U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 8-K
Current Report
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): March 1, 2000
Commission file number 0-22464
KOALA CORPORATION
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(Exact name of small business issuer
as specified in its charter)
Colorado 84-1238908
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
11600 E. 53rd Avenue, Unit D, Denver, CO 80239
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(Address of principal executive offices)
(303) 574-1000
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(Issuer's telephone number)
Not Applicable
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(Former name, former address, and former fiscal year,
if changed since last report)
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ITEM 2. ACQUISITION OF ASSETS
On March 1, 2000, Koala Corporation (the "Company"), acquired all of
the outstanding capital stock of SCS Interactive, Inc., an Oregon corporation
("SCS") and certain intellectual property used in SCS's business for $20.2
million in cash plus $5.1 million in Koala Common Stock. The Company financed
the cash portion of the purchase price with the proceeds of a revolving credit
facility with U.S. Bank National Association. In addition, if certain earnings
targets are met, the former shareholders of SCS will receive additional cash
consideration in March 2002.
Based in Tillamook, Oregon, SCS produces and markets interactive
modular play equipment for use in water parks, indoor public facilities and
outdoor public facilities. The purchase price and terms were negotiated on an
arms length basis with the former shareholders of SCS and Rick Briggs. No
principal of SCS had a relationship with the Company prior to the transaction.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL
INFORMATION AND EXHIBITS
(a) Financial Statements of Business Acquired.
It is impracticable to provide the required financial statements for
SCS at this time. The Company undertakes to file an amendment to this
Current Report on Form 8-K as soon as possible, but not later than 60
days after March 15, 2000, to include the required financial
statements. The Company currently anticipates that the required
financial statements will be filed on or before May 14, 2000.
(b) Pro Forma Financial Information.
It is impracticable to provide the required pro forma financial
information at this time. The Company undertakes to file an amendment
to this Current Report on Form 8-K as soon as possible, but not later
than 60 days after March 15, 2000, to include the required pro forma
financial information. The Company currently anticipates that the pro
forma financial information will be filed on or before May 14, 2000.
(c) Exhibits.
10.1 Stock and Asset Purchase Agreement, dated March 1, 2000, among the
Company, the Shareholders of SCS Interactive, Inc. and Rick Briggs
10.2 First Amendment to Revolving Credit Agreement, dated March 1, 2000
between the Company and U.S. Bank National Association
99.1 Press Release.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KOALA CORPORATION
Date: March 15, 2000 By: /s/ Mark A. Betker
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Mark A. Betker, Chairman and Chief
Executive Officer
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Exhibit 10.1
STOCK AND ASSET PURCHASE AGREEMENT
AMONG
KOALA CORPORATION
AND
THE SHAREHOLDERS OF
SCS INTERACTIVE, INC.
AND
RICK BRIGGS
March 1, 2000
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STOCK AND ASSET PURCHASE AGREEMENT
Agreement entered into on March 1, 2000 by and among Koala Corporation,
a Colorado corporation (the "Buyer"), and Rick Briggs as trustee of the Rick
Briggs 1998 Trust under Declaration of Trust dated July 23, 1998, Fred Frantz,
Richard Chaix, Richard Schuder, Diane Schuder, Shelly Katz, Tom Mallonee, Louis
Camarata, Maureen Lochtefeld, Mark Weston, Denise Weston, Brendan Cuddihee, Mark
Aragona, Scott Campbell, Carin Brown and Lynda Reynolds (collectively, the
"Target Shareholders") and Rick Briggs (together with the Target Shareholders,
the "Sellers"). The Buyer and the Sellers are referred to collectively herein as
the "Parties."
RECITALS
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The Target Shareholders in the aggregate own all of the outstanding
capital stock of SCS Interactive, Inc., an Oregon corporation (the "Target").
Rick Briggs owns certain of the intellectual property used by the
Target.
Buyer will purchase from the Target Shareholders, and the Target
Shareholders will sell to the Buyer, all of the outstanding capital stock of the
Target and Buyer will purchase from Rick Briggs, and Rick Briggs will sell to
Buyer or Target, the Briggs IP, (as defined below) in return for cash and the
Buyer Shares.
AGREEMENT
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Now, therefore, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows.
ARTICLE I
DEFINITIONS.
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"Accredited Investor" has the meaning set forth in Regulation D
promulgated under the Securities Act.
"Adverse Consequences" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, Liabilities, obligations, Taxes, liens, losses, expenses, and
fees, including court costs and reasonable attorneys' fees and expenses.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Affiliated Group" means any affiliated group within the meaning of
Code Section 1504(a) or any similar group defined under a similar provision of
state, local or foreign law.
"Basis" means any past or present fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction that forms or could form the basis for
any specified consequence.
"Briggs IP" means the Intellectual Property listed on Section 4.12(c)
of the Disclosure Schedule.
"Buyer" has the meaning set forth in the preface above.
"Buyer Shares" has the meaning set forth in Section 2.2(c) below.
"Closing" has the meaning set forth in Section 2.3 below.
"Closing Date" has the meaning set forth in Section 2.3 below.
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"Code" means the Internal Revenue Code of 1986, as amended.
"COBRA" means the requirements of Part 6 of Subtitle B of Title I of
ERISA and Code Section 4980B.
"Confidential Information" means any information concerning the
businesses and affairs of the Target that is not already generally available to
the public.
"Controlled Group" has the meaning set forth in Code Section 1563.
"Deferred Intercompany Transaction" has the meaning set forth in
Treasury Regulation Section 1.1502-13.
"Disclosure Schedule" has the meaning set forth in Section 4 below.
"EBITDA" means net income of the Target before interest, taxes,
depreciation, and amortization of acquisition intangibles determined on the
basis of GAAP by Buyer's independent certified public accountants in a manner
that is materially consistent with the preparation of the Financial Statements
(including, without limitation, an allocation for overhead that does not
materially exceed the Target's historical levels as a percentage of sales). No
deduction shall be taken for payments for or in payments to Buyer's independent
certified public accountants or legal expenses made after the Closing between
Target, Buyer or their affiliates.
"Employee Benefit Plan" means any employee benefit plan (within the
meaning of Section (3) of ERISA, written or oral, severance pay plan or
agreement, employer relations policy (or practice, agreement or arrangement),
agreements with respect to leased or temporary employees, vacation plan or
arrangements, sick pay plan, stock purchase plan, stock option plan, fringe
benefit plan, incentive plan, bonus plan, cafeteria or flexible spending account
plan, and any deferred compensation agreement (or plan, program, or arrangement)
covering any present or former employee of the Target and which is, or at
anytime, sponsored or maintained by (or to which contributions are, were, or at
anytime were required to have been made by) the Target or any other organization
which is a member of a Controlled Group of organizations) within the meaning of
Code Section 414(b), (c), (m), or, (o), of which the Target is a member.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA
Section 3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA
Section 3(1).
"Environmental, Health, and Safety Requirements" shall mean all
federal, state, local and foreign statutes, regulations, ordinances and other
provisions having the force or effect of law, all judicial and administrative
orders and determinations, all contractual obligations and all common law
concerning public health and safety, worker health and safety, and pollution or
protection of the environment, including without limitation all those relating
to the presence, use, production, generation, handling, transportation,
treatment, storage, disposal, distribution, labeling, testing, processing,
discharge, release, threatened release, control, or cleanup of any hazardous
materials, substances or wastes, chemical substances or mixtures, pesticides,
pollutants, contaminants, toxic chemicals, petroleum products or byproducts,
asbestos, lead paint, polychlorinated biphenyls, noise or radiation, each as
amended and as now or hereafter in effect.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means each entity which is treated as a single
employer with Seller for purposes of Code Section 414.
"Fiduciary" has the meaning set forth in ERISA Section 3(21).
"Financial Statement" has the meaning set forth in Section 4.6 below.
"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
"Indemnified Party" has the meaning set forth in Section 6.4 below.
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"Indemnifying Party" has the meaning set forth in Section 6.4 below.
"Intellectual Property" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements and
modifications thereto, and all patents, patent applications, patent invention
disclosures, together with all reissuances, divisionals, continuations,
continuations-in-part, revisions, extensions, and reexaminations and any pending
or issued foreign patents, including those filed pursuant to the Patent
Cooperation Treaty, (b) all trademarks, service marks, trade dress, logos, trade
names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith registrations, and renewals in connection therewith, (c) all
copyrightable works, all copyrights, and all applications, registrations, and
renewals in connection therewith, (d) all mask works and all applications,
registrations, and renewals in connection therewith, (e) all trade secrets and
confidential business information (including ideas, research and development,
know-how, formulas, compositions, manufacturing and production processes and
techniques, technical data, designs, drawings, specifications, customer and
supplier lists, pricing and cost information, and business and marketing plans
and proposals), (f) all computer software (including data and related
documentation), (g) all other proprietary rights, and (h) all copies and
tangible embodiments thereof (in whatever form or medium).
"Knowledge" means actual knowledge after reasonable investigation.
"Liability" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"Most Recent Balance Sheet" means the balance sheet contained within
the Most Recent Financial Statements.
"Most Recent Financial Statements" has the meaning set forth in Section
4.6 below.
"Most Recent Fiscal Month End" has the meaning set forth in Section 4.6
below.
"Most Recent Fiscal Year End" has the meaning set forth in Section 4.6
below.
"Multiemployer Plan" has the meaning set forth in ERISA Section 3(37).
"Note Balances" means all outstanding amounts at the Closing Date
(including, without limitation, principal, interest and late fees) due under the
following: (a) promissory note dated August 22, 1996 to Western Bank (loan
9002); (b) promissory note dated November 10, 1998 to Washington Mutual Bank
doing business as Western Bank (loan 9004); (c) promissory note dated May 7,
1999 to Washington Mutual Bank doing business as Western Bank (loan 0301); (d)
promissory note dated January 12, 2000, to Washington Mutual Bank doing business
as Western Bank (loan 9005).
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Party" has the meaning set forth in the preface above.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, or a governmental entity (or any department, agency, or political
subdivision thereof).
"Prohibited Transaction" has the meaning set forth in ERISA Section 406
and Code Section 4975.
"Purchase Price" has the meaning set forth in Section 2.2 below.
"Reportable Event" has the meaning set forth in ERISA Section 4043.
"Requisite Sellers" means Sellers holding a majority in interest of the
Target Shares as set forth in Section 4.2 of the Disclosure Schedule.
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"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance,
charge, or other security interest, other than (a) mechanic's, materialmen's,
and similar liens, (b) liens for Taxes not yet due and payable, (c) purchase
money liens and liens securing rental payments under capital lease arrangements,
and (d) other liens arising in the Ordinary Course of Business and not incurred
in connection with the borrowing of money.
"Seller" has the meaning set forth in the preface above.
"Subsidiary" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock or has the
power to vote or direct the voting of sufficient securities to elect a majority
of the directors.
"Target" has the meaning set forth in the preface above.
"Target Share" means any share of the Common Stock, no par value per
share, of the Target.
"Tax" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code Section
59A), customs duties, capital stock, franchise, profits, withholding, social
security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax of any kind whatsoever, including any interest,
penalty, or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund,
or information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Third Party Claim" has the meaning set forth in Section 6.4 below.
ARTICLE II
Purchase and Sale of Target Shares
----------------------------------
Section 2.1. Basic Transaction. On and subject to the terms and
conditions of this Agreement, the Buyer agrees to purchase from each of the
Target Shareholders, and each of the Target Shareholders agrees to sell to the
Buyer, all of his or its Target Shares and Buyer agrees to purchase from Rick
Briggs, and Rick Briggs agrees to sell to the Buyer, the Briggs IP, all for the
consideration specified below in this Section 2.
Section 2.2. Purchase Price. The Buyer agrees to pay or cause to be
paid to the Sellers at the Closing $25,292,000, subject to the adjustments below
(the "Purchase Price"), by delivery of:
(a) Cash in the amount of (w) $19,234,000 less the sum of (x)
the Note Balances, to be paid to the Sellers in the proportion set
forth in Section 2.2 of the Disclosure Schedule and (y) the estimated
Distribution Withholding Taxes (pursuant to Section 2.4) and (z)
$800,000, which represents amounts to be paid at the direction of
RECreation & Entertainment Consultants, Inc.;
(b) Subject to reduction pursuant to Section 6.6 hereof,
$1,000,000 plus any interest at the rate of 5% per annum (the
"Holdback") to be paid to the Sellers on March 1, 2002 as instructed by
Sellers.
(c) Shares of Common Stock of Buyer (the "Koala Common Stock")
to the Sellers (the "Buyer Shares") equal in number to $5,058,000
divided by the average daily closing sale price of Koala Common Stock
on the Nasdaq National Market for the 30 trading days prior to the
Closing Date to be issued to the Sellers in the proportion set forth in
Section 2.2 of the Disclosure Schedule. The Buyer Shares
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shall be issued within 15 business days of the first anniversary of
the Closing Date or with respect to Tom Mallonee, within 15 business
days of the Closing Date. The Sellers agree that the Buyer Shares may
not be sold, exchanged or otherwise transferred for two (2) years from
the Closing Date and that the certificates representing such shares
shall bear a legend to that effect; and
(d) Subject to Section 6.7, Buyer shall pay Sellers an
additional amount based on EBITDA for the Target for the 12-month
period ended September 30, 2001 ("2001 EBITDA"), the 12-month period
ended September 30, 2000 ("2000 EBITDA") and for the 12-month period
ended September 30, 1999 ("1999 EBITDA") as follows:
(i) On or before March 1, 2002, Buyer shall pay Sellers
in the proportion set forth in Section 2.2 of the Disclosure
Schedule an amount equal to the product of (x) 50% times (y)
2000 EBITDA minus the sum of (a) 1999 EBITDA plus (b) $500,000
(which represents management bonuses paid in 1999);
(ii) On or before March 1, 2002, Buyer shall pay Sellers
in the proportion set forth in ection 2.2 of the Disclosure
Schedule an amount equal to the product of (x) 50% times (y)
2001 EBITDA minus 2000 EBITDA.
Section 2.3. The Closing. The closing of the transactions contemplated
by this Agreement (the "Closing") shall take place at the offices of Faegre &
Benson LLP, 370 17th Street, Denver, Colorado 80202, commencing at 1:00 p.m.
local time on March 1, 2000.
Section 2.4. Deliveries at the Closing. At the Closing
(a) the Sellers will deliver to the Buyer:
(i) a certificate from each Seller stating (a) the
representations and warranties set forth in Section 3.1 and
Section 4 are true and correct in all material respects
at and as of the Closing Date, (b) the Sellers have performed
and complied with all of their covenants hereunder in all
material respects through the Closing, and (c) the Target
has procured all of the third party consents necessary to
consummate the transaction contemplated hereby;
(ii) stock certificates representing all of the
Target Shares, endorsed in blank or accompanied by duly
executed assignment documents;
(iii) an opinion of counsel in form and substance
as set forth in Exhibit A attached hereto, addressed to the
Buyer, and dated as of the Closing Date;
(iv) the resignations, effective as of the Closing,
of each director and officer of the Target other than those
whom the Buyer shall have specified prior to the Closing;
(v) an executed assignment and assumption
agreement among Target, PowerPlay Development, LLC and Six
Flags, Inc., in form and substance acceptable to Buyer;
(vi) evidence that all liens on Target's assets
have been released;
(vii) evidence that all stock options and warrants
issued by Target have been cancelled or exercised and that the
plan has been terminated;
(viii)an executed termination agreement relating to
the shareholders agreement among the Target Shareholders and
the Target; and
(ix) a patent assignment effective to convey the
Briggs IP to the Buyer, executed by Rick Briggs or other
appropriate person, in form and substance attached hereto as
Exhibit C.
(b) The Buyer will deliver to the Sellers:
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(i) a certificate from the Buyer stating (a) the
representations and warranties set forth in Section 3.2 are
true and correct in all material respects at and as of the
Closing Date, and (b) the Buyer has performed and complied
with all of its covenants hereunder in all material respects
through the Closing;
(ii) the consideration specified in Section 2.2
above (other than Sections 2.2(b), 2.2(d) and 2.2(e));
provided, however, that Buyer shall deliver the stock
certificates representing the Buyer Shares within 15
business days the first anniversary of the Closing; and
(iii) an opinion of counsel in form and substance as
set forth in Exhibit B attached hereto, addressed to the
Sellers, and dated as of the Closing Date.
Section 2.5. Further Assistance. Each Seller shall, at any time and
from time to time after the Closing Date, upon the request of Buyer do, execute,
acknowledge and deliver, or cause to be done, executed, acknowledged and
delivered, all such further acts, deeds, assignments, transfers, conveyances and
assurances as may be reasonably required for the better assigning, transferring,
granting, conveying, assuring and confirming to the Buyer or to its successors
and assigns, the Target Stock and the Briggs IP.
ARTICLE III
Representations and Warranties Concerning the Transaction
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Section 3.1. Representations and Warranties of the Sellers. Each of
the Sellers represents and warrants to the Buyer that the statements contained
in this Section 3.1 are correct and complete as of the date of this Agreement.
(a) Organization of Certain Sellers. If the Seller is at
trust, the Seller is duly organized, validly existing, and in good
standing under the laws of the jurisdiction of its formation.
(b) Authorization of Transaction. The Seller has full power
and authority to execute and deliver this Agreement and to perform his
or its obligations hereunder. This Agreement constitutes the valid and
legally binding obligation of the Seller, enforceable in accordance
with its terms and conditions. The Seller need not give any notice to,
make any filing with, or obtain any authorization, consent, or approval
of any government or governmental agency in order to consummate the
transactions contemplated by this Agreement.
(c) Noncontravention. Neither the execution and the delivery
of this Agreement, nor the consummation of the transactions
contemplated hereby, will (A) violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge,
or other restriction of any government, governmental agency, or court
to which the Seller is subject or, if the Seller is a corporation, any
provision of its charter or bylaws or (B) conflict with, result in a
breach of, constitute a default under, result in the acceleration of,
create in any party the right to accelerate, terminate, modify, or
cancel, or require any notice under any agreement, contract, lease,
license, instrument, or other arrangement to which the Seller is a
party or by which he or it is bound or to which any of his or its
assets is subject.
(d) Brokers' Fees. The Seller has no Liability or obligation
to pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement for which
the Buyer could become liable or obligated.
(e) Investment. The Seller (A) understands that the Buyer
Shares have not been, and will not be, registered under the Securities
Act, or under any state securities laws, and are being offered and sold
in reliance upon federal and state exemptions for transactions not
involving any public offering, (B) is acquiring the Buyer Shares solely
for his or its own account for investment purposes, and not with a view
to the distribution thereof, (C) is a sophisticated investor who has,
either alone or with his purchaser representative, such knowledge and
experience in business and financial matters that he is capable of
evaluating the merits and risks of the Buyer Shares and the
transactions contemplated by this Agreement, (D) has received certain
information concerning the Buyer and has had the opportunity to obtain
additional information as desired in order to evaluate the merits and
the risks inherent in holding the Buyer Shares, and (E) is able to bear
the economic risk and lack of liquidity inherent in holding the Buyer
Shares.
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(f) Target Shares. The Seller holds of record and owns
beneficially the number of Target Shares set forth next to his or its
name in Section 4.2 of the Disclosure Schedule, free and clear of any
restrictions on transfer (other than any restrictions under the
Securities Act and state securities laws), Taxes, Security Interests,
options, warrants, purchase rights, contracts, commitments, equities,
claims, and demands. The Seller is not a party to any option, warrant,
purchase right, or other contract or commitment that could require the
Seller to sell, transfer, or otherwise dispose of any capital stock of
the Target (other than this Agreement). The Seller is not a party to
any voting trust, proxy, or other agreement or understanding with
respect to the voting of any capital stock of the Target.
Section 3.2. Representations and Warranties of the Buyer. The Buyer
represents and warrants to the Sellers that the statements contained in this
Section 3.2 are correct and complete as of the date of this Agreement and will
be correct and complete as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout this Section 3.2), except as set forth in Annex II attached hereto.
(a) Organization of the Buyer. The Buyer is a corporation
duly organized, validly existing, and in good standing under the laws
of the jurisdiction of its incorporation.
(b) Authorization of Transaction. The Buyer has full power
and authority (including full corporate power and authority) to execute
and deliver this Agreement and to perform its obligations hereunder.
This Agreement constitutes the valid and legally binding obligation of
the Buyer, enforceable in accordance with its terms and conditions.
The Buyer need not give any notice to, make any filing with, or
obtain any authorization, consent, or approval of any government
or governmental agency in order to consummate the transactions
contemplated by this Agreement.
(c) Noncontravention. Neither the execution and the delivery
of this Agreement, nor the consummation of the transactions
contemplated hereby, will (A) violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge,
or other restriction of any government, governmental agency, or court
to which the Buyer is subject or any provision of its charter or bylaws
or (B) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under
any agreement, contract, lease, license, instrument, or other
arrangement to which the Buyer is a party or by which he or it is bound
or to which any of his or its assets is subject.
(d) Brokers' Fees. The Buyer has no Liability or obligation
to pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement for which
any Seller could become liable or obligated.
(e) Investment. The Buyer is not acquiring the Target Shares
with a view to or for sale in connection with any distribution thereof
within the meaning of the Securities Act.
ARTICLE IV
Representations and Warranties Concerning the Target.
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The Sellers represent and warrant to the Buyer that the statements
contained in this Article IV are correct and complete as of the date of this
Agreement, except as set forth in the disclosure schedule delivered by the
Sellers to the Buyer on the date hereof and initialed by the Buyer and at least
one of the Sellers on behalf of all of the Sellers (the "Disclosure Schedule").
Nothing in the Disclosure Schedule shall be deemed adequate to disclose an
exception to a representation or warranty made herein, however, unless the
Disclosure Schedule identifies the exception and describes the relevant facts.
Without limiting the generality of the foregoing, the mere listing (or inclusion
of a copy) of a document or other item shall not be deemed adequate to disclose
an exception to a representation or warranty made herein (unless the
representation or warranty has to do with the existence of the document or other
item itself). The Disclosure Schedule will be arranged in paragraphs
corresponding to the lettered and numbered paragraphs contained in this Article
IV, provided, however, that exceptions set forth in the Disclosure Schedule will
be sufficient for purposes of
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setting forth an exception to any other subsections of Article IV, provided that
sufficient detail is provided in the exception to make its application to the
other sections reasonably clear.
Section 4.1. Organization, Qualification, and Corporate Power. The
Target is a corporation duly organized, validly existing, and in good standing
under the laws of the jurisdiction of its incorporation. The Target is duly
authorized to conduct business and is in good standing under the laws of each
jurisdiction where such qualification is required. The Target has full corporate
power and authority and all licenses, permits, and authorizations necessary to
carry on the businesses in which it is engaged and in which it presently
proposes to engage and to own and use the properties owned and used by it.
Section 4.1 of the Disclosure Schedule lists the directors and officers of the
Target. The Sellers have delivered to the Buyer correct and complete copies of
the charter and bylaws of the Target (as amended to date). The minute books
(containing the records of meetings of the stockholders, the board of directors,
and any committees of the board of directors), the stock certificate books, and
the stock record books of the Target are correct and complete. The Target is not
in default under or in violation of any provision of its charter or bylaws. The
Target has no Subsidiaries.
Section 4.2. Capitalization. The entire authorized capital stock of
the Target consists of 6,000,000 Target Shares, of which 4,691,916 Target Shares
are issued and outstanding. All of the issued and outstanding Target Shares
have been duly authorized, are validly issued, f ully paid, and nonassessable.
There are no outstanding or authorized options, warrants, purchase rights,
subscription rights, conversion rights, exchange rights, or other contracts or
commitments that could require the Target to issue, sell, or otherwise cause to
become outstanding any of its capital stock. There are no outstanding or
authorized stock appreciation, phantom stock, profit participation, or similar
rights with respect to the Target. There are no voting trusts, proxies, or other
agreements or understandings with respect to the voting of the capital stock of
the Target.
Section 4.3. Noncontravention. Neither the execution and the delivery
of this Agreement, nor the consummation of the transactions contemplated hereby,
will (i) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which the Target is subject or any provision of
the charter or bylaws of the Target or (ii) conflict with, result in a breach
of, constitute a default under, result in the acceleration of, create in any
party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument, or other
arrangement to which the Target is a party or by which it is bound or to which
any of its assets is subject (or result in the imposition of any Security
Interest upon any of its assets) and which would cause material adverse effect
on Target. The Target does not need to give any notice to, make any filing with,
or obtain any authorization, consent, or approval of any government or
governmental agency in order for the Parties to consummate the transactions
contemplated by this Agreement.
Section 4.4. Brokers' Fees. The Target has no Liability or obligation
to pay any fees or commissions to any broker, finder, or agent with respect to
the transactions contemplated by this Agreement.
Section 4.5. Title to Assets. The Target has good and marketable title
to, or a valid leasehold interest in, the properties and assets used by it,
located on their premises, or shown on the Most Recent Balance Sheet or acquired
after the date thereof, free and clear of all Security Interests, except for
properties and assets disposed of in the Ordinary Course of Business since the
date of the Most Recent Balance Sheet.
Section 4.6. Financial Statements. Attached hereto as Exhibit B are
the following financial statements (collectively the "Financial Statements"):
(i) balance sheets and statements of income as of and for the fiscal years ended
September 30, 1997 (unaudited) and September 30, 1998 (unaudited, other than
audited balance sheets), and balance sheets and statements of income, changes in
shareholders' equity and cash flow as of and for the fiscal year ended September
30, 1999 (audited) (the "Most Recent Fiscal Year End") for the Target; and (ii)
unaudited balance sheets and statements of income, (the "Most Recent Financial
Statements") as of and for the four months ended January 31, 2000 (the "Most
Recent Fiscal Month End") for the Target. The Financial Statements (including
the notes thereto) have been prepared in accordance with GAAP applied on a
consistent basis throughout the periods covered thereby, present fairly the
financial condition of the Target as of such dates and the results of operations
of the Target for such periods, are correct and complete, and are consistent
with the books and records of the Target (which books and records are correct
and complete).
Section 4.7. Events Subsequent to Most Recent Fiscal Year End. Since
the Most Recent Fiscal Year End, there has not been any material adverse change
in the business, financial condition, operations, results of operations, or to
the Sellers' Knowledge, future prospects of the Target. Without limiting the
generality of the foregoing, since that date:
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(a) the Target has not sold, leased, transferred, or assigned
any of its assets, tangible or intangible, othe than for a fair
consideration in the Ordinary Course of Business;
(b) the Target has not entered into any agreement, contract,
lease, or license (or series of related agreements, contracts, leases,
and licenses) outside the Ordinary Course of Business;
(c) to the Seller's Knowledge, no party (including the Target)
has accelerated, terminated, modified, or cancelled any agreement,
contract, lease, or license (or series of related agreements,
contracts, leases, and licenses) involving more than $2,500 to which
the Target is a party or by which it is bound;
(d) the Target has not imposed or granted any Security
Interest upon any of its assets, tangible or intangible;
(e) the Target has not made any capital expenditure (or series
of related capital expenditures) either involving more than $2,500 or
outside the Ordinary Course of Business;
(f) the Target has not made any capital investment in, any
loan to, or any acquisition of the securities or assets of, any other
Person (or series of related capital investments, loans, and
acquisitions) either involving more than $2,500 or outside the Ordinary
Course of Business;
(g) the Target has not issued any note, bond, or other debt
security or created, incurred, assumed, or guaranteed any indebtedness
for borrowed money or capitalized lease obligation either involving
more than $2,500 singly or in the aggregate;
(h) the Target has not delayed or postponed the payment of
accounts payable and other Liabilities outside the Ordinary Course of
Business;
(i) the Target has not cancelled, compromised, waived, or
released any right or claim (or series of related rights and claims)
either involving more than $2,500 or outside the Ordinary Course of
Business;
(j) other than as set forth in Section 4.12(c) of the
Disclosure Schedule, the Target has not granted any license or
sublicense of any rights under or with respect to any Intellectual
Property, other than in the ordinary course of business in a commercial
sales transaction;
(k) there has been no change made or authorized in the
charter or bylaws of the Target;
(l) the Target has not issued, sold, or otherwise disposed of
any of its capital stock, or granted any options, warrants, or other
rights to purchase or obtain (including upon conversion, exchange, or
exercise) any of its capital stock;
(m) the Target has not declared, set aside, or paid any
dividend or made any distribution with respect to its capital stock
(whether in cash or in kind) or redeemed, purchased, or otherwise
acquired any of its capital stock;
(n) the Target has not experienced any material (either
individually or in the aggregate) damage, destruction, or loss (whether
or not covered by insurance) to its property;
(o) the Target has not made any loan to, or entered into any
other transaction with, any of its directors, officers, and employees
outside the Ordinary Course of Business;
(p) the Target has not entered into any employment contract or
collective bargaining agreement, written or oral, or modified the terms
of any existing such contract or agreement;
(q) the Target has not granted any increase in the base
compensation of any of its directors, officers, and employees outside
the Ordinary Course of Business;
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(r) the Target has not adopted, amended, modified, or
terminated any bonus, profit-sharing, incentive, severance, or other
plan, contract, or commitment for the benefit of any of its directors,
officers, and employees (or taken any such action with respect to any
other Employee Benefit Plan);
(s) the Target has not made any other change in employment
terms for any of its directors, officers, and employees outside the
Ordinary Course of Business;
(t) the Target has not made or pledged to make any charitable
or other capital contribution outside the Ordinary Course of Business;
(u) there has not been any other material adverse occurrence,
event, incident, action, failure to act, or transaction outside the
Ordinary Course of Business involving the Target; and
(v) the Target has not committed to any of the foregoing.
Section 4.8. Undisclosed Liabilities. To the Knowledge of any of the
Sellers, the Target does not have any material (either individually or in the
aggregate) Liability (and there is no Basis for any present or future action,
suit, proceeding, hearing, investigation, charge, complaint, claim, or demand
against it giving rise to any Liability), except for (i) Liabilities set forth
on the face of the Most Recent Balance Sheet (rather than in any notes thereto)
and (ii) Liabilities which have arisen after the Most Recent Fiscal Month End in
the Ordinary Course of Business (none of which results from, arises out of,
relates to, is in the nature of, or was caused by any breach of contract, breach
of warranty, tort, infringement, or violation of law).
Section 4.9. Legal Compliance. The Target and its respective
predecessors and Affiliates have complied with all applicable laws (including
rules, regulations, codes, plans, injunctions, judgments, orders, decrees,
rulings, and charges thereunder) of federal, state, local, and foreign
governments (and all agencies thereof) except where failure to comply would not
have a material adverse effect, and no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, demand, or notice has been filed or
commenced against it alleging any failure so to comply.
Section 4.10. Tax Matters.
(a) The Target has filed all Tax Returns that it was required
to file. All such Tax Returns were correct and complete in all material
respects. All Taxes owed by the Target (whether or not shown on any Tax
Return) have been paid. The Target currently is not the beneficiary of
any extension of time within which to file any Tax Return. No claim has
ever been made by an authority in a jurisdiction where the Target does
not file Tax Returns that it is or may be subject to taxation by that
jurisdiction. There are no Security Interests on any of the assets of
the Target that arose in connection with any failure (or alleged
failure) to pay any Tax.
(b) The Target has withheld and paid all Taxes required to
have been withheld and paid in connection with amounts paid or owing to
any employee, independent contractor, creditor, stockholder, or other
third party.
(c) No Seller or director or officer (or employee responsible
for Tax matters) of the Target expects any authority to assess any
additional Taxes for any period for which Tax Returns have been filed.
There is no dispute or claim concerning any Tax Liability of the Target
either (A) claimed or raised by any authority in writing or (B) as to
which any of the Sellers and the directors and officers of the Target
has Knowledge based upon personal contact with any agent of such
authority. Section 4.10 of the Disclosure Schedule lists all federal,
state, local, and foreign income Tax Returns filed with respect to the
Target for taxable periods ended on or after December 31, 1994,
indicates those Tax Returns that have been audited, and indicates those
Tax Returns that currently are the subject of audit. The Sellers have
delivered to the Buyer correct and complete copies of all federal
income Tax Returns, examination reports, and statements of deficiencies
assessed against or agreed to by the Target since December 31, 1994.
(d) The Target has not waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to a
Tax assessment or deficiency.
(e) The Target has not filed a consent under Code Section
341(f) concerning collapsible corporations. The Target has not made any
payments, is not obligated to make any payments, and is not a party
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to any agreement that under certain circumstances could obligate it to
make any payments that will not be deductible under Code Section 280G.
The Target has not been a United States real property holding
corporation within the meaning of Code Section 897(c)(2) during the
applicable period specified in Code Section 897(c)(1)(A)(ii). The
Target has disclosed on its federal income Tax Returns all positions
taken therein that could give rise to a substantial understatement of
federal income Tax within the meaning of Code Section 6662. The Target
is not a party to any Tax allocation or sharing agreement. The Target
(A) has not been a member of an Affiliated Group filing a consolidated
federal income Tax Return (other than a group the common parent of
which was the Target) and (B) has no Liability for the Taxes of any
Person (other than the Target) under Reg. Section 1.1502-6 (or any
similar provision of state, local, or foreign law), as a transferee or
successor, by contract, or otherwise.
(f) Section 4.10 of the Disclosure Schedule sets forth the
following information with respect to the Target as of the most recent
practicable date: (A) the basis of the Target in its assets; (B) the
amount of any net operating loss, net capital loss, unused investment
or other credit, unused foreign tax, or excess charitable contribution
allocable to the Target; and (C) the amount of any deferred gain or
loss allocable to the Target arising out of any Deferred Intercompany
Transaction.
(g) The unpaid Taxes of the Target (A) did not, as of the
Most Recent Fiscal Month End, exceed the reserve for Tax Liability
(rather than any reserve for deferred Taxes established to reflect
timing differences between book and Tax income)set forth on the face of
the Most Recent Balance Sheet (rather than in any notes thereto) and
(B) do not exceed that reserve as adjusted for the passage of time
through the Closing Date in accordance with the past c ustom and
practice of the Target in filing its Tax Returns.
Section 4.11. Real Property. The Target owns no real property.
Section 4.12. Intellectual Property.
(a) The Target owns or has the right to use pursuant to
license, sublicense, agreement, or permission all Intellectual Property
identified in Section 4.12(c) of the Disclosure Schedule. To the
Knowledge of the Sellers, such Intellectual Property along with the
other Intellectual Property owned or controlled by Target constitutes
all of the Intellectual Property necessary for the operation of the
businesses of the Target as presently conducted and as presently
proposed to be conducted. Each item of Intellectual Property owned or
used by the Target as of October 1, 1999, will be owned or available
for use by the Target on identical terms and conditions immediately
subsequent to the Closing hereunder. The Target has taken all
reasonably necessary action to maintain and protect each item of
Intellectual Property that it owns or uses.
(b) To the Knowledge of Sellers, the Target has not
interfered with, infringed upon, misappropriated, or otherwise come
into conflict with any Intellectual Property rights of third parties,
and none of the Sellers and the directors and officers of the Target
has ever received any charge, complaint, claim, demand, or notice
alleging any such interference, infringement, misappropriation, or
violation (including any claim that the Target must license or
refrain from using any Intellectual Property rights of any third
party). Except as set forth in Section 4.12(b) of the Disclosure
Schedule, to the Knowledge of any of the Sellers and the directors and
officers of the Target, no third party has interfered with, infringed
upon, misappropriated, or otherwise come into conflict with any
Intellectual Property rights of the Target.
(c) Section 4.12(c) of the Disclosure Schedule separately
identifies each pending patent or registration that has been issued,
assigned or licensed to the Target with respect to any of its
Intellectual Property, identifies each pending patent application or
application for registration that the Target has made with respect to
any of its Intellectual Property, and identifies each license,
agreement, or other permission that the Target has granted to any third
party with respect to any of its Intellectual Property (together with
any exceptions). The Sellers have delivered to the Buyer correct and
complete copies of all such patents, copyrights, trademarks and service
marks, applications, licenses, agreements, and permissions (as amended
to date) and have made available to the Buyer correct and complete
copies of all other written documentation evidencing ownership and
prosecution (if applicable) of each such item. Section 4.12(c) of the
Disclosure Schedule also identifies each trade name or unregistered
trademark used by the Target in connection with any of its businesses.
With respect to each item of Intellectual Property required to be
identified in Section 4.12(c) of the Disclosure Schedule:
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(i) the Target or Rick Briggs, as applicable,
possesses all right, title, and interest in and to the item,
free and clear of any Security Interest, license, or other
restriction, other than the licenses set forth in Section
4.12(c) of the Disclosure Schedule;
(ii) the item is not subject to any outstanding
injunction, judgment, order, decree, ruling, or charge;
(iii) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending
or, to the Knowledge of any of the Sellers and any of the
directors or officers of the Target, is threatened which
challenges the legality, validity, enforceability, use, or
ownership of the item;
(iv) other than in the ordinary course of business
in a commercial sales transaction, neither the Target nor
Rick Briggs have ever agreed to indemnify any Person for or
against any interference, infringement, misappropriation, or
other conflict with respect to the item; and
(v) neither the Target nor Rick Briggs are aware of
any prior art references that would invalidate one or more of
the patents set forth in Section 4.12(c) of the Disclosure
Schedule.
(d) Section 4.12(d) of the Disclosure Schedule identifies
each item of Intellectual Property that any third party owns and that
the Target uses pursuant to license, sublicense, agreement, or
permission (excluding the Briggs IP). The Sellers have delivered to the
Buyer correct and complete copies of or schedules identifying all such
licenses, sublicenses, agreements, and permissions (as amended to
date). With respect to each item of Intellectual Property required to
be identified in Section 4.12(d) of the Disclosure Schedule:
(i) to the Knowledge of any of the Sellers, the
license, sublicense, agreement, or permission covering the
item is legal, valid, binding, enforceable, and in full force
and effect;
(ii) to the Knowledge of any of the Sellers, the
license, sublicense, agreement, or permission will continue to
be legal, valid, binding, enforceable, and in full force and
effect on identical terms following the consummation of the
transactions contemplated hereby (including the assignments
and assumptions referred to in Section 2 above);
(iii) to the Knowledge of any of the Sellers, no
party to the license, sublicense, agreement, or permission is
in breach or default, and no event has occurred which with
notice or lapse of time would constitute a breach or default
or permit termination, modification, or acceleration
thereunder;
(iv) to the Knowledge of any of the Sellers, no
party to the license, sublicense, agreement, or permission
has repudiated any provision thereof;
(v) with respect to each sublicense, the
representations and warranties set forth in subsections (i)
through (iv) above are true and correct with respect to the
underlying license;
(vi) the underlying item of Intellectual Property
is not subject to any outstanding injunction, judgment, order,
decree, ruling, or charge;
(vii) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending
or, to the Knowledge of any of the Sellers and any of the
directors or officers of the Target, is threatened which
challenges the legality, validity, or enforceability of the
underlying item of Intellectual Property; and
(viii)Target has not granted any sublicense or
similar right with respect to the license, sublicense,
agreement, or permission.
(e) To the Knowledge of any of the Sellers or the
directors or officers of the Target, the Target will not interfere
with, infringe upon, misappropriate, or otherwise come into conflict
with, any Intellectual
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Property rights of third parties as a result of the continued
operation of its businesses as presently conducted and as presently
proposed to be conducted.
(f) Buyer hereby acknowledges that Target does not own or
have the right to use the Intellectual Property specifically set forth
in Disclosure Schedule 4.12(f) (the "Non-Assigned IP"), including any
reissues, renewals, extensions, divisions and continuations thereof
and all registrations thereof in any country which may be granted
thereon and reissues, renewals and extensions thereof; together with
the right to file such applications and the right to claim priority
from prior applications under the laws of the United States or other
countries under the International Agreement for the Protection of
Industrial Property, or any other international agreement, or the
domestic laws of the country in which any such application is filed,
as may be applicable. Notwithstanding the foregoing, Seller hereby
covenants and agrees that it will never assert any of the Non-Assigned
IP against Buyer or any company or other entity controlled or
principally operated by Buyer for or on account of any products or
activities of Target that were in existence or were practiced by
Target as of October 1, 1999, including any variations in the
structure, layout and theming thereof that do not substantially alter
the fundamental character and nature of the product or activity. Buyer
hereby covenants and agrees that it will never assert any of the
Briggs IP set forth in Disclosure Schedule 4.12(c) against Seller or
any company or other entity controlled or principally operated by
Seller for or on accoun of any products or activities that were not
in existence or practiced by Target as of October 1, 199 and that are
substantially and fundamentally different in character and nature from
the products or activities in existence or practiced by Target as of
October 1, 1999.
Section 4.13. Tangible Assets. Except as disclosed in Section 4.13
of the Disclosure Schedule to the Knowledge of any of the Sellers, the Target
owns or leases all buildings, machinery, equipment, and other tangible assets
necessary for the conduct of its business as presently conducted. Each such
tangible asset is free from material defects (patent and latent), has been
maintained in accordance with normal industry practice, is in good operating
condition and repair (subject to normal wear and tear), and is suitable for the
purposes for which it presently is used.
Section 4.14. Inventory. The inventory of the Target consists of
raw materials and supplies, manufactured and purchased parts, goods in process,
and finished goods, all of which is merchantable and fit for the purpose for
which it was procured or manufactured, and none of which is slow-moving,
obsolete, damaged, or defective, subject only to the reserve for inventory
writedown set forth on the face of the Most Recent Balance Sheet (rather than in
any notes thereto) as adjusted for the passage of time through the Closing Date
in accordance with the past custom and practice of the Target.
Section 4.15. Contracts. Section 4.15 of the Disclosure Schedule
lists the following contracts and other agreements to which the Target is a
party:
(a) any agreement (or group of related agreements) for
the lease of personal property to or from any Person providing for
lease payments in excess of $10,000 per annum;
(b) any agreement (or group of related agreements) for
the purchase or sale of raw materials, commodities, supplies,
products, or other personal property, or for the furnishing or receipt
of services, the performance of which will extend over a period of
more than one year, result in a loss to the Target, or involve
consideration in excess of $10,000;
(c) any agreement concerning a partnership or joint
venture;
(d) any agreement (or group of related agreements) under
which the Target has created, incurred, assumed, or guaranteed any
indebtedness for borrowed money, or any capitalized lease obligation,
in excess of $5,000 or under which it has imposed a Security Interest
on any of its ssets, tangible or intangible;
(e) any agreement concerning confidentiality of any
third-party proprietary information (excluding any third-party supplies
agreements, consulting agreements, employee agreements and the like
executed in the ordinary course of business) or noncompetition;
(f) any agreement with any of the Sellers and their
Affiliates (other than the Target);
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(g) any profit sharing, stock option, stock purchase,
stock appreciation, deferred compensation, severance, or other plan or
arrangement for the benefit of its current or former directors,
officers, or employees;
(h) any collective bargaining agreement;
(i) any agreement for the employment of any individual on
a full-time, part-time, consulting, or other basis providing annual
compensation in excess of $10,000 or providing severance benefits;
(j) any agreement under which the Target has advanced or
loaned any amount to any of its directors, officers, or employees
outside the Ordinary Course of Business;
(k) any agreement under which the consequences of a
default or termination could have a material adverse effect on the
business, financial condition, operations, results of operations,
or future prospects of the Target; or
(l) any other agreement (or group of related agreements)
the performance of which involves consideration in excess of $10,000.
The Sellers have delivered to the Buyer a correct and complete
copy of each written agreement listed in Section 4.15 of the Disclosure Schedule
(as amended to date) and a written summary setting forth the terms and
conditions of each oral agreement referred to in Section 4.15 of the Disclosure
Schedule. With respect to each such agreement: (A) the agreement is legal,
valid, binding, enforceable, and in full force and effect; (B) the agreement
will continue to be legal, valid, binding, enforceable, and in full force and
effect on identical terms following the consummation of the transactions
contemplated hereby; (C) to the Knowledge of Sellers, no party is in breach or
default, and no event has occurred which with notice or lapse of time would
constitute a breach or default, or permit termination, modification, or
acceleration, under the agreement; and (D) to the Knowledge of Sellers, no party
has repudiated any provision of the agreement.
Section 4.16. Notes and Accounts Receivable. All notes and accounts
receivable of the Target are reflected properly on its books and records, are
valid receivables to the Knowledge of Sellers subject to no setoffs or
counterclaims, are, to the Knowledge of Sellers, current and collectible, and
will be collected in accordance with its terms at their recorded amounts,
subject only to the reserve for bad debts set forth on the face of the Most
Recent Balance Sheet (rather than in any notes thereto) as adjusted for the
passage of time through the Closing Date in accordance with the past custom and
practice of the Target.
Section 4.17. Powers of Attorney. Except for limited powers of
attorney that have been granted to counsel to facilitate representation before
the Patent and Trademark Office and the Internal Revenue Service and which are
listed on Section 4.17 of the Disclosure Schedule, there are no outstanding
powers of attorney executed on behalf of the Target.
Section 4.18. Insurance. Section 4.18 of the Disclosure Schedule
sets forth the following information with respect to each insurance policy
(including policies providing property, casualty, liability, and workers'
compensation coverage and bond and surety arrangements) to which the Target has
been a party, a named insured, or otherwise the beneficiary of coverage at any
time within the past 10 years:
(a) the name, address, and telephone number of the agent;
(b) the name of the insurer, the name of the policyholder
and the name of each covered insured;
(c) the policy number and the period of coverage;
(d) the scope (including an indication of whether the
coverage was on a claims made, occurrence, or other basis) and amount
(including a description of how deductibles and ceilings are calculated
and operate) of coverage; and
(e) a description of any retroactive premium adjustments
or other loss-sharing arrangements.
With respect to each such insurance policy: (A) the policy is
legal, valid, binding, enforceable, and in full force and effect; (B) the policy
will continue to be legal, valid, binding, enforceable, and in full force and
effect on
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identical terms following the consummation of the transactions contemplated
hereby; (C) neither the Target nor any other party to the policy is in breach or
default (including with respect to the payment of premiums or the giving of
notices), and no event has occurred which, with notice or the lapse of time,
would constitute such a breach or default, or permit termination, modification,
or acceleration, under the policy; and (D) no party to the policy has repudiated
any provision thereof. The Target has been covered during the past 10 years by
insurance in scope and amount customary and reasonable for the businesses in
which it has engaged during the aforementioned period. Section 4.18 of the
Disclosure Schedule describes any self-insurance arrangements affecting the
Target.
Section 4.19. Litigation. Section 4.19 of the Disclosure Schedule
sets forth each instance in which the Target (i) is subject to any outstanding
injunction, judgment, order, decree, ruling, or charge or (ii) is a party or, to
the Knowledge of any of the Sellers, the directors or officers of the Target, is
threatened to be made a party to any action, suit, proceeding, hearing, or
investigation of, in, or before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction or before any
arbitrator. None of the actions, suits, proceedings, hearings, and
investigations set forth in Section 4.19 of the Disclosure Schedule could result
in any material adverse change in the business, financial condition, operations,
results of operations, or future prospects of the Target. None of the Sellers
and the directors and officers (and employees with responsibility for litigation
matters) of the Target has any reason to believe that any such action, suit,
proceeding, hearing, or investigation may be brought or threatened against the
Target.
Section 4.20. Product Warranty. Each product manufactured, sold,
leased, or delivered by the Target has been in conformity with all applicable
contractual commitments and all express and implied warranties, and to the
Knowledge of Sellers, the Target has no Liability (and there is no Basis for any
present or future action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand against it giving rise to any Liability) for
replacement or repair thereof or other damages in connection therewith, subject
only to the reserve for product warranty claims set forth on the face of the
Most Recent Balance Sheet (rather than in any notes thereto) as adjusted for the
passage of time through the Closing Date in accordance with the past custom and
practice of the Target. No product manufactured, sold, leased, or delivered by
the Target is subject to any guaranty, warranty, or other indemnity materially
different from the applicable standard terms and conditions of sale or lease.
Section 4.20 of the Disclosure Schedule includes copies of the standard terms
and conditions of sale or lease for of the Target (containing applicable
guaranty, warranty, and indemnity provisions).
Section 4.21. Product Liability. The Target has no any Liability
(and to the Knowledge of any of the Sellers there is no Basis for any present or
future action, suit, proceeding, hearing, investigation, charge, complaint,
claim, or demand against any of them giving rise to any Liability) arising out
of any injury to individuals or property as a result of the ownership,
possession, or use of any product manufactured, sold, leased, or delivered by
the Target, which Liability is not covered by insurance (subject to any
applicable deductible).
Section 4.22. Employees. To the Knowledge of any of the Sellers and
the directors and officers of the Target, no executive, key employee, or group
of employees has any plans to terminate employment with the Target. The Target
is not a party to or bound by any collective bargaining agreement, nor has the
Target experienced any strikes, grievances, claims of unfair labor practices, or
other collective bargaining disputes. The Target has not committed any unfair
labor practice. None of the Sellers, the directors or officers of the Target has
any Knowledge of any organizational effort presently being made or threatened by
or on behalf of any labor union with respect to employees of the Target.
Section 4.23. Employee Benefits.
(a) Section 4.23 of the Disclosure Schedule lists each
Employee Benefit Plan that the Target maintains or to which the Target
contributes or has any obligation to contribute.
(i) Each such Employee Benefit Plan (and each related
trust, insurance contract, or fund) complies in form and in
operation in all respects with the applicable requirements of
ERISA, the Code, and other applicable laws.
(ii) All required reports and descriptions (including
Form 5500 Annual Reports, summary annual reports, PBGC-1's,
and summary plan descriptions) have been timely filed and
distributed appropriately with respect to each such Employee
Benefit Plan. The requirements of COBRA have been met with
respect to each such Employee Benefit Plan which is an
Employee Welfare Benefit Plan.
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(iii) All contributions (including all employer
contributions and employee salary reduction contributions)
that are due have been paid to each such Employee Benefit Plan
that is an Employee Pension Benefit Plan and all contributions
for any period ending on or before the Closing Date that are
not yet due have been paid to each such Employee Pension
Benefit Plan or accrued in accordance with the past custom and
practice of the Target. All premiums or other payments for all
periods ending on or before the Closing Date have been paid
with respect to each such Employee Benefit Plan that is an
Employee Welfare Benefit Plan.
(iv) Each Employee Benefit Plan that is an Employee
Pension Benefit Plan meets the requirements of a "qualified
plan" within the meaning of Code Sections 401(a) and all
other applicable provisions of the Code governing Employee
Pension Benefit Plans both in form and operation for all
plan years beginning with the date of establishment of such
Employee Pension Benefit Plan through the Closing Date. None
of the Sellers have Knowledge of any facts or circumstances
that would result in any form or operational error under
such Employee Pension Benefit Plan. All Employee Pension
Benefit Plans have been amended for all law changes required
through the close of the plan year(s) beginning in 2000 or
will be so amended prior to the Closing Date.
(v) The market value of assets under each such
Employee Benefit Plan which is an Employee Pension Benefit
Plan (other than any Multiemployer Plan) equals or exceeds the
present value of all vested and nonvested Liabilities
thereunder determined in accordance with PBGC methods,
factors, and assumptions applicable to an Employee Pension
Benefit Plan terminating on the date for determination.
(vi) The Sellers have delivered to the Buyer correct
and complete copies of the plan documents and summary plan
descriptions, the most recent determination letter received
from the Internal Revenue Service, the most recent Form 5500
Annual Report, and all related trust agreements, insurance
contracts, and other funding agreements which implement each
such Employee Benefit Plan.
(b) With respect to each Employee Benefit Plan that the
Target and any ERISA Affiliate maintains or ever has maintained or to
which any of them contributes, ever has contributed, or ever has
been required to contribute:
(i) No such Employee Benefit Plan that is an
Employee Pension Benefit Plan (other than any Multiemployer
Plan) has been completely or partially terminated or been
the subject of a Reportable Event as to which notices would
be required to be filed with the PBGC. No proceeding by the
PBGC to terminate any such Employee Pension Benefit Plan
(other than any Multiemployer Plan) has been instituted or,
to the Knowledge of any of the Sellers, the directors or
officers of the Target, threatened.
(ii) There have been no Prohibited Transactions with
respect to any such Employee Benefit Plan. No Fiduciary has
any Liability for breach of fiduciary duty or any other
failure to act or comply in connection with the administration
or investment of the assets of any such Employee Benefit Plan.
No action, suit, proceeding, hearing, or investigation with
respect to the administration or the investment of the assets
of any such Employee Benefit Plan (other than routine claims
for benefits) is pending or, to the Knowledge of any of the
Sellers, the directors or officers of the Target, threatened.
None of the Sellers and the directors and officers of the
Target has any Knowledge of any Basis for any such action,
suit, proceeding, hearing, or investigation.
(iii) The Target has not incurred, and none of the
Sellers nor any of the directors and officers of the Target
has any reason to expect that the Target will incur, any
Liability to the PBGC (other than PBGC premium payments) or
otherwise under Title IV of ERISA (including any withdrawal
liability as defined in ERISA Section 4201) or under the Code
with respect to any such Employee Benefit Plan that is an
Employee Pension Benefit Plan.
(c) The Target, and the other members of the Controlled
Group that includes the Target do not contribute to, never have
contributed to, have never been required to contribute to any
Multiemployer Plan and
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have no Liability (including withdrawal liability as defined in
ERISA Section 4201) under any Multiemployer Plan.
(d) The Target does not maintain, never has maintained,
does not contribute, has never contributed, and has never been required
to contribute to any Employee Welfare Benefit Plan providing medical,
health, or life insurance or other welfare-type benefits for current or
future retired or terminated employees, their spouses, or their
dependents (other than in accordance with COBRA).
(e) Each and every Employee Benefit Plan that is a
cafeteria plan or flexible spending account omplies, and in each and
every case has complied, with the applicable requirements of Code
Section 125 and all other applicable federal, state o local laws or
ordinances.
(f) Each and every Employee Benefit Plan that is a
dependent care assistance program complies, and in each and every
case has complied, with the applicable requirements of Code Section 129
and all other applicable federal, state or local laws and ordinances.
(g) No event has occurred and no conditions exist that
would subject the Target or any member of its Controlled Group to any
tax penalty under Code Sections 511, 4971, 4972, 4976, 4977, 4978,
4979, 979A, or 5000, or to a fine under ERISA Section 502(c).
(i) Neither the Target nor any
member of its Controlled Group is subject to any
legal, contractual, equitable or other obligation to
(1) establish as of any date any employee benefit
plan of any nature, including, without limitation,
any pension, profit sharing, welfare, post-retirement
welfare, stock option, stock or cash award,
nonqualified deferred compensation or executive
compensation plan, policy or practice, or (2)
continue any employee benefit plans of any nature,
including, without limitation, any Employee Benefit
Plan or any other pension, profit sharing, welfare or
post-retirement welfare plan, or any stock option,
stock or cash award, nonqualified deferred
compensation or executive compensation plan, policy
or practice (or to continue their participation in
any such benefit plan, policy or practice) on or
after the Closing Date.
(ii) The Target and each member of
its Controlled Group may, in any manner, subject to
the limitations imposed by applicable law, and
without the consent of any employee, beneficiary or
other person, prospectively terminate, modify or
amend any such Employee Benefit Plan or any other
plan, program or practice (or its participation in
such Employee Benefit Pan or any other plan, program
or practice) effective as of any date on or after the
Closing Date.
(iii) No representation or
communications (directly or indirectly, orally, in
writing or otherwise) with respect to participation,
eligibility for benefits, vesting, benefit accrual
coverage or other material terms of any Employee
Benefit Plan have been made prior to the Closing to
any employee, beneficiary or other person other than
those which are in accordance with the terms and
provisions of each such Employee Benefit Plan as in
effect immediately prior to the Closing.
Section 4.24. Guaranties. The Target is not a guarantor or
otherwise liable for any Liability or obligation (including indebtedness) of any
other Person.
Section 4.25. Environmental, Health, and Safety Matters.
-----------------------------------------
(a) The Target and its respective predecessors and
Affiliates have complied and are in compliance with all Environmental,
Health, and Safety Requirements.
(b) Without limiting the generality of the foregoing,
the Target and its respective Affiliates have obtained and complied
with, and are in compliance with, all permits, licenses and
other authorizations that are required pursuant to Environmental,
Health, and Safety Requirements for the occupation of its facilities
and the operation of its business; a list of all such permits,
licenses and other authorizations is set forth on the attached
"Environmental and Safety Permits Schedule."
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(c) Neither the Target nor its respective predecessors or
Affiliates has received any written or oral notice, report or other
information regarding any actual or alleged violation of Environmental,
Health, and Safety Requirements, or any liabilities or potential
liabilities (whether accrued, absolute, contingent, unliquidated or
otherwise), including any investigatory, remedial or corrective
obligations, relating to any of them or its facilities arising under
Environmental, Health, and Safety Requirements. No enforcement action
has been or will be taken based on items noted during the inspection
described in the Compliance Action Form from the Oregon Department of
Environmental Quality dated March 31, 1997.
(d) Except as set forth in Section 4.25(d) of the
Disclosure Schedule, none of the following exists at any property or
facility owned or operated by the Target: (1) underground storage tanks,
(2) asbestos-containing material in any form or condition, (3)materials
or equipment containing polychlorinated biphenyls, (4) landfills,
surface impoundments, or disposal areas, or (5) lead paint.
(e) Neither the Target nor its respective predecessors
or Affiliates has treated, stored, disposed of, arranged for or
permitted the disposal of, transported, handled, or released any
substance, including without limitation any hazardous substance, or
owned or operated any property or facility (and no such property or
facility is contaminated by any such substance) in a manner that has
given or would give rise to liabilities, including any liability for
response costs, corrective action costs, personal injury, property
damage, natural resources damages or attorney fees, pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended ("CERCLA"), the Solid Waste Disposal Act, as
amended ("SWDA") or any other Environmental, Health, and Safety
Requirements.
(f) Neither this Agreement nor the consummation of the
transactions that are the subject of this Agreement will result in any
obligations for site investigation or cleanup, or notification to or
consent of government agencies or third parties, pursuant to any of the
so-called "transaction-triggered" or "responsible property transfer"
Environmental, Health, and Safety Requirements.
(g) Neither the Target nor any of its respective
predecessors or Affiliates has, either expressly or by operation of
law, assumed or undertaken any liability, including without limitation
any obligation for corrective or remedial action, of any other Person
relating to Environmental, Health, and Safety Requirements.
(h) No facts, events or conditions relating to the past
or present facilities, properties or operations of the Target or any of
its respective predecessors or Affiliates will prevent, hinder or limit
continued compliance with Environmental, Health, and Safety
Requirements, give rise to any investigatory, remedial or corrective
obligations pursuant to Environmental, Health, and Safety Requirements,
or give rise to any other liabilities (whether accrued, absolute,
contingent, unliquidated or otherwise) pursuant to Environmental,
Health, and Safety Requirements, including without limitation any
liabilities relating to onsite or offsite releases or threatened
releases of hazardous materials, substances or wastes, personal injury,
property damage or natural resources damage.
Section 4.26. Certain Business Relationships with the Target.
Except as set forth in Section 4.26 of the Disclosure Schedule, none of the
Sellers and their Affiliates has been involved in any business arrangement or
relationship with the Target within the past 12 months, and none of the Sellers
and their Affiliates owns any asset, tangible or intangible, which is used in
the business of the Target.
Section 4.27 Geauga Lake Project. The completion of the project
(the "Geauga Lake Project") contemplated by the letter of intent between Target
and Six Flags Inc., dated November 1, 1999, is proceeding without any material
delays or cost overruns. The Geauga Lake Project has been assigned to PowerPlay
Development LLC. To the Knowledge of any of the Sellers, the Target's portion of
the Geauga Lake Project will be completed without an adverse effect on the
business or financial condition of Target.
Section 4.28 Disclosure. The representations and warranties
contained in this Section 4 do not contain any untrue statement of a fact or
omit to state any fact necessary in order to make the statements and information
contained in this Section 4 not misleading.
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ARTICLE V
Post-Closing Covenants.
-----------------------
The Parties agree as follows with respect to the period following the
Closing.
Section 5.1. General. In case at any time after the Closing any
further action is necessary or desirable to carry out the purposes of this
Agreement, each of the Parties will take such further action (including the
execution and delivery of such further instruments and documents) as any other
Party reasonably may request, all at the sole cost and expense of the requesting
Party (unless the requesting Party is entitled to indemnification therefor under
Section 8 below). The Sellers acknowledge and agree that from and after the
Closing the Buyer will be entitled to possession of all documents, books,
records (including Tax records), agreements, and financial data of any sort
relating to the Target.
Section 5.2. Litigation Support. In the event and for so long as
any Party actively is contesting or defending against any action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand in
connection with (i) any transaction contemplated under this Agreement or (ii)
any fact, situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or prior
to the Closing Date involving the Target, each of the other Parties will
cooperate with him or it and his or its counsel in the contest or defense, make
available their personnel, and provide such testimony and access to their books
and records as shall be necessary in connection with the contest or defense, all
at the sole cost and expense of the contesting or defending Party (unless the
contesting or defending Party is entitled to indemnification therefor under
Section 8 below).
Section 5.3. Transition. None of the Sellers will take any action
that is designed or intended to have the effect of discouraging any lessor,
licensor, customer, supplier, or other business associate of the Target from
maintaining the same business relationships with the Target after the Closing as
it maintained with the Target prior to the Closing. Each of the Sellers will
refer all customer inquiries relating to the businesses of the Target to the
Buyer from and after the Closing.
Section 5.4. Confidentiality. Each of the Sellers will treat and
hold as such all of the Confidential Information, refrain from using any of the
Confidential Information except in connection with this Agreement, and deliver
promptly to the Buyer or destroy, at the request and option of the Buyer, all
tangible embodiments (and all copies) of the Confidential Information which are
in his or its possession. In the event that any of the Sellers is requested or
required (by oral question or request for information or documents in any legal
proceeding, interrogatory, subpoena, civil investigative demand, or similar
process) to disclose any Confidential Information, that Seller will notify the
Buyer promptly of the request or requirement so that the Buyer may seek an
appropriate protective order or waive compliance with the provisions of this
Section 5.4. If, in the absence of a protective order or the receipt of a waiver
hereunder, any of the Sellers is, on the advice of counsel, compelled to
disclose any Confidential Information to any tribunal or else stand liable for
contempt, that Seller may disclose the Confidential Information to the tribunal;
provided, however, that the disclosing Seller shall use his or its best efforts
to obtain, at the request of the Buyer, an order or other assurance that
confidential treatment will be accorded to such portion of the Confidential
Information required to be disclosed as the Buyer shall designate. The foregoing
provisions shall not apply to any Confidential Information which is generally
available to the public immediately prior to the time of disclosure.
Section 5.5. Covenant Not to Compete. For a period of (a) five
years with respect to Rick Briggs, and Fred Frantz (b) three years with respect
to Mark Weston and Denise Weston, and (c) two years with respect to the other
Sellers, each from and after the Closing Date, none of the such Sellers will
engage directly or indirectly (including, without limitation, by becoming a
partner, consultant, coventurer, or otherwise, including employment) in the
indoor and outdoor modular play equipment, children's activity tables,
children's convenience safety and hygiene products, foam activity products,
interactive water play and ball play products and water fountain products
industries in any geographic area in which the Target conducts that business as
of the Closing Date; provided, however, that no owner of less than 1% of the
outstanding stock of any publicly-traded corporation shall be deemed to engage
solely by reason thereof in any of its businesses. Each Seller will also refrain
from actually performing or directly managing or supervising such activities
with its principal, agent, employee, consultant, contractor or coventurer, or
from starting his or her own business that would compete with Target. Sellers
recognize and acknowledge that (a) the covenant not to compete is being made in
connection with the sale of the business of Target, (b) such Seller has become
familiar with the confidential trade secrets of Target, including those relating
to the Target's customers and suppliers, and the design of attractions for use
in the indoor and outdoor modular play equipment, children's activity tables,
children's convenience safety and hygiene
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products, foam activity products, interactive water play and ball play products
and water fountain products industries, (c) such Seller could cause grave harm
to Target and Koala if Seller worked for a competitor of Target. If the final
judgment of a court of competent jurisdiction declares that any term or
provision of this Section 5.5 is invalid or unenforceable, the Parties agree
that the court making the determination of invalidity or unenforceability shall
have the power to reduce the scope, duration, or area of the term or provision,
to delete specific words or phrases, or to replace any invalid or unenforceable
term or provision with a term or provision that is valid and enforceable and
that comes closest to expressing the intention of the invalid or unenforceable
term or provision, and this Agreement shall be enforceable as so modified after
the expiration of the time within which the judgment may be appealed.
Section 5.6. Buyer Shares. Each Buyer Share will be imprinted with
a legend substantially in the following form:
This security has not been registered under the Securities Act of 1933,
as amended. The transfer of this security is subject to certain
restrictions set forth in the Stock and Asset Purchase Agreement, dated
March 1, 2000. The issuer of this security will furnish a copy of these
provisions to the holder hereof without charge upon written request.
The shares represented by this security may only be sold on a public
market through a broker-dealer approved in writing by Koala
Corporation.
Each holder desiring to transfer a Buyer Share first must furnish the
Buyer with a written opinion reasonably satisfactory to the Buyer in form and
substance from counsel reasonably satisfactory to the Buyer by reason of
experience to the effect that the holder may transfer the Buyer Share as desired
without registration under the Securities Act. In addition, no Seller shall sell
any Buyer Shares on the Nasdaq National Market (or any other stock market on
which the Koala Common Stock shall trade) except through a broker-dealer
approved in writing by Buyer.
Section 5.7. Financial Statements. Sellers shall cause, at their
expense, audited financial statements for the fiscal year ended September 30,
1998 to be prepared as soon as practicable, but in no case later than 60 days
after the Closing, in accordance with GAAP, the Securities Act of 1933, as
amended, the Securities Exchange Act of 1934, and the rules and regulations
thereunder.
ARTICLE VI
Remedies for Breaches of This Agreement.
----------------------------------------
Section 6.1. Survival of Representations and Warranties.
All of the representations and warranties of the Parties contained in
this Agreement shall survive the Closing hereunder (even if the damaged Party
knew or had reason to know of any misrepresentation or breach of warranty or
covenant at the time of Closing) for a period of two years from the Closing
Date.
Section 6.2. Indemnification Provisions for Benefit of the Buyer.
(a) In the event any of the Sellers breaches (or in the event
any third party alleges facts that, if true, would mean any of the
Sellers has breached) any of his or its representations, warranties,
and covenants contained herein (other than the covenants in Section 2.1
above and the representations and warranties in Section 3.1 above),
and, if there is an applicable survival period pursuant to Section 6.1
above, provided that the Buyer makes a written claim for
indemnification against any of the Sellers pursuant to Section 8.8
below within such survival period, then each of the Sellers agrees to
indemnify the Buyer from and against the entirety of any Adverse
Consequences the Buyer may suffer through and after the date of the
claim for indemnification (including any Adverse Consequences the Buyer
may suffer after the end of any applicable survival period) resulting
from, arising out of, relating to, in the nature of, or caused by the
breach (or the alleged breach).
(b) In the event any of the Sellers breaches (or in the event
any third party alleges facts that, if true, would mean any of the
Sellers has breached) any of his or its covenants in Section 2.1 above
or any of his or its representations and warranties in Section 3.1
above, and, if there is an applicable survival period pursuant to
Section 6.1 above, provided that the Buyer makes a written claim for
indemnification against the Seller pursuant to Section 8.8 below within
such survival period, then each of the Sellers agree to indemnify the
Buyer from and against the entirety of any Adverse Consequences the
Buyer may suffer through and after the date of
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the claim for indemnification (including any Adverse Consequences
the Buyer may suffer after the end of any applicable survival period)
resulting from, arising out of, relating to, in the nature of, or
caused by the breach (or the alleged breach).
(c) Each of the Sellers agrees to indemnify the Buyer from and
against the entirety of any Adverse Consequences the Buyer may suffer
resulting from, arising out of, relating to, in the nature of, or
caused by any Liability of the Target (x) for any Taxes of the Target
with respect to any Tax year or portion thereof ending on or before the
Closing Date (or for any Tax year beginning before and ending after the
Closing Date to the extent allocable (determined in a manner consistent
with Section 7.3) to the portion of such period beginning before and
ending on the Closing Date), to the extent such Taxes are not reflected
in the reserve for Tax Liability (rather than any reserve for deferred
Taxes established to reflect timing differences between book and Tax
income) shown on the face of the Most Recent Balance Sheet (rather than
in any notes thereto), as such reserve is adjusted for the passage of
time through the Closing Date in accordance with the past custom and
practice of the Target in filing its Tax Returns, and (y) for the
unpaid Taxes of any Person (other than the Target) under Reg. Section
1.1502-6 (or any similar provision of state, local, or foreign law), as
a transferee or successor, by contract, or otherwise.
(d) Each of the Sellers agrees to indemnify the Buyer from and
against the entirety of any Adverse Consequences the Buyer may suffer
resulting from, arising out of, or relating to conditions on any
property owned or leased by Target that existed at or prior to Closing
and that resulted or may result in Liability to Buyer resulting from,
arising out of, or relating to Environmental, Health and Safety
Requirements, regardless of whether such conditions were created or
contributed to by the Target or Sellers.
Section 6.3. Indemnification Provisions for Benefit of the Sellers. In
the event the Buyer breaches (or in the event any third party alleges facts
that, if true, would mean the Buyer has breached) any of its representations,
warranties, and covenants contained herein, and, if there is an applicable
survival period pursuant to Section 6.1 above, provided that any of the Sellers
makes a written claim for indemnification against the Buyer pursuant to Section
8.8 below within such survival period, then the Buyer agrees to indemnify each
of the Sellers from and against the entirety of any Adverse Consequences the
Seller may suffer through and after the date of the claim for indemnification
(including any Adverse Consequences the Seller may suffer after the end of any
applicable survival period) resulting from, arising out of, relating to, in the
nature of, or caused by the breach (or the alleged breach).
Section 6.4. Matters Involving Third Parties.
(a) If any third party shall notify any Party (the
"Indemnified Party") with respect to any matter (a "Third Party Claim")
which may give rise to a claim for indemnification against any other
Party (the "Indemnifying Party") under this Section 6, then the
Indemnified Party shall promptly notify each Indemnifying Party thereof
in writing; provided, however, that no delay on the part of the
Indemnified Party in notifying any Indemnifying Party shall relieve the
Indemnifying Party from any obligation hereunder unless (and then
solely to the extent) the Indemnifying Party thereby is prejudiced.
(b) Any Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel of the
Indemnifying Party's choice satisfactory to the Indemnified Party so
long as (A) the Indemnifying Party notifies the Indemnified Party in
writing within 15 days after the Indemnified Party has given notice of
the Third Party Claim that the Indemnifying Party will indemnify the
Indemnified Party from and against the entirety of any Adverse
Consequences the Indemnified Party may suffer resulting from, arising
out of, relating to, in the nature of, or caused by the Third Party
Claim, (B) the Indemnifying Party provides the Indemnified Party with
evidence acceptable to the Indemnified Party that the Indemnifying
Party will have the financial resources to defend against the Third
Party Claim and fulfill its indemnification obligations hereunder, (C)
the Third Party Claim involves only money damages and does not seek an
injunction or other equitable relief, (D) settlement of, or an adverse
judgment with respect to, the Third Party Claim is not, in the good
faith judgment of the Indemnified Party, likely to establish a
precedential custom or practice adverse to the continuing business
interests of the Indemnified Party, and (E) the Indemnifying Party
conducts the defense of the Third Party Claim actively and diligently.
(c) So long as the Indemnifying Party is conducting the
defense of the Third Party Claim in accordance with Section 6.4(b)
above, (A) the Indemnified Party may retain separate co-counsel at its
sole cost and expense and participate in the defense of the Third Party
Claim, (B) the Indemnified Party will not consent
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to the entry of any judgment or enter into any settlement with
respect to the Third Party Claim without the prior written consent of
the Indemnifying Party (not to be withheld unreasonably), and (C) the
Indemnifying Party will not consent to the entry of any judgment or
enter into any settlement with respect to the Third Party Claim
without the prior written consent of the Indemnified Party (not to be
withheld unreasonably).
(d) In the event any of the conditions in Section 6.4(b) above
is or becomes unsatisfied, however, (A) the Indemnified Party may
defend against, and consent to the entry of any judgment or enter into
any settlement with respect to, the Third Party Claim in any manner it
may deem appropriate (and the Indemnified Party need not consult with,
or obtain any consent from, any Indemnifying Party in connection
therewith), (B) the Indemnifying Parties will reimburse the Indemnified
Party promptly and periodically for the costs of defending against the
Third Party Claim (including attorneys' fees and expenses), and (C) the
Indemnifying Parties will remain responsible for any Adverse
Consequences the Indemnified Party may suffer resulting from, arising
out of, relating to, in the nature of, or caused by the Third Party
Claim to the fullest extent provided in this Section 6.
Section 6.5. Determination of Adverse Consequences. The Parties shall
take into account the time cost of money in determining Adverse Consequences for
purposes of this Section 6. All indemnification payments under this Section 6
shall be deemed adjustments to the Purchase Price.
Section 6.6. Recoupment by Offset of Holdback. The Buyer shall have the
option of recouping all or any part of any Adverse Consequences it may suffer
(in lieu of seeking any indemnification which it is entitled under this Section
6) by notifying any Seller that the Buyer is reducing the amounts payable
pursuant to Section 2.2(b). Buyer shall no longer be obligated to pay such
amounts for which notice has been given.
Section 6.7. Recoupment by Offset of Additional Consideration . The
Buyer shall have the option of recouping all or any part of any Adverse
Consequences it may suffer (in lieu of seeking any indemnification to which it
is entitled under this Section 6) by notifying any Seller that the Buyer is
reducing the amounts payable pursuant to Section 2.2(d). Buyer shall no longer
be obligated to pay such amounts for which notice has been given.
Section 6.8. Other Indemnification Provisions. The foregoing
indemnification provisions are in addition to, and not in derogation of, any
statutory, equitable, or common law remedy (including without limitation any
such remedy arising under Environmental, Health, and Safety Requirements) any
Party may have with respect to the Target or the transactions contemplated by
this Agreement. Each of the Sellers hereby agrees that he or it will not make
any claim for indemnification against the Target by reason of the fact that he
or it was a director, officer, employee, or agent of any such entity or was
serving at the request of any such entity as a partner, trustee, director,
officer, employee, or agent of another entity (whether such claim is for
judgments, damages, penalties, fines, costs, amounts paid in settlement, losses,
expenses, or otherwise and whether such claim is pursuant to any statute,
charter document, bylaw, agreement, or otherwise) with respect to any action,
suit, proceeding, complaint, claim, or demand brought by the Buyer against such
Seller (whether such action, suit, proceeding, complaint, claim, or demand is
pursuant to this Agreement, applicable law, or otherwise).
Section 6.9. Special Limitations. The obligations of a Party to
indemnify for Adverse Consequences shall be subject to
the following special limitations:
(a) In case any event shall occur that would otherwise
entitle either party to assert a Claim for indemnification hereunder,
no Adverse Consequences shall be deemed to have been sustained by such
party to the extent of (I) any tax savings actually realized by such
party with respect thereto that would not have otherwise been
realized, or (ii) any payments (by way of contribution,
indemnification or otherwise) irrevocably eceived from a third party.
(b) Any Indemnifying Party shall be subrogated to the
Indemnified Party's rights of recovery to the extent of any loss
satisfied by the Indemnifying Party. The Indemnified party shall
execute and deliver such instruments and papers as are necessary to
assign such rights and cooperate in the exercise thereof.
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(c) An Indemnified Party is not entitled to be indemnified
for any Adverse Consequences unless and until the aggregate amount of
such Adverse Consequences exceeds $20,000, and then for all Adverse
Consequences (i.e., if a Party incurs $25,000 in Adverse Consequences,
the Indemnifying Party shall pay $25,000).
(d) The maximum amount of Adverse Consequences against which
an Indemnified Party is entitled to indemnification hereunder is
$5,000,000; provided, however, that there shall be no maximum amount
of Adverse Consequences against which an Indemnified Party is entitled
to indemnification with respect to breaches of representations or
warranties relating to Environmental, Health and Safety Requirements
or pursuant to Section 6.2(d) hereof. Following the Closing, the
Parties shall use commercially reasonable efforts to obtain insurance
that covers any dverse Consequences relating to Environmental, Health
and Safety Requirements in excess of $5,000,000 and to mutually agree
on the terms of such insurance. The Buyer on one hand and the Sellers
on the other hand shall equally split the costs of such insurance.
ARTICLE VII
Tax Matters.
------------
The following provisions shall govern the allocation of responsibility
as between Buyer and Sellers for certain Tax matters following the Closing Date:
Section 7.1. Tax Periods Ending on or Before the Closing Date.
(a) Sellers shall prepare or cause to be prepared and file or cause to
be filed all Tax returns for the Target for all periods ending on or prior to
the Closing Date which are filed after the Closing Date. Seller shall reimburse
Buyer for Taxes of the Target with respect to such periods within fifteen (15)
days after payment by Buyer or the Target of such Taxes to the extent such Taxes
are not reflected in the reserve for Tax Liability (rather than any reserve for
deferred Taxes established to reflect timing differences between book and Tax
income) shown on the face of the Target's balance sheet as of the closing date
(the "Closing Balance Sheet").
(b) Any such Return shall be prepared in a manner consistent with past
practice and without a change of any election or accounting method. Sellers
shall permit Buyer to review and comment on each such Tax Return described in
the preceding sentence at least thirty (30) business days prior to the filing
due date (with extensions). If Buyer, within ten (10) days after delivery of any
such proposed Return notifies Sellers in writing that Buyer objects to any items
in such Return, the parties will negotiate in good faith to resolve such
dispute. If the parties fail to resolve such dispute within five (5) business
days, the disputed items shall be resolved (within a reasonable time, taking
into account the filing deadline of such Return) by a nationally recognized
independent accounting firm chosen and mutually acceptable to both Buyers and
Sellers. Upon resolution of all such items, the relevant Return shall be
adjusted to reflect such resolution and shall be binding upon the parties
without further adjustment. The costs, fees and expenses of such accounting firm
shall be borne equally by Buyer and the Sellers.
Section 7.2. Tax Periods Beginning Before and Ending After the
Closing Date. Buyer shall prepare or cause to be prepared and file or cause to
be filed any Tax Returns of the Target for Tax periods which begin before the
Closing Date and end after the Closing Date. Sellers shall pay to Buyer within
fifteen (15) days after the date on which Taxes are paid with respect to such
periods an amount equal to the portion of such Taxes which relates to the
portion of such Taxable period ending on the Closing Date to the extent such
Taxes are not reflected in the reserve for Tax Liability (rather than any
reserve for deferred Taxes established to reflect timing differences between
book and Tax income) shown on the face of the Closing Balance Sheet. For
purposes of this Section, in the case of any Taxes that are imposed on a
periodic basis and are payable for a Taxable period that includes (but does not
end on) the Closing Date, the portion of such Tax which relates to the portion
of such Taxable period ending on the Closing Date shall (x) in the case of any
Taxes other than Taxes based upon or related to income or receipts, be deemed to
be the amount of such Tax for the entire Taxable period multiplied by a fraction
the numerator of which is the number of days in the Taxable period ending on the
Closing Date and the denominator of which is the number of days in the entire
Taxable period, and (y) in the case of any Tax based upon or related to income
or receipts be deemed equal to the amount which would be payable if the
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relevant Taxable period ended on the Closing Date. Any credits relating to a
Taxable period that begins before and ends after the Closing Date shall be taken
into account as though the relevant Taxable period ended on the Closing Date.
All determinations necessary to give effect to the foregoing allocations shall
be made in a manner consistent with prior practice of the Target. The provisions
of Section 7.1(b) shall apply to such Returns.
Section 7.3. Cooperation on Tax Matters.
(a) Buyer, the Target and Sellers shall cooperate fully, as
and to the extent reasonably requested by the other Party, in
connection with the filing of Tax Returns pursuant to this Section and
any audit, litigation or other proceeding with respect to Taxes. Such
cooperation shall include the retention and (upon the other party's
request) the provision of records and information that are reasonably
relevant to any such audit, litigation or other proceeding and making
employees available on a mutually convenient basis to provide
additional information and explanation of any material provided
hereunder.
(b) Buyer and Sellers further agree, upon request, to use
their best efforts to obtain any certificate or other document from any
governmental authority or any other Person as may be necessary to
mitigate, reduce or eliminate any Tax that could be imposed (including,
but not limited to, with respect to the transactions contemplated
hereby).
(c) Buyer and Sellers further agree, upon request, to provide
the other party with all information that either party may be required
to report pursuant to Section 6043 of the Code and all Treasury
Department Regulations promulgated thereunder.
Section 7.4. Tax Sharing Agreements. All tax sharing agreements or
similar agreements with respect to or involving the Target shall be terminated
as of the Closing Date and, after the Closing Date, the Target shall not be
bound thereby or have any liability thereunder.
Section 7.5. Certain Taxes. All transfer, documentary, sales, use,
stamp, registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement (including any New York
State Gains Tax, New York City Transfer Tax and any similar tax imposed in other
states or subdivisions), shall be paid by Sellers when due, and Sellers will, at
their own expense, file all necessary Tax Returns and other documentation with
respect to all such transfer, documentary, sales, use, stamp, registration and
other Taxes and fees, and, if required by applicable law, Buyer will, and will
cause its affiliates to, join in the execution of any such Tax Returns and other
documentation.
ARTICLE VIII
Miscellaneous.
--------------
Section 8.1. Nature of Certain Obligations.
(a) The covenants of each of the Sellers in Section 2.1 above
concerning the sale of his or its Target Shares to the Buyer and the
representations and warranties of each of the Sellers in Section 3.1
above concerning the transaction are several obligations. This means
that the particular Seller making the representation, warranty, or
covenant will be solely responsible to the extent provided in Section 6
above for any Adverse Consequences the Buyer may suffer as a result of
any breach thereof.
(b) The remainder of the representations, warranties, and
covenants in this Agreement are joint and several obligations of each
of Rick Briggs, Rick Briggs 1998 Trust and Fred Frantz. This means that
each of Rick Briggs, Rick Briggs 1998 Trust and Fred Frantz will be
responsible to the extent provided in Section 6 above for the entirety
of any Adverse Consequences the Buyer may suffer as a result of any
breach thereof.
Section 8.2. Press Releases and Public Announcements. No Seller shall
issue any press release or make any public announcement relating to the subject
matter of this Agreement without the prior written approval of the Buyer.
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Section 8.3. No Third-Party Beneficiaries. This Agreement shall not
confer any rights or remedies upon any Person other
than the Parties and their respective successors and permitted assigns.
Section 8.4. Entire Agreement. This Agreement (including the documents
referred to herein) constitutes the entire agreement among the Parties and
supersedes any prior understandings, agreements, or representations by or among
the Parties, written or oral, to the extent they related in any way to the
subject matter hereof.
Section 8.5. Succession and Assignment. This Agreement shall be binding
upon and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement or
any of his or its rights, interests, or obligations hereunder without the prior
written approval of the Buyer and the Requisite Sellers; provided, however, that
the Buyer may (i) assign any or all of its rights and interests hereunder to one
or more of its Affiliates and (ii) designate one or more of its Affiliates to
perform its obligations hereunder (in any or all of which cases the Buyer
nonetheless shall remain responsible for the performance of all of its
obligations hereunder).
Section 8.6. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
Section 8.7. Headings. The section headings contained in this Agreement
are inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 8.8. Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to the Sellers: Copy to:
------------------ --------
c/o Rick Briggs Tooze Duden Creamer Frank & Hutcheson
64 Maple Grove 333 S.W. Taylor Street
Springfield, IL 62707 Portland, OR 97204
Fax: (217) 585-0239 Fax: (503) 223-5550
Attn: Tod A. Northman, Esq.
If to the Buyer: Copy to:
---------------- --------
Koala Corporation Faegre & Benson, LLP
11600 E. 53rd Avenue, Unit D 2500 Republic Plaza
Denver CO 80239 370 17th Street
Fax: (303) 770-3934 Denver, CO 80202
Attn: Mark Betker Fax: (303) 820-0600
Attn: Douglas R. Wright, Esq.
Any Party may send any notice, request, demand, claim, or
other communication hereunder to the intended recipient at the address set forth
above using any other means (including personal delivery, expedited courier,
messenger service, telecopy, telex, ordinary mail, or electronic mail), but no
such notice, request, demand, claim, or other communication shall be deemed to
have been duly given unless and until it actually is received by the intended
recipient. Any Party may change the address to which notices, requests, demands,
claims, and other communications hereunder are to be delivered by giving the
other Parties notice in the manner herein set forth.
Section 8.9. Governing Law. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Colorado without
giving effect to any choice or conflict of law provision or rule (whether of the
State of Colorado or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of Colorado.
Section 8.10. Amendments and Waivers. No amendment of any provision of
this Agreement shall be valid unless the same shall be in writing and signed by
the Buyer and the Requisite Sellers. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
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Section 8.11. Severability. Any term or provision of this Agreement
that is invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision in
any other situation or in any other jurisdiction.
Section 8.12. Expenses. Each of the Parties and the Target will bear
his or its own costs and expenses (including legal fees and expenses) incurred
in connection with this Agreement and the transactions contemplated hereby. The
Sellers agree that the Target has not borne or will not bear any of the Sellers'
costs and expenses (including any of their legal fees and expenses) in
connection with this Agreement or any of the transactions contemplated hereby.
Section 8.13. Construction. The Parties have participated jointly in
the negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The Parties intend
that each representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or covenant relating to the same
subject matter (regardless of the relative levels of specificity) which the
Party has not breached shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty, or covenant.
Section 8.14. Incorporation of Exhibits, Annexes, and Schedules. The
Exhibits, Annexes, and Schedules identified in this Agreement are incorporated
herein by reference and made a part hereof.
Section 8.15. Specific Performance. Each of the Parties acknowledges
and agrees that the other Parties would be damaged irreparably in the event any
of the provisions of this Agreement are not performed in accordance with their
specific terms or otherwise are breached. Accordingly, each of the Parties
agrees that the other Parties shall be entitled to an injunction or injunctions
to prevent breaches of the provisions of this Agreement and to enforce
specifically this Agreement and the terms and provisions hereof in any action
instituted in any court of the United States or any state thereof having
jurisdiction over the Parties and the matter (subject to the provisions set
forth in Section 8.16 below), in addition to any other remedy to which they may
be entitled, at law or in equity.
Section 8.16. Submission to Jurisdiction. Each of the Parties submits
to the jurisdiction of any state or federal court sitting in the City and County
of Denver, Colorado, in any action or proceeding arising out of or relating to
this Agreement and agrees that all claims in respect of the action or proceeding
may be heard and determined in any such court. Each Party also agrees not to
bring any action or proceeding arising out of or relating to this Agreement in
any other court. Each of the Parties waives any defense of inconvenient forum to
the maintenance of any action or proceeding so brought and waives any bond,
surety, or other security that might be required of any other Party with respect
thereto.
Section 8.17. General Release. Each Seller releases, acquits, and
forever discharges the Target, its shareholders, officers, directors, agents,
employees, affiliates, licensors, counsel and accountants from any and all past,
present or future claims, rights, demands, obligations, actions or causes of
action, whether known or unknown arising from such Seller's position as an
officer, director, shareholder, employee, agent or licensor of the Target.
Section 8.18 Legal Counsel. The Parties acknowledge and agree that,
in connection with this Agreement and the transactions contemplated hereby,
Buyer was represented by Faegre & Benson, LLP and Sheridan Ross PC; the Target,
Rick Briggs and the Rick Briggs 1998 Trust were represented by Tooze Duden
Creamer Frank & Hutcheson and the remaining Parties were either represented by
other counsel or chose not to be represented by legal counsel.
Section 8.19 Termination of License Agreements. The Parties acknowledge
and agree that all license agreements (both written and oral) between the Target
and any of the Sellers for Intellectual Property that will be owned by Target of
Koala after closing are hereby terminated.
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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on
the date first above written.
KOALA CORPORATION RICK BRIGGS 1998 TRUST
under Declaration of Trust
dated July 23, 1998
By: ----------------------------
------------------------- Rick Briggs, Trustee
Title:
----------------------
- ---------------------------- ----------------------------
Rick Briggs Mark Weston
- ---------------------------- ----------------------------
Fred Frantz Denise Weston
- ---------------------------- ----------------------------
Richard Chaix Brendan Cuddihee
- ---------------------------- ----------------------------
Richard Schuder Mark Aragona
- ---------------------------- ----------------------------
Shelly Katz Scott Campbell
- ---------------------------- ----------------------------
Tom Mallonee Carin Brown
- ---------------------------- ----------------------------
Louis Camarata Lynda Reynolds
- ---------------------------- ----------------------------
Maureen Lochtefeld Diane Schuder
27
Exhibit 10.2
FIRST AMENDMENT TO
REVOLVING CREDIT AGREEMENT
THIS FIRST AMENDMENT TO REVOLVING CREDIT AGREEMENT (the "Amendment") is
made this 1st day of March, 2000, by and between KOALA CORPORATION, a Colorado
corporation ("Borrower") and U.S. BANK NATIONAL ASSOCIATION, a national banking
association ("Bank").
R E C I T A L S
A. Borrower and Bank are parties to that certain Revolving Credit
Agreement dated as of December 16, 1998 (the "Credit Agreement") and the other
Relevant Documents described therein.
B. Borrower has requested that Bank increase the Revolving Credit Line
from a maximum amount of $15,000,000 to a maximum amount of $40,000,000 and to
extend the Termination Date from December 16, 2001 to the third anniversary of
this Amendment.
C. Bank is willing to increase the Revolving Credit Line, extend the
Termination Date and make certain other modifications to the Credit Agreement
subject to and in accordance with the terms of this Amendment.
NOW, THEREFORE, the parties agree as follows:
A G R E E M E N T
1. Definitions. Capitalized terms used herein and not otherwise defined
shall have the meanings ascribed to them in the Credit Agreement.
2. Amendments to the Credit Agreement.
a. Section 1.01. Section 1.01 is hereby amended and restated
in its entirety to read as follows:
1.01 Revolving Credit Line. Subject to the following terms and
conditions, Bank agrees to make a line of credit available to
Borrower (the "Revolving Credit Line") in the maximum amount
of $40,000,000 (the "Maximum Line") or, if less, the amount of
the Cash Flow Limit (defined below), pursuant to which Bank
will make loans to Borrower (each an "Advance") in such
amounts as Borrower may request from time to time, the
proceeds of which shall be used for working capital, the
acquisition of SCS Interactive, Inc. (the "SCS Acquisition"),
and future acquisitions. The aggregate outstanding principal
balance of all Advances made hereunder
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may not exceed the Maximum Line. Amounts borrowed under the
Revolving Credit Line may be repaid prior to the Termination
Date (defined below) without penalty, except as set forth in
Exhibit A to the Note (defined below), and may be reborrowed
subject to the terms hereof.
Bank's commitment to make Advances hereunder is subject to
satisfaction of the conditions in Section 4 below and the
following limitations:
(i) Bank's commitment to lend hereunder shall terminate on
the third anniversary of the date hereof (the "Termination
Date"), if not sooner terminated under Section 8 below;
(ii) Bank shall not be obligated to make any Advance which
would cause the outstanding principal balance of the
Revolving Credit Line (the "Line Balance") to exceed the
Maximum Line or, if less, the Cash Flow Limit; and
(iii) Bank shall not be obligated to make any Advance if an
Event of Default, as defined in Section 7 below, or an event
which, with the giving of notice or lapse of time, or both,
would become an Event of Default (a "Potential Default"),
has occurred and has not been cured by Borrower or waived by
Bank.
b. Section 1.03. Section 1.03 is hereby amended and restated
in its entirety to read as follows:
1.03 Interest. Borrower agrees to pay interest on the Line
Balance from time to time as provided herein. Interest will
accrue on the daily outstanding balance of each Advance at a
fluctuating rate per annum equal to the applicable "Reserve
Adjusted LIBOR Rate" plus the applicable margin as set forth
below for the selected Interest Period (see the attached
Exhibit A which will be attached to and incorporated into the
Line Note for terms and definitions which will apply to the
interest rates based on a Reserve Adjusted LIBOR Rate). On the
date of and for each Advance, Borrower shall have the option
to select fixed Interest Periods of one month, three months or
six months or a reset daily one-month Interest Period basis.
The interest rate for any new Advance made on or after the
date of determination of Borrower's ratio of Debt to
Annualized Cash Flow for each fiscal quarter or for any
Advance outstanding on a reset daily basis on such
determination date, will be subject to further adjustment, as
of the date of such determination each fiscal quarter, as
follows: When Borrower's ratio of Debt (as defined in Section
6.02) to Annualized Cash Flow (as defined in Section 1.04) is
within one of the ranges set forth below, then the "margin" or
"spread" to be added to the applicable Reserve Adjusted LIBOR
Rate shall be the rate per annum set forth below opposite such
range:
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Debt/Annualized
Cash Flow Ratio Margin
--------------------------------------------------------------
Less than 1.00:1 2.15%
Equal to or greater than 1.00:1 but less than 2.50:1 2.35%
Equal to or greater than 2.50:1 but less than 3.25:1 2.60%
Equal to or greater than 3.25:1 2.85%
Accrued interest on each Advance shall be due and payable
(i) at the end of each fixed Interest Period but not less
than at the end of each 3 months, (ii) on the first day of
each month for interest on a reset daily one-month Interest
Period basis , (iii) at maturity of the Line Note and (iv) on
demand after such maturity. After the occurrence of an Event
of Default or after maturity or any acceleration of maturity
of the Line Note, at Bank's option, the interest rate
applicable to any Advance or the Line Balance may be
increased as provided in the Line Note and Borrower agrees
to pay any such increased interest. Interest shall be
computed using the actual number of days in the period for
which such computation is made and a per diem rate equal to
1/360 of the fluctuating rate per annum.
c. Section 1.04. Section 1.04 is hereby amended and
restated in its entirety to read as follows:
1.04 Cash Flow Limit. The "Cash Flow Limit" means, at any
point in time, a multiple of Borrower's Annualized Cash Flow
in accordance with the following schedule:
Quarter Ending Applicable Multiple
-------------- -------------------
March 31, 2000 4.0
June 30, 2000 4.0
September 30, 2000 4.0
December 31, 2000 3.5
March 31, 2001 3.5
June 30, 2001 3.5
September 30, 2001 3.5
December 31, 2001 3.0
March 31, 2002 and thereafter 3.0
"Annualized Cash Flow" means Borrower's earnings before
interest, taxes, depreciation and amortization calculated at
the end of each quarter for the previous four quarters (i.e.
on a four-quarter trailing basis).
d. Section 1.05. Section 1.05 is hereby amended and
restated in its entirety to read as follows:
1.05 Repayment of Principal. Borrower agrees to repay all
Advances made hereunder. The Line Balance will be due and
payable in full at the maturity of the Line Note, which will
be the Termination Date, subject to acceleration upon the
occurrence of an Event of Default. If Borrower issues any
additional debt or equity securities for cash after the date
hereof (excluding any Debt to Bank or
3
<PAGE>
Bank's affiliates), Borrower agrees to repay outstanding
Advances hereunder from and to the extent of the net proceeds
received from any such issuance of securities.
e. Section 2.01. Section 2.01 is hereby amended and
restated in its entirety to read as follows:
2.01 Collateral. The repayment of all of Borrower's
indebtedness to Bank shall be secured by first priority
perfected security interests (the "Security Interests") in all
assets of Borrower, including without limitation equity
interests in wholly-owned or majority-owned or controlled or
subsidiary corporations or other limited liability entities
(collectively, the "Subsidiaries") and other entities,
accounts, general intangibles, inventory, equipment,
furniture, fixtures and goods (all such terms having the
meanings given them in the Colorado Uniform Commercial Code)
now owned or hereafter acquired by Borrower and in all
proceeds thereof (the "Collateral"). Borrower further agrees
to cause each of its Subsidiaries to grant Security Interests
in all Collateral owned by such Subsidiary. The Security
Interests shall be created and perfected by security
agreements, UCC financing statements, assignments and any
other collateral documents deemed necessary or advisable by
Bank in its sole discretion, each in form and substance
satisfactory to Bank, duly executed by Borrower or Borrower's
Subsidiary (the "Collateral Documents"). Hereafter, Borrower
and Borrower's Subsidiaries shall from time to time execute
and deliver to Bank such other documents in form and substance
satisfactory to Bank, and perform such other acts, as Bank may
reasonably request, to perfect and maintain valid Security
Interests in the Collateral. In addition, Borrower hereby
grants to Bank a security interest in all Borrower's deposit
accounts at Bank to secure all obligations of Borrower to Bank
now or hereafter arising.
f. Section 3.04. Section 3.04 is hereby amended and
restated in its entirety to read as follows:
3.04 Financial Condition. The audited balance sheet of
Borrower as at December 31, 1999, and the related statements
of income and retained earnings for the fiscal year then
ended, copies of which have been furnished to Bank, fairly
present the financial condition of Borrower as at such date
and the results of the operations of Borrower for such period,
all in accordance with generally accepted accounting
principles ("GAAP") applied on a consistent basis, and since
December 31, 1999 there has been no material adverse change in
such condition or operations.
g. Section 5.09. Section 5.09 is hereby amended and
restated in its entirety to read as follows:
5.09 Financial Condition. Maintain the financial condition
of Borrower, determined in accordance with GAAP so that it
meets the following requirements measured on a quarterly
basis for the preceding four fiscal quarters, i.e., on a
4-quarter trailing basis:
4
<PAGE>
i. Borrower's ratio of (a) Debt to (b) Annualized
Cash Flow ("Debt/ ACF") will be not more than the
ratio provided in the following schedule for any
particular quarter:
Quarter Ending Debt/ACF
-------------- --------------
March 31, 2000 4.00:1
June 30, 2000 4.00:1
September 30, 2000 4.00:1
December 31, 2000 3.50:1
March 31, 2001 3.50:1
June 30, 2001 3.50:1
September 30, 2001 3.50:1
December 31, 2001 3.00:1
March 31, 2002 and thereafter 3.00:1
ii. Borrower's ratio of (a) Annualized Cash Flow to
(b)Interest Expense will be not less than 3.00:1.
h. Section 6.02. Section 6.02 is hereby amended and
restated in its entirety to read as follows:
6.02 Debt. Create, incur, assume or permit to exist any Debt
except 1) Debt to Bank or to affiliates of Bank; 2) Debt which
is trade debt incurred by Borrower in the ordinary course of
business on a short term basis for the acquisition of supplies
or services; and 3) other Debt up to an aggregate amount of
$400,000 at any one time outstanding. "Debt" means (i)
indebtedness for borrowed money or for the deferred purchase
price of property or services, (ii) obligations as lessee
under leases which shall have been or should be, in accordance
with GAAP, recorded as capital leases, (iii) obligations under
direct or indirect guaranties in respect of, and obligations
(contingent or otherwise) to purchase or otherwise acquire, or
otherwise assure a creditor against loss in respect of,
indebtedness or obligations of others of the kinds referred to
in clause (i) or (ii) above, and (iv) liabilities in respect
of unfunded vested benefits under plans covered by Title IV of
ERISA.
i. Section 6.04. Section 6.04 is hereby amended and
restated in its entirety to read as follows:
6.04. Loans and Investments. Make any loans or advances to any
person or entity or purchase or otherwise acquire the capital
stock, assets, or obligations of, or any other interest in,
any person or entity or make any other investments, except (i)
readily marketable direct obligations of the United States of
America or a money market mutual fund investing solely
therein; (ii) certificates of deposit issued by commercial
banks of recognized standing operating in the United States of
America; (iii) other loans or investments in an aggregate
amount in any one fiscal year not exceeding $1,000,000,
excluding the Acquisition and the SCS Acquisition; or (iv)
loans or advances to Subsidiaries.
5
<PAGE>
j. Section 6.06. Section 6.06 is hereby amended and
restated in its entirety to read as follows:
6.06 Merger or Sale. Merge into or consolidate with any
corporation or other entity; or sell, lease, assign or
otherwise transfer or dispose of all or any material portion
of its assets (including the stock of any Subsidiary) except
for sales of inventory in the ordinary course of business.
k. Section 9.06. Section 9.06 is hereby amended and
restated in its entirety to read as follows:
9.06 Notices. All notices, requests and demands given to or
made upon either party must be in writing and shall be deemed
to have been given or made when personally delivered or two
(2) days after having been deposited in the United States
Mail, first class postage prepaid, addressed as follows:
If to Borrower: Koala Corporation
Attn: Mark A. Betker
President and CEO
11600 E. 53rd Avenue, Unit D
Denver, CO 80239
If to Bank: U.S. Bank National Association
Attn: Joni M. Fish, Vice President
8401 East Belleview
Denver, CO 80237
3. Conditions Precedent. Each of the conditions precedent stated
in Article IV of the Credit Agreement shall apply with equal force to any and
all Advances made under this Amendment, including without limitation Borrower's
obligation to provide evidence that the SCS Acquisition has closed and been
completed in accordance with the SCS Acquisition Agreement.
4. Conditions to Effectiveness. Notwithstanding any other
provision contained herein to the contrary, this Amendment shall not become
effective until all of the following conditions are fully satisfied:
(a) Delivery of Amendment. Each of Borrower and Bank shall
have executed and delivered this Amendment, the Line Note and all other
documents required or contemplated hereby.
(b) Reimbursement for Expenses. Borrower shall have reimbursed
Bank for all expenses (including filing, loan and legal fees and related
expenses) actually incurred by Bank in connection with the preparation of this
Amendment.
(c) Representations True; No Default. The representations and
warranties of Borrower as set forth in Article 3 of the Credit Agreement are
true on and as of the date of this
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<PAGE>
Amendment with the same force and effect as if made on and as of this date and
there shall be no uncured Event of Default under the Credit Agreement.
(d) Other Documents. Borrower shall have delivered to Bank
such other documents, instruments, and undertakings as Bank may reasonably
request.
(e) Origination Fee. Borrower shall have paid to Bank $85,000
as an origination fee for this Amendment.
5. Representations and Warranties. Borrower hereby represents
and warrants to Bank that each of the representations and warranties set forth
in Article 3 of the Credit Agreement is true and correct in each case as if made
on and as of the date of this Amendment. Borrower expressly agrees that it shall
be an additional Event of Default under the Credit Agreement if any
representation or warranty made hereunder shall prove to have been incorrect in
any material respect when made.
6. No Further Amendment. Except as expressly modified by this
Amendment, the Credit Agreement and the other Relevant Documents shall remain
unmodified and in full force and effect and the parties hereby ratify their
respective obligations thereunder. Without limiting the foregoing, Borrower
expressly reaffirms and ratifies its obligation to pay or reimburse Bank on
request for all reasonable expenses, including legal fees, actually incurred by
Bank in connection with the preparation of this Amendment, and the closing of
the transaction contemplated hereby.
7. Miscellaneous.
(a) Entire Agreement. The following documents contain the
entire agreement between the parties concerning the subject matter hereof: this
Amendment, the Credit Agreement and the other Relevant Documents. Any
representation, understanding or promise concerning the subject matter hereof,
which is not expressly set forth in this Amendment, the Credit Agreement or the
other Relevant Documents, shall not be enforceable by any party hereto or its
successors or assigns. In the event of any conflict or inconsistency between the
terms of this Amendment and the terms of the Credit Agreement, the terms of this
Amendment shall govern.
(b) Counterparts. This Amendment may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original, and all of which
taken together shall constitute one and the same Amendment.
(c) Governing Law. This Amendmen and the other agreements
provided for herein and the rights and obligations of the parties hereto and
thereto shall be construed, interpreted and governed in accordance with the laws
of the State of Colorado.
EXECUTED AND DELIVERED by the duly authorized officers of the parties
as of the date first above written.
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BORROWER: KOALA CORPORATION, a Colorado corporation
By:______________________________________
Name (Print):____________________________
Title:
BANK: U.S. BANK NATIONAL ASSOCIATION, a national
banking association
By:______________________________________
Joni M. Fish, Vice President
Exhibit 99.1
FOR IMMEDIATE RELEASE
- ---------------------
March 1, 2000 NASDAQ
National Market-KARE
KOALA CORPORATION ANNOUNCES ACQUISITION OF SCS INTERACTIVE
Designer of Innovative Water Play and Interactive Play Installations
Complements Modular Play Segments
DENVER, Colorado - Koala Corporation (Nasdaq National Market-KARE), a
diversified provider of family friendly solutions for business including
parental convenience and children's activity products, today announced the
acquisition of Tillamook, Oregon based SCS Interactive Inc, an innovative
producer of interactive play installations for several worldwide markets
including family entertainment centers, water parks and amusement parks.
SCS reported income from operations of approximately $3.0 million on sales of
approximately $18.8 million for their fiscal year ended September 30, 1999.
Terms of the transaction call for SCS Interactive to receive $20.2 million in
cash, $5.1 million in Koala common stock and additional consideration in the
form of earn-outs. Koala financed the cash portion of the transaction through an
increase in its bank line of credit to $40 million. SCS' operations will be
included in Koala's modular play business segment
SCS, founded in 1987, helped to invent the interactive water play industry by
combining slides, fountains and waterfalls with water cannons, interactive
elements and attractive themes to create new ways for families to play together
in water parks. Bolstered by the success of this innovation, SCS created a dry
variation of their interactive designs in 1996, successfully marketing the "foam
factory" to family attractions around the world.
Through years of innovation, SCS has amassed patents and trademarks on several
of the most unique and attractive components used in water play structures
today. The intellectual property rights to these systems are substantial assets
that Koala will acquire through this transaction.
In addition to their successful products, SCS brings several talented executives
to the Koala family. SCS' management team represents decades of experience in
the play attractions industry. Their ability to construct and market attractive,
innovative, new products for the family entertainment center, water park and
amusement markets resonates with Koala's ongoing strategy of brand development
around solutions for family friendly facilities.
"We are very excited to welcome SCS Interactive to the Koala family," said Mark
Betker, CEO of Koala Corporation, "They are an established and respected force
in the recreation and amusement industry. Their products continue to reinvent
the way families play in the world's best known amusement parks, water parks and
municipal pools. We are confident that they will be a positive creative
contribution to the Company and that they will help us to secure our position as
the world's leading provider of family friendly solutions."
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Founded in 1986, Koala Corporation is an integrated provider of products and
solutions designed to help business become "family friendly" and allow children
to play safely in public. The Company develops and markets a wide variety of
infant and child protection and activities products, which are marketed under
the Company's recognizable "Koala Bear Kare(R)" brand name. Koala's strategic
objective is to address the growing commercial demand for safe, public play
environments for children, as well as products and solutions that help
businesses create family-friendly atmospheres for their patrons.
Statements made in this news release that are not historical
facts may be forward looking statements. Actual results may differ materially
from those projected in any forward-looking statement. There are a number of
important factors that could cause actual results to differ materially from
those anticipated by any forward-looking information. A description of risks and
uncertainties attendant to Koala Corporation and its industry and other factors
which could affect the Company's financial results are included in the Company's
Securities and Exchange Commission Annual Report on Form 10-KSB.
###
CONTACTS:
Koala Corporation
303.574.1000
www.koalabear.com
Mark A. Betker Jeff Vigil
Chairman and CEO Chief Financial Officer
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