________________________________
Authorized Signatory
R.M. Adanac
_____________________________________
NAME (PRINT)
Vice President of Finance
_____________________________________
TITLE (PRINT)
<PAGE>
-21-
SCHEDULE "A"
PLAN SHOWING EXISTING BUILDING ON LOT 11
----------------------------------------
DISTRICT LOT 128 GROUP 2
------------------------
N.W.D. PLAN 87635
-----------------
SCALE 1:750
-----------
<PAGE>
[SCHEDULE "B" TO COME]^^
<PAGE>
[SCHEDULE "B" TO COME^^]
<PAGE>
SCHEDULE "C"
The Landlord shall provide the following tenant improvements at his sole cost:
1. The Premises shall be in broom clean condition with all heating, lighting,
plumbing, mechanical, electrical and HVAC systems are to be in proper
working conditions, to original building specifications.
2. Landlord to provide clearance from environmental agencies that the Land and
Building are free and clear of any contamination.
<PAGE>
MODIFICATION OF LEASE
THIS INDENTURE made the 8th day of June, 1998.
BETWEEN:
405985 B.C. LTD., a company duly incorporated under the laws of the
Province of British Columbia and having its office at 305-1788 West
5th Avenue, in the City of Vancouver in the Province of British
Columbia; V6J 1P2
(hereinafter called the "Landlord")
OF THE FIRST PART
AND:
DELTA PLAY COMPANY, a company duly incorporated under the laws of the
Province of Nova Scotia and having its British Columbia address at
14666-64th Avenue, Suite 200, in the City of Surrey, in the Province
of British Columbia; V3S 1X7 (Inc. No. 3009539)
(hereinafter called the "Tenant")
OF THE SECOND PART
AND:
KOALA CORPORATION, a company duly incorporated under the laws of the
State of Colorado and having its offices at 1600 East 53rd Avenue,
Unit D, in the City of Denver, in the State of Colorado, CO 80239
(hereinafter called the "Guarantor")
OF THE THIRD PART
WHEREAS:
A. By a Lease Agreement dated the 31st day of March, 1998, between the parties
hereto (hereinafter called the "Said Lease"), the Landlord did demise unto the
Tenant and Guarantor that building or portion of building described as 7198
Progress Way constructed upon those lands and premises situate, lying and being
in the City of Delta, Province of British Columbia, more particularly known and
described as:
<PAGE>
Lot 11, District Lot 128, Group 2, New Westminster
Plan 87635 P.I.D.: 017-003-504
as designated on the Plan attached to the Said Lease as Schedule "A", which
Premises are to have an area of approximately 60,649 square feet.
B. Vanac Development Corp. has assigned its interest under the Said Lease to
405985 B.C. Ltd;
C. Article 3.01(c) of the Said Lease provided that should the area of the
Premises, as calculated and certified by the Landlord's British Columbia Land
Surveyor, by the Commencement Date be found to vary from the anticipated area of
60,649 square feet, the Basic Rents as stated in Article 3.01(a) and (b) shall
be varied in direct proportion to the variation in actual floor area in relation
to the anticipated are of 60,649 square feet;
D. The measurement of the area of the Premises has been determined by the
Landlord's surveyors to be 60,680 square feet;
E. The parties have agreed that the Basic Rents as stated in Article 3.01(a)
and (b) aforesaid shall be varied in direct proportion to the surveyed floor
area of 60,680 square feet.
NOW THEREFORE THIS INDENTURE WITNESSETH that in consideration of the Premises
and the sum of One Dollar ($1.00) (receipt whereof is hereby acknowledged) the
parties hereto hereby agree as follows:
1. The measurement of the area of the Premises is 60,680 square feet.
2. The Basic Rents payable during the term June 1, 1998 to May 31, 2003 as
stated in Article 3.01 (a) and (b) shall be varied in direct proportion to
the floor area of 60,680 square feet.
3. That Article 3.01(a) and (b) of the Said Lease shall be amended to read as
in Schedule "A" annexed hereto.
4. The Said Lease, modified as aforesaid, is hereby confirmed and ratified by
the parties hereto in all other respects.
THIS LEASE MODIFICATION AGREEMENT and everything herein contained shall enure to
and be binding on the parties hereto, their respective heirs, administrators,
executors or assigns.
IN WITNESS WHEREOF the Landlord and Tenant have duly executed these presents on
the day and year first above written.
<PAGE>
DELTA PLAY COMPANY
By:
/s/R. M. Adams
- -----------------------------
Authorized Signatory
R. M. Adams
- -----------------------------
NAME (print)
Vice President Finance
- -----------------------------
TITLE (print)
KOALA CORPORATION
BY:
/s/Jeffrey L. Vigil
- -----------------------------
Authorized Signatory
Jeffrey L. Vigil
- -----------------------------
NAME (print)
Vice President
- -----------------------------
TITLE (print)
405985 B.C. LTD.
By:
/s/Raymond Hueng
- -----------------------------
Authorized Signatory
Raymond Hueng
- -----------------------------
NAME (print)
<PAGE>
President
- -----------------------------
TITLE (print)
<PAGE>
Schedule "A"
------------
3.01(a) For the portion of the term being from June 1, 1998 up to and
including May 31, 2001 an annual basic rent of THREE HUNDRED
TWENTY-FOUR THOUSAND SIX HUNDRED THIRTY-EIGHT DOLLARS
($324,638.00) payable in equal consecutive monthly installments of
TWENTY-SEVEN THOUSAND FIFTY-THREE DOLLARS SEVENTEEN CENTS
($27,053.17) each, said payments to commence on the 1st day of
July, 1998;
3.01(b) For the portion of the term being from June 1, 2001 up to and
including May 31, 2003 an annual basic rent of THREE HUNDRED
THIRTY-NINE THOUSAND EIGHT HUNDRED AND EIGHT DOLLARS ($339,808.00)
payable in equal consecutive monthly installments of TWENTY-EIGHT
THOUSAND THREE HUNDRED SEVENTEEN DOLLARS THIRTY-THREE CENTS
($28,317.33) each, said payments to commence on the 1st day of
June, 2001.
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
<TABLE>
<CAPTION>
Name of Subsidiary Jurisdiction of Incorporation Percentage Ownership
------------------ ----------------------------- --------------------
<S> <C> <C>
Delta Play (US), Inc. State of Colorado 100%
Delta Play Company Province of Nova Scotia, Canada 100%
Koala Foreign Sales
Corporation Barbados 100%
</TABLE>
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 10, 1998, in the Registration Statement (Form
SB-2) and related Prospectus of Koala Corporation for the registration of
1,800,000 shares of its common stock.
/s/Ernst & Young LLP
Denver, Colorado
August 14, 1998
<PAGE>
EXHIBIT 23.2
Independent Auditor's Consent
We consent to the use in the Registration Statements and Prospectus an Form SB-2
dated August 7, 1998, of Koala Corporation of our report dated February 12,
1997, on the financial statements of Koala Corporation for the years ended
December 31, 1996 and 1995, incorporated by reference in the Registration
Statement, and to the use of our name and the statements with respect to us
under the heading "Experts" in such Prospectus.
/s/BLANSKI PETER KRONLAGE & ZACH, P.C.
Minneapolis, Minnesota
August 14, 1998
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTS
We hereby consent to the use in this Registration Statement on Form SB-2 of our
report dated July 28, 1998, relating to the combined financial statements of
Park Structures, Inc. and Affiliate and to the reference to our Firm under the
caption "Experts" in the Prospectus.
/s/GOLDSTEIN LEWIN & CO.
Boca Raton, Florida
August 10, 1998
<PAGE>
Exhibit 23.4
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated June 11, 1997 (except as to note 9 which is as of June
23, 1997) in the Registration Statement (Form SB-2) and related Prospectus of
Koala Corporation for the registration of 1,800,000 shares of its common stock.
/s/Ernst & Young
Chartered Accountants
Vancouver, Canada
August 14, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 JUN-30-1998
<CASH> 1,832,677 1,841,825
<SECURITIES> 0 0
<RECEIVABLES> 2,333,028 2,261,406
<ALLOWANCES> 45,703 45,187
<INVENTORY> 1,103,355 1,433,994
<CURRENT-ASSETS> 5,653,791 6,345,157
<PP&E> 1,561,324 1,857,263
<DEPRECIATION> 322,616 438,991
<TOTAL-ASSETS> 14,956,800 16,390,793
<CURRENT-LIABILITIES> 1,708,681 1,757,796
<BONDS> 0 0
0 0
0 0
<COMMON> 252,736 252,736
<OTHER-SE> 12,597,336 13,982,214
<TOTAL-LIABILITY-AND-EQUITY> 14,956,800 16,390,793
<SALES> 13,621,292 8,443,575
<TOTAL-REVENUES> 13,621,292 8,443,575
<CGS> 5,528,542 3,629,980
<TOTAL-COSTS> 5,528,542 3,629,980
<OTHER-EXPENSES> 4,431,849 2,669,377
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 3,776,609 2,184,402
<INCOME-TAX> 1,340,697 775,463
<INCOME-CONTINUING> 2,435,912 1,408,939
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,435,912 1,408,939
<EPS-PRIMARY> 0.97 0.56
<EPS-DILUTED> 0.96 0.54
</TABLE>
