SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities and Exchange Act of 1934
Date of Report (Date of Earliest Event Reported):
September 25, 1996
CHILDROBICS, INC.
(Exact Name of Registrant as Specified in its Charter)
New York 0-25110 11-3163443
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
200 Smith Street
Farmingdale, New York 11735
(Address of principal executive offices)
Registrant's Telephone Number, including
area code: (516) 694-0999
(Former Address, if changed since last report)
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Item 1. Changes in Control of Registrant
Merger Agreement
Pursuant to an Agreement of Merger (the "Agreement of
Merger"), Just Kiddie Rides, Inc., a New York corporation ("JKR"), merged into
Just Kiddie Acquisition Corp. (the "Acquisition Corp."), a wholly-owned
subsidiary of Childrobics, Inc. (the "Company") on September 30, 1996 (the
"Merger"), and Gerard A. Reda, who, prior to the Merger, was the owner of 85% of
the outstanding shares of common stock, without par value, of JKR ("JKR Common
Stock"), became entitled to receive, as consideration for the JKR Common Stock
held by Mr. Reda, pursuant to the Agreement of Merger, 4,250,000 shares of
common stock, par value $.01 per share, of the Company (the "Common Stock"),
which will represent 41% of the outstanding shares of Common Stock outstanding
as of September 30, 1996 (based on 5,355,000 shares of Common Stock outstanding
as of September 30, 1996, plus 5,000,000 shares of Common Stock to be issued
pursuant to the Agreement of Merger), among other things, in exchange for his
shares of JKR Common Stock.
Pursuant to the Agreement of Merger, the Company agreed to
issue an aggregate of 5,000,000 shares of Common Stock, promissory notes in the
aggregate principal amount of $750,000, and a non-competition payment to Mr.
Reda in the amount of $250,000 in exchange for all of the JKR Common Stock.
The foregoing summary of the Merger and related transactions
is incomplete and is qualified in its entirety by reference to the copy of the
Agreement of Merger filed as Exhibit 1 annexed hereto.
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Employment Agreement
On September 30, 1996, the Company entered into an Employment
Agreement (the "Employment Agreement") with Gerard A. Reda, pursuant to which
Mr. Reda agreed to serve as the Company's President and Chief Executive Officer
for a term of five years commencing on the date thereof (the "Commencement
Date"). In addition to certain employee benefits, the Company agreed to pay Mr.
Reda an annual salary at the rate of $250,000, subject to adjustment upon terms
agreed upon by the Board of Directors of the Company (the "Board") and Mr. Reda,
after the first anniversary of the Commencement Date. Mr. Reda shall also be
granted options at the discretion of the Board based upon the performance of the
Company and the performance of Mr. Reda. In addition, pursuant to the Employment
Agreement, the Company elected Mr. Reda to serve as a member of the Board.
The foregoing summary of the Employment Agreement is
incomplete and is qualified in its entirety by reference to the copy of the
Employment Agreement filed as Exhibit 2 annexed hereto.
Financing Agreement
On October 3, 1996, the Company, and its wholly-owned
subsidiaries, Acquisition Corp., Turnpike Amusement Distributing, Inc.,
Amusement Associates, Inc., Group Coin Associates, Inc., and Tunnels & Tubes,
Inc., as borrowers, entered into a Financing Agreement (the "Financing
Agreement") with Sterling Commercial Capital, Inc. ("Sterling"), Norwood Venture
Corp. ("Norwood") and Vega Capital Corp. ("Vega" and, collectively, with
Sterling and Norwood, the "Lender"), pursuant to which the Lender agreed to
provide the Company with financing in the principal amount of $1,500,000. In
exchange for such financing, the Company agreed, among other things, to execute
and deliver to the Lender, for a purchase price of Ten
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Dollars ($10), a warrant (the "Financing Warrant"), representing the right to
purchase 5,000,000 shares of Common Stock on a fully diluted basis at any time
on or before September 30, 2003 at an aggregate exercise price of $100. (If
exercised in full, the Lender would hold 32.6% of the outstanding shares of
Common Stock, based upon 15,355,000 shares of Common Stock then outstanding.)
The foregoing summary of the Financing Agreement is incomplete
and is qualified in its entirety by reference to the copy of the Financing
Agreement filed as Exhibit 3 annexed hereto.
Employment Termination and Option Termination Agreement
On September 30, 1996, the Company consummated the Employment
Termination and Option Termination Agreement (the "Termination Agreement") which
the Company entered into on July 3, 1996 with the Company's three former
executive officers and directors (filed as Exhibit 1 to the Company's Form 8-K
having a Report Date of July 3, 1996). Pursuant to the terms of the Termination
Agreement, such officers terminated their employment agreements with the Company
and resigned as officers of the Company and members of the Board.
Item 2. Acquisition or Disposition of Assets
Agreement of Sale with respect to Fun Station USA of Lynbrook, Inc.
On September 25, 1996, the Company entered into an Agreement
of Sale (the "Lynbrook Agreement") with Express Vending Corporation
("Express Vending") pursuant to which the Company sold all of the issued and
outstanding shares of Fun Station USA of Lynbrook, Inc., a wholly-owned
subsidiary of the Company, which operated the Company's
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playcenter in Lynbrook, New York ("Lynbrook Playcenter"), to Express Vending for
aggregate consideration as follows:
(a) Five Thousand Dollars ($5,000) on September 25, 1996
upon execution of the Lynbrook Agreement;
(b) Forty-Five Thousand Dollars ($45,000) on September 25,
1996 upon closing of the sale of the Lynbrook Playcenter;
(c) One Hundred Thousand Dollars ($100,000) evidenced by
a promissory note fully payable two (2) years from
the closing of the sale of the Lynbrook Playcenter;
(d) One Hundred Fifty Thousand Dollars ($150,000) by the
assumption of existing debt; and
(e) Either One Hundred Thousand Dollars ($100,000) by the
delivery of Twenty Five Thousand (25,000) shares of
restricted common stock of the parent corporation of
Express Vending or Twenty Five Thousand Dollars
($25,000) at the sole discretion of Express Vending,
due within six (6) months after the date of closing
of the sale of the Lynbrook Playcenter, subject to
certain conditions.
The foregoing summary of the Lynbrook Agreement is incomplete
and is qualified in its entirety by reference to the copy of the Lynbrook
Agreement filed as Exhibit 4 annexed hereto.
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Agreement of Sale with respect to Fun Zones of Danbury, Inc.
On September 25, 1996, the Company entered into an Agreement
of Sale with Express Vending (the "Danbury Agreement") pursuant to which the
Company sold all of the issued and outstanding shares of Fun Zones of Danbury,
Inc., a wholly-owned subsidiary of the Company, which operated the Company's
playcenter in Danbury, Connecticut ("Danbury Playcenter"), to Express Vending
for aggregate consideration as follows:
(a) Five Thousand Dollars ($5,000) on September 25, 1996
upon execution of the Danbury Agreement;
(b) Ninety-Five Thousand Dollars ($95,000) evidenced by a
short term promissory note fully payable within
thirty (30) days from the date of closing of the sale
of the Danbury Playcenter;
(c) Fifty Thousand Dollars ($50,000) evidenced by:
(i) A promissory note in the amount of Twenty Five
Thousand Dollars ($25,000) fully payable within six
(6) months from the date of closing of the
sale of the Danbury Playcenter;
(ii) A promissory note in the amount of Twenty
Five Thousand Dollars ($25,000) fully
payable within nine (9) months from the date
of closing of the sale of the Danbury
Playcenter;
(d) Fifty Thousand Dollars ($50,000) by the assumption of
existing debt; and
(e) Either One Hundred Thousand Dollars ($100,000) by the
delivery of Twenty Five Thousand (25,000) shares of
restricted common stock of the parent corporation of
Express Vending or Fifty Thousand Dollars ($50,000) at
the sole discretion of Express Vending, due within twelve
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(12) months after the date of closing of the sale of the
Danbury Playcenter.
The foregoing summary of the Danbury Agreement is incomplete
and is qualified in its entirety by reference to the copy of the Danbury
Agreement filed as Exhibit 5 annexed hereto.
Agreement of Sale with respect to Kids Kingdom Amusement, Inc.
On September 25, 1996, the Company entered into an Agreement
of Sale with Express Vending (the "Kids Agreement") pursuant to which the
Company sold all of the issued and outstanding shares of Kids Kingdom Amusement,
Inc., a wholly-owned subsidiary of the Company, which operated the Company's
playcenter in Medford, New York ("Kids Playcenter"), to Express Vending for
aggregate consideration as follows:
(a) Five Thousand Dollars ($5,000) on September 25, 1996
upon execution of the Danbury Agreement;
(b) Twenty Thousand Dollars ($25,000) evidenced by a
short term promissory note and fully payable within
thirty (30) days from the date of closing of the sale
of the Kids Playcenter;
(c) One Hundred Twenty Five Thousand Dollars ($125,000)
evidenced by:
(i) A promissory note in the amount of Fifty
Thousand Dollars ($50,000) fully payable within
six (6) months from the date of closing of the
sale of the Kids Playcenter;
(ii) A promissory note in the amount of
Seventy-Five Thousand Dollars ($75,000)
fully payable within twelve (12) months from
the date of closing of the sale of the Kids
Playcenter;
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(d) Two Hundred Fifty Thousand Dollars ($250,000) by the
assumption of existing debt.
The foregoing summary of the Kids Agreement is incomplete and
is qualified in its entirety by reference to the copy of the Kids Agreement
filed as Exhibit 6 annexed hereto.
Employment Termination and Option Termination Agreement.
On September 30, 1996, in connection with the consummation of
the Termination Agreement with Salvatore Casaccio, the Company's former
Chairman, Chief Executive Officer and a Director of the Company; A. Joseph
Melnick, the Company's former President, Chief Operating Officer, Chief
Financial Officer and a Director of the Company; and Richard Bartlett, the
Company's former Executive Vice President and a Director of the Company
(collectively, the "Officers"), the Company transferred to Mr. Casaccio, all of
the outstanding shares of stock of Bayridge Playrobics, Inc., Third Avenue
Playrobics, Inc., and East Side Playrobics, Inc., the Company's subsidiaries
which operate the Company's playcenters in Bayside, Brooklyn and Manhattan, New
York, respectively.
On September 30, 1996, the Company entered into the Second
Amendment to the Termination Agreement (the "Second Amendment"), pursuant to
which the Company agreed to transfer to Mr. Casaccio all of the assets of the
Company which are used in the operation of the Company's playcenter located at
Avenue U in Brooklyn, New York, subject to consents to be obtained in connection
therewith. In addition, pursuant to the Second Amendment, the Company also
agreed to transfer to Messrs. Casaccio and Bartlett, the Company's stock in Fun
Station USA of Staten Island, Inc. ("FSSI"), the Company's subsidiary which
operates the Company's playcenter in Staten Island, New York, subject to certain
restrictions on transfer, and
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until such time as the Company is able to consummate such transfer, granted a
limited revocable proxy with respect to the shares of FSSI held by the Company.
The foregoing summary of the Second Amendment is incomplete
and is qualified in its entirety by reference to the copy of the Termination
Agreement filed as Exhibit 7 annexed hereto.
Merger Agreement
On September 30, 1996, Just Kiddie merged into Acquisition
Corp., with Acquisition Corp. continuing as the surviving corporation under the
name "Just Kiddie Rides, Inc." In connection with the Merger all of the issued
and outstanding shares of JKR Common Stock, held by the shareholders of JKR,
including Gerard A. Reda, the current President and a Director of the Company,
was exchanged for 5,000,000 shares of Common Stock and the sum of $750,000,
evidenced by promissory notes payable over a term of five (5) years following
the Merger.
The foregoing summary of the Merger is incomplete and is
qualified in its entirety by reference to the copy of the agreement filed
as Exhibit 1 annexed hereto.
Item 5. Other Events
Consulting Agreements
On October 3, 1996, the Company entered into five-year
consulting agreements with each of Messrs. Douglas Fox and Conrad Gunther,
pursuant to which the Company agreed to pay each of Messrs. Fox and Gunther a
monthly retainer of $2,500 plus expenses, agreed to grant to each of Messrs. Fox
and Gunther ten-year options to purchase 500,000 shares of Common Stock at an
exercise price of $.10 per share and to pay each of Messrs. Fox and Gunther
additional compensation in connection with special projects.
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Item 7. Financial Statements and Exhibits.
(c) Exhibits
1. Merger Agreement, dated September 30, 1996,
among Just Kiddie Rides, Inc., Gerard A. Reda, Just Kiddie Acquisition
Corp., and Childrobics, Inc.
2. Employment Agreement, dated September 30,
1996, between Childrobics, Inc. and Gerard A. Reda.
3. Financing Agreement, dated October 3, 1996,
by and among Sterling Commercial Capital, Inc., Norwood Venture Corp., Vega
Capital Corp., Childrobics, Inc., Just Kiddie Rides, Inc., Turnpike Amusement
Distributing, Inc., Amusement Associates, Inc., Group Coin Associates, Inc., and
Tunnels & Tubes, Inc.
4. Agreement of Sale, dated September 25, 1996,
between Childrobics, Inc. and Express Vending Corporation with respect to
Fun Station USA of Lynbrook, Inc., excluding exhibits.
5. Agreement of Sale, dated September 25, 1996,
between Childrobics, Inc. and Express Vending Corporation with respect to
Fun Zones of Danbury, Inc., excluding exhibits.
6. Agreement of Sale, dated September 25, 1996,
between Childrobics, Inc. and Express Vending Corporation with respect to
Kids Kingdom Amusement, Inc., excluding exhibits.
7. Second Amendment to Employment Termination
and Option Termination Agreement, dated September 30, 1996, among Salvatore
Casaccio, A. Joseph Melnick, Richard Bartlett, and Childrobics, Inc.
8. Press Release issued by Childrobics, Inc.
on October 4, 1996.
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Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
October 8, 1996
CHILDROBICS, INC.
By: /s/ Gerard A. Reda
------------------------------
Gerard A. Reda
President
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Exhibit 1
MERGER AGREEMENT
among
JUST KIDDIE RIDES, INC.
Target,
GERARD A. REDA,
Target Shareholder,
JUST KIDDIE ACQUISITION CORP.,
Merger Sub,
and
CHILDROBICS, INC.,
Parent.
Dated as of September 30, 1996
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TABLE OF CONTENTS
Section Title Page
1. Merger................................................................ 2
2. Closing Date and Effective Time....................................... 2
3. Effect of Merger...................................................... 3
4. Subsequent Actions.................................................... 3
5. Certificates of Incorporation; By-Laws; Directors and Officers........ 3
6. Conversion of Securities.............................................. 4
7. Surrender of Shares; Stock Transfer Books............................. 5
8. Trade Secrets; NonCompetition......................................... 6
9. Representations and Warranties of Target and Target Shareholder....... 8
9.1 Organization................................................. 8
9.2 Capitalization............................................... 8
9.3 Options...................................................... 9
9.4 Title to the Outstanding Shares.............................. 9
9.5 Power and Capacity.......................................... 10
9.6 Freedom to Contract......................................... 11
9.7 Subsidiaries and Affiliates................................. 12
9.8 Charter and Organizational Documents........................ 12
9.9 Financial Statements........................................ 12
9.10 Absence of Undisclosed Liabilities.......................... 14
9.11 Title to Properties......................................... 14
9.12 Real Property............................................... 15
9.13 Machinery and Equipment..................................... 15
9.14 Inventory................................................... 15
9.15 Leases...................................................... 15
9.16 Copyrights and Trademarks................................... 15
9.17 Contracts................................................... 16
9.18 Absence of Default.......................................... 18
9.19 Insurance................................................... 18
9.20 Third Party Options......................................... 19
9.21 Distributions, Satisfactions, Obligations................... 19
9.22 Capital Expenditures........................................ 20
9.23 Litigation.................................................. 20
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9.24 Compliance with Law......................................... 21
9.25 Transactions with Affiliates................................ 21
9.26 Prohibited Payments......................................... 22
9.27 Tax Matters................................................. 22
9.28 Employee Benefit Plans...................................... 25
9.29 Executive Employees......................................... 28
9.30 Employees................................................... 28
9.31 Environmental Laws.......................................... 29
9.32 Bank Accounts, Letters of Credit and Powers of Attorney..... 30
9.33 Accounts and Notes Receivable............................... 31
9.34 Minute Books................................................ 31
9.35 Full Disclosure............................................. 31
10. Representations and Warranties of Merger Sub and Parent............. 32
10.1 Organization................................................ 32
10.2 Authorization............................................... 32
10.3 Freedom to Contract......................................... 32
10.4 Litigation.................................................. 33
10.5 Investment.................................................. 33
10.6 Shares of Childrobics....................................... 34
11. Covenants........................................................... 34
11.1 Access...................................................... 34
11.2 Personal Guarantees......................................... 35
12. Covenants........................................................... 35
12.1 Access...................................................... 35
13. Documents to be delivered by Target at the Closing.................. 36
13.1 Officers' Certificates...................................... 36
13.2 Secretary's Certificates.................................... 36
13.3 Notifications and Consents.................................. 36
14. Documents to be delivered by Merger Sub and/or Parent............... 36
14.1 Officers' Certificates...................................... 36
14.2 Secretary's Certificates.................................... 37
14.3 Promissory Note............................................. 37
15. Cooperation......................................................... 37
15.1 Further Assurances.......................................... 37
16. Indemnification......................................................38
16.1 Indemnification by Target Shareholder....................... 38
16.2 Indemnification by Target................................... 38
16.3 Indemnification by Merger Sub and Parent.................... 39
16.4 Period of Indemnity......................................... 39
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Section Title
Page
16.5 Notice to the Indemnitor.................................... 40
16.6 Rights of Parties to Settle or Defend....................... 40
16.7 Settlement Proposals........................................ 41
16.8 Reimbursement............................................... 41
17. Survival of Representations and Warranties.......................... 42
18. Additional Covenants................................................ 42
18.1 Expenses.................................................... 42
18.2 Press Releases.............................................. 42
18.3 Allocation of Purchase Price................................ 43
19. Contents of Agreement; Parties In Interest; etc..................... 43
20. Assignment and Binding Effect....................................... 43
21. Waiver.............................................................. 43
22. Termination......................................................... 43
23. Notices............................................................. 44
24. Governing Law....................................................... 45
25. No Benefit to Others................................................ 45
26. Section Headings.................................................... 45
27. Schedules and Exhibits.............................................. 45
28. Counterparts........................................................ 45
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MERGER AGREEMENT
AGREEMENT made as of this 30th day of September, 1996, by and among
JUST KIDDIE ACQUISITION CORP., a New York corporation, with offices at 200 Smith
Street, Farmingdale, New York 11735 ("Merger Sub"), CHILDROBICS, INC., the
holder of all of the outstanding stock of Merger Sub, with offices at 200 Smith
Street, Farmingdale, New York 11735 ("Parent"), JUST KIDDIE RIDES, INC., a New
York corporation, with offices at 122 Dubon Court, Farmingdale, New York 11735
(the "Target"), and Gerard A. Reda, residing at 15 Greenwood Lane, St. James,
New York 11780 (the "Target Shareholder").
W I T N E S S E T H :
WHEREAS, Target is engaged in the business of supplying and operating
coin-operated children's rides; and
WHEREAS, Parent is engaged in the business of, among other things,
supplying and operating coin-operated children's rides; and
WHEREAS, the board of directors of Merger Sub, Parent and Target have
each determined that is in the best interest of their respective shareholders to
effect a merger of Target with and into Merger Sub (the "Merger") whereby all of
the issued and outstanding shares of common stock, without par value per share,
of Target (the "Target Common Stock") will be exchanged for, a promissory note
in the amount of $750,000 and 5,000,000 shares of common stock, par value $.01
per share, of Parent (the "Parent Common Stock"), upon the terms and condition
set forth herein; and
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WHEREAS, each of the board of directors of Merger Sub, Parent and
Target have approved the Merger in accordance with the New York Business
Corporation Law (the "BCL") and upon the terms and condition set forth herein;
and
WHEREAS, Target Shareholder is the beneficial owner of 170 shares of
Target Common Stock and desires to exchange such shares in the Merger; and
WHEREAS, the parties hereto desire to enter into the Merger in
accordance with the terms hereof.
NOW, THEREFORE, in consideration of the foregoing and of the respective
promises, representations, warranties and covenants herein contained, the
parties hereto do hereby agree as follows:
1. Merger. The Merger will occur upon the terms and subject to the
conditions hereof, and in accordance with the relevant provisions of the BCL, on
the Closing Date (as defined below). Following the Merger, Merger Sub shall
continue as the surviving corporation (the "Surviving Corporation") under the
name "Just Kiddie Rides, Inc." and shall continue its existence under the laws
of the State of New York, and the separate existence of Target shall cease.
2. Closing Date and Effective Time. The Closing of the Merger
(the "Closing") shall occur on the date of this Agreement at 10:00 a.m. at the
offices of Squadron, Ellenoff, Plesent & Sheinfeld, LLP, 551 Fifth Avenue, New
York, New York (the "Closing Date"). As promptly as practicable after the
Closing Date, Merger Sub and Target shall cause the Merger to be consummated by
the filing a Certificate of Merger with the Secretary of State of New York in
the form attached hereto as Exhibit A and executed in accordance with the
relevant provisions of the BCL (the time of such filing being the "Effective
Time").
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3. Effect of Merger. At the Effective Time, the effect of the
Merger shall be as provided for in the applicable provisions of the BCL. Without
limiting the generality of the foregoing, and subject thereto, at the Effective
Time, all the properties, rights, privileges, powers and franchises of Merger
Sub and Target shall vest in the Surviving Corporation, and all debts,
liabilities and duties of Merger Sub and Target shall become the debts,
liabilities and duties of the Surviving Corporation.
4. Subsequent Actions. If, at any time after the Effective Time,
the Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Corporation its right, title or interest in, to or under any of the rights,
properties or assets of either Merger Sub or Target acquired or to be acquired
by the Surviving Corporation as a result of, or in connection with, the Merger
or otherwise to carry out this Agreement, the officers and directors of the
Surviving Corporation shall be authorized to execute and deliver, in the name
and on behalf of either Merger Sub or Target, all such deeds, bills of sale,
assignments and assurances and to take and do, in the name and on behalf of each
of such corporations or otherwise, all such other actions and things as may be
necessary or desirable to vest, perfect or confirm any and all right, title and
interest in, to and under such rights, properties or assets in the Surviving
Corporation or otherwise to carry out this Agreement.
5. Certificates of Incorporation; By-Laws; Directors and
Officers.
(a) At the Effective Time, the Certificate of Incorporation of
Merger Sub, as in effect immediately prior to the Effective Time, shall be the
Certificate of Incorporation of the Surviving Corporation until thereafter
amended as provided by law and such certificate of incorporation.
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(b) At the Effective Time, the By-Laws of Merger Sub, as in
effect immediately prior to the Effective Time, shall be the By-Laws, of the
Surviving Corporation until thereafter amended as provided by law, Certificate
of Incorporation of the Surviving Corporation and such by-laws.
(c) At the Effective Time, Target Shareholder will be the
initial director of the Surviving Corporation and will serve as Chairman of the
board of directors of the Surviving Corporation. In addition, as of the
Effective Time, Mr. Reda will be the President and Chief Executive Officer of
the Surviving Corporation. If, at the Effective Time, a vacancy shall exist on
the board of directors or in any office of the Surviving Corporation, such
vacancy may thereafter be filled in the manner provided by law, the Certificate
of Incorporation of the Surviving Corporation and the By-Laws of the Surviving
Corporation.
6. Conversion of Securities.
(a) At the Effective Time, by virtue of the Merger and without
any action on the part of any of Merger Sub, Target or the holder of any
securities of Target or Merger Sub the following shall occur:
(i) each share of Target Common Stock issued and
outstanding immediately prior to the Effective Time shall automatically be
cancelled and retired and cease to exist, and each holder of a certificate
representing any such shares shall cease to have any rights with respect
thereto, except the right to have each share of Target Common Stock be converted
into the right to receive the Merger Consideration (as defined below) upon
surrender of the certificate representing such share of Target Common Stock; and
(ii) all shares of Target Common Stock which
immediately prior to the Effective time are held directly by Target, in its
treasury, shall be cancelled and retired and shall
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cease to exist, and no capital stock of Parent or other consideration shall be
delivered with respect thereto.
(iii) each share of Merger Sub common stock issued
and outstanding immediately prior to the Effective Time shall hereafter
represent one validly issued, fully paid and nonassessable share of common
stock, par value $.01 per share, of Surviving Corporation and each certificate
evidencing ownership of any such shares shall continue to evidence ownership of
the same number and kind of shares of the Surviving Corporation.
(b) The "Merger Consideration" to be paid by Parent for the
shares of Target Common Stock in accordance with the Merger shall, subject
solely to the adjustment as hereinafter provided for, be paid as follows:
(i) delivery to the shareholders of Target of an
aggregate of 5,000,000 shares of Parent Common Stock; and
(ii) delivery to the shareholders of Target of an
aggregate $750,000 shall be delivered within five years following the
Closing which shall be payable in the form of notes attached hereto as Exhibit B
(the "Note"), to be executed by Parent payable to the order of the shareholders
of Target at the Closing, which Notes shall be due five years after the Closing,
provided that Parent shall be required to prepay such Notes under certain
circumstances described therein.
7. Surrender of Shares; Stock Transfer Books.
(a) If delivery of the Merger Consideration in respect of
cancelled shares of Target Common Stock is to be made to a person other than the
person in whose name a surrendered certificate or instrument is registered, it
shall be a condition to such delivery that the certificate or instrument so
surrendered shall be properly endorsed or shall be otherwise in proper form for
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transfer and that the person requesting such payment in a name other than that
of the registered holder of the certificate or instrument surrendered or shall
have established to the satisfaction of Merger Sub that all transfer tax either
has been paid or is not payable.
(b) If, after the Effective Time, certificates for Target
Common Stock are presented to the Surviving Corporation, they shall be cancelled
and exchanged for the Merger Consideration as provided for in Section 6 above.
No interest will be paid or accrued on the unpaid dividends and distributions,
if any, payable to the holders of Target Common Stock.
8. Trade Secrets; Non-Competition.
(a) In consideration of $250,000 payable at the Closing,
Target Shareholder shall not at any time hereafter, use for his own benefit, or
divulge to any other person, firm or corporation, any confidential information
or trade secrets which Merger Sub or Parent may have imparted to Target
Shareholder, and upon the consummation of the transactions contemplated hereby,
Target Shareholder will deliver to Merger Sub and Parent all lists of customers,
books, records and all other property constituting confidential information
belonging to Merger Sub or Parent provided, however, that the restrictions of
this Section 8(a) shall not extend to any confidential information which, at the
time such information was disclosed to Target Shareholder (a "Disclosing
Party"), was in the public domain or thereafter entered the public domain other
than through disclosure by such Disclosing Party or was or becomes readily
ascertainable from public sources. If at any time the Disclosing Party is
requested or required (by oral questions, interrogatories, requests for
information or documents, subpoenas or similar legal process) to disclose any
such information, the Disclosing Party (to the extent reasonably practical)
shall notify Merger Sub and Parent immediately and shall refrain from making
such disclosure so that Merger Sub or Parent may, at its own expense, seek an
appropriate protective order and/or waive
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compliance with the provisions hereof. If, in the absence of a protective order
or the receipt of a waiver hereunder, in the reasonable opinion of the relevant
Disclosing Party's counsel, the Disclosing Party is compelled to disclose such
information to any tribunal or any governmental agency to avoid being liable for
contempt or suffering any other penalty, the Disclosing Party may disclose such
information to such tribunal or agency without liability hereunder; provided,
however, that the Disclosing Party gives Merger Sub prompt notice of such
decision. Target shall use its best efforts to prevent the respective directors
and officers of Target from violating the provisions of this Section 8(a).
(b) Target Shareholder shall not, for a period of six (6)
years following the Closing Date, in any matter directly or indirectly, engage
in any business which directly competes with the business in which Merger Sub,
any subsidiary of Parent, or Parent is presently engaged and Target Shareholder
will not directly or indirectly own, manage, operate, join, control or
participate in the ownership, management, operation or control of, or be
employed by, or connected in any manner with, any corporation, firm or business
that is so engaged; provided, however, that nothing herein contained shall
prohibit him from owning not more than 5% of the outstanding stock of any
publicly held corporation.
(c) Target Shareholder shall not, at any time during the
period of six (6) years following the Closing Date, solicit, employ or retain,
or otherwise participate in the employment or retention of, in any capacity, any
employee or consultant (where, if such consultant were so employed or retained,
Merger Sub, any subsidiary of Parent or Parent would be put at a competitive
disadvantage) currently paid by Target, any subsidiary of Parent, or Parent.
(d) Target Shareholder acknowledges that a violation of the
foregoing covenants of this Section 8 may cause irreparable injury to Merger
Sub, the subsidiaries of Parent, and Parent
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and that Merger Sub, the subsidiaries of Parent, and Parent will be entitled, in
addition to any other rights and remedies they may have, to injunctive relief.
(e) In the event the covenants contained in this Section 8
should be held by any court or other constituted legal authority to be void or
otherwise unenforceable in any particular jurisdiction or with respect to any
particular activity, then Sellers and Merger Sub shall consider this Section 8
to be amended and modified so as to eliminate therefrom that particular
jurisdiction or activity as to which such covenants are so held to be void or
otherwise unenforceable, and, as to all other jurisdictions and activities
covered hereby, the terms and provisions hereof shall remain in full force and
effect.
Target and Target Shareholder acknowledge that the Merger
Consideration to be paid to the shareholders of Target by Merger Sub for the
covenants set forth in this Section 8 on the Closing Date pursuant to the terms
of Section 6 hereof constitutes good and valid consideration for such covenants.
9. Representations and Warranties of Target and Target
Shareholder. Target and Target Shareholder represent and warrant to Merger
Sub and Parent as follows:
9.1 Organization. Target is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has all requisite corporate power and
authority and all necessary licenses and permits to carry on its business as it
has been and is now being conducted and to own, lease and operate the properties
used in connection therewith. Target is duly qualified or licensed and in good
standing to do business in each jurisdiction where the conduct of its business
or the ownership, leasing or operation of its properties requires such
qualification or licensing, except where the failure to be so duly qualified or
licensed
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and in good standing, individually or in the aggregate, would not have a
material adverse effect on the business of Target.
9.2 Capitalization. The total authorized capital stock
of Target consists of 200 shares of Target Common Stock, of which 200
shares of Target Common Stock are issued and outstanding. All of the outstanding
shares of Target Common Stock have been duly and validly authorized and issued
and are fully paid, nonassessable and free of preemptive rights with no
liability attaching to the ownership thereof. None of the outstanding shares of
Target Common Stock have been issued in violation of the preemptive rights of
any shareholder of Target. All of the outstanding shares of Target Common Stock
were issued in compliance with all applicable federal and state securities laws
and regulations.
9.3 Options. There are no existing agreements,
subscriptions, options, warrants, calls, commitments, trusts (voting or
otherwise), or rights of any kind whatsoever granting to any person or entity
any interest in or the right to purchase or otherwise acquire from Target, at
any time, or upon the happening of any stated event, any securities of Target,
whether or not presently issued or outstanding, nor are there any outstanding
securities of Target or any other entity which are convertible into or
exchangeable for shares or other securities of Target, nor are there any
agreements, subscriptions, options, warrants, calls, commitments or rights of
any kind whatsoever granting to any person or entity any interest in or the
right to purchase or otherwise acquire from Target or any other entity any
securities so convertible or exchangeable, nor are there any proxies, agreements
or understandings with respect to the voting of the outstanding shares of Target
Common Stock.
9.4 Title to the Outstanding Shares. Each of the
shareholders of Target is the lawful recordholder and the beneficial owner
of, and each shareholder of Target has good and
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marketable title to, the number of shares of Target Common Stock set forth
opposite his name on Schedule 9.4 hereto. The outstanding shares of Target
Common Stock are owned by the shareholders of Target free and clear of any and
all liens, claims, charges, pledges, security interests, or other encumbrances
of any nature whatsoever ("Liens"), and there are no existing agreements,
subscriptions, options, warrants, calls, commitments, trusts (voting or
otherwise), or rights of any kind whatsoever granting to any person or entity
any interest in or the right to purchase or otherwise acquire any of the
outstanding shares of Target Common Stock from any of the shareholders of Target
at any time, or upon the happening of any stated event.
9.5 Power and Capacity.
(a) Target has full right, power and capacity to
execute, deliver and perform this Agreement and all agreements and
documents to be executed, delivered and performed in connection herewith and to
perform all other transactions contemplated to be performed hereby. The
execution and delivery of this Agreement (and the agreements contemplated
hereby) and the consummation by Target of the transactions contemplated hereby
has been duly authorized by all requisite corporate action. This Agreement
constitutes, and all agreements and documents to be executed and delivered in
connection herewith (when executed and delivered pursuant hereto for value
received) will constitute, the valid and legally binding obligations of Target,
enforceable against Target in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, moratorium or other similar laws relating to
creditors' rights and general principles of equity.
(b) Target Shareholder has full right, power and
capacity to execute, deliver and perform this Agreement and all agreements
and documents to be executed, delivered and performed in connection herewith and
to perform all other transactions contemplated to be
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performed hereby. This Agreement constitutes, and all agreements and documents
to be executed and delivered in connection herewith (when executed and delivered
pursuant hereto for value received) will constitute, the valid and legally
binding obligations of Target Shareholder, enforceable against Target
Shareholder in accordance with their respective terms, subject to applicable
bankruptcy, insolvency, moratorium or other similar laws relating to creditors'
rights and general principles of equity.
9.6 Freedom to Contract.
(a) The execution and delivery of this Agreement by
Target does not, and the performance by Target of its obligations hereunder
will not, (i) violate or conflict with any provision of the Certificates or
Articles of Incorporation or By-Laws of Target or any amendments thereto or
restatements thereof, (ii) violate any of the terms, conditions or provisions of
any law, rule, regulation, order, writ, injunction, judgment or decree of any
court, governmental authority, or regulatory agency, or (iii) result in a
violation or breach of, or constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination, cancellation
or acceleration) under, any of the terms, conditions or provisions of any note,
bond, indenture, debenture, security agreement, trust agreement, lien, mortgage,
lease agreement, license, franchise, permit, guaranty, joint venture agreement,
or other agreement, instrument or obligation, oral or written, to which Target
is a party (whether as an original party or as an assignee or successor) or by
which it or any of its respective properties is bound. Except as set forth on
Schedule 9.6 hereto, no authorization, approval, order, license, permit,
franchise or consent of any party, and no registration, declaration or filing
with any court, governmental department, commission, authority, board, bureau,
agency or other instrumentality, is required in connection with the execution,
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delivery and performance of this Agreement by Target and the consummation
of the transactions contemplated hereby.
(b) The execution and delivery of this Agreement
by Target Shareholder does not, and the performance by Target Shareholder
of its obligations hereunder will not, (i) violate any of the terms, conditions
or provisions of any law, rule, regulation, order, writ, injunction, judgment or
decree of any court, governmental authority, or regulatory agency, or (ii)
result in a violation or breach of, or constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of termination,
cancellation or acceleration) under, any of the terms, conditions or provisions
of any note, bond, indenture, debenture, security agreement, trust agreement,
lien, mortgage, lease agreement, license, franchise, permit, guaranty, joint
venture agreement, or other agreement, instrument or obligation, oral or
written, to which Target Shareholder is a party (whether as an original party or
as an assignee or successor) or by which it or any of its respective properties
is bound. Except as set forth on Schedule 9.6 hereto, no authorization,
approval, order, license, permit, franchise or consent, and no registration,
declaration or filing with any court, governmental department, commission,
authority, board, bureau, agency or other instrumentality, is required in
connection with the execution, delivery and performance of this Agreement by
Target Shareholder and the consummation of the transactions contemplated hereby.
9.7 Subsidiaries and Affiliates. Target does not own,
directly or indirectly any interest in any other entity.
9.8 Charter and Organizational Documents. Target has
previously furnished Merger Sub and Parent with true and complete copies of
the Certificates or Articles of Incorporation (or other charter documents) and
By-Laws of Target.
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9.9 Financial Statements.
(a) Target has previously furnished to Merger Sub
and Parent true and complete copies of the following financial statements
of Target:
(i) unaudited balance sheets as of September
30, 1995 and 1994, each reviewed by Ernst & Young LLP, and unaudited
balance sheets of Target as of June 30, 1996, prepared by management of Target
(the unaudited consolidated balance sheet as of June 30, 1996, the "Target
Balance Sheet"); and
(ii) unaudited statements of income, retained
earnings and cash flows for the fiscal years ended September 30, 1995 and
1994, each reviewed by Ernst & Young LLP, and unaudited statements of income,
retained earnings and cash flow for the period ended June 30, 1996 prepared by
management of Target.
(b) The foregoing financial statements were prepared
in accordance with
generally accepted accounting principles applied on a basis consistent with that
of preceding accounting periods (except as may be indicated therein or in the
notes thereto). Such financial statements are correct and complete in all
respects and are in accordance with the books and records of Target. As of the
date hereof, all the accounts, books, ledgers and financial and other records of
whatever kind of Target have been properly and accurately kept and are correct
and complete in all respects and there are no inaccuracies or discrepancies
contained or reflected therein. The financial statements fairly present the
financial position of Target as of the dates thereof and the results of
operations and changes in financial position of Target for each of the periods
then ended.
(c) The accounts and other receivables as set forth
on Target Balance Sheet, or arising since the date thereof, have or shall
have arisen in the ordinary course of the business of Target for goods sold and
invoiced or services performed. All said receivables are
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collectible in amounts aggregating not less than the full recorded amounts
thereof (less allowance for doubtful accounts set forth in the financial
statements) and are subject to no offsets, except for normal trade discounts.
(d) The prepaid insurance, expenses and taxes as
set forth on the Target Balance Sheet, or arising since the date thereof,
represent amounts of a benefit to future periods.
(e) Target Balance Sheet and the notes thereto,
correctly and completely set forth all known liabilities of Target as of
the date thereof (i) pursuant to all Plans as that term is defined in Section
9.28, including all unfunded past service costs, (ii) pursuant to all bonus,
incentive, compensation, insurance, deferred compensation, severance and other
fringe benefit plans, contracts, agreements, arrangements and programs of any
type coverage or form, including, without limitation, any employee welfare
benefit program as defined in Section 3(1) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and (iii) for vacation pay and
compensatory time.
9.10 Absence of Undisclosed Liabilities. There are no
known liabilities or obligations (whether absolute, accrued, contingent or
otherwise), except (i) liabilities, obligations or contingencies which are
accrued or reserved against in the Target Balance Sheet, and (ii) normally
recurring liabilities incurred after the date of Target Balance Sheet in the
ordinary course of business and consistent with past practice.
9.11 Title to Properties. Target has good and marketable
title to all properties and assets reflected on the Target Balance Sheet or
acquired after the date thereof (except for properties and assets sold or
otherwise disposed of in the ordinary course of business since the date of the
Target Balance Sheet) in fee simple absolute (except for leasehold interests, in
which event the entity directly holding such interest has a valid leasehold
interest), subject only to (i) statutory
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Liens arising or incurred in the ordinary course of business with respect to
which the underlying obligations are not delinquent, (ii) with respect to
personal property, the rights of customers of Target with respect to inventory
or work in progress under orders or contracts entered into by Target in the
ordinary course of business, (iii) Liens reflected on the Target Balance Sheet
or notes thereto, (iv) Liens for taxes not yet delinquent, (v) Liens set forth
in Schedule 9.11 hereto, (vi) Liens and defects in title that are immaterial and
are not, individually or in the aggregate, material to the financial condition,
operations or business of Target, and (vii) those dispositions of properties and
assets not in the ordinary course of business since the Target Balance Sheet
which are set forth on Schedule 9.11 hereto.
9.12 Real Property. Target has previously furnished to
Merger Sub and Parent a correct and complete description of all land,
buildings and structures owned beneficially or of record by Target and a list of
all deeds, mortgages, surveys and title insurance policies relating to such real
property. Target has heretofore delivered to Merger Sub and Parent copies of all
written documents, instruments, deeds, mortgages, surveys, rights-of-way,
easements, permits and other documents or agreements relating to such real
property.
9.13 Machinery and Equipment. Target has previously
furnished to Merger Sub and Parent a correct and complete list of each
material item of machinery and equipment owned by Target. All such items are in
good operating condition and repair, subject to normal wear and use, and are
usable in the ordinary course of business conducted by Target.
9.14 Inventory. Target has previously furnished to
Merger Sub a correct and complete description of all material classes of
inventory items owned by Target. Except to the extent of the reserves for
damaged, obsolescent and excess inventory all such items of inventory are usable
in the ordinary course of business conducted by Target.
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9.15 Leases. Target has previously furnished to Merger
Sub and Parent a correct and complete list of all outstanding leases or
licenses (whether written or oral) pursuant to which Target has (i) obtained the
right to use or occupy any real or personal property under arrangements where
the remaining obligation is more than $25,000, or (ii) granted to any other
party the right to use any real or personal property described in Section 9.12,
9.13 or 9.14. Target has heretofore delivered to Merger Sub and Parent true,
correct and complete copies of all such written leases and licenses described,
together with all amendments thereto, and a description of the terms of each
such oral agreement.
9.16 Copyrights and Trademarks. Target has previously
furnished to Merger Sub and Parent a correct and complete list of all
registered trademarks, trade names, service marks, patents and copyrights which
Target owns or utilizes and all applications pending therefor, if any. As of the
date of this Agreement, there are no pending, no threatened, interference or
opposition actions or proceedings with respect to any such trademarks, trade
names, service marks, patents or copyrights, and the use of any such trademarks,
trade names, service marks, patents and copyrights does not infringe upon or
conflict with, any trademark, trade name, patent, copyright, or other
proprietary right of any other person. As of the date of this Agreement, no
notice has been received of any claim of any such infringement upon, or conflict
with, any trademark, trade name, patent, copyright or other proprietary right of
any person. Target has heretofore delivered to Merger Sub and Parent true,
correct and complete copies of all such documents.
9.17 Contracts. Target has previously furnished to
Merger Sub and Parent a correct and complete list containing each:
(i) contract or commitment to which Target is a
party not made in the ordinary course of business or continuing over a
period of more than six months from the date
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hereof or exceeding $25,000 in value, other than contracts and commitments
listed in any other schedule hereto;
(ii) contract with or commitment to employees,
advisors, consultants;
(iii) debt instrument, including, without
limitation, any loan agreements, promissory notes, security agreements or
other evidences of indebtedness, where Target, is a lender or borrower, in a
principal amount in excess of $25,000;
(iv) contract, commitment or arrangement restricting
Target, or any of its respective employees from engaging in business or
from competing in any line of business with any other parties;
(v) contract, agreement or arrangement to which
Target, is a party (whether as an original party or an assignee or
successor) for a line of credit or guarantee, pledge or undertaking of the
indebtedness of any other person or entity;
(vi) contract or commitment to which Target is a
party (whether as an original party or an assignee or successor) for any
charitable or political contribution;
(vii) loan agreement, security agreement, note,
debenture, or other contract or commitment (except for this Agreement) limiting
or restraining Target from declaring, setting aside, authorizing or making
payment of any dividend or any distribution, whether in cash or property;
(viii) joint venture or partnership agreement to
which Target is, directly or indirectly, a party (whether as an original
party or as an assignee or successor);
(ix) agreement or agreements to which Target is a
party (whether as an original party or as an assignee or successor) with
respect to any assignment, discounting or reduction of any receivables, other
than normal trade discounts, of Target;
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(x) distributorship, sales agency, sales
representative or marketing agreement;
(xi) any license pursuant to which Target has any
liability or obligation or is receiving or will become entitled to receive
any benefits in excess of $25,000 in value, and any permit pursuant to which
Target currently operates its business; and
(xii) existing agreements, options, commitments or
rights with, to or in any third party to acquire any assets or properties,
real, personal or mixed, or any interest therein, of Target, except for those
contracts for the sale of inventory entered into in the ordinary course of
business.
Target has heretofore delivered to Merger Sub and Parent true,
correct and complete copies of all such documents.
9.18 Absence of Default. Except as set forth in Schedule
9.18 annexed hereto, Target has complied with and performed all of its
respective obligations required to be performed under all material contracts,
agreements and leases to which any of Target is a party (whether as an original
party or as an assignee or successor) as of the date hereof, and is not in
default in any material respect under any contract, agreement, lease,
undertaking, commitment or other obligation; and no event has occurred which,
with or without the giving of notice, lapse of time or both, would constitute a
default thereunder in any material respect. Target has no knowledge that any
party has failed to comply with or perform all of its obligations required to be
performed under any material contract, agreement or lease to which Target is a
party (whether as an original party or as an assignee or successor) as of the
date hereof, or that any event has occurred which, with or without the giving of
notice, lapse of time or both, would constitute a default by such party
thereunder. In addition, except as disclosed in Schedule 9.18, Target has (i) no
reason to believe that the products
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and services called for by an unfinished contract having material value cannot
be supplied by or to Target as the case may be, in accordance with the time
specifications of such contract, and (ii) no knowledge of any facts or
circumstances which make a default by any party to any material contract or
obligation likely to occur subsequent to the date hereof.
9.19 Insurance. Target maintains insurance coverages on
its structures, facilities, fixtures, machinery, equipment, motor vehicles,
inventory and other properties and assets and with respect to its employees and
operations, covering risks which are prudently insured against by similar
businesses. Target has previously furnished to Merger Sub and Parent a correct
and complete description of all such policies or binders of insurance held by or
on behalf of Target or any of its properties or assets (specifying the insurer,
the amount of the coverage, the type of insurance, the risks insured, the
expiration date, the policy number, the premium and any agent or broker). Except
as may otherwise have been disclosed to Merger Sub and Parent in writing (i) no
notice of cancellation or nonrenewal with respect to, or disallowance of any
claim under, any such policy or binder has been received by Target from January
1, 1994 to the date hereof, and (ii) Target has no knowledge of any state of
facts or the occurrence of any event which reasonably might form the basis of
any claim against or relating to its businesses or operations or any of its
assets or properties which are covered by any of such policies or binders which
might substantially increase the insurance premiums payable under any such
policy or binder. Target has previously furnished to Merger Sub and Parent a
correct and complete description of all outstanding performance bonds which have
been delivered to any person in connection with the business and operations of
Target.
9.20 Third Party Options. There are no existing
agreements, options, commitments or rights with, to or in any third party
to acquire any assets or properties, real,
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personal or mixed, or any interest therein, of Target, except for those
contracts entered into by any of it in the ordinary course of business.
9.21 Distributions, Satisfactions, Obligations. Since
the Target Balance Sheet, Target has not:
(i) issued any stock, bonds or other corporate
securities;
(ii) incurred any obligations or liabilities for
money borrowed;
(iii) incurred any material obligations or
liabilities, absolute or contingent;
(iv) discharged or satisfied any lien, encumbrance
or obligation, or paid any material liabilities, absolute or contingent,
other than in the ordinary course of business;
(v) declared or made any dividend payment or
distribution to any shareholder of Target;
(vi) purchased or redeemed any shares of the capital
stock of Target;
(vii) mortgaged or pledged or subjected to lien,
charge or other encumbrance, any of its material assets, tangible or intangible;
(viii) sold, transferred or disposed of any of its
assets except assets used or consumed in the ordinary course of business
and obsolete equipment and equipment which has been replaced in the ordinary
course of business;
(ix) suffered any material adverse change, material
damage, disruption of business or losses, whether covered by insurance or
not, or waived any rights of substantial value;
(x) increased compensation payable to or to become
payable by Target to any of its employees whose salary (inclusive of bonus)
is expected to exceed $50,000 in 1996, except as may be granted in the ordinary
course of business to an employee on the anniversary date
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of his employment, or upon his annual award date, and which does not exceed
10% of the base salary of such employee;
(xi) incurred any liabilities or obligations or
entered into any contracts or other arrangements involving Target or any of
Target's affiliates; or
(xii) operated its business in any way other than
in the ordinary course.
9.22 Capital Expenditures. Target has not made or
budgeted for any capital expenditures or commitments, whether or not
contracted for, in an aggregate amount exceeding $10,000.
9.23 Litigation. Except as set forth in Schedule 9.23
hereto, as of the date hereof, there are no actions, suits, material labor
disputes or arbitrations, legal or administrative proceedings or investigations
pending against Target and no actions, suits, material labor disputes or
arbitrations, legal or administrative proceedings or investigations are
contemplated or threatened against Target or any of its assets, properties or
businesses, nor is there any basis for any such action or for any governmental
investigation relating to Target or its properties or businesses. Neither Target
nor its assets, properties or business, is subject to any judgment, order, writ,
injunction or decree of any court, governmental agency or arbitration tribunal.
9.24 Compliance with Law.
(a) Target:
(i) has complied with each, and is not in
violation of any, law, ordinance or governmental rule or regulation to
which it or its business is subject, and
(ii) has not failed to obtain any license,
permit, certificate or other governmental authorization or inspection
necessary to the ownership or use of its assets and properties or to the conduct
of its business, which, in the event of any noncompliance, violation or
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failure to obtain, as the case may be, would have a material adverse effect on
the business, operations, prospects, properties, assets or condition (financial
or otherwise) of Target.
(b) Except as set forth in Schedule 9.24 hereto,
Target has not received any claim or notice of any violation, within the
past three years, of any building, zoning, fire, health or employment laws,
ordinances, rules or regulations relating to the properties, premises, business
or employees of Target, which in the event of any non-compliance or violation
would have a material adverse effect on the business, operations, prospects,
properties, assets or condition (financial or otherwise) of Target.
9.25 Transactions with Affiliates. None of shareholders
of Target or any current director or officer of Target controls or during
the last three years has controlled, directly or indirectly, any business,
corporate or otherwise, which is or was a party to any agreement, business
arrangement or course of dealing with Target or any property or asset which was
the subject of any agreement, business arrangement or course of dealing with
Target.
9.26 Prohibited Payments. Neither the shareholders of
Target nor, any of their respective officers, directors, employees, agents
or affiliates has offered, paid, or agreed to pay to any person or entity,
including any governmental official, or solicited, received or agreed to receive
from any such person or entity, directly or indirectly, any money or anything of
value for the purpose or with the intent of obtaining or maintaining business
for Target or otherwise affecting the business, operations, prospects,
properties, or condition (financial or otherwise) of Target and which is or was
in violation of any ordinance, regulation or law, or not properly and correctly
recorded or disclosed on the books and records of Target. Target has not engaged
in any transaction, maintained any bank account or used any other funds except
for transactions, bank
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accounts and funds which have been and are properly and correctly reflected in
the normally maintained books and records of Target.
9.27 Tax Matters.
(a) Target and has filed or will file all required
federal, state, county, local, foreign and other tax returns and reports
including without limitation income tax, estimated tax, excise tax, sales tax,
gross receipts tax, franchise tax, employment and payroll-related tax, property
tax and import tax returns and reports, whether or not measured in whole or in
part by net income, within the prescribed period or any extension thereof for
all periods to the Closing Date. Target, has paid or, will pay all taxes shown
to be due or which become due on such returns and reports pursuant to any
assessment, deficiency notice, 30-day letter or similar notice, including
interest and penalties with respect thereto, to the Closing Date. The
liabilities for taxes on the Target Balance Sheet are sufficient for the payment
of all taxes, fees, charges, penalties and interest attributable to all periods
through the date hereof and include adequate provision for all deferred taxes in
accordance with generally accepted accounting principles. There are no tax Liens
upon any property of Target except for Liens for current taxes not yet due. All
amounts required to be withheld by Target from employees for income taxes,
social security and other payroll taxes have been collected and withheld, and
either paid to the respective governmental agencies, set aside in accounts for
such purpose, or accrued, reserved against and entered upon the books and
records of the employer. For the purpose of this Agreement, unless otherwise
expressly provided, the term "tax" shall include all federal, state, local and
foreign taxes or assessments, including any interest or penalties applicable
thereto.
(b) The federal income tax returns of Target have
been audited by the Internal Revenue Service (the "IRS") or the period
during which any assessments may be made has
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expired without waiver or extension, for all periods to and including the year
ended 1995. Except as set forth on Schedule 9.27 hereto, all federal income tax
deficiencies asserted in writing as a result of such examinations have been paid
or finally settled and no issue has been raised by the IRS in any such
examination which, if raised with regard to any other period not so examined,
could reasonably be expected to result in a proposed federal income tax
deficiency for such other period. Further, no written notice has been received
by Target and no state of facts exists or has existed which would constitute
grounds for the assessment of any federal income tax liability against Target
with respect to the periods which have not been audited by the IRS. Except as
set forth in Schedule 9.27, none of the state, local or foreign income or
franchise tax returns of Target has been audited by any governmental agency
within the past five years.
(c) Except as set forth on Schedule 9.27, Target is
not a party to any pending action by any governmental authority for
assessment or collection of taxes, or party to any dispute or threatened dispute
in which an adverse determination would have an adverse effect on the business,
operations, properties, or financial condition of Target and no claim for
assessment or collection of taxes has been made upon Target, nor is there any
basis for such action or claim.
(d) Target is not liable for any "accumulated
earnings" penalty tax, as provided in Section 531 of the Internal Revenue
Code of 1986, as amended (the "Code"). Target is not liable for any "personal
holding company" penalty tax, as provided in Section 541 of the Code.
(e) Target has not, with regard to any assets or
property held, acquired or to be acquired, filed a consent to the
application of Section 341(f)(2) of the Code.
(f) Target has not agreed or is not required to make
any adjustment under Section 481(a) of the Code by reason of a change in
accounting method or otherwise.
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(g) Target is not liable for "back-up withholding"
taxes, as provided in Section 3406 of the Code or other withholding taxes
as provided in Section 1461 of the Code.
(h) Target has previously furnished to Merger Sub
and Parent a correct and complete list of:
(i) all federal, state, local and foreign income
and franchise tax returns and reports filed by Target within the past five
years;
(ii) all federal, state, local and foreign taxes
to which Target is subject with respect to its business, assets or income,
showing the name of the taxing authority, the assessment date, and the date on
which the return is required to be filed; and
(iii) all currently effective or proposed
agreements, consents, elections and waivers filed or made with federal,
state, local or foreign taxing authorities relating to Target.
Target has heretofore delivered to Merger Sub and Parent true, correct
and complete copies of all federal, state, local and foreign income tax returns
filed within the past 2 years referred to in this Section 9.27, and have made
available to Merger Sub and Parent access to all other income tax returns.
9.28 Employee Benefit Plans.
(a) Target has previously furnished to Merger Sub
and Parent a list of all of employee benefit plans, funds or programs
(within the meaning of the Code or ERISA), whether or not they are or are
intended to be (i) covered or qualified under the Code, ERISA or any other
applicable law, (ii) written or oral, (iii) formal or informal, (iv) funded or
unfunded, or (v) generally available to all employees of Target, which were or
are established or maintained by Target (individually, a "Plan", and
collectively, the "Plans"). For purposes of this Section 9.28, the
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term "Target" shall include any corporation which is a member of a controlled
group of corporations (as defined in section 414(b) of the Code) which includes
Target; any trade or business (whether or not incorporated) which is under
common control (as defined in section 414(c) of the Code) with Target; any
organization (whether or not incorporated) which is a member of an affiliated
service group (as defined in section 414(m) of the Code) which includes Target;
and any other entity required to be aggregated with Target pursuant to
regulations under section 414(o) of the Code.
(b) Target has previously furnished to Merger Sub
and Parent a list of all multiemployer plans (within the meaning of section
3(37) of ERISA) to which Target is, or during the five-year period ending on the
Closing Date has been, required to contribute. Target has not, with respect to
any such plan, suffered or caused a complete withdrawal or partial withdrawal
(as such terms are respectively defined in sections 4203 and 4205 of ERISA), and
will not become liable therefor as a result of the transactions contemplated by
this Agreement.
(c) Target has previously furnished to Merger
Sub and Parent (i) true and complete copies of all Plan documents and other
instruments relating thereto, (ii) accurate and complete detailed summaries of
all oral Plans, (iii) true and complete copies of the most recent financial
statements with respect to the Plans, (iv) true and complete copies of all
annual reports prepared within the past 5 years, and (v) true and complete
copies of all filings submitted to and any correspondence received from any
government agency within the past 5 years.
(d) Each Plan which is intended to be qualified
under section 401(a) and exempt from tax under section 501(a) of the Code
has been determined by the IRS to be so qualified and such determination remains
in effect and has not been revoked. Nothing has occurred since the date of any
such determination which may adversely affect such qualification or
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exemption, or result in the imposition of excise taxes or tax on unrelated
business income under the Code or ERISA. No Plan is funded through a trust
intended to be exempt from tax under section 501(c) of the Code.
(e) No reportable event (as defined in section 4043
of ERISA or the regulations thereunder) for which the reporting
requirements have not been fully waived, or accumulated funding deficiency
whether or not waived (as defined in section 302 of ERISA), or liability to the
Pension Benefit Guaranty Corporation ("PBGC") under sections 4062, 4063, 4064 or
4069 of ERISA, nor any prohibited transaction (as defined in section 406 of
ERISA or section 4975 of the Code), has occurred or exists with respect to any
Plan. The Plans and provisions thereof, the trusts created thereby, and the
operation of the Plans are in compliance with and conform to applicable
provisions of the Code (including but not limited to section 412), ERISA, other
statutes, and governmental rules and regulations.
(f) There is no matter, action, audit, suit or
claim pending or threatened relating to any Plan, fiduciary of any Plan or
assets of any Plan, before any court, tribunal, or government agency.
(g) Target has made, or will make, all
contributions to the Plans for all periods up to the Closing Date as
required by the terms of the Plans, the Code and ERISA. Each most recent Plan
audit report, actuarial report and annual report, certified by the Plan's
actuaries and auditors, as the case may be, fairly presents the actuarial status
and the financial condition of the Plan as at the date thereof and the results
of operations of the Plan for the plan year reflected therein and, subject to
changes in amounts attributable to investment performance and normal employee
turnover, there has been no material adverse change in the condition of the Plan
since the date of the most recent Form 5500, audited annual financial statement
or actuarial valuation report.
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(h) With respect to any Plan that is an employee
welfare benefit plan within the meaning of section 3(1) of ERISA (a
"Welfare Plan"), (i) each such Welfare Plan the contributions to which are
claimed as a deduction under any provision of the Code is in compliance with all
applicable requirements pertaining to such deduction, (ii) with respect to any
welfare benefit fund within the meaning of section 419 of the Code that
comprises part of a Welfare Plan, there is no disqualified benefit within the
meaning of section 4976(b) of the Code that would subject Target to a tax under
section 4976(a) of the Code, and (iii) any such Plan that is a group health plan
within the meaning of section 162(i)(3) of the Code meets all of the
requirements of section 162(k) of the Code. Target has previously furnished to
Merger Sub and Parent a list of all Welfare Plan benefits being provided or that
will be provided to all former employees (or other participants and
beneficiaries) and the accruing liabilities of same, computed in accordance with
the Preliminary Views of the Financial Accounting Standards Board on major
issues related to Employers' Accounting for Pensions and Other Post Employment
Benefits (November 1982).
(i) The consummation of the transaction contemplated
herein will not accelerate any liability under the Plans because of an
acceleration of any rights or benefits to which any participant or beneficiary
(as such terms are defined in section 3 of ERISA) may be entitled thereunder.
(j) No Plan is in the process of being (i)
terminated by Target or the PBGC, (ii) amended in any manner that would
directly or indirectly increase the benefit accrued or which may be accrued by
any participant thereunder, or (iii) amended in any manner that would materially
increase the cost of maintaining such Plan. It is not expected that any
proceeding to terminate a Plan will be instituted by the PBGC prior to the
Closing Date.
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9.29 Executive Employees.
(a) Target has previously furnished to Merger Sub
and Parent a correct and complete list of the names, titles and current
annual salary rates of and bonuses paid or payable to all present non-union
officers and employees of Target whose 1996 annual salary (including bonuses
paid or payable in 1996 or thereafter) is expected to exceed $50,000 ("Executive
Employees").
(b) Target has no employment agreement with, or
maintains any Plan with respect to, any Executive Employees.
9.30 Employees. Target has previously furnished to Merger
Sub and Parent a correct and complete list of all labor and collective
bargaining agreements (whether written or oral) to which Target is a party or by
which is bound, and all employment, profit sharing, deferred compensation,
bonus, stock option, stock purchase, pension, retainer, consultant, retirement,
severance, welfare or incentive agreements, plans or contracts (other than those
identified in Sections 9.17 or 9.28) to which Target is a party or by which
Target is bound. Target has delivered copies of all such agreements, contracts
and plans to Merger Sub and Parent. Target is not in default with regard to any
of such agreements, plans or contracts. Target is in compliance in all material
respects with all applicable laws relating to the employment of labor. There are
no controversies (other than routine grievances) pending or threatened, between
Target, and any of its employees or labor unions or other collective bargaining
units representing any of its employees. No unfair labor practice complaints
have been filed against Target with the National Labor Relations Board, and
Target has not received any notice or communication reflecting an intention or a
threat to file any such complaint.
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9.31 Environmental Laws.
(a) Target has obtained all permits, licenses and
other authorizations which are required with respect to the operation of
its business under federal, state, local and foreign laws relating to pollution
or protection of the environment, including laws relating to emissions,
discharges, releases or threatened releases or pollutants, contaminants,
chemicals, or industrial, toxic or hazardous substances or wastes into the
environment (including, without limitation, ambient air, surface water, ground
water, land surface or subsurface strata) or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants, chemicals or industrial toxic
or hazardous substances or wastes (the "Environmental Laws"), except any
permits, licenses and other authorizations the absence of which would not,
individually or in the aggregate, materially adversely affect Target.
(b) Target is in full compliance with all other
limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules and timetables contained in the
Environmental Laws or contained in any regulation, code, plan, order, decree,
judgment, injunction, notice or demand letter issued, entered, promulgated or
approved thereunder.
(c) There is no civil, criminal or administrative
action, suit, demand, claim, hearing notice or demand letter pending or
threatened against Target relating in any way to the Environmental Laws or any
regulation, code, plan, order, decree, judgment, injunction, notice or demand
letter issued, entered, promulgated or approved thereunder.
(d) No events, conditions, activities, practices,
incidents, actions or plans of action taken or to be taken by Target are
reasonably likely to (i) interfere with or prevent compliance or continued
compliance with the Environmental Laws or with any regulation, code, plan,
order, decree, judgment, injunction, notice or demand letter issued, entered,
promulgated or
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approved thereunder, in any manner which could have a material adverse effect on
Target, (ii) give rise to any common law or legal liability, including, without
limitation, liability under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended by the Superfund Amendments
and Reauthorizations Act of 1986, or similar state or local laws, or (iii) form
the basis of any claim, action, demand, suit, proceeding, hearing or notice of
violation based on or related to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling, or the emission, discharge,
release or threatened release into the environment, of any pollutant,
contaminant, chemical, or industrial, toxin or hazardous substance or waste.
9.32 Bank Accounts, Letters of Credit and Powers of
Attorney. Target has previously furnished to Merger Sub and Parent a true
and correct list of (a) all bank accounts, lock boxes and safe deposit boxes
relating to the business and operations of Target, (b) all outstanding letters
of credit issued by financial institutions for the account of Target (setting
forth, in each case, the financial institution issuing such letter of credit,
the maximum amount available under such letter, the terms (including the
expiration date) of such letter of credit and the party or parties in whose
favor such letter of credit was issued), and (c) the name and address of each
person who has a power of attorney to act on behalf of Target. Target has
heretofore delivered to Merger Sub and Parent true, correct and complete copies
of each such letter of credit and each such power of attorney.
9.33 Accounts and Notes Receivable. Target has
heretofore furnished Merger Sub and Parent with a true and correct list, as
of recent dates, setting forth, by customer or obligor, as the case may be, an
aging of the accounts and notes receivable of Target in categories of less than
30 days due, 30 to 59 days due, 60 to 89 days due and 90 days or greater due.
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9.34 Minute Books. The minute books of Target as
previously made available to Merger Sub and Parent for inspection, contain
complete and accurate records of all meetings and accurately reflect all other
corporate action of the shareholders and boards of directors of Target. The
stock certificate books and stock transfer ledgers of Target as previously made
available to Merger Sub for inspection, are true and complete. All stock
transfer taxes levied or payable with respect to all transfers of shares of
Target prior to the date hereof have been paid and appropriate transfer tax
stamps affixed.
9.35 Full Disclosure. No representation or warranty by
Target in this Agreement, any Schedule hereto or in any list, certificate,
document or written statement delivered by Target to Merger Sub and Parent
pursuant hereto, contains any untrue statement of a material fact or omits to
state any material fact necessary to make any statement herein or therein, in
the light of the circumstances under which it was made, not misleading. Except
as described in the Schedules hereto or in any list, certificate, document or
written statement delivered or to be delivered, all documents and agreements are
valid and effective in accordance with their respective terms, and there is not
under any of such documents or agreements, or any obligation, covenant or
condition contained therein, any existing default by Target or any other party,
or event which with notice, lapse of time, or both, would constitute a default
which would have a material adverse effect on the business of Target. There is
no fact known to Target, which Target has not disclosed or will not disclose to
Merger Sub and Parent which adversely affects or, so far as Target, can now
reasonably foresee, which may adversely affect, the continued operation of
Target.
10. Representations and Warranties of Merger Sub and Parent.
Merger Sub and Parent represent and warrant to Target as follows:
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10.1 Organization. Each of Merger Sub and Parent is a
corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation, and has all requisite corporate power
and authority to enter into and perform this Agreement and the transactions
contemplated hereby to be performed by it.
10.2 Authorization. The execution and delivery by each
of Merger Sub and Parent of this Agreement, and the performance by it of
its obligations hereunder, have been duly authorized by all necessary corporate
actions of each of Merger Sub and Parent.
10.3 Freedom to Contract. The execution and delivery of
this Agreement by each of Merger Sub and Parent do not, and the performance
by it of its obligation hereunder will not, (i) violate or conflict with any
provision of the Certificate of Incorporation or By-Laws of Merger Sub or Parent
or any amendments thereto or restatements thereof, (ii) violate any of the
terms, conditions or provisions of any law, rule, regulation, order, writ,
injunction, judgment or decree of any court, governmental authority, or
regulatory agency, or (iii) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give rise to
any right of termination, cancellation or acceleration) under, any of the terms,
conditions or provisions of any note, bond, indenture, debenture, security
agreement, trust agreement, lien, mortgage, lease agreement, license, franchise,
permit, guaranty, joint venture agreement, or other agreement, instrument or
obligation, oral or written, to which each of Merger Sub or Parent is a party
(whether as an original party or as an assignee or successor) or by which their
or any of their respective properties is bound. Except for the requirements
under the HSR Act and ECRA, no governmental authorization, approval, order,
license, permit, franchise or consent, and no registration, declaration or
filing with any court, governmental department, commission, authority, board,
bureau, agency or other instrumentality, is required in connection with each of
Merger Sub's
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or Parent's execution, delivery and performance of this Agreement and the
consummation of the transactions required hereby.
10.4 Litigation.
(a) Neither Merger Sub or Parent is a party to any
suit, action, arbitration or legal, administrative, governmental or other
proceeding or investigation pending or, to the best knowledge of Merger Sub or
Parent threatened, which might adversely affect or restrict the ability of
Merger Sub or Parent to consummate the transactions contemplated by this
Agreement or to perform its obligations hereunder.
(b) There is no judgment, order, injunction or
decree of any court, governmental authority or regulatory agency to which
Merger Sub is subject which might adversely affect or restrict the ability of
Merger Sub or Parent to consummate the transactions contemplated by this
Agreement or to perform their respective obligations hereunder.
10.5 Investment. The acquisition of the outstanding
shares of Target Common Stock by Merger Sub is being made for investment by
Merger Sub and not with a view towards resale in connection with any
distribution thereof.
10.6 Shares of Childrobics. The shares Parent Common
Stock being issued to the shareholders of Target will be, when issued, duly
and validly authorized and issued, fully paid, nonassessable and free of
preemptive rights, with no liability attaching to the ownership thereof.
10.7 Full Disclosure. No representation or warranty by
Merger Sub or Parent in this Agreement, any Schedule hereto or in any list,
certificate, document or written statement delivered by Merger Sub and Parent
pursuant hereto, contains any untrue statement of a material fact or omits to
state any material fact necessary to make any statement herein or therein, in
the light of the circumstances under which it was made, not misleading.
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11. Covenants. Target hereby covenants and agrees with Merger
Sub and Parent as follows:
11.1 Access. From and after the date hereof until the
Closing, Target shall afford and, with respect to clause (ii) below, shall
cause the independent certified public accountants for Target to afford, (i) to
the officers, independent certified public accountants, counsel and other
representatives of Merger Sub and Parent free and full access at all reasonable
times to the properties, books and records (including tax returns filed and
those in preparation) of Target and the right to consult with the officers,
employees, accountants, counsel and other representatives of Target in order
that Merger Sub and Parent may have full opportunity to make such investigations
as it shall reasonably desire to make of the affairs of Target, including
without limitation, the taking by independent certified public accountants of
Merger Sub or Parent of a physical inventory of Target, (ii) to the independent
certified public accountants of Merger Sub and Parent free and full access at
all reasonable times to the work papers and other records of the accountants
relating to Target, and (iii) to Merger Sub and Parent and their respective
representatives such additional financial and operating data and other
information as to the business and properties of Target as Merger Sub and Parent
shall from time to time reasonably requires; provided, however, that any such
investigation shall not affect or otherwise diminish or obviate in any way any
of the representations and warranties of Sellers hereunder.
11.2 Personal Guarantees. Following the Closing, Merger
Sub shall indemnify Target Shareholder with respect to any debt of Target
for which he has personally guaranteed. Within 60 days after the Notes have been
paid, Merger Sub shall use their best efforts to (i) remove Target Shareholder
as a personal guarantor on any debt of Target, or (ii) refinance such debt
without Target Shareholder as a personal guarantor of such debt.
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12. Covenants. Merger Sub and Parent hereby covenant and agree
with Target as follows:
12.1 Access. From and after the date hereof until the
Closing, Merger Sub and Parent shall afford and, with respect to clause
(ii) below, shall cause the independent certified public accountants for Merger
Sub and Parent to afford, (i) to the officers, independent certified public
accountants, counsel and other representatives of Target free and full access at
all reasonable times to the properties, books and records (including tax returns
filed and those in preparation) of Merger Sub and Parent and the right to
consult with the officers, employees, accountants, counsel and other
representatives of Merger Sub and Parent in order that Target may have full
opportunity to make such investigations as it shall reasonably desire to make of
the affairs of Merger Sub and Parent, including without limitation, the taking
by independent certified public accountants of Target of a physical inventory of
Merger Sub and Parent, (ii) to the independent certified public accountants of
Target free and full access at all reasonable times to the work papers and other
records of the accountants relating to Merger Sub and Parent and, (iii) to
Target and its respective representatives such additional financial and
operating data and other information as to the business and properties of Merger
Sub and Parent as Target shall from time to time reasonably requires; provided,
however, that any such investigation shall not affect or otherwise diminish or
obviate in any way any of the representations and warranties of Sellers
hereunder.
13. Documents to be delivered by Target at the Closing. At the
Closing Target shall deliver the following documents.
13.1 Officers' Certificates. Certificates dated the
Closing Date and signed by an executive officer of Target, certifying that
the representations and warranties of Target contained in this Agreement and in
any list, certificate, document or written statement furnished by him to
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Target in connection with the negotiation, execution or performance of this
Agreement shall be true at and as of the Closing Date.
13.2 Secretary's Certificates. Certificates dated the
Closing Date and signed by the Secretary or an Assistant Secretary of
Target, setting forth (i) the names, signatures and positions of the officers of
Target who have executed this Agreement or any other document executed by Target
and delivered to Merger Sub and Parent as a Closing document hereunder, and (ii)
a copy of the resolutions adopted by the board of directors of Target
authorizing the execution, delivery and performance of this Agreement.
13.3 Notifications and Consents.
(a) Copies of all written notices required to be
given by Target to, and all consents required to obtained from, any third
party in connection with the consummation of the transactions contemplated
hereby.
14. Documents to be delivered by Merger Sub and/or Parent. At the
Closing, Merger Sub or Parent, as the case may be, shall deliver the following
documents:
14.1 Officers' Certificates. Certificates dated the
Closing Date and signed by an executive officer of each of Merger Sub and
Parent, certifying that the representations and warranties of Merger Sub and
Parent contained in this Agreement and in any list, certificate, document or
written statement furnished by them to Target in connection with the
negotiation, execution or performance of this Agreement shall be true at and as
of the Closing Date.
14.2 Secretary's Certificates. Certificates dated the
Closing Date and signed by the Secretary or an Assistant Secretary of each
of Merger Sub and Parent, setting forth (i) the names, signatures and positions
of the officers of Merger Sub and Parent who have executed this Agreement or any
other document executed by each of Merger Sub and Parent and delivered to
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Target as a Closing document hereunder, and (ii) a copy of the resolutions
adopted by the board of directors of Merger Sub authorizing the execution,
delivery and performance of this Agreement.
14.3 Promissory Note. Parent shall execute and deliver
the promissory note attached as Exhibit B hereto.
15. Cooperation.
15.1 Further Assurances. From and after the Closing,
Target, on the one hand, and Merger Sub and Parent, on the other hand,
agree to execute and deliver such further documents and instruments and to do
such other acts and things as Merger Sub, Parent or Target, as the case may be,
may reasonably request in order to effectuate the transactions contemplated by
this Agreement. In the event any party shall be involved in litigation,
threatened litigation or government inquiries with respect to a matter involving
Target the other parties shall also make available to such first party, at
reasonable times and subject to the reasonable requirements of its own business,
such of its personnel as may have information relevant to the matters provided
such first party shall reimburse the providing party for its reasonable costs
for employee time incurred in connection therewith if more than one business day
is required. Following the Closing, the parties will cooperate with each other
in connection with tax audits and in the defense of any legal proceedings,
consistent with the other provisions for defense of claims provided in Section
16, to the extent such cooperation does not cause unreasonable expense, unless
such expense is borne by the requesting party.
16. Indemnification.
16.1 Indemnification by Target Shareholder. Target
Shareholder agrees to indemnify and hold harmless Merger Sub and Parent,
and their respective officers, directors,
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controlling persons, employees, attorneys, agents, and shareholders (the
"Purchaser Indemnitees") against and in respect of:
(i) Any and all damages, losses, liabilities, taxes,
and deficiencies, penalties and interest thereon and cost expenses
(including reasonable legal fees and expenses of attorneys chosen by the
Purchaser Indemnitees) as and when incurred arising out of or based upon any
breach of representations and warranties contained or any covenant or agreement
of Target and Target Shareholder contained in this Agreement, all of which are
incorporated herein by reference; and
(ii) Any and all damages, losses, liabilities,
taxes, and deficiencies, penalties and interest thereon and cost expenses
(including reasonable legal fees and expenses of attorneys chosen by the
Purchaser Indemnitees) as and when incurred resulting from claims, suits,
actions, and proceedings (formal and informal) of persons not a party to this
Agreement (and related investigations) related to, arising out of, or based upon
the conduct of the business of Target and Target Shareholder prior to the
Effective Time.
16.2 Indemnification by Target. Target indemnifies Merger
Sub and Parent and hold them harmless at all times from and after the
Closing Date against and in respect of:
(i) Any and all damages, losses, liabilities, taxes
and deficiencies, penalties and interest thereon and costs and expenses
resulting from any misrepresentation, breach of warranty or nonfulfillment of
any covenant or agreement on the part of Target under this Agreement;
(ii) Any claims or litigation relating to Target now
pending or threatened or which may hereafter be brought against Merger Sub
or Parent based upon events occurring prior to the Closing Date and not
attributable to the acts of Merger Sub or Parent; and
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(iii) Any and all actions, suits, proceedings,
claims, demands, assessments, judgments, costs, losses, liabilities and
reasonable legal and other expenses incident to any of the foregoing.
16.3 Indemnification by Merger Sub and Parent.
Merger Sub and Parent, jointly and severally indemnify Target
and Target Shareholder and holds Target and Target Shareholder harmless at all
times from and after the Closing Date against and in respect of:
(i) Any and all damages, losses, liabilities, taxes
and deficiencies, penalties and interest thereon and costs and expenses
resulting from any misrepresentation, breach of warranty or nonfulfillment of
any covenant or agreement on the part of Merger Sub;
(ii) Any claims or litigation relating to Target
which may hereafter be brought against Target based upon events occurring
subsequent to the Closing Date and not attributable to the acts of Sellers; and
(iii) Any and all actions, suits, proceedings,
claims, demands, assessments, judgments, costs, losses, liabilities and
reasonable legal and other expenses incident to any of the foregoing.
16.4 Period of Indemnity. The aforesaid indemnities of
Target Shareholder, Merger Sub, Parent and Target shall remain in full
force and effect: (a) as they relate to a third party claim against any of
Merger Sub or Target, for a period equal to the applicable statute of
limitations for such claim; and (b) as they relate to breaches of
representations, warranties or covenants made by Target, Merger Sub, or Parent
for the period provided in Section 17 hereof; provided, however, if at the
expiration of the appropriate period any claim or assessment for indemnification
has been asserted but not fully determined, or any audit or other proceeding
with respect to any tax matter
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has been initiated, such period will be extended as to such claim, assessment,
audit or other proceeding until it is finally determined or concluded.
16.5 Notice to the Indemnitor. Within a reasonable
period after the assertion of any claim by a third party or occurrence of
any event which may give rise to a claim for indemnification from an indemnitor
(the "Indemnitor") under this Section 16, an indemnified party (the "Indemnified
Party") shall notify the Indemnitor in writing of such claim and, with respect
to claims by third parties, advise the Indemnitor whether the Indemnified Party
intends to contest same.
16.6 Rights of Parties to Settle or Defend. If the
Indemnified Party determines not to contest such claim, the Indemnitor
shall have the right, at its own expense, to contest and defend against such
claim. If the Indemnified Party determines to contest such claim, the Indemnitor
shall have the right to be represented, at its own expense by its own counsel
and accountants, their participation to be subject to the reasonable direction
of the Indemnified Party. In either case, the Indemnified Party shall make
available to the Indemnitor and its attorneys and accountants, at all reasonable
times during normal business hours, all books, records, and other documents in
its possession relating to such claim. The party contesting any such claim shall
be furnished all reasonable assistance in connection therewith by the other
party. If the Indemnitor fails to undertake the defense of, or settle or pay any
such third party claim within ten (10) days after the Indemnified Party has
given written notice to the Indemnitor advising that the Indemnified Party does
not intend to contest such claim, or if the Indemnitor, after having given such
notification to the Indemnified Party, fails forthwith to defend, settle or pay
such claim, then the Indemnified Party may take any and all necessary action to
dispose of such claim including, without limitation, the settlement or full
payment thereof upon such terms as it shall deem
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appropriate, in its sole discretion, subject to the following with respect to
any proposed settlement thereof.
16.7 Settlement Proposals. In the event the Indemnified
Party desires to settle any such third party claim (whether or not
contested by the Indemnitor), the Indemnified Party shall advise the Indemnitor
of the amount it proposes to pay in settlement thereof (the "Proposed
Settlement"). If such Proposed Settlement is unsatisfactory to the Indemnitor,
it shall have the right, at its expense, to contest such claim by giving written
notice of such election to the Indemnified Party within ten (10) days after the
Indemnitor has been advised of the Proposed Settlement. If the Indemnitor does
not deliver such written notice within ten (10) days after the Indemnitor has
been advised of the Proposed Settlement, the Indemnified Party may offer the
Proposed Settlement to the third party making such claim. If the Proposed
Settlement is not accepted by the party making such claim, any new Proposed
Settlement figure which the Indemnified Party may wish to present to the party
making such claim shall first be presented to the Indemnitor who shall have the
right, subject to the conditions hereinabove set forth in this Section, to
contest such claim. In all such events, the Indemnitor shall indemnify the
Indemnified Party and hold it harmless against and from any and all costs of
defense, payment or settlement, including reasonable attorneys' fees incurred in
connection therewith.
16.8 Reimbursement. At the time that the Indemnified
Party shall suffer a loss because of a breach of any warranty,
representation or covenant by the Indemnitor or at the time the amount of any
liability on the part of the Indemnitor under this Section is determined (which
in the case of payments to third persons shall be the earlier of (i) the date of
such payments or (ii) the date that a court of competent jurisdiction shall
enter a final judgment, order or decree (after exhaustion of appeal rights
establishing such liability), the Indemnitor shall forthwith, upon notice
- 42 -
<PAGE>
from the Indemnified Party, pay to the Indemnified Party, the amount of the
indemnity claim. If such amount is not paid forthwith, then the Indemnified
Party may, at its option, take legal action against the Indemnitor for
reimbursement in the amount of its indemnity claim. For purposes hereof the
indemnity claim shall include the amounts so paid (or determined to be owing) by
the Indemnified Party together with costs and reasonable attorneys' fees and
interest on the foregoing items at the rate of twelve (12%) percent per annum
from the date the obligation is due from the Indemnified Party to the
Indemnitor, as hereinabove provided, until the indemnity claim shall be paid.
17. Survival of Representations and Warranties. All
representations, warranties, covenants and agreements made by each party in this
Agreement, in any Schedule hereto or in any list, certificate, document or
written statement furnished or delivered by any such party pursuant hereto shall
survive the Closing, and shall remain in full force notwithstanding any
investigation conducted before or after the Closing or the decision of any party
to complete the Closing for a period of three years following the Closing Date.
18. Additional Covenants.
18.1 Expenses. Each party hereto shall pay its own
expenses incidental to the preparation of this Agreement, the carrying out of
the provisions of this Agreement and the consummation of the transactions
contemplated hereby.
18.2 Press Releases. Neither Merger Sub nor Target
shall issue any press release nor otherwise make public any information
with respect to this Agreement nor the transactions contemplated thereby, prior
to the Closing Date, without the consent of the other.
18.3 Allocation of Purchase Price. Merger Sub and Target
acknowledge that the allocation of the purchase price between the shares of
Target Common Stock and the covenants
- 43 -
<PAGE>
contained in Section 4 hereof was bargained for and negotiated. Merger Sub and
Target agree to report the transaction for federal, state and local income tax
purposes in a manner consistent with such allocation and in accordance with all
applicable regulations, including, without limitation, Section 1060 of the Code.
Target acknowledges that it will report the receipt of amounts paid pursuant to
the covenants contained in Section 9 hereof as ordinary income for all federal,
state and local income tax purposes.
19. Contents of Agreement; Parties In Interest; etc. This
Agreement and the agreements referred to herein set forth the entire
understanding of the parties hereto with respect to the transactions
contemplated hereby. It shall not be amended except by a written instrument duly
executed by each of the parties hereto. Any and all previous agreements and
understandings between or among the parties regarding the subject matter hereof,
whether written or oral, are superseded by this Agreement.
20. Assignment and Binding Effect. This Agreement may not be
assigned by either party hereto without the prior written consent of the other
party; provided, however, Merger Sub may assign this Agreement to any of its
subsidiaries or affiliates, without Target's consent, as long as, in such event,
Merger Sub shall remain liable for its obligations hereunder. All of the terms
and provisions of this Agreement shall be binding upon and inure to the benefit
of and be enforceable by the respective successors and assigns of the parties
hereto.
21. Waiver. Any term or provision of this Agreement may be waived
at any time by the party entitled to the benefit thereof by a written instrument
duly executed by such party.
22. Termination. This Agreement may be terminated by the board
of directors of Merger Sub, Parent, and by Target mutually agreeing to
terminate this Agreement. Any termination pursuant to this Section 22 shall be
without liability on the part of any party to the other
- 44 -
<PAGE>
party hereto, except if such termination has resulted by reason of a breach by
such party of any of its material obligations hereunder. Nothing in this
Agreement shall be deemed to require any party to terminate this Agreement in
the event that a condition precedent to its obligations hereunder is not met,
rather than to waive such conditions precedent and proceed to Closing.
23. Notices. Any notice, request, demand, waiver, consent,
approval, or other communication which is required or permitted to be given to
any party hereunder shall be in writing and shall be deemed given only if
delivered to the party personally or sent to the party by telegram or by
registered or certified mail (return receipt requested), with postage and
registration or certification fees thereon prepaid, addressed to the party at
its address set forth below:
If to Merger Sub or Parent:
200 Smith Street
Farmingdale, New York 11735
Attention: President
with a copy to:
Squadron, Ellenoff, Plesent & Sheinfeld, LLP
551 Fifth Avenue
New York, New York 10176
Attention: Josef B. Volman, Esq.
If to Target or Shareholders of Target:
Just Kiddie Rides, Inc.
18 Dubon Court
Farmingdale, New York 11735
Attention: President
with a copy to:
Joan Agostino, Esq.
Simonetti & Agostino
250 Old Country Road
Garden City, New York 11530
- 45 -
<PAGE>
or to such other address or person as any party may have specified in a notice
duly given to the other party as provided herein. Such notice, request, demand,
waiver, consent, approval or other communication will be deemed to have been
given as of the date so delivered, telegraphed or mailed.
24. Governing Law. This Agreement shall be governed by and
interpreted and enforced in accordance with the laws of the State of New York as
applied to contracts made and fully performed in such state.
25. No Benefit to Others. The representations, warranties,
covenants and agreements contained in this Agreement are for the sole benefit of
the parties hereto and their respective successors and assigns and they shall
not be construed as conferring, and are not intended to confer, any rights on
any other persons.
26. Section Headings. All section headings are for convenience
only and shall in no way modify or restrict any of the terms or provisions
hereof.
27. Schedules and Exhibits. All Schedules and Exhibits referred
to herein are intended to be and hereby are specifically made a part of
this Agreement.
28. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and Target, Merger Sub,
and Parent may become a party hereto by executing a counterpart hereof. This
Agreement and any counterpart so executed shall be deemed to be one and the same
instrument. It shall not be necessary in making proof of this Agreement or any
counterpart hereof to produce or account for any of the other counterparts.
- 46 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have duly executed this Agreement on the date first above written.
JUST KIDDIE ACQUISITION CORP.
By: /s/ Gerard A. Reda
-------------------------
Name: Gerard A. Reda
Title: President
CHILDROBICS, INC.
By: /s/ Gerard A. Reda
-------------------------
Name: Gerard A. Reda
Title: President
JUST KIDDIE RIDES, INC.
By: /s/ Gerard A. Reda
-------------------------
Name: Gerard A. Reda
Title: President
TARGET SHAREHOLDER
/s/ Gerard A. Reda
-------------------------
Gerard A. Reda
- 47 -
<PAGE>
EXHIBIT A
CERTIFICATE OF MERGER
OF
JUST KIDDIE RIDES, INC.
INTO
JUST KIDDIE ACQUISITION CORP.
UNDER SECTION 904 OF THE BUSINESS CORPORATION LAW
We, the undersigned, Gerard A. Reda and Marie Cerulli, being
respectively the President and Secretary of Just Kiddie Rides, Inc. and
Gerard A. Reda and Douglas B. Fox, being respectively the President and
Secretary of Just Kiddie Acquisition Corp. hereby certify:
1. (a) The name of each constituent corporation is as follows:
Just Kiddie Rides, Inc.
Just Kiddie Acquisition Corp.
(b) The surviving corporation is Just Kiddie Acquisition Corp. and
following the merger it shall be known under the name "Just
Kiddie Rides, Inc."
2. As to each constituent corporation, the designation and number of
outstanding shares of each class and series and the voting rights thereof
are as follows:
Designation and
Number of Shares Class or Series
Name of in Each Class or of Shares
Corporation Series Outstanding Entitled to Vote
- ------------ ------------------ ----------------
Just Kiddie 200 shares of common stock
Rides, Inc. common stock,
without par value
Just Kiddie 1 share of common stock
Acquisition common stock,
Corp. without par
value
3. The Certificate of Incorporation of Just Kiddie Acquisition Corp.
shall be the certificate of incorporation of the surviving corporation
except that Article I of the Certificate
<PAGE>
of Incorporation of Just Kiddie Acquisition Corp. shall be changed to reflect
a name change and shall be in the entirety as follows:
First: The name of the corporation shall be Just Kiddie Rides,
Inc. (hereinafter the "Corporation").
4. The merger was adopted by each constituent New York domestic
corporation in the following manner:
As to Just Kiddie Rides, Inc. by the unanimous written consent
of the shareholders of Just Kiddie Rides, Inc.
As to Just Kiddie Acquisition Corp. by unanimous written
consent of the sole shareholder of Just Kiddie Acquisition Corp.
5. The surviving corporation is Just Kiddie Acquisition Corp., a
corporation of the State of New York, incorporated on the 27th day of
September, 1996, and shall be known under the name "Just Kiddie Rides, Inc."
6. The Certificate of Incorporation of Just Kiddie Rides, Inc. was
filed with the Department of State of the State of New York on the 24th day
of February, 1989.
- 2 -
<PAGE>
IN WITNESS WHEREOF, we have signed this Certificate on the ___ day of
September, 1996, and we affirm the statement contained therein as true under
penalties of perjury.
Just Kiddie Rides, Inc.
By: _____________________________
Name: Gerard A. Reda
Title: President
----------------------------
Name: Marie Cerulli
Title: Secretary
Just Kiddie Acquisition Corp.
By: _____________________________
Name: Gerard A. Reda
Title: President
-----------------------------
Name: Douglas B. Fox
Title: Secretary
- 3 -
<PAGE>
EXHIBIT B
PROMISSORY NOTE
$637,500.00 September 30, 1996
FOR VALUE RECEIVED, the undersigned, CHILDROBICS, INC., a New
York corporation, having its principal place of business at 200 Smith Street,
Farmingdale, New York 11735 (the "Borrower"), the Borrower hereby promise to pay
to the order of Gerard A. Reda (the "Lender"), in lawful money of the United
States, the sum of SIX HUNDRED THIRTY SEVEN THOUSAND FIVE HUNDRED AND 00/100
DOLLARS ($637,500.00) (the "Loan"), with interest thereon at the rate of twelve
(12%) percent per annum, computed on the basis of the actual number of days
elapsed in a year of 360 days (the "Interest Rate"), as follows:
(a) twenty-four (24) equal consecutive monthly
installments of interest only, commencing November 1, 1996, and payable
on the 1st day of each succeeding month thereafter to and including
October 1, 1998; and
(b) then thirty-six (36) equal consecutive monthly
installments of principal and interest, commencing November 1, 1998 and
payable on the first day of each month thereafter to and including
October 1, 2001.
All payments are to be made to the order of the Lender to the
address provided to the Borrower.
This Note may be prepaid in whole or in part at any time with
interest to the date of prepayment upon not less than ten (10) days' prior
written notice to the Lender, provided however, that: (i) any partial prepayment
shall be applied in inverse order of maturity to the installments payable under
this Note; (ii) the Borrower shall pay any and all outstanding late charges; and
(iii) the Borrower shall pay a prepayment charge (the "Prepayment Charge") equal
to a percentage of the principal amount being prepaid, as follows:
Prepayment Charge
as Percentage of
If Prepaid: Principal Prepaid
Prior to the third anniversary
of the date of this Note 3%
On or after the third anniversary
but prior to the fourth anniversary
of the date of this Note 2%
On or after the fourth anniversary
but prior to the fifth anniversary
of the date of this Note 1%
<PAGE>
In the event that 1,500,000 shares of common stock of the
Borrower have been duly registered for sale to the public with the Securities
and Exchange Commission and all other applicable agencies of the federal
government of the United States and the State of New York or any other state
having jurisdiction thereof and the proceeds of a secondary public offering of
such shares are utilized by the Borrower for the prepayment of the Loan in full,
the Prepayment Charge otherwise payable hereunder shall be waived.
In the event the Borrower shall default in the payment of any
installment required to be paid hereunder, and such default shall continue for a
period of ten (10) days (the "Grace Period"), then at the option of the Lender
or the holder hereof, the entire principal balance of this Note, together with
accrued interest, shall become immediately due and payable.
If any installment due hereunder is not within the Grace
Period, the Borrower shall pay the Lender a late charge, to reimburse the Lender
for administrative costs and expenses and not as a penalty, in the amount of
$300.00. The Borrower further agrees that in the event any check given by the
Borrower to the Lender is dishonored, the Borrower shall pay to the Lender, in
addition to the aforesaid late charge, an administrative fee of $25.00.
If any installment due hereunder is not paid within the Grace
Period, such unpaid amounts shall bear interest from the date following the
applicable due date of such installment at the Interest Rate plus seven (7%)
percent per annum, or the maximum rate permitted by applicable laws and
governmental regulations, whichever is less (the "Default Rate"), until paid to
the Lender.
In the event of a default hereunder as a result of non-payment
or otherwise, and the Lender elects to accelerate the principal indebtedness due
under this Note, the entire outstanding principal balance due hereunder shall
bear interest from the date of acceleration until paid in full at the Default
Rate.
All payments made hereunder shall be applied first to satisfy
any late charges, expenses or penalties, then to interest accrued through the
date of such payment, and then in satisfaction of outstanding principal.
The Borrower hereby waives presentment, demand for payment,
notice of dishonor and any and all other notices and demands, notice of dishonor
and any and all other notices and demands, and all rights of set-off, deduction
or counterclaim, and consents to any and all extensions of time, renewals and
any waivers or modifications that may be granted or consented to by the Lender
with regard to any other provisions of this Note, and agrees that no such action
or failure to act on the part of the Lender shall in any affect or impair the
obligations of the Borrower arising hereunder or be construed as a waiver of
this Note or the Lender's right to avail itself of any remedy hereunder, with
the same force and effect as if the Borrower expressly consented to such action
or inaction.
- 2 -
<PAGE>
This Note has been executed and delivered and shall be
construed and enforced in accordance with the laws of the State of New York,
including, but not limited to, matters of construction, validity and
performance.
In the event the Lender or the holder of this Note shall
retain an attorney for the enforcement or the collection of this Note, the
Borrower agrees to pay all costs and expenses of such collection, including
reasonable attorney's fees, and any judgment recovered may include such
additional amounts.
IN WITNESS WHEREOF, the Borrower has caused this Note to be
executed by its duly authorized officer and to be dated as of the day and year
first above written.
ATTEST: CHILDROBICS, INC.
___________________________ By:__________________________
Name: Gerard A. Reda
Title: President
- 3 -
<PAGE>
PROMISSORY NOTE
$112,500.00 September 30, 1996
FOR VALUE RECEIVED, the undersigned, CHILDROBICS, INC., a New
York corporation, having its principal place of business at 200 Smith Street,
Farmingdale, New York 11735 (the "Borrower"), the Borrower hereby promise to pay
to the order of Roger Pratt (the "Lender"), in lawful money of the United
States, the sum of ONE HUNDRED TWELVE THOUSAND FIVE HUNDRED AND 00/100 DOLLARS
($112,500.00) (the "Loan"), with interest thereon at the rate of twelve (12%)
percent per annum, computed on the basis of the actual number of days elapsed in
a year of 360 days (the "Interest Rate"), as follows:
(a) twenty-four (24) equal consecutive monthly
installments of interest only, commencing November 1, 1996, and payable
on the 1st day of each succeeding month thereafter to and including
October 1, 1998; and
(b) then thirty-six (36) equal consecutive monthly
installments of principal and interest, commencing November 1, 1998 and
payable on the first day of each month thereafter to and including
October 1, 2001.
All payments are to be made to the order of the Lender to the
address provided to the Borrower.
This Note may be prepaid in whole or in part at any time with
interest to the date of prepayment upon not less than ten (10) days' prior
written notice to the Lender, provided however, that: (i) any partial prepayment
shall be applied in inverse order of maturity to the installments payable under
this Note; (ii) the Borrower shall pay any and all outstanding late charges; and
(iii) the Borrower shall pay a prepayment charge (the "Prepayment Charge") equal
to a percentage of the principal amount being prepaid, as follows:
Prepayment Charge
as Percentage of
If Prepaid: Principal Prepaid
Prior to the third anniversary
of the date of this Note 3%
On or after the third anniversary
but prior to the fourth anniversary
of the date of this Note 2%
On or after the fourth anniversary
but prior to the fifth anniversary
of the date of this Note 1%
<PAGE>
In the event that 1,500,000 shares of common stock of the
Borrower have been duly registered for sale to the public with the Securities
and Exchange Commission and all other applicable agencies of the federal
government of the United States and the State of New York or any other state
having jurisdiction thereof and the proceeds of a secondary public offering of
such shares are utilized by the Borrower for the prepayment of the Loan in full,
the Prepayment Charge otherwise payable hereunder shall be waived.
In the event the Borrower shall default in the payment of any
installment required to be paid hereunder, and such default shall continue for a
period of ten (10) days (the "Grace Period"), then at the option of the Lender
or the holder hereof, the entire principal balance of this Note, together with
accrued interest, shall become immediately due and payable.
If any installment due hereunder is not within the Grace
Period, the Borrower shall pay the Lender a late charge, to reimburse the Lender
for administrative costs and expenses and not as a penalty, in the amount of
$300.00. The Borrower further agrees that in the event any check given by the
Borrower to the Lender is dishonored, the Borrower shall pay to the Lender, in
addition to the aforesaid late charge, an administrative fee of $25.00.
If any installment due hereunder is not paid within the Grace
Period, such unpaid amounts shall bear interest from the date following the
applicable due date of such installment at the Interest Rate plus seven (7%)
percent per annum, or the maximum rate permitted by applicable laws and
governmental regulations, whichever is less (the "Default Rate"), until paid to
the Lender.
In the event of a default hereunder as a result of non-payment
or otherwise, and the Lender elects to accelerate the principal indebtedness due
under this Note, the entire outstanding principal balance due hereunder shall
bear interest from the date of acceleration until paid in full at the Default
Rate.
All payments made hereunder shall be applied first to satisfy
any late charges, expenses or penalties, then to interest accrued through the
date of such payment, and then in satisfaction of outstanding principal.
The Borrower hereby waives presentment, demand for payment,
notice of dishonor and any and all other notices and demands, notice of dishonor
and any and all other notices and demands, and all rights of set-off, deduction
or counterclaim, and consents to any and all extensions of time, renewals and
any waivers or modifications that may be granted or consented to by the Lender
with regard to any other provisions of this Note, and agrees that no such action
or failure to act on the part of the Lender shall in any affect or impair the
obligations of the Borrower arising hereunder or be construed as a waiver of
this Note or the Lender's right to avail itself of any remedy hereunder, with
the same force and effect as if the Borrower expressly consented to such action
or inaction.
- 2 -
<PAGE>
This Note has been executed and delivered and shall be
construed and enforced in accordance with the laws of the State of New York,
including, but not limited to, matters of construction, validity and
performance.
In the event the Lender or the holder of this Note shall
retain an attorney for the enforcement or the collection of this Note, the
Borrower agrees to pay all costs and expenses of such collection, including
reasonable attorney's fees, and any judgment recovered may include such
additional amounts.
IN WITNESS WHEREOF, the Borrower has caused this Note to be
executed by its duly authorized officer and to be dated as of the day and year
first above written.
ATTEST: CHILDROBICS, INC.
___________________________ By: __________________________
Name: Gerard A. Reda
Title: President
- 3 -
<PAGE>
SCHEDULE 9.4
SHARE OWNERSHIP OF TARGET
Name of shareholder Number of Shares
- ------------------- ----------------
Gerard A. Reda 170
Roger Prat 30
<PAGE>
SCHEDULE 9.6
CONSENTS
NONE
<PAGE>
SCHEDULE 9.11
LIENS
NONE
<PAGE>
SCHEDULE 9.18
DEFAULTS
NONE
<PAGE>
SCHEDULE 9.23
LITIGATION
NONE
<PAGE>
SCHEDULE 9.24
COMPLIANCE WITH LAW
NONE
<PAGE>
SCHEDULE 9.27
TAXES
NONE
Exhibit 2
EMPLOYMENT AGREEMENT
AGREEMENT dated this 30th day of September, 1996 between Childrobics,
Inc., a New York corporation with offices at 200 Smith Street, Farmingdale, New
York 11735 (the "Company"), and Gerard A. Reda residing at 15 Greenwood Lane,
St. James, New York 11780 ("Executive").
W I T N E S S E T H:
WHEREAS, the Company desires to employ Executive to serve as the
Company's President and Chief Executive Officer and to manage the day-to-day
affairs and operations of the Company and to perform such other services as
typically performed by executive senior management, and Executive desires to
accept such employment, all on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the receipt of which the
parties acknowledge, the parties agree as follows:
1. Employment and Duties
The Company hereby employs Executive for the term of this
Agreement and Executive hereby accepts such employment as the President and
Chief Executive Officer of the Company on the terms and conditions set forth in
this Agreement.
2. Employment Term
Unless terminated at an earlier date pursuant to the terms of
this Agreement, the term of employment hereunder (the "Employment Term") shall
be five years, commencing on the date hereof (the "Commencement Date").
151576-1
<PAGE>
3. Services
a. Executive shall perform such duties as typically
performed by a President and Chief Executive Officer of a publicly-held
corporation, which duties shall include, but shall not be limited to, the
management of the day-to-day affairs and operations of the Company including the
hiring of all personnel and as otherwise shall be consistent with the provisions
of the By-laws in effect on the date hereof, subject to the direction of the
Board of Directors of the Company (the "Board"). Executive shall serve the
Company faithfully and to the best of his ability and shall devote his full
business time and attention to the affairs of the Company, subject to reasonable
absences for vacation and illness as determined by the Board.
b. The headquarters for the performance of Executive's
services during the term of this Agreement shall be the principal executive
offices of the Company in Farmingdale, New York, unless otherwise mutually
agreed by Executive and the Company, subject to such reasonable travel in the
performance of Executive's duties as the business of the Company may require.
c. During the term of this Agreement, the Company
shall use its best efforts to nominate Executive to serve as a member of the
Board and such other committees of the Board to which Executive may be
appointed.
4. Compensation and Expense Reimbursement
a. Salary. Executive shall be entitled to receive for
all services rendered by Executive in any capacity an annual salary at the
rate of $250,000 (payable in equal installments in accordance with the then
prevailing practices of the Company, but in no event less frequently than
monthly), subject to adjustment upon terms agreed upon by the Board and
Executive after the first anniversary of the Commencement Date.
b. Expenses. Executive will be reimbursed for all
reasonable and necessary expenses incurred by Executive in carrying out the
duties contemplated under this Agreement, in
151576-1
- 2 -
<PAGE>
accordance with then prevailing Company procedure, as such practices may be
changed from time to time by the Board.
c. Stock Options. Executive shall be granted options
at the discretion of the Board based upon the performance of the Company and the
performance of Executive.
d. Vacations. Executive shall be entitled to four (4)
weeks paid vacation per year, to be taken at such times in accordance with the
then prevailing Company practices for Executive.
e. Benefits. Executive shall be entitled to
participate in all group health and other insurance programs and all other
fringe benefit or retirement plans or other compensatory plans which the Company
currently makes, or may hereafter elect to make, available to its executives
generally on terms no less favorable than those provided to other executives
which the Company shall establish, in addition to the supplemental disability
set forth in Section 7 hereof; provided, however, that Executive shall receive
such health and other insurance benefits substantially similar to those
currently being received by him from Just Kiddie Rides, Inc.
In addition, the Company shall purchase life insurance in the
amount of $2,000,000 on the life of Executive, the beneficiary of which shall be
named by Executive.
f. Automobile. The Company shall provide the
Executive, at the Company's expense, with use of an automobile similar to the
automobile currently used by Executive, which automobile shall include a
cellular phone.
5. Termination for Cause
In the event of: (a) fraud against the Company, conviction of
a felony, the intentional disclosure of confidential information (unless
required by applicable law or court or other order) having a material adverse
effect on the Company's operations or the market price of the Company's stock,
aiding a competitor to the detriment of the Company, its subsidiaries or
affiliates, intentionally engaging in conduct which brings disrepute or
otherwise is damaging to the reputation
151576-1
- 3 -
<PAGE>
of the Company, its subsidiaries or affiliates, performing competitive services
or acting in a competitive capacity for any other person, firm or corporation
without the prior written consent of the Company; or (b) willful misconduct,
gross negligence, prolonged and unexcused (subject to Paragraph 6 hereof)
absenteeism by Executive in connection with Executive's employment hereunder, a
breach by Executive of the terms of this Agreement which has a material adverse
effect on the Company, or Executive's willful or intentional failure to
implement the reasonable business requests or directions of the Board, the
Company shall have the right to give Executive a termination notice, specifying
the nature of the breach or failure. If such termination notice is given
pursuant to clause (a) above, the Employment Term shall terminate upon the
giving of such notice. If such termination notice is given pursuant to clause
(b) above, the Employment Term shall terminate thirty (30) days after the giving
of such notice if the circumstances described in such notice have not been
remedied by Executive within such thirty (30)-day period. Upon the effective
date of termination of the Employment Term pursuant to this Paragraph 5, the
Company shall have no further obligation to Executive hereunder, except for (i)
the provisions of Paragraphs 8 and 10, and (ii) accrued and unpaid salary, and
other previously earned, accrued and unpaid benefits from the Company and its
employee benefit plans through the date of termination.
6. Termination without Cause
If the Company shall terminate Executive's employment other
than for cause, death or disability:
a. The Company shall pay Executive accrued and unpaid
salary, and other previously earned, accrued and unpaid benefits from the
Company and its employee benefit plans through the date of termination (the
"Termination Date").
b. The Company shall pay as liquidated damages to
Executive and in lieu of any further salary payments hereunder for periods after
the Termination Date, a one-time payment
151576-1
- 4 -
<PAGE>
equal to 250% of Executive's annual salary as of the Termination Date, which
amount shall be payable within one year of the Termination Date;
c. In addition to the liquidated damages amounts that
are payable to Executive, the following shall apply: (i) Executive shall
continue to participate in, and accrue benefits under all retirement plans or
other compensatory plan of the Company for the remaining term of this Agreement
as if the termination of employment of Executive had not occurred (with
Executive being deemed to receive annually for the purposes of such plans
Executive's then annual salary as of the Termination Date under Section 4 of
this Agreement), except to the extent that such continued participation and
accrual is expressly prohibited by law, or to the extent such plan constitutes a
"qualified plan" under Section 401 of the Internal Revenue Code of 1986, as
amended ("Code"), by the terms of the plan, in which case the Company shall
provide Executive an equivalent, unfunded, non-qualified benefit; (ii) Executive
shall be entitled to continue to receive all other employee benefits and then
existing fringe benefits referred to in Section 4 hereof for the remaining term
of this Agreement as if the termination of employment had not occurred; and
(iii) all insurance or other provisions for indemnification, defense or
hold-harmless of officers or directors of the Company that are in effect on the
date the notice of termination is sent to Executive shall continue for the
benefit of Executive with respect to all of his acts and omissions while an
officer or director as fully and completely as if such termination had not
occurred, and until the final expiration or running of all periods of limitation
against action which may be applicable to such acts or omissions.
If any payment or benefit to Executive under this Agreement
would be considered a "parachute payment" within the meaning of Section
280G(b)(2) of the Code and if, after reduction for any applicable federal excise
tax imposed by Section 4999 of the Code ("Excise Tax") and federal income tax
imposed by the Code, Executive's net proceeds of the amounts payable and the
benefits provided under this Agreement would be less than the amount of the
Executive's net
151576-1
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<PAGE>
proceeds resulting from the payment of the Reduced Amount (hereinafter defined),
after reduction for federal income taxes, then the amount payable and the
benefits provided under this Agreement shall be limited to the Reduced Amount.
The "Reduced Amount" shall be the largest amount that could be received by
Executive under this Agreement such that no amount paid to Executive under this
Agreement and any other agreement, contract or understanding heretofore or
hereafter entered into between Executive and the Company ("Other Agreements")
and any formal or informal plan or other arrangement heretofore or hereafter
adopted by the Company for the direct or indirect provision of compensation to
Executive (including groups or classes of participants or beneficiaries of which
Executive is a member), whether or not such compensation is deferred, is in
cash, or is in the form of a benefit to or for Executive ("Benefit Plan") would
be subject to the Excise Tax. In the event that the amount payable to Executive
shall be limited to the Reduced Amount, then Executive shall have the right, in
Executive's sole discretion, to designate those payments or benefits under this
Agreement, any other agreements, and/or any Benefit Plans, that should be
reduced or eliminated so as to avoid having the payment to Executive under this
Agreement be subject to the Excise Tax.
7. Illness or Incapacity
In the event of any disability, illness or other incapacity
which prevents Executive from performing services as contemplated herein, the
Company shall continue to pay to Executive his annual salary at the time of
incapacity until disability insurance policy of up to $10,000 per month, which
shall be maintained and paid for by the Company in addition to the benefits set
forth in Section 4(d) hereof, becomes effective. If Executive shall be
incapacitated for more than 120 consecutive days or 180 days in any consecutive
12-month period, the Company shall have the right to terminate this Agreement
upon 10 days' prior written notice with no further liability, except for accrued
and unpaid salary, and other previously earned, accrued and unpaid benefits from
the Company and its employee benefit plans through the date of such termination,
provided that such
151576-1
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<PAGE>
termination shall not prejudice any rights of Executive under any disability
policies being maintained by the Company for Executive under the terms of this
Agreement. In the event that the Executive is disabled, the Company shall
continue to provide the spouse and dependents of Executive, at the expense of
the Company, with health and life insurance for the term of this Agreement.
Notwithstanding any such termination, the provisions of Paragraph 9 will
continue to apply.
8. Death
This Agreement shall terminate automatically upon the death of
Executive. In such event, the Company shall pay the estate of Executive, in
addition to any amounts to which Executive's estate would otherwise be entitled
under the Company's retirement plans and group life insurance policy, within 30
days after the date of death, all compensation earned under Paragraph 4 through
the date of termination. The Company shall continue to provide the spouse and
dependents of Executive, at the expense of the Company, with health insurance
then provided generally to dependents of employees of the Company, for a period
of one (1) year following the death of the Executive. Neither the estate or
other legal representative of the Executive nor the Company shall have any
further rights or obligations under this Agreement.
9. Non-Competition and Trade Secrets
a. Confidentiality and Work Product. During the term
of this Agreement and thereafter without limitation of time, Executive shall not
knowingly divulge, furnish, or make available to any third person, company,
corporation or other organization (including but not limited to customers,
competitors or government officials), except in the course of performing his
duties as an Executive hereunder or with the Company's prior written consent,
trade secrets or other confidential information concerning the Company, its
subsidiaries or affiliates or the business of any of the foregoing, including
without limitation, confidential methods of operation and organization and
confidential sources of supply and customer lists, but Executive may make
151576-1
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<PAGE>
disclosures as required by applicable law or orders without prior written notice
to the Company. For purposes of this Paragraph 9, information shall not be
deemed confidential if it (i) is within the public domain or (ii) becomes
publicly known other than through disclosure by Executive in violation of this
provision.
b. Non-Competition. During the Employment Term and for
a period of one (1) year thereafter, Executive agrees not to directly or
indirectly, own, control, manage, operate, participate or invest in, including
as an officer, director, shareholder, employee, consultant, agent, or otherwise
be connected with, in any manner, any business, enterprise or venture which is
engaged in the children's entertainment business, including, without limitation,
the sale or lease of vending machines, and any other business engaged in by the
Company during the Employment Term, except that nothing in this subparagraph
shall be deemed to prohibit the acquisition or holding of not more than five
percent (5%) of the shares or other securities of a publicly-owned corporation
if such securities are traded on a national securities exchange or over the
counter.
c. Solicitation. During the Employment Term and for a
period of one (1) year thereafter, Executive agrees not to directly or
indirectly solicit, employ or retain or arrange to have any other person, firm
or other entity solicit, employ, retain, or otherwise participate in the
employment or retention of, any person who is then, or who has been, within the
preceding six months, an employee, consultant, technician or engineer of the
Company, its subsidiaries or affiliates.
d. In the event Executive shall violate any provisions
of this Paragraph 9 (which provisions Executive hereby acknowledges are
reasonable and equitable), Executive shall no longer be entitled to and hereby
waives any and all rights to any termination payment under this Agreement.
10. Indemnification and Insurance
151576-1
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<PAGE>
a. The Company shall indemnify and hold harmless, and
in any threatened or filed action or proceeding, defend Executive against all
expenses, liabilities and losses (including attorneys' fees, judgments and
fines, and amounts paid or to be paid in any settlement) reasonably incurred or
suffered by Executive in connection with Executive's services as a director or
officer of the Company to the full extent permitted by the Bylaws of the Company
as in effect on the Commencement Date or, if greater, as permitted by applicable
state law; provided that the indemnity offered shall never be greater than
permitted by applicable state law. To the extent that a change in law permits
greater indemnification than is currently provided by the Bylaws of the Company
and a corresponding amendment shall not be made in said Bylaws of the Company,
it is the intent of the parties hereto that Executive shall enjoy the greater
benefits so afforded by such change.
b. Executive shall be covered by a policy or policies
of insurance, in reasonable and customary amounts, with respect to: (i)
directors' and officers' liability; (ii) errors and omissions; and (iii) general
liability. Executive shall be a named insured or additional insured under such
policies, without right of subrogation against him. The obligations set forth in
this Paragraph 10 shall survive any termination of this Agreement.
c. Executive's rights to indemnification and insurance
pursuant to this Paragraph 10 shall not be exclusive of any other right which
Executive may have or hereafter acquire under any statute, or policies or
provisions of the Company. This Paragraph 10 shall not be deemed to affect any
rights to subrogation which may exist in any policy of directors' and officers'
liability.
11. Separability
Executive agrees that the provisions of Paragraph 8 hereof
constitute independent and separable covenants, for which Executive is receiving
consideration which shall survive the
151576-1
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<PAGE>
termination of employment and which shall be enforceable by the Company
notwithstanding any rights or remedies the Company may have under any other
provision hereof.
12. Specific Performance
Executive acknowledges that:
(i) the services to be rendered under the provisions of this
Agreement are of a special character and it would be difficult to replace
such services;
(ii) the Company is relying on the covenants contained herein,
including, without limitation, those contained in Paragraph 9 above, as a
material inducement for entering into this Agreement;
(iii) the Company may be damaged if the provisions hereof are
not specifically enforced; and
(iv) the award of monetary damages may not adequately protect
the Company in the event of a breach hereof by Executive.
By virtue thereof, Executive agrees and consents that if
Executive breaches any of the provisions of this Agreement, the Company, in
addition to any other rights and remedies available under this Agreement or
otherwise, shall (without any bond or other security being required and without
the necessity of proving monetary damages) be entitled to a temporary and/or
permanent injunction to be issued by a court of competent jurisdiction
restraining Executive from committing or continuing any violation of this
Agreement, or any other appropriate decree of specific performance. Such
remedies shall not be exclusive and shall be in addition to any other remedy
which the Company may have.
13. Miscellaneous
a. Entire Agreement; Amendment. This Agreement
constitutes the entire employment agreement between the parties and may not be
modified, amended or terminated (other than pursuant to the terms hereof) except
by a written instrument executed by the parties hereto.
151576-1
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<PAGE>
All other agreements between the parties pertaining to the employment or
remuneration of Executive not specifically contemplated hereby or incorporated
or merged herein are terminated and shall be of no further force or effect.
b. Assignment. This Agreement is not assignable by
Executive without the prior written consent of the Company and any purported
assignment by Executive of Executive's rights and/or obligations under this
Agreement shall be null and void. This Agreement may be assigned by the Company
at any time, upon delivery of written notice to Executive (with Executive's
consent, not to be unreasonably withheld), to any successor to the business of
the Company, or to any subsidiaries or affiliates of the Company. In the event
that Executive does not consent to the assignment of this Agreement, the Company
shall have the right to terminate this Agreement automatically with no further
liability, except for accrued and unpaid salary, and other previously earned,
accrued and unpaid benefits from the Company and its employee benefit plans.
c. Waivers, etc. No waiver of any breach or default
hereunder shall be considered valid unless in writing, and no such waiver shall
be deemed a waiver of any subsequent breach or default of the same or similar
nature. The failure of any party to insist upon strict adherence to any term of
this Agreement on any occasion shall not operate or be construed as a waiver of
the right to insist upon strict adherence to that term or any other term of this
Agreement on that or any other occasion.
d. Provisions Overly Broad. In the event that any term
or provision of this Agreement shall be deemed by a court of competent
jurisdiction to be overly broad in scope, duration or area of applicability, the
court considering the same shall have the power and hereby is authorized and
directed to modify such term or provision to limit such scope, duration or area,
or all of them, so that such term or provision is no longer overly broad and to
enforce the same as so limited. Subject to the foregoing sentence, in the event
that any provision of this Agreement
151576-1
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<PAGE>
shall be held to be invalid or unenforceable for any reason, such invalidity or
unenforceability shall attach only to such provision and shall not affect or
render invalid or unenforceable any other provision of this Agreement.
e. Notices. Any notice permitted or required hereunder
shall be in writing and shall be deemed to have been given on the date of
delivery or, if mailed by certified mail, postage prepaid, return receipt
requested, documented overnight courier, or by facsimile transmission, on the
date mailed or transmitted.
(i) If to Executive to:
Gerard A. Reda at his address
set forth in the preamble to this Agreement
with a copy to:
Joan Agestino, Esq.
Simonetti & Agnostino
250 Old Country Road
Garden City, New York 11530
(ii) If to the Company to:
the address set forth in the preamble
to this Agreement
Attention: President
with a copy to:
Squadron, Ellenoff, Plesent & Sheinfeld, LLP
551 Fifth Avenue
New York, New York 10176
Attention: Kenneth R. Koch, Esq.
Telecopy: (212) 697-6686
f. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York governing contracts made
and to be performed in New York without regard to conflict of law principles
thereof.
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<PAGE>
g. This Agreement shall be binding upon and inure to
the benefit of the parties and their respective heirs, executors,
administrators, personal representatives, successors and permitted assigns.
h. This Agreement may be executed in counterparts,
each of which shall be deemed an original, and each party may become a party
hereto by executing a counterpart hereof. This Agreement and any counterpart so
executed shall be deemed to be one and the same instrument. It shall not be
necessary in making proof of this Agreement or any counterpart hereof to produce
or account for any of the other counterparts.
151576-1
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
EXECUTIVE CHILDROBICS, INC.
/s/ Gerard A. Reda By: /s/Gerard A. Reda
- -------------------- -------------------------
Gerard A. Reda Name: Gerard A. Reda
Title: President
151576-1
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Exhibit 4
FINANCING AGREEMENT
BY AND AMONG
STERLING Commercial CAPITAL, INC.,
NORWOOD VENTURE CORP. and VEGA CAPITAL CORP.
collectively as Lender
and
CHILDROBICS, INC., JUST KIDDIE RIDES, INC.,
TURNPIKE AMUSEMENT AMUSEMENT ASSOCIATES, INC.,
GROUP COIN ASSOCIATES, INC. and TUNNELS & TUBES, INC.,
as Borrowers
DATED: OCTOBER 3, 1996
<PAGE>
TABLE OF CONTENTS
Section and Title Pages
1.0
1.9 DEFINITIONS
2.0 LOAN TRANSACTION
2.1 The Loan
2.2 Interest Rate, Repayment
2.3 Promissory Note
2.4 Interest Limitation
2.5 Place of Payments and Application
2.6 Late Charge, Default Interest
2.7 Prepayment
3.0 COLLATERAL ASSIGNMENT OF LIFE INSURANCE
4.0 WARRANT
5.0 USE OF PROCEEDS
5.1 Purpose
5.2 Compliance with Small Business Administration
6.0 REPRESENTATIONS AND WARRANTIES OF THE BORROWER
6.1 Corporate Existence
6.2 Corporate Authority
6.3 Subsidiaries
6.4 Capitalization
6.5 Childrobics Financial Statements
6.6 JKR Financial Statements
6.7 Borrower's Liabilities
6.8 Litigation
6.9 Actions Affecting Validity
6.10 No Violations
6.11 Taxes Paid
6.12 Truth of Statements
6.13 Change in Financial Condition
6.14 Bankruptcy
6.15 Creditors' Rights
6.16 Defaults
6.17 Finders' Fee
6.18 Governmental ApprovaL
6.19 Employee Benefit Plans
6.20 Options, Warrants
6.21 Hazardous Substances
6.22 Employment Agreements
6.23 Labor Difficulties
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<PAGE>
6.24 Small Business Concern
6.25 No Relationship Between Parties
6.26 No Discrimination
7.0 CONDITIONS PRECEDENT
7.1 Corporate Documentation
7.2 Corporate Resolutions
7.3 Officers' Certificates
7.4 Certificate of Incumbency
7.5 Legal Opinion
7.6 Change in Financial Condition
7.7 Litigation
7.8 Financial Statements
7.9 Absence of Default
7.10 Casualty and Liability Insurance
7.11 The Note
7.12 Warrant
7.13 Collateral Assignment of Life Insurance Policies
7.14 Other Documents and Matters
8.0 AFFIRMATIVE COVENANTS
8.1 Payment of Loan and Other Indebtedness
8.2 Taxes, Trade Obligations
8.3 Conduct of Business
8.4 Insurance
8.5 Repairs
8.6 Financial Statements; Security Filings
8.7 Access to Property and Records
8.8 ERISA Reports
8.9 Litigation Notice
8.10 Defense,of Litigation
8.11 Notice of Adverse Developments
8.12 Expenses of the Lender
8.13 Indemnification
8.14 The Premises
8.15 Notice of Invitation to Attend Meetings;
Copies of Minutes
8.16 Reverse Shares for Issuance
8.17 Payment of Shareholder Notes
9.0 NEGATIVE COVENANTS
9.1 No Dividends
9.2 No Liens
9.3 No Judgments
9.4 Purchase of Assets
9.5 Sale of Assets
9.6 Consolidation, Merger, Acquisition
9.7 Securities
9.8 Sale of Stock
9.9 Amendments to By-Laws
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<PAGE>
9.10 Loans to Others
9.11 Profit Sharing, Compensation
9.12 Employment Agreement
9.13 Violations
10.0 EVENTS OF DEFAULT
11.0
11.6 RIGHTS OF THE LENDER
12.0 INCORPORATION BY REFERENCE, CONTRADICTORY TERMS
13.0 LENDER'S COSTS AND EXPENSES
14.0 MISCELLANEOUS
14.1 Notices and Communications
14.2 Closing Date
14.3 Survival of Covenants, Representations and
Warranties
14.4 No Waiver
14.5 Paragraph Headings
14.6 Integration
14.7 Severability
14.8 Counterparts
14.9 Applicable Law, Jurisdiction
14.10 Lender's Right to Sell or Assign the Loan
14.11 Parties in Interest
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<PAGE>
FINANCING AGREEMENT
AGREEMENT made this 3rd day of October, 1996, by and among STERLING
COMMERCIAL CAPITAL, INC., a New York corporation, having its principal place of
business at 175 Great Neck Road, Great Neck, New York 11021 (hereinafter
referred to as "Sterling"); NORWOOD VENTURE CORP., a New York corporation,
having its principal place of business at 1430 Broadway, Suite 1607, New York,
New York 10018 (hereinafter referred to as "Norwood"); VEGA CAPITAL CORP., a New
York corporation, having its principal place of business at 80 Business Park
Drive, Suite 201, Armonk, New York 10504 (hereinafter referred to as "Vega")
(Sterling, Norwood and Vega hereinafter referred to collectively as the
"Lender"); CHILDROBICS, INC., a New York corporation, having its principal place
of business at 200 Smith Street, Farmingdale, New York 11735 (hereinafter
referred to as "Childrobics"); JUST KIDDIE RIDES, INC.,a New York corporation
having its principal place of business at 122 Dubon Court, Farmingdale, New York
11735 (hereinafter referred to as "JKR"); TURNPIKE AMUSEMENT DISTRIBUTING, INC.
a New York corporation having its principal place of business at 200 Smith
Street, Farmingdale, New York 11735 (hereinafter referred to as "Turnpike");
AMUSEMENT ASSOCIATES, INC., a New York corporation, having its principal place
of business at 200 Smith Street, Farmingdale, New York 11735 (hereinafter
referred to as "Amusement"); GROUP COIN ASSOCIATES, INC., a New York
corporation, having its principal place of business at 200 Smith Street,
Farmingdale, New York 11735 (hereinafter referred to as "Group Coin"); and
TUNNELS & TUBES, INC., a New York corporation, having its principal place of
business at 200 Smith Street, Farmingdale, New York 11735 (hereinafter "Tunnels
& Tubes"), (childrobics, JKR, Turnpike, Amusement, Group Coin and Tunnels & Tubs
hereinafter referred to collectively as the "Borrowers").
W I T N E S S E T H :
WHEREAS, each of the Borrowers is a small business concern engaged in
the business of supplying and operating coin-operated arcade games and/or
children's rides; and
WHEREAS, Turnpike, Amusement and Group Coin are each wholly owned
subsidiaries of Childrobics; and
WHEREAS, pursuant to the terms of a certain Merger Agreement, dated
September 30, 1996, by and between JKR, Gerard A. Reda ("Reda"), the principal
shareholder of JKR, Just Kiddie Acquisition Corp. ("JK Acquisition"), a wholly
owned subsidiary of Childrobics, and Childrobics (the "Merger Agreement")
simultaneously herewith JKR shall merge with and into JK Acquisition which shall
survive the merger and have the name Just Kiddie Rides, Inc.; and
WHEREAS, upon completion of the merger, the separate existence of JKR
shall cease and JKR shall be merged into JK Acquisition, a wholly-owned
subsidiary of Childrobics; and
WHEREAS, in accordance with the Merger Agreement, Childrobics shall pay
to the shareholders of JKR as consideration for their shares in JKR 5,000,000
shares of common stock of Childrobics and the sum of $750,000, evidenced by
promissory notes payable over a term of five (5) years following the merger (the
"Shareholders' Notes") and shall pay to Reda in consideration of his agreement
<PAGE>
not to compete with the Borrowers the sum of $250,000 (the "Non-Compete
Consideration"); and
WHEREAS, pursuant to the terms of a certain Employment Termination and
Option Termination Agreement, dated July 3, 1996, as amended (the "Termination
Agreement.") by and between Childrobics and certain of its officers and
directors (the "Management") simultaneously herewith the Management shall resign
their respective positions in Childrobics and Childrobics shall pay to the
Management an aggregate termination fee of $600,000, of which the sum of
$150,000 shall be payable upon their resignation (the "Initial Termination
Fee"), and the balance shall be evidenced by promissory notes payable one year
after their resignation, plus the sum of $100,000 representing the outstanding
balance of all loans made to Childrobics by the Management (the "Management
Loan"); and
WHEREAS, pursuant to the Termination Agreement, the Management shall
each be granted ten year options to purchase in the aggregate 300,000 shares of
common stock of Childrobics exercisable any time at an exercise price of $.01
per share (the "Options"); and
WHEREAS, the Borrowers are presently indebted to trade creditors for
sales tax obligations, for professional fees, payroll obligations and insurance
premiums in the approximate aggregate amount of $1,100,000.00 (the "Operating
Debt"); and
WHEREAS, in order to pay the Non-Compete Consideration the Initial
Termination Fee and the Management Loans due the Management under the
Termination Agreement, to pay a portion of the Operating Debt, and to provide
working capital for the Borrowers, the Borrowers have applied to the Lender for
financing in the principal amount of $1,500,000.00; and
WHEREAS, the Lender is willing to lend such funds to the Borrowers,
subject to and upon the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained and in consideration of other good and valuable consideration,
the parties hereto agree as follows:
1.0 DEFINITIONS.
As used in this Agreement, the terms previously defined shall have the
meanings ascribed to them, and the following terms shall have the meanings set
forth herein as follows:
1.1 "Closing" and "Closing Date" shall mean the time and place of
closing of the loan transaction contemplated by this Agreement as set forth in
paragraph 14.2 hereof.
1.2 "Collateral Assignment of Life Insurance" shall have the meaning
set forth in paragraph 3 hereof.
1.3 "Event of Default" shall have the meaning set forth in paragraph
10 hereof.
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<PAGE>
1.4 "GAAP" shall mean Generally Accepted Accounting Principles set
forth in the opinions and pronouncements of the Accounting Principles Board and
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or such other
statements by such other entity as may be approved by a significant segment of
the accounting profession which are applicable to the circumstances as of the
date in question.
1.5 "Interest Rate" shall have the meaning set forth in paragraph 2.2
hereof.
1.6 "Lien" shall mean any lien, mortgage, security interest, pledge,
charge or other encumbrance of any nature whatsoever, including, without
limitation, the rights of a seller or similar party under any purchase money
mortgage or title retention agreement or other encumbrance whether arising by
contract or under applicable law.
1.7 "Notes" shall have the meaning set forth in paragraph 2.3 hereof.
1.8 "Person" shall mean any individual, corporation, partnership, joint
venture, association, joint stock company, trust, unincorporated organization or
trust, unincorporated organization or government or any agency or political
subdivision thereof.
1.9 "Warrant" shall have the meaning set forth in paragraph 4 hereof.
2.0 LOAN TRANSACTION
2.1 The Loan. Subject to and upon the terms and conditions of this
Agreement, on the Closing Date the Lender shall loan to the Borrowers, and the
Borrowers shall borrow from the Lender, the principal sum of One Million Five
Hundred Thousand and 00/100 ($1,500,000.00) Dollars (the "Loan").
2.2 Interest Rate, Repayment. The Loan shall be repaid by the
Borrowers, together with interest on the outstanding principal balance at the
rate of twelve (12%) percent per annum, computed on the basis of the actual
number of days elapsed in a year of 360 days (the "Interest Rate") as follows:
(a) a first installment of interest only on the principal sum
of $1,500,000.00 for the period from the Closing Date through and including
October 31, 1996, payable on the Closing Date.
(b) then twenty-four (24) monthly installments of interest
only on the outstanding principal balance of the Loan, commencing December 1,
1996, and payable on the 1st day of each succeeding month thereafter to and
including November 1, 1998;
(c) then thirty-five (35) equal consecutive monthly
installments of principal and interest in the amount of $49,821.46 each,
commencing December 1, 1998 and payable on the first day of each month
thereafter to and including October 1, 2001; and
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<PAGE>
(d) a final sixtieth (60th) installment in the principal
amount of $49,821.46, or such other amount as shall comprise the entire
outstanding principal balance of the Loan, together with accrued interest
thereon, payable on November 1, 2001.
2.3 Promissory Notes. To evidence the Borrowers' obligations to repay
the Loan, it shall issue, execute and deliver to the Lender on the Closing Date
three (3) promissory notes in the aggregate principal amount of $1,500,000.00 in
the form annexed hereto, made a part hereof and marked Exhibit 2.3 evidencing in
the aggregate the payments set forth in paragraph 2.2 hereof concurrently
payable to Sterling, Norwood and Vega, respectively (the "Notes").
2.4 Interest Limitation. Notwithstanding any provision in this
Agreement or the Notes to the contrary, in no event shall the applicable
interest rate exceed that permitted by the laws or governmental regulations
applicable to the Lender that limit rates of interest that may be charged or
collected by the Lender. If any payment hereunder or under the Notes shall be
found to constitute a payment of interest in excess of that permitted under the
laws or governmental regulations applicable to the Lender that limit rates of
interest that may be charged or collected by the Lender, then the amount of such
excess payment shall be deemed applied in reduction of outstanding principal and
the remaining balance, if any, shall be refunded to the Borrowers.
2.5 Place of Payments and Application.
(a) All installments of principal and interest, and late
charges, if any, shall be made by the Borrowers to Sterling, Norwood and Vega,
respectively, at the addresses set forth in the Notes, or at such other location
as Sterling, Norwood or Vega, as the case may be, may instruct.
(b) All payments received hereunder or under the Notes,
whether in the ordinary course, prepayment or otherwise, shall be applied first
to late charges and expenses for which the Borrowers is obligated to reimburse
the Lender hereunder, then to interest accrued and unpaid through the date of
such payment, and finally to outstanding principal.
2.6 Late Charge; Default Interest.
(a) The Borrowers agree that if any payment due hereunder is
not paid within ten (10) days of the date due, the Borrowers shall pay the
Lender a late charge, to reimburse the Lender for administrative costs and
expenses and not as a penalty, in the amount of $300.00. The Borrowers further
agree that in the event any check given by the Borrowers to the Lender is
dishonored, the Borrowers shall pay to the Lender, in addition to the aforesaid
late charge, an administrative fee of $25.00.
(b) The Borrowers further agree that if any payment due
hereunder is not paid within ten (10) days of its due date, such unpaid amounts
shall bear interest commencing on the date following the applicable due date at
the Interest Rate plus seven (7%) percent per annum, or the maximum rate
permitted by applicable laws and governmental regulations, whichever is less
(the "Default Rate"), until paid to the Lender.
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<PAGE>
(b) In the event of a default hereunder as a result of
non-payment or any other reason, and the Lender elects to accelerate the
principal indebtedness of the Loan, the entire outstanding principal balance
thereof shall bear interest from the date of acceleration until paid in full at
the Default Rate.
2.7 Prepayment.
(a) The Borrowers shall have the right to prepay the Loan, in
whole or in part, at any time with interest to the date of prepayment, upon not
less than ten (10) days prior written notice to the Lender, provided, however,
that: (i) any partial prepayments shall be applied proportionately to each of
the Notes in inverse order of maturity to the installments payable under the
Notes; (ii) the Borrowers shall pay any and all outstanding late charges; and
(iii) the Borrowers shall pay a prepayment charge (the "Prepayment Charge")
equal to a percentage of the principal amount being prepaid, as follows:
Prepayment Charge
as Percentage of
If Prepaid: Principal Prepaid
Prior to the third anniversary
of the Closing Date 3%
On or after the third anniversary
but prior to the fourth anniversary
of the Closing Date 2%
On or after the fourth anniversary
but prior to the fifth anniversary
of the Closing Date 1%
(b) Notwithstanding the foregoing to the contrary, in the
event that (i) a minimum of 1,500,000 shares of common stock of Childrobics held
by the Lender by virtue of the exercise in whole or in part of the Warrant have
been duly registered for sale to the public with the Securities and Exchange
Commission and all other applicable agencies of the federal government of the
United States and the State of New York or any other state having jurisdiction
thereover and (ii) the proceeds of a secondary public offering of shares of
common stock or other securities of Childrobics are utilized by Childrobics for
the prepayment of the Loan in full, the Prepayment Charge otherwise payable
hereunder shall be waived.
3.0 COLLATERAL ASSIGNMENT OF LIFE INSURANCE POLICIES.
On the Closing, the Borrowers shall deliver to the Lender a policy or
policies of life insurance, duly issued by life insurance companies licensed to
do business in the State of New York and acceptable to the Lender, covering the
life of Reda in the minimum aggregate face amount of $1,500,000, naming the
Lender as assignee (the "Life Insurance Policies"), together with a duly
executed collateral assignment ("Collateral Assignment of Life Insurance"),
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assigning to the Lender the right to receive the full death benefits of the Life
Insurance Policies. The Borrowers agree that:
(a) so long as any part of the Loan is outstanding, they will
timely pay at their own cost and expense when due the premiums on said policies,
and their failure to do so prior to the expiration of any applicable grace
period provided for in said insurance policies shall constitute an event of
default hereunder; and
(b) in the event that Reda shall die prior to the repayment in
full of the Loan, the Lender is hereby empowered and authorized to collect the
assigned proceeds of the Life Insurance Policies and retain from such proceeds
an amount equal to the then outstanding principal balance of the Loan and
accrued interest thereon to be applied toward the prepayment of the outstanding
principal balance of the Loan, and accrued interest thereon, and retain from
said proceeds an additional amount equal to the Prepayment Charge on the
principal amount prepaid from said proceeds and any costs and expenses incurred
by the Lender in connection therewith, and in the event there is any excess
proceeds after such prepayment, such excess shall be paid to the Borrowers or
their designee. In such event, the Prepayment Charge shall be waived by the
Lender.
4.0 WARRANT.
At the Closing Childrobics shall execute and deliver to the Lender, for
a purchase price of Ten ($10.00) Dollars, a warrant (the "Warrant") in the form
annexed hereto, made a part hereof and marked Exhibit 4, representing the right
to purchase 5,000,000 shares of common stock Childrobics on a fully-diluted
basis (the "Warrant Shares") at any time on or before September 30, 2003 at an
aggregate exercise price of $100.00.
5.0 USE OF PROCEEDS.
5.1 Purpose. The proceeds of the Loan shall be used by the Borrowers
solely for paying the Non-Compete Consideration, the Initial Termination Fee,
the Management Loans, a portion of the Operating Debt, the finder's fees set
forth in Exhibit 6.17 hereof, closing costs, and for working capital, all in
accordance with Exhibit 5.1 annexed hereto, and for no other purposes.
5.2 Compliance with Small Business Administration.
(a) The Borrowers acknowledge that the Lender is a federally
licensed small business investment company and is subject to the regulations
promulgated by the U.S. Small Business Administration relating to the small
business investment company program (the "Regulations"). The Regulations
prohibit certain uses of proceeds of loans made by small business investment
companies, as follows: (i) personal use of loan proceeds by shareholders,
officers, and employees of the Borrowers; (ii) any relending or reinvestment of
loan proceeds, if the Borrowers' primary business activity involves, directly or
indirectly, providing funds to others; the purchasing of debt obligations;
factoring; or long-term leasing of equipment with no provision for maintenance
or repair; (iii) purchasing any stock in or providing capital to any small
business investment company; (iv) making any real estate purchases if the
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Borrowers are classified under Major Group 65 of the Standard Industrial
Classification Manual, unless such transaction would otherwise be exempt by
virtue of Section 720(c) of the Regulations; (v) any use of proceeds that is
contrary to the public interest, including, but not limited to, activities which
are in violation of law, or inconsistent with free competitive enterprise; or
(vi) foreign investment and use outside the United States, except as permitted
under Section 720(g) of the Regulations.
(b) The Borrowers, therefore, jointly and severally, covenant
and agree that no portion of the Loan proceeds shall be used for any of the
foregoing prohibited purposes or for any purpose not expressly permitted in
paragraph 5.1 above, and that any prohibited use of any portion of the Loan
proceeds shall constitute a material breach of this Agreement and shall,
notwithstanding any other provision hereof to the contrary, at the option of the
Lender all amounts owing hereunder and under the Notes shall become immediately
due and payable upon written notice to the Borrowers.
(c) The Borrowers further jointly and severally covenant and
agree to execute, acknowledge and deliver to the Lender within ninety (90) days
from the Closing Date such additional documentation and proof as shall be
reasonably required by the Lender to evidence and establish to the reasonable
satisfaction of the Lender that the Loan proceeds were used solely and
exclusively for the purposes set forth in paragraph 5.1 hereof. The failure of
the Borrower to fully comply with this provision shall constitute an Event of
Default under this Agreement.
6.0 REPRESENTATIONS AND WARRANTIES OF THE BORROWERS.
The Borrowers, jointly and severally, represent, warrant and agree as
follows:
6.1 Corporate Existence.
(a) Childrobics is a corporation duly organized, validly
existing and in good standing under the laws of the State of New York;
(b) JK Acquisition is and shall be upon completion of the
merger in accordance with the Merger Agreement, a corporation, duly organized,
validly existing and in good standing under the laws of the State of New York,
having the name Just Kiddie Rides, Inc.;
(c) JKR is immediately prior to its merger into JK
Acquisition, a corporation, duly organized, validly existing and in good
standing under the laws of the State of New York;
(d) Amusement is a corporation duly organized, validly
existing and in good standing under the laws of the State of New York;
(e) Group Coin is a corporation duly organized validly
existing and in good standing under the laws of the State of New York;
(f) Turnpike is a corporation duly organized, validly
existing and in good standing under the laws of the State of New York;
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(g) Tunnels & Tubes is a corporation duly organized, validly
existing and in good standing under the laws of the State of New York.
6.2 Corporate Authority. The Borrowers are each duly authorized and
empowered to execute and deliver this Agreement, the Notes, the Warrant and all
documents required of the Borrowers hereunder, to the Lender. All corporate
action on each of the Borrowers' part required for the due creation, issuance,
execution and delivery of this Agreement, the Notes, the Warrant, and all other
documents required hereunder have been duly and effectively taken. This
Agreement is, and the Notes and all other required documents when executed and
delivered in connection herewith, will be, legal, binding, valid and enforceable
obligations of the Borrowers. The Borrowers each have the corporate power to own
their properties and to carry on their respective businesses and are qualified
and in good standing in each jurisdiction in which the character of the
properties owned by them therein or in which the transaction of their respective
business makes such qualification necessary.
6.3 Subsidiaries. JK Acquisition, Amusement, Group Coin, Turnpike and
Tunnels & Tubes are each wholly-owned subsidiaries of Childrobics and upon
completion of the merger in accordance with the Merger Agreement, JKR shall be a
wholly-owned subsidiary of Childrobics.
6.4 Capitalization.
(a) The authorized capitalization of Childrobics is 25,000,000
shares of common stock, $.01 par value per share, of which 5,355,000 shares are
issued and outstanding.
(b) The authorized capitalization of JKR is 200 shares, having
no par value, of which 200 shares are issued and outstanding and are held by
Childrobics.
(c) The authorized capitalization of Turnpike is 200 shares,
having no par value, of which 1 share is issued and outstanding and are held by
Childrobics.
(d) The authorized capitalization of Amusement is 200 shares,
having no par value, of which 1 share is issued and outstanding and are held by
Childrobics.
(e) The authorized capitalization of Group Coin is 200 shares,
having no par value, of which 1 share is issued and outstanding and are held by
Childrobics.
(f) The authorized capitalization of Tunnels & Tubes, Inc. is
200 shares, having no par value, of which 1 share is issued and outstanding and
are held by Childrobics.
6.5 Childrobics Financial Statements. Annexed hereto as Exhibit 6.5 are
true and complete copies of the internally generated unaudited consolidated
balance sheets, statements of income and retained earnings or losses and
statements of changes in financial position of Childrobics, Turnpike, Amusement,
Group Coin and Tunnels & Tubes for the twelve (12) month period ended June 30,
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1996 (the "Childrobics Financial Statements"). The Childrobics Financial
Statements have been prepared in accordance with GAAP, and to the best knowledge
of Childrobics, are true and accurate in all respects and fairly represent the
consolidated financial condition of Childrobics and its subsidiaries as at the
date and for the periods to which they apply.
6.6 JKR Financial Statements. Annexed hereto as Exhibit 6.6 are true
and complete copies of the reviewed balance sheet, statement of income and
retained earnings or losses and statements of changes in financial position of
JKR for the twelve (12) month period ended September 30, 1995, prepared by Ernst
& Young LLP, the independent certified public accountant regularly employed by
JKR (the "JKR Financial Statements"). The JKR Financial Statements have been
prepared in accordance with GAAP and to the best knowledge of JKR, are true and
accurate in all respects and fairly represent the financial condition of JKR as
at the date and for the periods to which they apply.
6.7 Borrowers' Liabilities. As at the Closing, except as set forth in
Exhibit 6.7 hereof, other than the Loan, the Borrowers have no material
obligations or liabilities (contingent or otherwise) which were not fully
reflected in the aforesaid financial statements of Childrobics and JKR,
respectively, including without limitation, any tax liability (a) incurred in
respect of or measured by the income of Childrobics and/or JKR for any period
prior to the Closing or (b) arising out of the merger in accordance with the
Merger Agreement or any state of facts existing prior thereto.
6.8 Litigation. Except as set forth in Exhibit 6.8 hereof, there are no
actions, suits, proceedings or arbitrations pending or threatened against or
affecting the Borrowers or their respective officers or directors in law or in
equity by any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, or
any Person, which involve or involves the possibility of any judgment or
liability which may result in any material adverse change in the business,
properties or assets or in the present or proposed operation or condition,
financial or otherwise of the Borrowers, nor does there exist any ground for any
such action, suit or proceeding.
6.9 Actions Affecting Validity. There are no claims, actions, suits or
proceedings pending or threatened which would raise any questions as to the
validity of any provision of this Agreement, or of any action to be taken by the
Borrowers in connection with this Agreement.
6.10 No Violations. The Borrowers have complied with all federal,
state, municipal or other laws, ordinances and regulations applicable to them
and their respective businesses in all material respects, including, without
limitation, all securities laws and regulations. The execution of this Agreement
and the other documents required hereunder and compliance with the provisions
thereof will not violate any provisions of any applicable law or regulation of
any governmental body having jurisdiction, or of the Certificate of
Incorporation or By-Laws of the Borrowers and will not conflict with or result
in any breach of any of the terms, conditions or provisions of, or constitute a
default in any loan agreement, mortgage, security agreement, promissory note or
other instruments or agreements to which the Borrowers are a party, nor cause
the
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acceleration of any obligation whatsoever, except where such conflict or breach
will not have a materially adverse effect on the Borrowers.
6.11 Taxes Paid. Except as set forth in Exhibit 6.11 hereof, each of
the Borrowers has filed all tax returns which are required to be filed and have
paid or made provisions for the payment of all taxes which may become due
pursuant to said returns or pursuant to any bill or assessment received by them.
No tax liability has been asserted by the Internal Revenue Service or other
taxing agency, federal, state, municipal or foreign, for taxes in excess of
those already provided for, and the Borrowers do not know of any basis for any
such deficiency assessment.
6.12 Truth of Statements. Neither this Agreement nor the certificates,
statements or exhibits attached hereto or provided to the Lender by the
Borrowers in connection with the transaction contemplated hereby, contain any
untrue statements or omit to state any material fact necessary in order to make
the statements contained therein not misleading. There is no fact within the
special knowledge of the Borrowers which materially adversely affects or in the
future may (so far as the Borrowers may now foresee) materially adversely affect
the business, properties, assets or conditions, financial or otherwise, of the
Borrowers which has not been set forth herein, or in a certificate, statement or
exhibit furnished to the Lender by the Borrowers.
6.13 Change in Financial Condition. Except as set forth in Exhibit 6.13
hereof, since the date of the Financial Statements referred to in paragraphs 6.5
and 6.6 hereof, there have not been: (a) any material changes in the respective
financial conditions, assets, liabilities and obligations (contingent or
otherwise), business or properties of Childrobics and JKR, other than changes in
the ordinary course of business, none of which have been materially adverse; (b)
any material liability or obligations (contingent or otherwise) incurred by
Childrobics and JKR other than current liabilities incurred in the ordinary
course of business, none of which have been materially adverse, nor have any
assets of Childrobics or JKR been subjected to any Lien of any kind, except as
would be permitted under this Agreement, nor has any debt or claim of
Childrobics or JKR been cancelled or right of substantial value waived; (c) any
declaration or payment of any dividend or other distribution in respect of the
capital stock of Childrobics and JKR or any direct or indirect redemption or
acquisition of such stock or loans to stockholders of Childrobics and JKR,
except as contemplated by the Merger Agreement; (d) any increases in, or
commitments made or outstanding for the increase of, salaries, fees or other
forms of compensation, direct or indirect, to any of the officers, directors or
stockholders of Childrobics or JKR or to any members of their respective
families which shall be binding on the Borrowers. except pursuant to a certain
employment agreement between Childrobics and Reda (the "Employment Agreement")
entered into in connection with the Merger Agreement; (e) any bonuses paid or
incurred by Childrobics or JKR and no commitments made or outstanding for any
such bonuses to any of the Borrowers' officers, directors or stockholders or any
members of their respective families; (f) any purchases or other acquisition, or
any direct or indirect redemption by Childrobics or JKR or any issuance by it of
its common shares or any authorization or effectuation of any split-up, merger
or recapitalization of it or any commitment therefor, except as contemplated by
the Merger Agreement; (g) any capital expenditures and any commitments for
capital expenditures by Childrobics or JKR in excess of an
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aggregate of $50,000; (h) any other material transactions by Childrobics or JKR,
except in the ordinary course of business.
6.14 Bankruptcy. The Borrowers have never been in bankruptcy or made an
assignment for the benefit of creditors, nor have they ever been a party in any
other proceedings, reorganization or otherwise arising out of its or their
inability to pay debts and meet obligations within the last three (3) years.
6.15 Creditors' Rights. The respective rights of the creditors of the
Borrowers are not improperly or illegally impaired or infringed upon by this
Agreement, by any of the documents to be delivered pursuant hereto, by any
performance required hereunder, or by the Merger Agreement.
6.16 Defaults. There exists as of the date hereof no condition or event
which, with the giving of notice or the lapse of time or both, would constitute
an Event of Default under this Agreement.
6.17 Finders' Fee. Except as set forth in Exhibit 6.17 hereof, the
Borrowers have not dealt with any person who is entitled to receive a finder's
fee or broker's fee, commission or other consideration in connection with or
arising out of the Loan or any other transaction contemplated by this Agreement.
6.18 Governmental Approval. No action, consent or approval of, or
registration or filing with, or any other action by any government agency,
bureau, commission or court, whether of the United States or any foreign
country, including, without limitation, the Securities and Exchange Commission,
is necessary or required in connection with the execution, delivery and
performance of this Agreement and all other documents executed and delivered in
connection herewith by the Borrowers.
6.19 Employee Benefit Plans. The Borrowers are in compliance in all
material respects with the applicable provisions of the Employee Retirement
Income Security Act of 1974 ("ERISA") and the regulations and published
interpretations thereunder. No reportable event (as defined in ERISA) has
occurred with respect to any Plan administered by the Borrowers or any
administrator designated by the Borrowers.
6.20 Options, Warrants. Except as set forth in Exhibit 6.20 hereof,
other than the warrant and the Options issued pursuant to the Termination
Agreement, Childrobics has not granted or issued any options, warrants,
subscription rights, conversion rights or any other rights to acquire any shares
of its capital stock of any class or series.
6.21 Hazardous Substances. The Borrowers are not parties to, or the
subject of, any proceeding, suit, investigation, judgment or decree relating to
environmental laws or regulations or to laws or regulations dealing with the
storage, discharge or clean up of any "Hazardous Substances" (as hereinafter
defined), and each of the Borrowers have complied in all material respects with
all such laws and regulations; and to the best of their respective knowledge
there has been no storage or discharge of any hazardous waste or substance upon
the Borrowers' premises. As used herein, "Hazardous Substances" shall mean any
substance or material defined or designated as hazardous or toxic waste,
hazardous or toxic material, hazardous or toxic substance, or other similar
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term, by any federal, state or local environmental statute, regulation or
ordinance presently in effect or hereafter promulgated, as such statutes,
regulations and ordinances may be amended from time to time.
6.22 Employment Agreements. Other than the Employment Agreement, a copy
of which is annexed hereto as Exhibit 6.22, together with a description of the
consulting agreements between Childrobics and Conrad Gunther and Douglas Fox
both dated as of October 1, 1996, Childrobics is not a party to any employment
or consulting agreements with any present, future or former employees, which in
any way obligate the Borrowers to employ or compensate any Person, and the
Borrowers are not obligated to pay any compensation or bonuses or provide any
employee benefits to Reda, except as provided in the Employment Agreement.
6.23 Labor Difficulties. (a) None of the Borrowers is engaged in any
unfair labor practice and the each Borrower is in compliance in all material
respects with all applicable-federal, state and local laws, regulations, rules,
orders or other requirements respecting employment practices, terms and
conditions of employment and wages and hours, (b) there is no pending or
threatened unfair labor practice complaint against any of the Borrowers before
the Labor Relations Board, (c) there is no strike; labor dispute, slow-down or
stoppage actually pending or threatened any of the Borrowers (d) no union
representation question exists respecting the employees, or any group of
employees, of the Borrowers, (e) no grievance which might have an adverse effect
on the Borrowers or the conduct of its business, nor any arbitration proceeding
out of or under collective bargaining agreements is pending, and no claims
therefor exist, (f) no collective bargaining agreement which is binding on the
Borrowers, if any, restricts the Borrower from relocating or closing any office,
warehouse or any other facility being used by the Borrowers, (g) no collective
bargaining agreement which is binding on any of the Borrowers requires the
accretion of any other location to the bargaining unit covered by such
collective bargaining agreements, (h) none of the Borrowers have within the past
twelve (12) months experienced any material work stoppage or other material
labor difficulty at any office, location, warehouse or other facility, and (i)
there are no claims, complaints or charges against any of the Borrowers pending
before any state or federal agency concerning employment penalties, including
without limitation, employment discrimination, retaliatory discharge and wage
and hour claims.
6.24 Small Business Concern. Each of the Borrowers qualifies as a
"small business concern" as that term is defined in the Small Business
Investment Act of 1958, as amended, and in the regulations of the Small Business
Administration promulgated thereunder.
6.25 No Relationship Between Parties. None of the Borrowers are owners
of any shares of capital stock of the Lender or any participating lender, and no
officer, director or shareholder of the Borrowers, or any close relatives of an
officer, director or shareholder of the Borrowers is an officer or director of
the Lender or any participating lender or owns any shares of their capital
stock.
6.26 No Discrimination. The Borrowers do not in any manner or form
discriminate, foster discrimination or permit discrimination against any Person
belonging to any minority race or believing in any minority creed or religion.
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7.0 CONDITIONS PRECEDENT.
The Closing of the Loan shall be subject to the prior or simultaneous
occurrence of the following conditions:
7.1 Corporate Documentation.
(a) The Lender shall have received from the Borrowers all
documents reasonably requested by the Lender relating to the their existence and
good standing in each of the jurisdictions in which they are incorporated or
qualified to do business.
(b) The Lender shall have received a duly executed Certificate
of Merger in accordance with the Merger Agreement, together with an original
Filing Receipt issued by the Secretary of State of the State of New York
evidencing the filing and effective date of the Certificate of Merger, or a
certified copy of the Certificate of Merger, together with the stamp of the
Secretary of State evidencing its filing.
7.2 Corporate Resolutions. The Lender shall have received the
resolutions of the boards of directors of each of the Borrowers, certified by
their respective secretaries, in form and substance satisfactory to the Lender
and its counsel, approving in all respects the transaction contemplated by the
Merger Agreement, as relates to JKR and Childrobics, and resolutions of the
board of directors of each of the Borrowers certified by its respective
secretary approving in all respects the Loan contemplated by this Agreement and
authorizing the appropriate officers of the Borrowers to issue, execute and
deliver the Notes, the Warrant, and any and all other documents required or
contemplated by this Agreement or deemed to be reasonably necessary by the
Lender or its counsel.
7.3 Officers' Certificates. The Lender shall have received a
certificate or certificates of the President and Secretary of each of the
Borrowers, dated the Closing Date, to the effect that:
(a) The representations and warranties of the Borrowers are
true and correct in all material respects at and as of the Closing Date, except
as disclosed to the Lender in writing, and as to such exceptions, the Lender
shall have consented thereto in writing; and
(b) The Borrowers have performed all agreements and conditions
herein contained to be performed prior to the Closing Date, except as disclosed
to the Lender in writing, and as to such exceptions, the Lender shall have
consented thereto in writing; and
(c) The Borrowers have not incurred any material liabilities,
direct or contingent, except as otherwise referred to herein.
7.4 Certificate of Incumbency. The Lender shall have received a
certificate of incumbency from each of the Borrowers for its officers in a form
and substance satisfactory to the Lender and its counsel.
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7.5 Legal Opinion. The Lender shall have received the opinion of
counsel to the Borrowers, which shall be reasonably satisfactory in form, scope
and substance to the Lender and its counsel as to the Borrowers' legal existence
and good standing in the state of their incorporation and each state in which
they are qualified to do business, the description of all authorized, issued and
unissued shares of capital stock of all classes and series of the Borrower and
any warrants or options for the purchase of the Borrowers' shares, the taking of
all necessary and proper corporate and other action by the Borrowers to
authorize the entry into and the performance of the loan transaction, the due
execution and delivery by, and legality, validity and enforceability against the
Borrowers of all documents relating to the Loan, including, without limitation,
this Agreement, the Notes, and the Warrant, and such other matters as the Lender
or its counsel may reasonably request.
7.6 Change in Financial Condition. No material adverse change shall
have occurred in or effecting the financial condition, business operations of
the Borrowers.
7.7 Litigation. No litigation, arbitration or other proceedings against
the Borrowers which the Lender deems material to the Loan relating to the
business or the financial condition or otherwise of the Borrowers shall be
pending or threatened.
7.8 Financial Statements. The Lender shall have received the Financial
Statements of Childrobics and JKR.
7.9 Absence of Default. No Event of Default or event which with the
giving of notice or lapse of time or both would become an Event of Default under
this Agreement shall have occurred and be continuing.
7.10 Casualty and Liability Insurance. The Lender shall have received
policies of all risk, fire and casualty insurance for the assets of the
Borrowers in amounts and with coverages written by companies reasonably
satisfactory to the Lender. The insurance policies shall include: agreed amount
and 100% replacement cost endorsements in excess of any self-insured amounts;
all-risk coverage equal to the full insurable value of the assets of the
Borrowers in excess of any self-insured amounts; public liability coverage in an
amount acceptable to the Lender; and flood hazard coverage satisfactory to
Lender, if any of the Borrowers' property is located in a Federal Flood Hazard
Zone.
7.11 The Notes. The Borrowers shall have issued, executed and delivered
the Notes to Sterling, Norwood and Vega, respectively.
7.12 Warrant. Childrobics have executed and delivered to the Lender the
Warrant.
7.13 Collateral Assignment of Life Insurance Policies. The Borrowers
shall have delivered to the Lender the Collateral Assignment of Life Insurance.
7.14 Other Documents and Matters. The Borrowers shall have executed and
delivered to the Lender all documents reasonably required by the Lender for the
U.S. Small Business Administration, and all other instruments and documents
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which form a part of the Loan or are required pursuant to this Agreement. All
legal matters incident to the Loan transaction contemplated by this Agreement
shall be reasonably satisfactory to Lawrence and Walsh, P.C., counsel to the
Lender.
8.0 AFFIRMATIVE COVENANTS.
The Borrowers, jointly and severally, covenant and agree that:
8.1 Payment of Loan. The Borrowers will duly and timely pay the
principal and interest due under the Notes on the dates and in the manner
provided in this Agreement and in the Notes.
8.2 Taxes, Trade Obligations. The Borrowers will in the normal course
of business in a timely manner pay and discharge all taxes, assessments,
governmental charges and levies imposed upon it, upon its real and personal
property, and upon its incomes and profits; pay when due all lawful claims for
liabilities, which, if unpaid, would by law be or become a Lien upon the
property of the Borrowers or lead to the suspension of the business of the
Borrowers, and all claims for amounts due for merchandise, labor, materials or
supplies; provided, however, that nothing herein shall require the Borrowers to
make any such payment or compliance so long as it, after written notice to the
Lender, in good faith and by appropriate proceedings diligently conducts or
contests its obligation so to do and such reserve as shall be required by GAAP
shall have been made therefor, and if such contest will not result in the
forfeiture or loss of any property of the Borrowers; provided further, that the
Borrowers will pay any such tax, assessment, charge, levy or claim forthwith
upon commencement of any proceedings to foreclose any Lien with respect thereto
on any of its property, unless the same is contested in the manner set forth
herein or is bonded in a manner reasonably satisfactory to the Lender.
8.3 Conduct of Business. The business of the Borrowers will be
continuously carried on and conducted in substantially the same general
character and line of business in which it is presently engaged, and no license,
lease, permit or patent or other authorization, pursuant to which the business
of the Borrowers operates will be allowed to lapse or be forfeited so long as
the same shall be necessary for the carrying out of such business.
8.4 Insurance.
(a) Except to the extent that any item of the Borrower's
equipment is self-insured up to a maximum amount of $100,000 per item, the
Borrowers will keep their properties, their respective buildings, plants,
warehouses, equipment, machinery, materials, supplies, merchandise, inventories,
fixtures, trucks and other vehicles, leasehold improvements and other tangible
property of insurable character insured by reputable companies against loss or
damage by fire and explosion and other causes ordinarily included within the
term "extended coverage" in amounts sufficient to prevent the Borrower from
becoming the co-insurer within the terms of the insurance policies covering such
risks, and in any event in amounts not less than one-hundred (100%) percent
replacement value of the property insured as established periodically by
standard insurance appraisals. The Borrowers will also maintain insurance in
reputable insurance companies and in amounts satisfactory to the Lender against
loss or damage from
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all other hazards and risks commonly insured against by companies engaged in the
same or similar business or similarly situated.
(b) A schedule of all insurance of the Borrowers, is set
forth in Exhibit 8.4 hereof.
8.5 Repairs. The Borrowers will keep their business property in good
repair, working order and condition, and from time to time will make all needed
and proper repairs, renewals, replacements, extensions, additions, betterments
and improvements thereto, required for the normal conduct of its business in
accordance with prudent business management, to the extent that it is not
precluded from so doing because of any law or regulations of governmental
authority or any other reason beyond their control.
8.6 Financial Statements; Security Filings. The Borrowers will:
(a) Deliver to the Lender an unaudited consolidating
(including all subsidiaries) quarterly balance sheet and profit and loss
statement of Childrobics on or before forty five (45) days after the end of each
month, for the previous quarter, and audited consolidating year-end balance
sheet, statement of profit and loss and statement of changes in financial
position for Childrobics within ninety (90) days after the last day of each
fiscal year for the fiscal year then ended, each prepared in reasonable detail
in accordance with GAAP consistently applied in reasonable detail by a reputable
firm of independent certified public accountants, acceptable to the Lender in
the exercise of its reasonable discretion.
(b) Deliver to the Lender promptly after a written request
therefor, such other financial data or information evidencing compliance with
the requirements of this Agreement as it may reasonably request from time to
time.
(c) Deliver to the Lender at the same time it delivers the
financial statements required under the provisions of Subdivision (a) hereof, a
certificate signed by the President of each of the Borrowers, to the effect that
no "Event of Default" hereunder or under any other agreement to which the
Borrowers are parties or by which they are bound, has occurred and specifying in
reasonable detail the exceptions, if any, to such statement.
(d) Deliver to the Lender a certificate of the independent
certified public accountants employed by Childrobics stating that during the
course of their audit of the operations of the Borrowers and their financial
condition as at the end of the fiscal year, nothing has come to their attention
which would indicate that there was any violation of the covenants of the
Borrowers contained in this Agreement.
(e) Promptly upon receipt thereof, deliver to the Lender
copies of all other reports, submitted to the Borrowers by its independent
accountants in connection with any annual or interim audit of the books of the
Borrowers made by such accountants.
(f) Deliver to the Lender copies of all annual reports
(Form 10K) and quarterly reports (Form 10Q) and current reports (Form 8K)
required to be
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filed by Childrobics with the Securities and Exchange Commission pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 within fifteen (15)
days of the date such reports are required to be filed.
8.7 Access to Property and Records. The Borrowers will maintain
financial records in accordance with GAAP, and permit representatives of the
Lender to have reasonable access to such financial records and the premises and
property of the Borrowers at reasonable times and as often as the Lender may
reasonably request, and to make such excerpts from such records as such
representatives deem necessary, so long as the business operations of the
Borrowers are not materially disrupted.
8.8 ERISA Reports. The Borrowers will comply in all material respects
with the provisions of ERISA and the regulations and published interpretations
thereunder and furnish to the Lender as soon as possible and in any event within
30 days after any officer of the Borrowers knows that any "Reportable Event" as
defined in ERISA with respect to any Plan has occurred, a statement of the chief
financial officer of the Borrowers setting forth details as to such Reportable
Event and the action which the Borrowers propose to take with respect thereto.
8.9 Litigation Notice. Each of the Borrowers will promptly, within
forty eight (48) hours of it obtaining knowledge thereof, give the Lender
written notice of any action, suit, proceeding or arbitration at law or in
equity or by or before any governmental instrumentality or other agency
commenced against it or against any person, which, if determined adversely,
could be expected to materially impair the right to carry on its business
substantially as now conducted or would materially and adversely affect its
business, operations, properties, assets or condition, financial or otherwise,
and shall include with such notice a copy of the summons and complaint or other
pleadings served upon or coming into possession of the Borrower, or in the event
no pleadings are available, a detailed written description of the action or
proceeding.
8.10 Defense of Litigation. The Borrowers shall diligently defend any
action and proceeding for which they have or are required to give notice to the
Lender pursuant to paragraph 8.9 hereof.
8.11 Notice of Adverse Developments. Each of the Borrowers will
promptly and in any event within fifteen (15) days after the knowledge thereof
by its officer notify the Lender in writing of any information coming to its
attention which indicates that any financial statements which are the subject of
any representations contained in this Agreement, or which are furnished to the
Lender pursuant to this Agreement, fail to a material extent to present fairly
the financial condition and results of operations purported to be presented
therein, disclosing the nature thereof.
8.12 Expenses of the Lender. The Borrowers shall pay, or reimburse the
Lender at the Closing for, all reasonable legal fees, expenses and disbursements
of Lawrence and Walsh, P.C., counsel to the Lender, incurred in connection with
the negotiation, preparation, execution and delivery of this Agreement and other
instruments and documents required hereunder, including without limitation,
expenses for searches, recording and filing fees and taxes, photocopying,
postage, messenger and delivery services, telephone, telecopy and other usual
disbursement charges.
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8.13 Indemnification. The Borrowers agree to indemnify and hold the
Lender and its officers, directors, employees, agents and participating lenders
harmless from and against all actions, suits, proceedings, investigations
(administrative or judicial and whether or not the Lender is named as a party),
claims, groundless or otherwise, losses, liabilities and expenses (including,
without limitation, counsel fees) arising out of or relating to the Loan or any
transaction referred to in this Agreement, whether or not the transactions
contemplated hereunder are consummated, including, without limitation, any
claims of brokers or finders for any commission or fee in connection with the
Loan, except that this indemnification shall not apply to any liability incurred
by the Lender to the Borrowers, or incurred to any Person as a result of the
breach of this Agreement, the breach of any fiduciary duty, the failure to act
in good faith or the gross negligence or willful misconduct of the Lender, its
officers, directors, employees, agents and participating lenders.
8.14 Further Assurance. The Borrowers will, whenever and as often as
they shall be requested to do so by the Lender, execute, acknowledge and
deliver, or cause to be executed, acknowledged an delivered, any and all further
instruments that may be necessary and expedient in order to consummate the
transaction contemplated by this Agreement and do any and all further acts and
things that may be necessary or expedient in order to carry out the purpose and
intent of this Agreement.
8.15 Notice of Invitation to Attend Meetings; Copies of Minutes.
Childrobics shall deliver to the Lender notice of, and an invitation to attend
or send a representative to attend, each meeting of its shareholders, its Board
of Directors, and its Executive and Finance Committees, if any, at least five
(5) business days (less notice in the event of emergency) prior to each such
meeting. Each such notice shall set forth the nature of the business to be
brought before the meeting. Childrobics will also deliver by mail to the Lender,
on a confidential basis, copies of all notices and agendas of such meetings,
minutes thereof, all documents relating thereto, and all material prepared for
directors (financial reports, surveys and the like) immediately after the
preparation thereof, as well as notices of all shareholders meetings and, if the
Lender requests, minutes of such meetings. Childrobics will reimburse the Lender
for its expenses incurred in attending any such meetings in the event any such
meetings are held outside the New York metropolitan area. Childrobics agrees
that it will hold at least four meetings of its Board of Directors during each
fiscal year at approximately three month intervals.
8.16 Reserve Shares for Issuance. Childrobics shall at all times take
such action as may be necessary to reserve and keep available, during the time
that the Warrant is outstanding, such portion of its authorized shares of common
stock, free from preemptive rights, as shall be required for issuance and
delivery of the Warrant Shares upon the exercise of the Warrant.
8.17 Payment of Shareholder Notes. The repayment of the Loan and
the payment of the Shareholder Notes shall be of equal priority and shall both
be paid by the Borrowers on a pari passu basis.
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9.0 NEGATIVE COVENANTS.
The Borrowers, jointly and severally, covenant and agree that:
9.1 No Dividends. Unless and until the Borrowers' annual net pre-tax
earnings as set forth in the year-end audited financial statements delivered to
the Lender in accordance with paragraph 8.6(a) hereof are equal to or greater
than $1,600,000 for two (2) consecutive years, the Borrowers will not declare or
pay in cash or in kind, any dividend or make any distribution with respect to
its capital stock, or directly or indirectly, redeem, purchase or retire or
otherwise acquire for value any shares of its capital stock, except that the
Borrowers may redeem the capital stock held by the estate of a deceased
shareholder provided it utilizes the proceeds of the Life Insurance Policy
covering the life of the deceased shareholder to the extent such proceeds exceed
the sum retained by the Lender pursuant to paragraph 3.
9.2 No Liens.
(a) Other than the Liens set forth in Exhibit 9.2 hereof,
except as otherwise provided or contemplated in subparagraph 9.2(b) hereof, the
Borrowers will not create, assume or permit a Lien of any kind upon any of its
property or assets, of any character, whether now owned or hereafter acquired,
or acquire property under a deferred payment or installment arrangement, except
in the ordinary course of business; transfer any property or asset for the
purpose of subjecting the same to the payment of any obligation in priority to
payment of its general creditors; suffer to exist for a period of more than
ninety (90) days any indebtedness, liability, claim or demand which, if unpaid,
might in the hands of any Person be given a priority over the claims of its
general creditors upon bankruptcy, insolvency or otherwise, except that the
foregoing restrictions shall not apply to:
(i) Liens or judgments or awards in force less than
thirty (30) days or in respect of which an appeal or proceeding for review
is pending and a stay of execution shall have been secured;
(ii) Attachments discharged or bonded within thirty
(30) days from the making thereof;
(iii) Liens for taxes, assessments or other
governmental charges, if payment of, or indemnity for, the same shall not
at any time be required to be made in accordance with the provisions of this
Agreement;
(iv) Liens for city, county and state taxes
assessed, but not yet due;
(v) Liens and deposits in connection with workmen's
compensation, unemployment insurance, old age pensions or other social security
and statutory obligations and surety and appeal bonds;
(vi) Liens of vendors, carriers, warehousemen,
mechanics, laborers and materialmen, incurred in the ordinary course of
business for sums not then due or being contested in good faith, if a reserve
as shall be required by GAAP shall have been made there for;
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(vii) Liens for purchase money security interests for
equipment actually received by the Borrowers.
(b) Notwithstanding the provisions of subparagraph 9.2(a) to
the contrary,
(i) in the event any equipment of the Borrowers is
released from the security interests in such equipment held by Betson
Enterprises, Inc. ("Betson") or Firestone Financial Services ("Firestone"), as
set forth in Exhibit 9.2, then the Borrowers may grant a new security interest
in such equipment as collateral for a new loan made by Betson, Firestone or any
other institutional lender; and
(ii) in the event the Borrowers are able to obtain
refinancing of the present indebtedness to European American Bank ("EAB"), the
Borrowers may grant a security interest in all or any portion of its assets to
EAB or another commercial bank or other institutional lender as collateral for
such financing; provided, however, that the Borrowers first obtain the prior
written consent of the Lender, which will not be unreasonably withheld.
9.3 No Judgments. The Borrowers will not suffer or permit any judgment
or order entered against it to remain of record and unsatisfied for a period in
excess of twenty (20) days, unless an appeal of such judgment or order is timely
filed and a stay of enforcement thereof is obtained during the pendency of the
appeal; provided, however, that in the event the judgment or order is affirmed
or sustained on appeal, the Borrower(s) shall satisfy and remove the same of
record within twenty (20) days following the decision of appeal.
9.4 Purchase of Assets. The Borrowers will not purchase or otherwise
acquire any fixed asset at a cost of and requiring payment in excess of $100,000
for any single asset nor at an aggregate cost in excess of $3,000,000 in any
twelve (12) month period, including, without limiting the generality thereof,
buildings, equipment, machinery and other fixtures, whether by way of renewal or
replacement or as an addition, betterment or improvement, without the prior
written consent of the Lender.
9.5 Sale of Assets. The Borrowers will not sell, lease, transfer,
assign, or otherwise dispose of any portion of their property and assets, real
and personal, tangible and intangible, now owned or hereafter acquired, whether
in one or more transactions, except in the ordinary course of business, or in
connection with the exchange or replacement of obsolete machinery or equipment,
without the prior written consent of Lender in each instance, or the sale of the
Borrower's play centers located in Boca Raton and Boynton Beach, Florida for an
aggregate price of not less than $250,000.
9.6 Consolidation, Merger, Acquisition. Other than the merger under the
Merger Agreement, the Borrowers will not consolidate or merge with or into any
other corporation or permit any other corporation to consolidate with or merge
into it, without the prior written consent of the Lender, which consent shall
not be unreasonably withheld or delayed, except that the Lender will consent to
any such transaction if the consideration paid has a value of $100,000 or less
for any one transaction and the consideration paid for all such transactions in
any twelve (12) month period does not exceed $500,000. The acquisition by any
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of the Borrowers, by lease, purchase or otherwise, of all or substantially all
of the assets or capital stock of any corporation shall be deemed a merger of
such corporation with the Borrower(s).
9.7 Securities. Except as otherwise permitted herein, without the prior
written consent of the Lender, the Borrowers will not purchase any shares of
stock, bonds, or other securities, other than short term cash investments in
insured or government issued instruments, or certificates of deposit issued by
an bank, nor make any advances to or investment in any other Person.
9.8 Sale of Stock. Except as otherwise stated herein, the Borrowers
will not issue or sell any of its shares of capital stock, preferred or common,
of any class or series, or issue or grant any warrants, options, subscription
rights, calls or any other rights to purchase the same for a price which is less
than $.50 per share without the prior written consent of the Lender, which
consent in the case of the establishment of an employee and director stock
option plan shall not be unreasonably withheld.
9.9 Amendments to By-Laws. The Borrowers will not amend their
Certificates of Incorporation and/or By-Laws which are in effect as of the
Closing Date in any manner which may adversely affect the Lender's interests
without the prior written approval of the Lender. The Lender hereby expressly
consents to the amendment of the Certificate of Incorporation of Childrobics to
effect a reverse split of the outstanding common stock and to effect a change of
name.
9.10 Loans to Others. The Borrowers will not lend any money to any
Person or guarantee any obligation of any Person, endorse any notes for any
Person, or otherwise in any way become responsible for the obligation of any
Person, except that the Borrowers may guarantee the obligations of its former
subsidiaries, Fun Zone of Wetherfield, Inc., Fun Zones of Staten Island, Inc.,
and Family Fun Centers, Inc. to Firestone, and that nothing herein contained
shall prohibit the Borrowers from making advances to its employees for normal
and reasonable business expenses. Included within the meaning of the foregoing,
without limiting the generality thereof, shall be agreements to purchase
indebtedness, to purchase goods, supplies or services, if the obligation to pay
is absolute regardless of whether or not such goods, supplies or services are
accepted; or purchase or sale agreements which are in the nature of a stock
purchase, capital distribution or agreement to maintain working capital or
otherwise.
9.11 Profit Sharing, Compensation. The Borrowers will not pay any
profit sharing bonus to any employee (except commission sales persons) and shall
not, except with the prior written consent of the Lender, increase the
compensation of the Chief Executive Officer, any director, or beneficial owner
(directly or indirectly) of the Borrowers' capital stock, or of the spouse or
any other member of the family of the Chief Executive Officer, any director or
owner over the rate prevailing on the date of the execution of this Agreement or
as otherwise provided herein. As used herein, the term "compensation" shall
include all salaries, bonuses, stock options, directors' fees, commissions,
retainer, regular drawing accounts and other personal services. Nothing
contained in this provision shall be deemed to prohibit the Borrowers from
filling any vacancy in any office or position through promotion, new employment,
or otherwise at the
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rate of compensation for such officer or position in effect at the date of the
Closing of this Agreement.
9.12 Employment Agreement. The Borrowers will not terminate or take any
action to terminate Reda's employment under the Employment Agreement or
otherwise, with or without cause, and without the prior written consent of the
Lender.
9.13 Violations. The Borrowers will not take any action, or fail to
take any action, which will cause the Borrowers to violate any of its
obligations as defined hereunder.
10.0 EVENTS OF DEFAULT.
All indebtedness due the Lender, together with all accrued interest
thereon and any and all other charges provided for herein, shall become
immediately due and payable at the election of the Lender if any one or more of
the following events (referred to as "Events of Default") shall occur for any
reason whatsoever, and whether such occurrences shall be voluntary, involuntary
or come about or be effected by operation of law, or pursuant to or in
compliance with any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body:
(a) If the Borrowers shall default in the payment of any
installment of principal or interest under any of the Notes when due and
payable, whether at maturity or by notice of intention to prepay or otherwise,
and such default shall continue for a period of ten (10) days.
(b) If default shall be made by the Borrowers in the due and
punctual observance of any of the covenants, conditions or agreement on its part
contained in this Agreement, the Notes, or any other documents or agreements,
executed and delivered in connection with this transaction, except payments due
under the Notes, and any such default shall not be remedied to the satisfaction
of the Lender within twenty (20) days after receipt of written notice by the
Borrowers to remedy the same, or if such default shall be of such a nature that
the same cannot be completely cured or remedied within said twenty (20) day
period, and the Borrowers shall not have diligently commenced curing such
default within said thirty (30) day period, and shall not with due diligence and
in good faith proceed to completely remedy such default.
(c) If default shall occur under the terms of any instrument
other than the Notes or this Agreement, evidencing or securing any debts of the
Borrowers to the Lender or any other Person resulting in the automatic
acceleration of the maturity of such debt and such default shall not be cured or
waived by the obligee, or such default shall cause an automatic acceleration of
the maturity of such debt, or any action shall be taken to accelerate the
maturity of such debt, or if such debt is declared to be due and payable prior
to the expressed maturity thereof, or if any action shall be taken to effect the
collection thereof, or to enforce the security therefor.
(d) If any representation made by the Borrowers in this
Agreement or in any certificate, schedule, exhibit or other document furnished
to the Lender proves to have been untrue in any material respect as of the date
made
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or if the Borrowers shall have omitted to state a material fact necessary to
make the statements of fact contained herein or therein not misleading.
(e) If any of the Borrowers shall be adjudicated a bankrupt,
or if any proceeding against the Borrowers seeking any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
relief under the present or any future federal bankruptcy Act or other
applicable federal, state or other statute, law or regulation shall remain
undismissed or unstayed for an aggregate of ninety (90) days (whether or not
consecutive after the commencement thereof) or any trustee, receiver or
liquidator of any Borrower of all or any substantial part of their properties
shall be appointed without the consent or acquiescence of the Borrower(s) and
such appointment shall remain unvacated or unstayed for an aggregate of ninety
(90) days, whether or not consecutive. The adjudication of the Borrower(s) as a
bankrupt or the application in any action or proceeding (bankruptcy or
otherwise) to stay the enforcement of the Notes shall result in the automatic
acceleration of all indebtedness owed by the Borrowers to the Lender,
notwithstanding the other provisions of this paragraph to the contrary.
(f) If any of the Borrowers shall commit an act of bankruptcy,
or make an assignment for the benefit of creditors, or shall admit in writing
its inability to pay its debts as they become due, or shall file a voluntary
petition in bankruptcy, or shall file any petition or answer seeking any
reorganization, arrangement, composition, adjustment, liquidation, dissolution,
or similar relief under the present or any future federal Bankruptcy Act or
other applicable federal, state or other statute, law or regulation, or shall
seek or consent to or acquiescence in the appointment of any receiver, trustee
or liquidator of all or a substantial part of its properties. The occurrence of
the Event of Default described in this paragraph shall result in the automatic
acceleration of all indebtedness owed by the Borrowers to the Lender.
(g) If one or more final judgments aggregating more than
$50,000.00, not fully covered by the proceeds of any insurance policy, shall be
rendered against the Borrowers shall remain unbonded, undischarged or unstayed
for an aggregate of twenty (20) days, whether or not consecutive, after entry
thereof.
(h) If the Borrowers shall fail to maintain its business in
good standing under the applicable regulations of the agencies or governmental
authorities having jurisdiction thereof, or in the event the business of the
Borrowers shall fail to receive or maintain whatever licenses are required or
shall be required in order for the Borrowers to operate their businesses.
(i) If the Borrowers shall fail to maintain in force and
effect the insurance policies required under this Agreement.
(j) Except as specifically permitted pursuant to this
Agreement, if any of the Borrowers shall sell, transfer or assign its assets,
not in the ordinary course of business, or if any of the Borrowers shall merge
or consolidate with any other corporation or other entity or if any shares of
stock of the Borrowers shall be issued, sold, transferred or assigned, without
the prior written consent of the Lender in each instance.
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11.0 RIGHTS OF THE LENDER.
11.1 The rights, powers, and remedies given to the Lender by this
Agreement shall be in addition to all rights, powers and remedies given to the
Lender by virtue of any statute or rule of law. Any forbearance or failure or
delay by the Lender in exercising any right, power or remedy and any single or
partial exercise of any right, power or remedy hereunder shall not preclude
further exercise thereof and every right, power and remedy of the Lender shall
continue in full force and effect until such right, power or remedy is
specifically waived by an instrument in writing executed by an authorized
officer of the Lender.
11.2 A waiver by the Lender of any right or remedy hereunder on any one
occasion shall not be construed as a bar to any right or remedy that the Lender
would otherwise have had on any future occasion.
11.3 The Lender, except as specifically set forth in this Agreement,
shall be under no duty or obligation whatsoever to make or give any
presentations, demands for performance, notice of non-performance, protests,
notices of protest or notice of dishonor in connection with any obligations or
evidences of indebtedness held by the Lender, or in connection with any
obligation or evidences of indebtedness which constitute in whole or in part,
the indebtedness thereunder.
11.4 The Borrowers specifically waive any right to require the
Lender to:
(a) Proceed against any Person;
(b) Pursue any other remedy in the Lender's power, and waives
any defense arising by reason of any disability or by reason of the cessation
from any cause whatsoever of the liability of the Borrowers. Until all
indebtedness has been paid in full, the Borrowers shall have no right of
subrogation and it waives any right to enforce any remedy which the Lender now
has or may hereafter have against any other Person, and waives any benefit to
any right to participate in any collateral security whatsoever now or hereafter
held by the Lender.
11.5 The Lender reserves the right to proceed against the Borrowers in
such manner and at such times, and in such sequence as the Lender may elect, and
nothing herein contained shall be construed as limiting the Lender's election of
remedies to enforce the collection of the balance due upon an "Event of
Default".
11.6 Until all indebtedness owed by the Borrowers to the Lender shall
have been paid in full, all rights, powers and remedies granted to the Lender
hereunder shall continue to exist and may be exercised by the Lender at any time
and from time to time irrespective of the fact that any claim to recover the
indebtedness or any part thereof may then become barred by any statute of
limitations or that the liability of the Borrowers may have ceased.
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12.0 INCORPORATION BY REFERENCE, CONTRADICTORY TERMS.
Every term in the Notes, the Warrant, and other agreements or documents
delivered in connection with this Agreement or thereafter is deemed incorporated
herein by reference. All rights, remedies and powers granted to the Lender
herein, or in any other instrument or implied by law, shall be cumulative and
may be exercised singly or concurrently with such other rights as the Lender may
have and shall include among others, the right to apply to a court of equity for
an injunction to restrain a breach or threatened breach by the Borrowers. In the
event that any term or condition of any of the documents pertinent hereto
contradicts any term or provision of this Agreement, the rights and the remedies
of the parties hereto shall be governed by the terms and conditions of this
Agreement.
13.0 LENDER'S COSTS AND EXPENSES.
The Borrowers, jointly and severally, agree to pay to the Lender all
costs, expenses and disbursements, including reasonable counsel fees incurred in
connection with, or arising out of, the occurrence of an Event of Default by the
Borrowers hereunder or under the Notes or any other document executed and
delivered in connection with the Loan, whether or not such Event of Default
results in acceleration of the Notes, and the amount thereof shall be added to
the Borrowers' indebtedness to the Lender, shall bear interest at the Interest
Rate, plus seven (7%) percent per annum, or the maximum rate of interest
permitted by law, whichever is lower, until paid in full.
14.0 MISCELLANEOUS.
14.1 Notices and Communications. All notices, exercises of right,
requests, demands and other communications provided for in this Agreement shall
be in writing, and unless otherwise specifically provided for herein shall be
deemed to have been given at the time when mailed at any general or branch
United States post office enclosed in a registered or certified post-paid
envelope, return receipt requested, addressed as follows:
If to the Lender:
Sterling Commercial Capital, Inc.
175 Great Neck Road
Great Neck, NY 11021
Attn: Harvey Granat, President
Norwood Venture Corp.
1430 Broadway, Suite 1607
New York, NY 10018
Vega Capital Corp.
80 Business Park Drive, Suite 201
Armonk, NY 10504
with a copy to:
Lawrence and Walsh, P.C.
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215 Hilton Avenue
P.O. Box 1200
Hempstead, NY 11551-1200
Attn: Lawrence S. Lawrence, Esq.
If to the Borrowers:
Childrobics, Inc.
200 Smith Street
Farmingdale, NY 11735
with a copy to:
Squadron, Ellenoff, Plesent & Sheinfeld, LLP
551 Fifth Avenue
New York, NY 10176
Attn: Josef B. Volman, Esq.
or to such changed address as such party may have fixed by notice; provided,
however, that any change of address shall be effective only upon its receipt:
14.2 Closing Date. Subject to the fulfillment of all of the Conditions
Precedent in accordance with Article 8 hereof, the Closing shall take place at
the offices of Lawrence and Walsh, P.C., 215 Hilton Avenue, Hempstead, New York,
simultaneously with the execution of this Agreement.
14.3 Survival of Covenants, Representations and Warranties. All
covenants, representations and warranties contained herein, or any documents
relating hereto, in any schedule annexed hereto, in the certificates delivered
simultaneously herewith, or prior hereto, shall survive the Closing contemplated
by this Agreement for all purposes until the repayment in full of the Loan;
provided, however, that so long as the Lender is the holder of the Warrant or
not less than 750,000 shares of common stock of Childrobics, the provisions of
paragraphs 8.6(a), 9.6, 9.7, 9.8, 9.9, 9.10 and 9.11 shall survive the repayment
of the Loan until such time as the annual pre-tax earnings of the Borrowers as
set forth in the year-end audited financial statements delivered to the Lender
in accordance with paragraph 8.6(a) hereof are equal to or greater than
$1,600,000 for two (2) consecutive years.
14.4 No Waiver. No course of dealing on the part of the Lender, its
officers, employees or counsel, nor any failure or delay on the part of the
Lender with respect to exercising any right, power or privilege of the Lender
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise by the Lender of any right, power or privilege hereunder preclude any
later or further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies herein and therein provided are cumulative
and not exclusive of any remedies under law.
14.5 Paragraph Headings. The paragraph headings contained in this
Agreement are for reference purposes only and shall not affect the
interpretation or meaning of this Agreement.
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14.6 Integration. This instrument and the documents referred to herein
contain the entire agreement between the parties hereto with respect to the Loan
transaction contemplated herein, and cannot be changed, amended, modified or
revised in any manner, except by another agreement in writing, duly executed by
the parties hereto.
14.7 Severability. In the event that any term, condition, covenant,
agreement, requirement or provision of this Agreement or of any document
executed in connection with this Agreement shall be held by any court to be
unenforceable, illegal, void or contrary to public policy, such term, condition,
covenant, agreement, requirement or provision shall be of no effect whatsoever
upon the binding force or effectiveness of any of the other terms, conditions,
covenants, agreements, requirements and provisions thereof, it being the
intention and declaration of the parties hereto that had they, or any of them,
known of such unenforceability, illegality, invalidity or contrariness to public
policy, they would have entered into a contract, each with the other, containing
all of the other terms, conditions, covenants, agreements, requirements and
provisions thereof.
14.8 Counterparts. This Agreement may be executed in one or more
counterparts and each of such counterparts shall, for all purposes be deemed to
be an original, but all of such counterparts shall together constitute but one
and the same instrument.
14.9 Applicable Law, Jurisdiction.
(a) This Agreement has been executed and delivered and shall
be construed and enforced in accordance with the laws of the State of New York,
including, but not limited to, matters of construction, validity and
performance.
(b) The Borrowers hereby waive personal service of any and all
process upon the Borrowers and consent that all such service of process may be
made by certified mail or registered mail, return receipt requested, directed to
the Borrowers at the addresses hereinabove stated, and service so made shall be
deemed complete three (3) days after the same shall have been posted.
(c) In addition to any other applicable jurisdictions and
venues, as provided by the laws of the United States or any state thereof, the
Borrowers, jointly and severally, hereby consent to personal jurisdiction and
venue in the Supreme Court of the State of New York, County of Nassau, with
respect to any action or proceeding brought in connection with the transaction
evidenced by this Agreement.
14.10 Lender's Right to Sell or Assign the Loan. The Lender has the
absolute right and privilege to sell or assign all or any part of the Notes
received hereunder, and upon such sale or assignment, to transfer any collateral
security and/or the Warrant to the purchaser or assignee.
14.11 Parties in Interest. This Agreement shall bind and inure to the
benefit of the parties hereto and their respective successors, heirs, executors,
administrators and legal representatives.
- 27 -
<PAGE>
IN WITNESS WHEREOF, the parties have hereto set their hands and seals
the day and year first above written.
STERLING COMMERCIAL CAPITAL, INC.
By: /s/ Harvey Rosenblatt
---------------------------
Harvey Rosenblatt,
Executive Vice President
NORWOOD VENTURE CORP.
By: /s/ Mark R. Littell
---------------------------
Mark R. Littell, President
VEGA CAPITAL CORP.
By: /s/ Ronald A. Linden
---------------------------
Ronald A. Linden, President
CHILDROBICS, INC.
ATTEST:
/s/ Douglas B. Fox By: /s/Gerard A. Reda
- ---------------------- ---------------------------
Gerard A. Reda, President
JUST KIDDIE RIDES, INC.
ATTEST:
/s/ Douglas B. Fox By: /s/ Gerard A. Reda
- ----------------------- ---------------------------
Gerard A. Reda, President
TURNPIKE AMUSEMENT DISTRIBUTING, INC.
ATTEST:
/s/ Douglas B. Fox By: /s/ Gerard A. Reda
- ----------------------- ---------------------------
Gerard A. Reda, President
AMUSEMENT ASSOCIATES DISTRIBUTING, INC.
ATTEST:
/s/ Douglas B. Fox By: /s/ Gerard A. Reda
- ----------------------- ---------------------------
Gerard A. Reda, President
- 28 -
<PAGE>
GROUP COIN ASSOCIATES, INC.
ATTEST:
/s/ Douglas B. Fox By: /s/ Gerard A. Reda
- ----------------------- ---------------------------
Gerard A. Reda, President
TUNNELS & TUBES, INC.
ATTEST:
/s/ Douglas B. Fox By: /s/ Gerard A. Reda
- ----------------------- ---------------------------
Gerard A. Reda, President
- 29 -
<PAGE>
EXHIBIT LIST
EXHIBIT DOCUMENT
2.3 Note
4.0 Warrant
5.1 Use of Proceeds
6.5 Childrobics Financial Statements
6.6 JKR Financial Statements
6.7 Material Obligations and Liabilities
6.8 Litigation
6.11 Tax Returns Not Filed
6.13 Changes in Financial Condition
6.17 Finders and Finders' Fees
6.20 Other Warrants and Options
6.22 Employment Agreement
8.4 Insurance
9.2 Liens
<PAGE>
EXHIBIT 2.3
PROMISSORY NOTE
$550,000.00 Hempstead, New York
October 3, 1996
FOR VALUE RECEIVED, the undersigned, CHILDROBICS, INC., a New York
corporation, having its principal place of business at 200 Smith Street,
Farmingdale, New York 11735 (hereinafter referred to as "Childrobics"); JUST
KIDDIE RIDES, INC., a New York corporation having its principal place of
business at 122 Dubon Court, Farmingdale, New York 11735 (hereinafter referred
to as "LKR"); TURNPIKE AMUSEMENT DISTRIBUTING, INC. a New York corporation
having its principal place of business at 200 Smith Street, Farmingdale, New
York 11735 (hereinafter referred to as "Turnpike"); AMUSEMENT ASSOCIATES, INC.,
a New York corporation, having its principal place of business at 200 Smith
Street, Farmingdale, New York 11735 (hereinafter referred to as "Amusement");
and GROUP COIN ASSOCIATES, INC., a New York corporation, having its principal
place of business at 200 Smith Street, Farmingdale, New York 11735 (hereinafter
referred to as "Group Coin"; and TUNNELS & TUBES, INC., a New York corporation,
having its principal place of business at 200 Smith Street, Farmingdale, New
York 11735 (hereinafter referred to as "Tunnels & Tubes"), (Childrobics, JKR,
Turnpike, Amusement, Group Coin and Tunnels & Tubes hereinafter referred to
collectively as the "Borrowers") hereby, jointly and severally, promise to pay
to the order of STERLING COMMERCIAL CAPITAL, INC., a New York corporation,
having its principal place of business at 175 Great Neck Road, Great Neck, New
York 11021 (hereinafter referred to as "Payee") in lawful money of the United
States, the sum of FIVE HUNDRED FIFTY THOUSAND AND 00/100 ($550,000.00) DOLLARS
(the "Loan"), with interest thereon at the rate of twelve (12%) percent per
annum, computed on the basis of the actual number of days elapsed in a year of
60 days (the "Interest Rate"), as follows:
(a) A first installment of interest only on the principal sum of
$550,000.00 for the period from the date hereof through the last day of October,
1996, payable on the date hereof.
(b) then twenty-four (24) monthly installments of interest only on the
outstanding principal balance of the Loan, commencing December 1, 1996, and
payable on the 1st day of each succeeding month thereafter to and including
November 1, 1998;
(c) then thirty-five (35) equal consecutive monthly installments of
principal and interest in the amount of $18,267.87 each, commencing December 1,
1998 and payable on the first day of each month thereafter to and including
October 1, 2001; and
(d) a final sixtieth (60th) installment in the principal amount of
$18,267.87, or such other amount as shall comprise the entire outstanding
principal balance of the Loan, together with accrued interest thereon, payable
on November 1, 2001.
All payments are to be made to the order of the Payee at 175 Great Neck
Road, Great Neck, New York 11021
<PAGE>
This Note is one of three (3) concurrently payable promissory notes of
even date herewith evidencing a single indebtedness in the aggregate principal
sum of $1,500,000.00 (the "Notes") made by the Borrowers pursuant to a certain
financing agreement dated simultaneously herewith (the "Financing Agreement")
between the Payee, Norwood Venture Corp. ("Norwood"), and Vega Capital Corp.
("Vega") (the Payee, Norwood and Vega hereinafter collectively called the
"Lender") and the Borrowers.
The Notes may be prepaid in whole or in part at any time with interest
to the date of prepayment upon not less than ten (10) days' prior written notice
to the Lender, provided, however, that: (i) any partial prepayment shall be
applied in inverse order of maturity to the installments payable under the Note;
(ii) the Borrowers shall pay any and all outstanding late charges; and (iii) the
Borrowers shall pay a prepayment charge (the "Prepayment Charge") equal to a
percentage of the principal amount being prepaid, as follows:
Prepayment Charge
as Percentage of
If Prepaid: Principal Prepaid
Prior to the third anniversary
of the date of this Note 3%
On or after the third anniversary
but prior to the fourth anniversary
of the date of this Note 2%
On or after the fourth anniversary
but prior to the fifth anniversary
of the date of this Note 1%
In the event that 1,500,000 shares of common stock of Childrobics have
been duly registered for sale to the public with the Securities and Exchange
Commission and all other applicable agencies of the federal government of the
United States and the State of New York or any other state having jurisdiction
thereover and the proceeds of a secondary public offering of such shares are
utilized by Childrobics for the prepayment of the Loan in full, the Prepayment
Charge otherwise payable hereunder shall be waived.
In the event the Borrower shall default in the payment of any
installment required to be paid hereunder or under any of the other Notes, and
such default shall continue for a period of ten (10) days (the "Grace Period"),
then at the option of the Lender or the holder of the Notes, the entire
outstanding principal balance of the Notes, together with accrued interest,
shall become immediately due and payable.
If any installment due hereunder or under any of the other Notes is not
paid within the Grace Period, the Borrower shall pay the applicable payee a late
charge, to reimburse the Lender for administrative costs and expenses and not as
a penalty, in the amount of $300.00. The Borrower further agrees that in the
event any check given by the Borrower to the Lender is dishonored, the Borrower
- 2 -
<PAGE>
shall pay to the Lender, in addition to the aforesaid late charge, an
administrative fee of $25.00.
If any installment due hereunder is not paid within the Grace Period,
such unpaid amounts shall bear interest from the date following the applicable
due date of such installment at the Interest Rate plus seven (7%) percent per
annum, or the maximum rate permitted by applicable laws and governmental
regulations, whichever is less (the "Default Rate"), until paid to the Lender.
In the event of a default hereunder or under any of the other Notes as
a result of non-payment or otherwise, and the Lender elects to accelerate the
principal indebtedness due under the Notes, the entire outstanding principal
balance due under the Notes shall bear interest from the date of acceleration
until paid in full at the Default Rate.
All payments made hereunder shall be applied first to satisfy any late
charges, expenses or penalties, then to interest accrued through the date of
such payment, and then in satisfaction of outstanding principal.
The occurrence of an Event of Default under Article 10 of the Financing
Agreement after expiration of any notice and cure period set forth therein shall
constitute a default under the Notes.
The Borrower hereby waives presentment, demand for payment, notice of
dishonor and any and all other notices and demands, and all rights of set-off,
deduction or counterclaim, and consents to any and all extensions of time,
renewals and any waivers or modifications that may be granted or consented to by
the Lender with regard to any other provisions of the Notes, and agrees that no
such action or failure to act on the part of the Lender shall in any way affect
or impair the obligations of the Borrower arising hereunder or be construed as a
waiver of the Notes or the Lender's right to avail itself of any remedy under
the Notes, with the same force and effect as if the Borrower expressly consented
to such action or inaction.
This Note has been executed and delivered and shall be construed and
enforced in accordance with the laws of the State of New York, including, but
not limited to, matters of construction, validity and performance.
In the event the Lender or the holder of the Notes shall retain an
attorney for the enforcement or the collection of the Notes, the Borrower agrees
to pay all costs and expenses of such collection, including reasonable
attorney's fees, and any judgment recovered may include such additional amounts.
- 3 -
<PAGE>
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed by
its duly authorized officers and to be dated as of the day and year first above
written.
CHILDROBICS, INC.
ATTEST:
By: ______________________________
Gerard A. Reda, President
JUST KIDDIE RIDES, INC.
ATTEST:
By: ______________________________
Gerard A. Reda, President
TURNPIKE AMUSEMENT DISTRIBUTING, INC.
ATTEST:
By: ______________________________
Gerard A. Reda, President
AMUSEMENT ASSOCIATES DISTRIBUTING, INC.
ATTEST:
By: ______________________________
Gerard A. Reda, President
GROUP COIN ASSOCIATES, INC.
ATTEST:
By: ______________________________
Gerard A. Reda, President
TUNNELS & TUBES, INC.
ATTEST:
By: ______________________________
Gerard A. Reda, President
- 4 -
<PAGE>
EXHIBIT 4.0
WARRANT TO PURCHASE 5,000,000 SHARES OF COMMON STOCK
($.01 per share par value)
OF
CHILDROBICS, INC.
(the "Company")
(a New York Corporation)
THE WARRANT REPRESENTED HEREBY AND ANY SHARES OF COMMON STOCK ISSUABLE
UPON EXERCISE THEREOF AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT") AND MAY NOT BE OFFERED OR SOLD
EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
ACT, (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY
SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES),
OR (iii) AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR
THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS
AVAILABLE.
EXERCISABLE ON OR BEFORE OCTOBER 3, 2003
This certifies that, for value received, STERLING COMMERCIAL CAPITAL,
INC., NORWOOD VENTURE CORP. and VEGA CAPITAL CORP., their successors and/or
assigns (collectively referred to as the "Holder") are entitled to purchase,
subject to the provisions of this Warrant, at any time from and after the date
hereof until October 3, 2003 (the "Expiration Date") an aggregate of Five
Million (5,000,000) fully paid and non-assessable shares of common stock having
a par value of $.01 per share of the Company (the "Warrant Shares").
1. Exercise Price. The aggregate price payable upon the exercise
of this Warrant shall be One Hundred ($100.00) Dollars and No Cents (the
"Warrant Price").
2. Exercise of Warrant.
(a) This Warrant may be exercised in whole or in part at any
time from the date hereof to and including the Expiration Date. Upon delivery of
this Warrant, at the offices of the Company at 200 Smith Street, Farmingdale,
New York 11735, or at such other address as the Company may designate by notice
in writing to the Holder, together with the Subscription Form annexed hereto,
duly executed, accompanied by payment of the Warrant Price for the Warrant
Shares being acquired, the Holder shall be entitled to receive a certificate or
certificates for the Warrant Shares.
(b) The Warrant Shares deliverable hereunder shall, upon
issuance, be fully-paid and non-assessable and the Company agrees that at all
times during the term of this Warrant it shall cause to be reserved for issuance
such number of shares of its common stock as shall be required for issuance and
delivery upon exercise of this Warrant.
<PAGE>
(c) The issuance of certificates for Warrant Shares upon any
exercise of this Warrant shall be made without charge to the Holder for any
transfer tax or other expense in respect to the issuance of such certificates,
all of which taxes and expenses shall be paid by the Company, and such
certificates shall be issued in the name of the Holder.
3. Transfer or Assignment of Warrant. Any assignment or transfer of
these Warrants shall be made by surrender of this Warrant at the offices of the
Company or at such other address as the Company may designate in writing to the
Holder with the Assignment Form annexed hereto, duly executed and accompanied by
payment of any requisite transfer taxes, and the Company shall, without charge,
execute and deliver new Warrants of like tenor in the name of the assignee for
the portion so assigned; in case of only a partial assignment, with a new
Warrant of like tenor to the assignor for the balance of the Warrant Shares
purchasable. The name of the assignee shall thereupon be entered in the books of
registry of the Company.
4. Financing Agreement. The Warrants have been issued pursuant to, and
is subject to all of the terms and provisions of, a certain financing agreement,
dated October 3, 1996, between the Holder and the Company, (the "Financing
Agreement") and the Holder of these Warrants are entitled, among other things,
to the benefits of the Financing Agreement.
5. Cumulative Rights. The rights, powers and remedies given to the
Holder under this warrant shall be in addition to all rights, powers and
remedies given to it by virtue of the Financing Agreement or any document or
instrument executed in connection therewith, or any statute or rule of law.
6. No Modification. No modification or waiver of any provision of this
Warrant shall be effective, unless it shall be in writing and signed by the
Holder, and any such modification or waiver shall apply only in the specific
instance for which it is given.
7. Restriction on Transfer of Warrant. The Holder of the Warrant, by
its acceptance thereof, covenants and agrees that the Warrants are being
acquired as an investment and not with an view to the distribution thereof.
8. No Impairment or Dilution. The Company will not, by amendment of its
articles of incorporation or through reorganization, consolidation, merger,
dissolution, issue or sale of securities, sale of assets or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Warrant, and will at all times in good faith assist in the carrying out
of all such terms and provisions of this Warrant and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of the
Holder of these Warrants and the Warrant Shares, if any, against dilution or
other impairment. In furtherance of the foregoing, the Company will take all
such action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable Warrant Shares upon the
exercise of the rights hereunder.
- 2 -
<PAGE>
9. Registration Rights.
9.1 Registration Under the Securities Act of 1933.
The Warrants and the Warrant Shares have not been registered under the
Securities Act of 1933, as amended (the "Act"). Certificates representing the
Warrant Shares shall bear the following legend:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended
("Act"), and may not be offered or sold except pursuant to (i)
an effective registration statement under the Act, (ii) to the
extent applicable, Rule 144 under the Act (or any similar rule
under such Act relating to the disposition of securities), or
(iii) an opinion of counsel, if such opinion shall be
reasonably satisfactory to counsel to the issuer, that an
exemption from registration under such Act is available.
9.2 Registration by the Company.
(a) In the event the Company shall, at any time
subsequent to the issuance of this Warrant, to and including the Expiration
Date, determine or propose to register any of its common stock or other
securities held by its executive officers and directors or any of its common
stock or other securities in connection with a secondary public offering under
the Securities Act of 1933, as amended (the "Act") on any form of Registration
Statement (other than Forms S-4 or S-8 or any successor form thereto), including
amendments and post effective amendments thereto, it will give the Holder of
this Warrant, or if this Warrant has been exercised pursuant to the terms
hereof, the record holders of all of the Warrant Shares, written notice of its
intention to file each such Registration Statement and/or amendments thereto
within twenty (20) days prior to the filing of such Registration Statement or
amendments thereto. Within a period of fifteen (15) days immediately following
the receipt of such notice by the Holder, the Holder may elect (a) in the case
of the registration of common stock or securities held by the executive officers
and directors of the Company to include up to 500,000 of the Warrant Shares in
such proposed registration and (b) in the case of a secondary public offering to
include up to 1,000,000 of the Warrant Shares in the proposed registration by
giving written notice thereof to the Company specifying the number of Warrant
Shares requested to be registered and the intended manner of distribution
thereof. Upon receipt of such notice, the Company shall include in its
registration, if such registration is completed, all Warrant Shares requested to
be registered. If the notice by the Company of its intention to file a
registration statement is given prior to the exercise of this Warrant, the
Holder shall not be required to exercise this Warrant until the effective date
of the Registration Statement. In the event that registration contemplates an
underwritten public offering and in the reasonable opinion of the underwriter or
underwriters for such offering the inclusion of the Warrant or the Warrant
Shares requested to be registered when added to the securities being registered
by the Company will exceed the maximum amount of the Company's securities which
can be marketed without materially and adversely affecting the entire offering,
such portion of the Warrant Shares that
- 3 -
<PAGE>
exceed said maximum amount will be excluded from the offering, provided,
however, that in such event any shares of common stock of the securities held by
the executive officers and directors of the Company intended to be included in
the registration are likewise proportionately excluded from the offering.
(b) Any and all Warrant Shares not registered pursuant to the terms of
Section 9.2(a) hereof shall be registered upon the mutual agreement of
the Company and the Holder.
9.3 Registration Procedures. If the Company elects pursuant
to the provisions of Section 9.2 to effect the registration of any of its
securities under the Act, the Company will, as expeditiously as possible:
(a) prepare and file with the Securities and Exchange
Commission (the "Commission") a Registration Statement with respect to such
securities and use its best efforts to cause such Registration Statement to
become and remain effective for a period of time required for the disposition of
such securities by the holders thereof;
(b) prepare and file with the Commission such amendments
and supplements to such Registration Statement and the prospectus used in
connection therewith as may be necessary to keep such Registration Statement
effective and to comply with the provisions of the Act with respect to the sale
or other disposition of all securities covered by such Registration Statement
until such time as all of such securities have been disposed of in a Public
offering;
(c) furnish to such selling security holders such number
of copies of a summary prospectus or other prospectus, including a preliminary
prospectus, in conformity with the requirements of the Act, and such other
documents, as such selling security holders may reasonably request;
(d) use its best efforts to register or qualify the
securities covered by such Registration Statement under such other securities
and blue sky laws of such jurisdiction within the United States and Puerto Rico
as each holder of such securities shall reasonably request (provided, however,
the Company shall not be obligated to qualify as a foreign corporation to do
business under the laws of any jurisdiction in which it is not then qualified or
to file any general consent to service or process), and do such other reasonable
acts and things as may be required of it to enable such holder to consummate the
disposition in such jurisdiction of the securities covered by such Registration
Statement;
(e) enter into customary agreement (including an
underwriting agreement in customary form) and take such other actions as are
reasonably required in order to expedite or facilitate the disposition of such
Common Stock; and as shall be required in connection with the action taken by
the Company.
9.4 Covenants of the Company With Respect to Registration. In
connection with any registration under Sections 9.2 and 9.3 hereof, the Company
covenants and agrees as follows:
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<PAGE>
(a) The Company shall pay all costs (excluding fees
and expenses of Holder(s)' counsel), fees and expenses in connection with a
Registration Statement filed pursuant to Sections 9.2 hereof including, without
limitation, the Company's legal and accounting fees, printing expenses, and blue
sky fees and expenses.
(b) The Company will take all necessary action which
may be required in qualifying or registering the Warrant Shares included in
a Registration Statement for offering and sale under the securities or blue sky
laws of such states as reasonably are requested by the Holder(s), provided that
the Company shall not be obligated to execute or file any general consent to
service of process or to qualify as a foreign corporation to do business under
the laws of any such jurisdiction.
(c) The Company shall indemnify the Holder(s) of the
Warrant Shares to be sold pursuant to any Registration Statement and each
person, if any, who controls such Holders within the meaning of Section 15 of
the Act or Section 20(a) of the Securities Exchange Act of 1934, as amend
("Exchange Act"), against all loss, claim, damage, expense or liability
(including all attorneys' fees and other expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which any
of them may become subject under the Act, the Exchange Act or any other statute,
common law or otherwise, arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained (x) in the Registration
Statement (as from time to time amended and supplemented); (y) in any
post-effective amendment or amendments or (z) in any application or other
document or written communication (collectively called "application") executed
by the Company or based upon information furnished by the Company filed in any
jurisdiction in order to qualify the Warrant Shares under the Exchange Act or
the omission or alleged omission therefrom of a material fact required to be
stated therein or necessary to make the statements contained therein not
misleading, unless such statement or omission was made in reliance upon and in
conformity with written information furnished to the Company by the Holders
expressly for use in the registration statement, any amendment or supplement
thereto or any application, as the case may be.
(d) The Holder(s) of the Warrant Shares to be sold
pursuant to a registration statement, and their successors and assigns,
shall severally, and not jointly, indemnify the Company, its officers and
directors and each person, if any, who controls the Company within the meaning
of Section 15 of the Act or Section 20(a) of the Exchange Act, against all loss,
claim, damage or expense or liability (including all expenses reasonably
incurred in investigating, preparing or defending against any claim whatsoever)
to which they may become subject under the Act, the Exchange Act or otherwise,
arising from information furnished by or on behalf of such Holders, or their
successors or assigns, for specific inclusion in such registration statement.
(e) Nothing contained in this Agreement shall be
construed as requiring the Holder(s) to exercise their Warrants prior to
the initial filing of any Registration Statement or the effectiveness thereof.
10. Adjustments to Number of Securities.
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<PAGE>
10.1 Adjusted Number of Shares. If, and to the extent, the
number of issued shares of Common Stock of the Company shall be increased in
each instance at an equivalent price per share of $.50 or less by split up, sale
or the exercise of options or warrants (except those shares of Common Stock
issued upon the exercise of the currently outstanding options and warrants set
forth in Exhibit A annexed hereto), or in the event the number of issued shares
of Common Stock of the Company shall be increased or decreased by redemption,
reclassification, recapitalization, distribution of a dividend payable in stock
or the like, the number of shares subject to the Warrant shall be
proportionately adjusted by multiplying the number of Warrant Shares this
Warrant is convertible into by a fraction, the numerator of which shall be the
sum of the number of shares of Common Stock outstanding immediately after the
issuance of such additional shares and the denominator of which shall be the sum
of the number of shares of Common Stock outstanding immediately prior to the
issuance of such additional shares (assuming full exercise, conversion or
subscription of all rights, warrants or securities convertible into Common
Stock). Such adjustment shall be made successively whenever such an issuance is
made. If as a result of an adjustment made pursuant to this subsection, the
Holder of any Warrant Shares thereafter surrendered for exercise shall become
entitled to receive shares of two or more classes of capital stock of the
Company, the Board of Directors (whose reasonable determination shall be made in
good faith) shall determine the allocation of the adjusted conversion price
between or among shares of such classes of capital stock.
10.2 Definition of Common Stock. For the purposes of this
Agreement, the term "Common Stock" shall mean (i) the class of stock designated
as Common Stock in the Certificate of Incorporation of the Company as may be
amended as of the date hereof, or (ii) any other class of stock resulting from
successive changes, recapitalization or reclassification of such Common Stock
consisting solely of changes in par value, or from par value to no par value, or
from no par value to par value.
10.3 Merger or Consolidation. In case of any consolidation of
the Company with, or merger of the Company with, or merger of the Company into,
another corporation (other than a consolidation or merger which does not result
in any reclassification or change of the outstanding Common Stock), the
corporation formed by such consolidation or merger shall execute and deliver to
the Holder supplemental warrants providing that the holder of the Warrants then
outstanding or to be outstanding shall have the right thereafter (until the
expiration of such warrant) to receive, upon exercise of such warrant, the kind
and amount of shares of stock and other securities and property receivable upon
such consolidation or merger, by a holder of the number of shares of Common
Stock of the Company for which such warrant might have been exercised
immediately prior to such consolidation, merger, sale or transfer. Such
supplemental warrant shall provide for adjustments which shall be identical to
the adjustments provided in this Section 10. The above provision of this
subsection shall similarly apply to successive consolidations or mergers.
11. Exchange and Replacement of Warrant Certificates.
(a) Each Warrant is exchangeable without expense, upon the
surrender thereof by the Holder at the principal executive office of the
Company, for a new Warrant of like tenor and date representing in the aggregate
the right to
- 6 -
<PAGE>
purchase the same number of Shares in such denominations as shall be designated
by the Holders thereof at the time of such surrender.
(b) Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any Warrant,
and, in case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrants, if
mutilated, the Company will make and deliver a new Warrant of like tenor, in
lieu thereof.
12. Elimination of Fractional Interests.
The Company shall not be required to issue certificates
representing fractions of shares of Common Stock upon the exercise of this
Warrant, nor shall it be required to issue scrip of pay cash in lieu of
fractional interests, it being the intent of the parties that all fractional
interests shall be eliminated by rounding any faction up to the nearest whole
number of shares of Common Stock or other securities, properties or rights.
13. Reservations of Securities.
The Company shall at all times reserve and keep and available
out of its authorized shares of Common Stock, solely for the purpose of issuance
upon the exercise of the Warrants, such number of shares of Common Stock or
other securities, properties or rights as shall be issuable upon the exercise
thereof.
14. Notices.
All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly made and
sent when delivered, or mailed by registered or certified mail, return receipt
requested:
(a) If to the registered Holder of the Warrants, to:
Sterling Commercial Capital Corp.
175 Great Neck Road
Great Neck, New York 11021
Norwood Venture Corp.
1430 Broadway, Suite 1607
New York, NY 10018
Vega Capital Corp.
80 Business Park Drive, Suite 201
Armonk, NY 10504
(b) If to the Company:
Childrobics, Inc.
200 Smith Street
Farmingdale, NY 11735
15. Supplements and Amendments.
The Company and the Holder may from time to time supplement or
amend this Warrant without the approval of any holders of any other warrants in
order to cure any ambiguity, to correct or supplement any
- 7 -
<PAGE>
provision contained herein which may be defective or inconsistent with any
provisions herein, or to make any other provisions in regard to matters or
questions arising hereunder which the Company and the Holder may deem necessary
or desirable and which the Company and the Holder deem shall not adversely
affect the interests of the Holders of Warrants.
16. Successors. All the covenants and provisions of this Agreement
shall be binding upon and inure to the benefit of the Company, the Holders,
and their respective successors and assigns hereunder.
17. Governing Law. This Agreement and each Warrant issued hereunder
shall be deemed to be a contract made under the laws of the State of New York
and for all purposes shall be construed in accordance with the laws of said
State without giving effect to the rules of said State governing the conflicts
of laws.
18. Entire Agreement; Modification. This Agreement contains the entire
understanding between the parties hereto with respect to the subject matter
hereof and may not be modified or amended except by a writing duly signed by the
party against whom enforcement of the modification is sought.
19. Survival of Provisions. All of the terms and provisions of this
Warrant shall survive its exercise and shall remain in full force and effect so
long as the Holder remains the holder of not less than 750,000 shares of Warrant
Shares.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on this 3rd day of October, 1996.
ATTEST:
________________________ CHILDROBICS, INC.
By: ________________________________
Gerard A. Reda, President
- 8 -
<PAGE>
EXHIBIT 5.1
DISBURSEMENT LETTER/USE OF PROCEEDS
October 3, 1996
Sterling Commercial Capital, Inc.
175 Great Neck Road
Great Neck, NY 11021
Re: Loan Proceeds: $1,500,000.00
Dear Sirs:
You are hereby authorized to disburse the proceeds of the
above-identified loan on my/our behalf as follows:
Sterling Commercial Capital, Inc. $ 21,500.00
(interest to 10/31/96:$14,000.00
and balance of processing fee $7,500.00)
Gerard K. Reda
(Non-Compete Consideration) $ 250,000.00
Richard Bartlett $ 152,729.83
(Management Termination Fee:$50,000.00;
satisfaction of management loan:
$77,620.00; and deferred compensation:
$25,109.83)
Salvatore Cassacio $ 89,367.83
(Management Termination Fee:$50,000.00;
buy-out for management car:$10,000.00;
and deferred compensation:$29,367.83)
A. Joseph Melnick $ 63,981.92
(Management Termination Fee:$50,000
and deferred compensation:$13,981.92)
Moore, Stephens & Co. $ 50,000.00
(Accountant Fees)
Squadron, Ellenoff, Plesent
& Sheinfeld, LLP
(Borrowers' Legal Fees) $ 85,000.00
Firestone Financial Services $ 60,000.00
(Restructure of Debt and
bring financial obligations
current)
<PAGE>
DISBURSEMENT LETTER/USE OF PROCEEDS
(Continued)
Betson Enterprises, Inc. $ 50,000.00
(Restructure of Debt and
bring financial obligations
current)
Lawrence and Walsh, P.C.
(Lenders' Legal Fees & Expenses) $ 12,740.05
Childrobics, Inc. $ 664,680.37
(Working Capital, including trade
debt and other accounts payable)
CHILDROBICS, INC.
By: ____________________________
Gerard A. Reda, President
JUST KIDDIE RIDES, INC.
By: ____________________________
Gerard A. Reda, President
TURNPIKE AMUSEMENT DISTRIBUTING, INC.
By: ____________________________
Gerard A. Reda, President
AMUSEMENT ASSOCIATES, INC.
By: ____________________________
Gerard A. Reda, President
GROUP COIN ASSOCIATES, INC.
By: ____________________________
Gerard A. Reda, President
TUNNELS & TUBES, INC.
By: ___________________________
Gerard A. Reda, President
- 2 -
<PAGE>
EXHIBIT 6.5
Childrobics, Inc.
Statement of Operations
For the Period Ended June 30, 1996
<TABLE>
<CAPTION>
Pro forma Continuing Discontinued
Consolidated Operations Operations
(1) (2)
<S> <C> <C> <C> <C>
Sales $12,541,203 $7,179,958 $5,361,245 (1) Continuing Op's
-------------------
Childrobics, Inc.
Turnpike
Tunnels & Tubes
Group Coin
Amusement Ass.
Cost of Sales 12,125,940 6,647,414 5,478,526
Gross profit 415,263 532,544 (117,281)
----------- ---------- ---------
Selling and Administrative Expenses 5,102,106 3,842,794 1,259,312
-----------
Operating Income (Loss) (5,059,343) (3,310,250) (1,749,093) (2) Discontinued Op's
---------------------
Medford
Danbury
Lynbrook
Ave U, Brooklyn
Baybridge
Eastside
3rd Ave, Brooklyn
Staten Island
Utopia
Florida
Interest 126,536 65,848 60,688
Loss on disposal of Discontinued 4,296,618 4,296,618 -
Operations
Loss attributable to minority interest (316,225) (316,225) -
--------- ---------
Net loss (9,166,272) ($7,356,491) ($1,809,781)
=========== ============ ============
</TABLE>
Childrobics, Inc.
Statement of Operations
For the Period Ended June 30, 1996
Sales $7,179,958
Cost of Sales 6,647,414
----------
Gross profit 532,544
----------
Selling and administrative expenses (3,842,794)
Loss from discontinued operations (1,809,781)
----------
Operating loss (5,120,031)
Interest expense (65,848)
<PAGE>
Loss attributable to minority interest 316,225
Extraordinary items: (4,296,618)
----------
Loss on disposal of
discontinued operations
Net Loss $9,166,272
==========
Pro_Form.wk4
- 2 -
<PAGE>
<TABLE>
<CAPTION>
With JKR With JKR With JKR
Consolidated Consolidated Pro Forma Pro Forma Pro Forma Pro Forma
Without JKR Without JKR Consolidated Consolidated Consolidated Consolidated
------------ ------------ ------------ ------------ ------------ ------------
BALANCE SHEETS 6/30/96 9/30/96 12/31/96 3/31/97 6/30/97 6/30/98
- -------------- ------- ------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
CASH 64,793 1,343,169 940,912 739,053 942,753 1,181,442
ACCOUNTS RECEIVABLE - TRADE 1,779,581 1,619,831 2,247,810 2,198,060 1,703,310 1,704,310
INTERCO REC'S - CONTINUING OPS - - - - - -
INVENTORY 373,047 343,047 377,380 377,380 377,380 427,380
PREPAID EXPENSES 39,088 39,088 66,009 66,009 66,009 66,009
INVESTMENT IN JKR - - - - - -
-------------------------------------------------------------------------------------------------
CURRENT ASSETS 2,256,509 3,345,135 3,632,111 3,380,502 3,089,452 3,379,141
-------------------------------------------------------------------------------------------------
FIXED ASSETS:
ASSETS 2,438,164 2,438,164 6,378,209 6,378,209 6,378,209 12,640,709
ACCUMULATED DEPRECIATION (809,870) (979,085) (2,124,035) (2,377,872) (2,634,941) (4,322,177)
-------------------------------------------------------------------------------------------------
NET FIXED ASSETS 1,628,294 1,459,079 4,254,174 4,000,337 3,743,268 8,318,532
-------------------------------------------------------------------------------------------------
OTHER ASSETS:
GOODWILL & ORGANIZTN COSTS 104,462 104,462 129,278 129,278 129,278 129,278
AMORTIZATION EXPENSE (26,115) (32,415) (39,321) (46,227) (53,133) (55,557)
SECURITY DEPOSITS 33,431 33,431 33,431 33,431 33,431 33,431
GOODWILL - JKR - - 3,981,314 3,981,314 3,981,314 3,982,248
-------------------------------------------------------------------------------------------------
TOTAL OTHER ASSETS 111,778 105,478 4,104,702 4,097,796 4,090,890 4,069,400
-------------------------------------------------------------------------------------------------
TOTAL ASSETS 3,996,581 4,909,692 11,990,987 11,478,636 10,923,610 15,767,073
-------------------------------------------------------------------------------------------------
LIABILITIES:
ACCOUNTS PAYABLE -TRADE 1,164,639 919,639 1,247,749 1,247,749 1,017,749 1,117,749
ACCOUNTS PAYABLE - INTERCO - - - - - -
ACCRUED LIABILITIES: - - - - - -
INSURANCE 59,876 5,000 10,000 15,000 20,000 20,000
MAN'GT TERMINATION 712,500 600,000 550,000 550,000 - -
766,203 587,945 788,885 623,885 523,885 258,153
P/R, VACTN, ETC - - - - - -
-------------------------------------------------------------------------------------------------
TOTAL ACCRUED EXPENSES 1,538,578 1,192,945 1,348,885 1,188,885 543,885 278,153
-------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 2,703,217 2,112,584 2,596,634 2,316,634 1,561,634 1,395,902
</TABLE>
- 3 -
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
DEBT OBLIGATIONS:
SHORT TERM LINE OF CREDIT 163,798 148,498 132,598 116,098 98,998 -
NOTE PAYABLE FIRESTONE #1 83,317 90,982 25,842 2,640 - -
NOTE PAYBALE FIRESTONE #5 350,680 374,323 327,533 280,743 233,953 46,793
NOTE PAYABLE FIRESTONE - JKR - - - - - -
BETSON NOTES 224,027 209,320 167,458 125,592 83,728 -
NOTES PAYABLE - - 3,201,071 3,015,567 2,830,063 2,225,107
NEW DEBT - - - - - -
BRIDGELOAN - 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000
CAPITALIZED LEASE - PHONE 15,635 13,922 12,137 10,277 8,339 -
NOTES PAYABLE - BARTLETT 87,620 87,620 - - - -
--------------------------------------------------------------------------------------
TOTAL DEBT 905,077 2,424,665 5,366,637 5,050,917 4,755,081 3,771,900
--------------------------------------------------------------------------------------
EQUITY
COMMON STOCK 53,550 53,550 53,550 103,550 103,550 103,550
Acquire JKR 5,000,000 @ $.75 + Cash - - 50,000 - - -
Secondary Offering 5,000,000 @ $1.00 - - - - - 50,000
- -
PAID IN CAPITAL 11,628,525 13,328,525 13,328,525 17,028,525 17,028,525 17,028,525
Acquire JKR 5,000,000 @ $.75 + Cash - - 3,700,000 - -
Secondary Offering 5,000,000 @ $1.00 - - - 4,300,000
Below Market Stock Options- Man't Buyout 450,000 - - -
Below Market Stock Options- Term Loan 1,250,000 - -
RETAIN EARNINGS-Continuing Ops (1,383,129) (12,993,788) (13,009,633) (13,104,359) (13,020,992) (12,525,179)
Retained Earnings- Discont'd Ops (595,266) - - - -
Current Yr Profit (Loss) (3,742,398) (15,845) (94,726) 83,367 495,813 1,642,377
Assets - Discont'd Ops (5,992,994) - - - -
Sale of Discnt'd Ops-Proceeds 1,520,000 - - - -
Additional accruals (1,100,000) - - - -
Below Market Stock Options - Term Loan (1,250,000) - -
Below Market Stock Options - Man't Buyout (450,000) - - - -
--------------------------------------------------------------------------------------
RETAINED EARNINGS - ENDING (12,993,788) (13,009,633) (13,104,359) (13,020,992) (12,525,179) (10,882,802)
--------------------------------------------------------------------------------------
TOTAL EQUITY 388,287 372,442 4,027,716 4,111,083 4,606,896 10,599,273
--------------------------------------------------------------------------------------
TOTAL LIABILITIES & EQUITY 3,996,581 4,909,691 11,990,987 11,478,634 10,923,611 15,767,075
</TABLE>
- 4 -
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
CHANGES IN CASH Consolidated Consolidated Consolidated Conslidated Consolidated Conslidated
- ---------------
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 12 Months 12 Months
------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
NET INCOME (15,841) (94,723) 83,370 495,794 468,601 1,642,337
ADD:
DEPRECIATION EXPENSE 175,515 252,850 260,137 263,368 953,689 1,346,343
AMORTIZATION EXPENSE - 606 606 606 1,704,962
DEDUCT: - - - -
FIXED ASSET PURCHASES - - - - - (3,000,000)
A/R-RECEIPTS (CHILLEMI) 24,750 24,750 24,750 24,750 99,000 99,000
(INC) DEC IN ACCTS REC 75,000 100,000 (50,000) - 125,000 (100,000)
INC (DEC) IN INTERCO REC'S - - - - - -
(INC) DEC IN INVENTORY 30,000 45,000 - - 75,000 (50,000)
INC (DEC) IN ACCTS PAY (245,000) (95,000) (120,000) (110,000) (570,000) 100,000
INC (DEC) IN ACCRUED LIAB'S (98,259) (7,030) (100,000) (100,000) (305,289) (190,728)
INC (DEC) IN INTERCO PAY'S - - - - - -
CHEMICAL BANK S/T LINE OF CREDIT (15,300) (15,900) (16,500) (17,100) (64,800) (98,998)
CAP LEASE PAYMTS (1,713) (1,785) (1,860) (1,939) (7,296) (8,339)
PAYOFF INSURANCE ACCRUAL (54,876) 5,000 5,000 5,000 (39,876) -
BARTLETT PAYOUT - (85,000) - - (85,000) -
PURCHASE-JUST KIDDIE RIDES - (250,000) - - (250,000) -
MANG'T BUYOUT PAY OFF LEGAL (112,500) (182,620) - (450,000) (715,120) -
ACCRD LEGAL (80,000) (130,000) (65,000) - (275,000) (75,000)
JKR DEBT - (185,504) (185,504) (185,504) (556,512) -
JKR cash Rec'd in Acquisition - - - - 53,787 -
CASH REC'D FROM SALE OF: - - - - - -
LYNBROOK, DANBURYT & MEDFORD 60,000 115,000 75,000 25,000 275,000 -
KIDS KINGDOM - 225,000 125,000 - 350,000 -
FLORIDA - - - - - -
SECONDARY OFFERING - - - - - 4,350,000
ACQUIRE ADD'L EQUIPMT - (3,262,500)
TURNPIKE INVENTORY - - - - - -
- - - - - -
BETSON NOTE PAYMENTS (14,707) (41,864) (41,864) (41,864) (140,299) (83,728)
FIRESTONE PAYMENTS 51,308 (111,930) (69,992) (49,430) (180,044) (187,160)
BRIDGE LOAN 1,500,000 - - - 1,500,000
----------------------------------------------------------------------------------------------
CASE GENERATED (USED) 1,278,377 (403,150) (76,856) (141,319) 710,841 2,186,179
--------- ------- ------ ------- ------- ---------
(53,787) JKR Cash
667,054 Net Cash
</TABLE>
- 5 -
<PAGE>
EXHIBIT 6.6
Financial Statements
Just Kiddie Rides, Inc.
Years ended September 30, 1995 and 1994
with Independent Accountants' Review Report
<PAGE>
Just Kiddie Rides, Inc.
Financial Statements (Unaudited)
Years ended September 30, 1995 and 1994
Contents
Independent Accountants' Review Report.................................. 1
Financial Statements (Unaudited)
Balance Sheets.......................................................... 2
Statements of Income.................................................... 3
Statements of Shareholders' Equity...................................... 4
Statements of Cash Flows................................................ 5
Notes to Financial Statements........................................... 6
Supplementary Information (Unaudited)
Independent Accountants' Review Report on Supplementary Information.... 9
Schedules of Direct Ride Expenses...................................... 10
Schedules of Selling, General and Administrative Expenses.............. 11
- 2 -
<PAGE>
[ERNST & YOUNG LLP LETTERHEAD]
Independent Accountants' Review Report
To the Shareholders
Just Kiddie Rides, Inc.
We have reviewed the accompanying balance sheets of Just Kiddie Rides,
Inc. as of September 30, 1995 and 1994, and the related statements of income,
shareholders' equity and cash flows for the years then ended, in accordance with
Statements on Standards for Accounting and Review Services issued by the
American Institute of Certified Public Accountants. All information included in
these financial statements is the representation of the management of Just
Kiddie Rides, Inc.
A review consists principally of inquiries of company personnel and
analytical procedures applied to financial data. It is substantially less in
scope than an audit in accordance with generally accepted auditing standards,
the objective of which is an expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications
that should be made to the accompanying financial statements in order for them
to be in conformity with generally accepted accounting principles.
November 17, 1995
- 3 -
<PAGE>
Just Kiddie Rides, Inc.
Balance Sheets (Unaudited)
<TABLE>
<CAPTION>
September 30,
Assets (Note 6) 1995 1994
----------------------------------
<S> <C> <C>
Current assets:
Cash $ 53,787 $ 66,891
Accounts receivable 500,862 457,968
Inventory 123,772 129,187
Loan receivable from shareholder (Note 4) 67,717 63,287
Prepaid expenses and other current assets 50,535 25,785
------- -------
Total current assets 796,673 743,118
Ride equipment, net of accumulated
depreciation of $532,000 and $329,000 at
September 30, 1995 and 1994, respectively 1,683,709 1,455,908
Other fixed assets, net (Note 3) 255,062 186,551
Other assets 25,044 7,474
---------- ----------
Total assets $2,760,488 $2,393,051
========== ==========
Liabilities and shareholders' equity Current liabilities:
Current portion of notes and loans
payable (Note 6) $742,014 $215,045
Accounts payable (Note 5) 320,033 570,496
Accrued taxes and expenses 403,379 332,981
Customer deposits 41,643 20,548
--------- ---------
Total current liabilities 1,507,069 1,139,070
Notes and loans payable, less current 419,454 616,136
--------- ---------
portion (Note 6)
Total liabilities 1,926,523 1,755,206
Commitment (Note 7)
Shareholders' equity:
Common stock, no par value, 200 shares
authorized, issued and outstanding 200 200
Retained earnings 833,765 637,645
Total shareholders' equity 833,965 637,845
---------- ----------
Total Liabilities and shareholders' equity $2,760,488 $2,393,051
</TABLE>
See independent accountants' review report and accompanying notes.
- 4 -
<PAGE>
Just Kiddie Rides, Inc.
Statements of Income (Unaudited)
<TABLE>
<CAPTION>
Year ended September 30,
1995 1994
----------------------------------
<S> <C> <C>
Revenues:
Equipment sales $4,482,669 $4,046,259
Ride revenue 2,056,46 1,829,744
Management fees 142,497 36,373
Refurbishment fees 19,034 27,302
Leasing fees 78,040 75,600
Commission fees 70,063 29,622
Other 46,182 57,587
--------- ---------
Total revenues 6,895,231 6,102,487
Cost of revenues:
Cost of goods sold 3,169,625 3,051,669
Direct ride expenses 1,531,522 1,216,590
Depreciation - ride equipment 203,404 146,745
--------- ---------
Total cost of revenues 4,904,551 4,415,004
Gross profit 1,990,680 1,687,483
Selling, general and administrative
expenses 1,653,321 1,287,426
Depreciation and amortization - other 57,093 34,354
Interest expense 84,146 108,919
--------- ---------
Net income $ 196,120 $ 256,784
</TABLE>
See independent accountants' review report and accompanying notes.
- 5 -
<PAGE>
Just Kiddie Rides, Inc.
Statements of Shareholders' Equity (Unaudited)
Year ended September 30
<TABLE>
<CAPTION>
Common Retained
Shares Stock Earnings Total
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at October 1, 1993 200 $200 $380,861 $381,061
Net Income - - 256,784 256,784
---------------------------------------------------------------------
Balance at September 30, 1994 200 200 637,645 637,845
Net Income - - 196,120 196,120
---------------------------------------------------------------------
Balance at September 30, 1995 200 $200 $833,765 $833,965
=====================================================================
</TABLE>
See independent accountants' review report and accompanying notes.
- 6 -
<PAGE>
Just Kiddie Rides, Inc.
Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Year ended September 30,
1995 1994
---------------------------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 196,120 $ 256,784
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 260,497 181,099
Amortization of deferred financing costs 1,769 6,714
(Gain) loss on disposal of fix assets (5,177) 3,054
Changes in operating assets and
liabilities:
Accounts receivable (42,894) (341,144)
Inventory 399,828 (59,994)
Prepaid expenses and other current assets (26,519) (32,499)
Other assets (17,570) 27,422
Accounts payable (250,463) 252,778
Accrued taxes and expenses 70,398 294,805
Customer deposits 21,095 14,148
----------------------------------------------
Net cash provided by operating activities 607,084 603,167
Cash flows from investing activities
Proceeds from sale of fixed assets 17,301 9,463
Purchases of fixed assets (123,419) (98,994)
Purchases of ride equipment (395,511) (531,563)
--------- ---------
Net cash used in investing activities (501,629) (621,094)
Cash flows from financing activities
Repayments of obligation under capital - (105,755)
lease
Proceeds from notes payable 29,394 755,000
Repayments of notes payable and line of (16,353) (158,750)
credit
Proceeds from loans payable and line of 242,506 242,026
credit
Repayment of loans payable (369,676) (603,646)
Loan to shareholder, net (4,430) (63,287)
----------------------------------------------
Net cash provided by financing activities (118,559) 65,588
----------------------------------------------
(Decrease) increase in cash (13,104) 47,661
Cash at beginning of year 66,891 19,230
----------------------------------------------
Cash at end of year $ 53,787 $ 66,891
==============================================
Supplemental cash flow information
Interest paid $ 82,000 $ 102,000
==============================================
Income taxes paid $ 11,000 $ 3,000
==============================================
</TABLE>
See independent accountants' review report and accompanying notes.
- 7 -
<PAGE>
Just Kiddie Rides, Inc.
Notes to Financial Statements (Unaudited)
September 30, 1995
1. Description of Business
Just Kiddie Rides, Inc. (the "Company") was incorporated on February 24, 1989
in the State of New York and began operations during 1989. The Company owns,
operates and sells children's coin-operated amusement rides.
2. Summary of Significant Accounting Policies
Concentration of Credit Risk
The Company maintains cash balances at an institution insured up to $100,000 by
the Federal Deposit Insurance Corporation (FDIC). At times during the year,
these balances exceeded insured levels. The Company sells its products to
various companies located throughout the United States. Credit losses have
consistently been within management's expectations.
Inventory
Inventory, consisting of ride equipment held for sale and parts, is stated at
the lower of cost (first-in, first-out) or market.
Ride Equipment and Other Fixed Assets
Depreciation and amortization are provided for by the straight-line method over
the estimated useful lives of the related assets ranging from five to ten years.
Income Taxes
The Company, with the consent of its shareholders, has elected under the
Internal Revenue Code, to be a Subchapter "S" corporation, effective April 1,
1991. In lieu of corporation income taxes, the shareholders of an S corporation
are taxed on their proportionate share of the Company's taxable income.
Therefore, no provision or liability for Federal income taxes has been included
in the accompanying financial statements.
3. Other Fixed Assets
Fixed assets are recorded at cost and consist of the following:
1995 1994
------------------------
Furniture and fixtures $ 43,189 $ 26,340
Autos and trucks 126,266 84,312
Computers and peripherals 118,830 76,659
Leasehold improvements and equipment 68,354 58,033
------------------------
356,639 245,344
- 8 -
<PAGE>
Less: Accumulated depreciation and amortization (101,577) (58,793)
-----------------------
$255,062 $186,551
=======================
4. Loan Receivable from Shareholder
During 1994, the majority stockholder borrowed $60,000 from the Company. This
loan bears interest at 7% and is payable upon demand.
5. Major Supplier
In prior years, the Company obtained the majority of its coin-operated amusement
rides from one source. Currently, the company purchases its coin-operated
amusement rides primarily from two manufacturers as well as a smaller percentage
from others. The Company's outstanding obligations on these purchases amounted
to approximately $320,000 and $570,000 at September 30, 1995 and 1994,
respectively.
6. Notes and Loans Payable
The Company's outstanding notes and loan balances were as follows:
September 30
1995 1994
----------------------------------
Notes - trucks $ 55,469 $ 42,428
Other short term notes payable 444,416 -
Line of credit - bank 73,000 -
Term loan - bank 461,250 596,250
Term loan - Fun Vending, Inc. 127,333 192,503
----------------------------------------
1,161,468 831,181
Less current portion 742,014 215,045
----------------------------------------
Long-term portion $ 419,454 $616,136
========================================
At September 30, 1995, the principal maturities of notes, the line of credit and
long-term debt in each of the next five years are as follows:
1996 $ 742,014
1997 206,824
1998 144,665
1999 63,009
2000 4,956
----------
$1,161,468
On February 18, 1994, the Company executed a term loan agreement to borrow
$675,000 from a bank. The note is payable over a 5 year term in 60 consecutive
monthly principal installments of $11,250, plus interest applied during the note
payable period at a fixed rate of 9%. The note payable is collateralized by
- 9 -
<PAGE>
substantially all of the Company's tangible and intangible assets, and the
personal guarantees of the two major shareholders. This facility was used to
repay all prior outstanding debt.
The Company had a $150,000 line of credit with the same bank at September 30,
1994. In February 1995, this line of credit was renewed and increased to allow
maximum borrowings of $500,000. Borrowings of $73,000 were outstanding under
this facility at September 30, 1995, and the line of credit expires on January
31, 1996. Management expects that this line of credit will be renewed. The
Company must maintain certain financial covenants and the Company was in
compliance with such covenants, as amended at September 30, 1995.
During 1995, the Company signed several short-term note payable agreements with
two financing companies for the purchase of inventory and ride equipment. The
Company received purchase discounts on these purchases ranging from 3 to 5
percent. The financing companies remitted payment for such purchases directly to
the manufacturer at the discounted price. The Company's notes payable to the
financing companies consist of the undiscounted purchase price for such
inventory, broken down into two or three equal monthly payments. The notes
payable are scheduled to mature at various dates from October through December
1995.
On June 10, 1994, the Company executed a note agreement for $208,000 with Fun
Vending, Inc. for the acquisition of ride equipment. The note is payable in 36
monthly installments of approximately $6,500, including interest at a fixed rate
of 8% per year.
The Company has entered into several agreements to finance the acquisition of
trucks. The related notes are payable in monthly installments with varying rates
of interest.
7. Commitment
The Company leases its office and warehouse space under an operating lease. Rent
expense for the years ended September 30, 1995 and 1994 was approximately
$74,000 and $63,000, respectively. The future minimum annual lease payments at
September 30 are as follows:
1996 $42,000
1997 37,000
1998 15,000
- 10 -
<PAGE>
[ERNST & YOUNG LLP LETTERHEAD]
Independent Accountants' Review Report
on Supplementary Information
To the Shareholders
Just Kiddie Rides, Inc.
Our reviews have been made primarily for the purpose of expressing limited
assurance that there are no material modifications that should be made to the
financial statements in order for them to be in conformity with generally
accepted accounting principles. The schedules of direct ride expenses and
selling, general and administrative expenses are presented for purposes of
additional analysis and are not a required part of the financial statements.
Such information has been subjected to the inquiry and analytical procedures
applied in our reviews of the financial statements, and we are not aware of any
material modifications that should be mace to the information.
November 17, 1995
- 11 -
<PAGE>
Just Kiddie Rides, Inc.
Schedules of Direct Ride Expenses
Year ended September 30
1995 1994
------------------------------
Commissions $1,204,883 $ 993,080
Repairs and maintenance 15,672 4,933
Parts and supplies 117,544 64,928
Licenses and permits 10,473 7,923
Shipping and delivery 83,648 89,041
Direct labor 99,302 56,685
--------------------------------------------
Total $1,531,522 $1,216,590
See independent accountants' review report on supplementary information.
- 12 -
<PAGE>
Just Kiddie Rides, Inc.
Schedules of Selling, General and Administrative Expenses
Year ended September 30
1995 1994
--------------------------------
Advertising, promotion and trade shows $ 106,922 $ 119,282
Automobile and truck expense 112,833 109,576
Bank charges 8,615 5,665
Computer software and supplies 15,638 6,179
Consulting fees 14,500 28,500
Donations 3,400 2,275
Dues and subscriptions 4,247 2,611
Equipment leasing 2,836 582
Insurance 44,674 55,801
Heat, light and power 15,508 16,603
Office expense 45,926 34,712
Payroll taxes 72,851 53,210
Postage and delivery 51,900 27,864
Professional fees 58,350 31,096
Royalty fees 33,311 20,283
Rents 74,355 63,199
Repairs and maintenance - office 16,930 19,900
Sales fees 5,461 3,681
Salaries 780,451 513,857
Taxes 12,504 3,118
Telephone 70,875 80,028
Travel and entertainment 92,738 75,748
Uniforms 684 2,085
Other 7,812 11,571
--------------------------------
Total $1,653,321 $1,287,426
See independent accountants' review report on supplementary information.
- 13 -
<PAGE>
Exhibit 6.7
None
<PAGE>
Exhibit 6.8
Turnpike Distributors, Inc. is a party to a stipulation of settlement dated
August 15, 1996, in connection with a court proceeding having the following
caption: Joseph & Mildred C. Stern, as co-trustees, Landlord vs. Turnpike
Distributors, Inc., Tenant, filed in the district court in the County of Suffolk
in the State of New York (Index No. 473-96), pursuant to which a warrant of
eviction has been stayed, conditioned upon the defendant making scheduled
payments in accordance with the stipulation of settlement.
The Borrowers are currently involved in legal proceedings involving alleged
personal injuries which are generally considered routine and incidental to their
business.
Childrobics is a party to a lawsuit alleging $4,500 due to a third party for a
recruiting fee.
Substantially all of the creditors of the Borrowers have threatened to initiate
legal proceedings if monies owed to them are not paid forthwith. Most of these
obligations arise from ongoing business operations and extension of credit by
service and asset suppliers, including lease obligations with respect to the
locations of the Borrowers.
<PAGE>
Exhibit 6.11
Childrobics has not paid quarterly taxes for the past two quarters in the
aggregate amount of approximately $150,000.
The Borrowers have failed to file (i) a City of New York Rent Tax Return in the
approximate amount of $10,000, (ii) Florida state personal property tax returns,
(iii) a State of New York estimated quarterly franchise tax return in the amount
of approximately $6,150, and (iv) a State of New York annual franchise return
for 1995 in the amount of $9,966 which was filed by Childrobics, but returned by
the State of New York.
<PAGE>
Exhibit 6.13
None
<PAGE>
Exhibit 6.17
A fee of $20,000 to Douglas Fox and a fee of $20,000 to Conrad Gunther is due in
connection with the negotiation and execution of the Termination Agreement, the
Merger Agreement, the Employment Agreement with Gerard Reda and the Financing
Agreement.
<PAGE>
EXHIBIT 6.20
CHILDROBICS, INC.
Listing of Outstanding Options & Warrants
and Share Price Guarantee
As of 9/3/96
<TABLE>
<CAPTION>
Listing of Date Proceeds
all outstanding options: Granted Term Options Price to Company
- ------------------------ ------- ---- ------- ------- ----------
<S> <C> <C> <C> <C> <C>
Casaccio 7/11/95 10 Years 50,000 $.06875 $34,375(1)
Melnick 7/11/95 10 Years 50,000 $.06875 $34,375(1)
Bartlett 7/11/95 10 Years 50,000 $.06875 $34,375(1)
Non-Qualified Option to: 8/16/95 5 years 75,000 $1.00 $75,000
John Paul DeVito
Below Market Options:
Casaccio 7/11/95 10 Years 375,000 $0.01 $3,750(1)
Melnick 7/11/95 10 Years 375,000 $0.01 $3,750(1)
Gunther 7/3/96 10 Years 200,000 $0.10 $20,000
Fox 7/3/96 10 Years 200,000 $0.10 $20,000
Gunther 10/1/96 10 Years 500,000 $0.10 $50,000
Fox 10/1/96 10 years 500,000 $0.10 $50,000
Total Option Outstanding 2,375,000 325,625
--------- ---------
Underwriter's Unit Purchase 6/14/94 6/14/95- 250,000 $6.60 $1,650,000
--------- ---------
Option 6/14/99
Listing of all
Outstanding Warrants:
From Initial Public Offering:
Class A Warrants 6/14/94 6/14/95- 2,875,000 $4.50 $12,937,000
6/14/99
Class A Warrants (to Bridge 6/14/94 6/14/95- 175,000 $4.50 $787,500
Loanholders) 6/14/99
Class B Warrants (to Bridge 6/14/94 6/14/95- 175,000 $9.00 $1,575,000
Loanholders) 6/14/99
<PAGE>
From Private Placement of
3/16/96(3)
Class C Warrants 3/16/96 Expires earlier of 1,000,000 $0.70 $700,000
Class D Warrants 3/16/96 4/1/99 or 90 1,000,000 $0.70 $900,000
days after
registration
statement
becomes effective
(3) Granted voting proxy to board
of directors
Sterling Equities, Norwood 10/3/97 7 years 5,000,000 $ 100
---------- ------------
Capital
Total Warrants outstanding 10,225,000 16,900,100
---------- ----------
Total Options and Warrants 12,850,000 $18,875,725
outstanding ---------- -----------
</TABLE>
- -------------------------
The company also guaranteed a $4 market share price for two years after the
acquisition of the below listed companies except that the maximum payout is $2
per share:
Medford Amusement Corp. 3/3/95 2 years 375,000
(Kids Kingdom)
FZL Corp. (Fun Station Lynbrook) 4/4/95 2 years 65,000(2)
Tunnels & Tubes for Fun 5/28/96 2 years 65,000
(Tunnels & Tubes)
(2) Company retained voting rights on any
additional shares to be issued
(1) Terminate when employment ends
- 2 -
<PAGE>
EXHIBIT 6.22
EMPLOYMENT AGREEMENT
AGREEMENT dated this 30th day of September, 1996 between Childrobics,
Inc., a New York corporation with offices at 200 Smith Street, Farmingdale, New
York 11735 (the "Company"), and Gerard A. Reda residing at 15 Greenwood Lane,
St. James, New York 11780 ("Executive").
WITNESSETH:
WHEREAS, the Company desires to employ Executive to serve as the
Company's President and Chief Executive Officer and to manage the day-to-day
affairs and operations of the Company and to perform such other services as
typically performed by executive senior management, and Executive desires to
accept such employment, all on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the receipt of which the
parties acknowledge, the parties agree as follows:
1. Employment and Duties
The Company hereby employs Executive for the term of this
Agreement and Executive hereby accepts such employment as the President and
Chief Executive Officer of the Company on the terms and conditions set forth in
this Agreement.
2. Employment Term
Unless terminated at an earlier date pursuant to the terms of
this Agreement, the term of employment hereunder (the "Employment Term") shall
be five years, commencing on the date hereof (the "Commencement Date").
3. Services
a. Executive shall perform such duties as typically performed
by a President and Chief Executive Officer of a publicly-held corporation, which
duties shall include, but shall not be limited to, the management of the
day-to-day affairs and operations of the Company including the hiring of all
personnel and as otherwise shall be consistent with the provisions of the
By-laws in effect on the date hereof, subject to the direction of the Board of
Directors of the Company (the "Board"). Executive shall serve the Company
faithfully and to the best of his ability and shall devote his full business
time and attention to the affairs of the Company, subject to reasonable absences
for vacation and illness as determined by the Board.
b. The headquarters for the performance of Executive's
services during the term of this Agreement shall be the principal executive
offices of the Company in Farmingdale, New York, unless otherwise mutually
agreed by Executive and the Company, subject to such reasonable travel in the
performance of Executive's duties as the business of the Company may require.
c. During the term of this Agreement, the Company shall use
its best efforts to nominate Executive to serve as a member of the Board and
such other committees of the Board to which Executive may be appointed.
<PAGE>
4. Compensation and Expense Reimbursement
a. Salary. Executive shall be entitled to receive for all
services rendered by Executive in any capacity an annual salary at the rate of
$250,000 (payable in equal installments in accordance with the then prevailing
practices of the Company, but in no event less frequently than monthly), subject
to adjustment upon terms agreed upon by the Board and Executive after the first
anniversary of the Commencement Date.
b. Expenses. Executive will be reimbursed for all reasonable
and necessary expenses incurred by Executive in carrying out the duties
contemplated under this Agreement, in accordance with then prevailing Company
procedure, as such practices may be changed from time to time by the Board.
c. Stock Options. Executive shall be granted options at the
discretion of the Board based upon the performance of the Company and the
performance of Executive.
d. Vacations. Executive shall be entitled to four (4) weeks
paid vacation per year, to be taken at such times in accordance with the
then prevailing Company practices for Executive.
e. Benefits. Executive shall be entitled to participate in all
group health and other insurance programs and all other fringe benefit or
retirement plans or other compensatory plans which the Company currently makes,
or may hereafter elect to make, available to its executives generally on terms
no less favorable than those provided to other executives which the Company
shall establish, in addition to the supplemental disability set forth in Section
7 hereof; provided, however, that Executive shall receive such health and other
insurance benefits substantially similar to those currently being received by
him from Just Kiddie Rides, Inc.
In addition, the Company shall purchase life insurance in the amount of
$2,000,000 on the life of Executive, the beneficiary of which shall be named by
Executive.
f. Automobile. The Company shall provide the Executive, at the
Company's expense, with use of an automobile similar to the automobile currently
used by Executive, which automobile shall include a cellular phone.
5. Termination for Cause
In the event of: (a) fraud against the Company, conviction of
a felony, the intentional disclosure of confidential information (unless
required by applicable law or court or other order) having a material adverse
effect on the Company's operations or the market price of the Company's stock,
aiding a competitor to the detriment of the Company, its subsidiaries or
affiliates, intentionally engaging in conduct which brings disrepute or
otherwise is damaging to the reputation of the Company, its subsidiaries or
affiliates, performing competitive services or acting in a competitive capacity
for any other person, firm or corporation without the prior written consent of
the Company; or (b) willful misconduct, gross negligence, prolonged and
unexcused (subject to Paragraph 6 hereof) absenteeism by Executive in connection
with Executive's employment hereunder, a breach by Executive of the terms of
this Agreement which has a material adverse effect on the Company, or
Executive's
- 2 -
<PAGE>
willful or intentional failure to implement the reasonable business requests or
directions of the Board, the Company shall have the right to give Executive a
termination notice, specifying the nature of the breach or failure. If such
termination notice is given pursuant to clause (a) above, the Employment Term
shall terminate upon the giving of such notice. If such termination notice is
given pursuant to clause (b) above, the Employment Term shall terminate thirty
(30) days after the giving of such notice if the circumstances described in such
notice have not been remedied by Executive within such thirty (30)-day period.
Upon the effective date of termination of the Employment Term pursuant to this
Paragraph 5, the Company shall have no further obligation to Executive
hereunder, except for (i) the provisions of Paragraphs 8 and 10, and (ii)
accrued and unpaid salary, and other previously earned, accrued and unpaid
benefits from the Company and its employee benefit plans through the date of
termination.
6. Termination without Cause
If the Company shall terminate Executive's employment other
than for cause, death or disability:
a. The Company shall pay Executive accrued and unpaid salary,
and other previously earned, accrued and unpaid benefits from the Company and
its employee benefit plans through the date of termination (the "Termination
Date").
b. The Company shall pay as liquidated damages to Executive
and in lieu of any further salary payments hereunder for periods after the
Termination Date, a one-time payment equal to 250% of Executive's annual salary
as of the Termination Date, which amount shall be payable within one year of the
Termination Date;
c. In addition to the liquidated damages amounts that are
payable to Executive, the following shall apply: (i) Executive shall continue to
participate in, and accrue benefits under all retirement plans or other
compensatory plan of the Company for the remaining term of this Agreement as if
the termination of employment of Executive had not occurred (with Executive
being deemed to receive annually for the purposes of such plans Executive's then
annual salary as of the Termination Date under Section 4 of this Agreement),
except to the extent that such continued participation and accrual is expressly
prohibited by law, or to the extent such plan constitutes a "qualified plan"
under Section 401 of the Internal Revenue Code of 1986, as amended ("Code"), by
the terms of the plan, in which case the Company shall provide Executive an
equivalent, unfunded, non-qualified benefit; (ii) Executive shall be entitled to
continue to receive all other employee benefits and then existing fringe
benefits referred to in Section 4 hereof for the remaining term of this
Agreement as if the termination of employment had not occurred; and (iii) all
insurance or other provisions for indemnification, defense or hold-harmless of
officers or directors of the Company that are in effect on the date the notice
of termination is sent to Executive shall continue for the benefit of Executive
with respect to all of his acts and omissions while an officer or director as
fully and completely as if such termination had not occurred, and until the
final expiration or running of all periods of limitation against action which
may be applicable to such acts or omissions.
If any payment or benefit to Executive under this Agreement would be
considered a "parachute payment" within the meaning of Section 280G(b)(2) of the
- 3 -
<PAGE>
Code and if, after reduction for any applicable federal excise tax imposed by
Section 4999 of the Code ("Excise Tax") and federal income tax imposed by the
Code, Executive's net proceeds of the amounts payable and the benefits provided
under this Agreement would be less than the amount of the Executive's net
proceeds resulting from the payment of the Reduced Amount (hereinafter defined),
after reduction for federal income taxes, then the amount payable and the
benefits provided under this Agreement shall be limited to the Reduced Amount.
The "Reduced Amount" shall be the largest amount that could be received by
Executive under this Agreement such that no amount paid to Executive under this
Agreement and any other agreement, contract or understanding heretofore or
hereafter entered into between Executive and the Company ("Other Agreements")
and any formal or informal plan or other arrangement heretofore or hereafter
adopted by the Company for the direct or indirect provision of compensation to
Executive (including groups or classes of participants or beneficiaries of which
Executive is a member), whether or not such compensation is deferred, is in
cash, or is in the form of a benefit to or for Executive ("Benefit Plan") would
be subject to the Excise Tax. In the event that the amount payable to Executive
shall be limited to the Reduced Amount, then Executive shall have the right, in
Executive's sole discretion, to designate those payments or benefits under this
Agreement, any other agreements, and/or any Benefit Plans, that should be
reduced or eliminated so as to avoid having the payment to Executive under this
Agreement be subject to the Excise Tax.
7. Illness or Incapacity
In the event of any disability, illness or other incapacity
which prevents Executive from performing services as contemplated herein, the
Company shall continue to pay to Executive his annual salary at the time of
incapacity until disability insurance policy of up to $10,000 per month, which
shall be maintained and paid for by the Company in addition to the benefits set
forth in Section 4(d) hereof, becomes effective. If Executive shall be
incapacitated for more than 120 consecutive days or 180 days in any consecutive
12-month period, the Company shall have the right to terminate this Agreement
upon 10 days' prior written notice with no further liability, except for accrued
and unpaid salary, and other previously earned, accrued and unpaid benefits from
the Company and its employee benefit plans through the date of such termination,
provided that such termination shall not prejudice any rights of Executive under
any disability policies being maintained by the Company for Executive under the
terms of this Agreement. In the event that the Executive is disabled, the
Company shall continue to provide the spouse and dependents of Executive, at the
expense of the Company, with health and life insurance for the term of this
Agreement. Notwithstanding any such termination, the provisions of Paragraph 9
will continue to apply.
8. Death
This Agreement shall terminate automatically upon the death of
Executive. In such event, the Company shall pay the estate of Executive, in
addition to any amounts to which Executive's estate would otherwise be entitled
under the Company's retirement plans and group life insurance policy, within 30
days after the date of death, all compensation earned under Paragraph 4 through
the date of termination. The Company shall continue to provide the spouse and
dependents of Executive, at the expense of the Company, with health insurance
then provided generally to dependents of employees of the Company, for a period
of one (1) year following the death of the Executive. Neither the estate or
- 4 -
<PAGE>
other legal representative of the Executive nor the Company shall have any
further rights or obligations under this Agreement.
9. Non-Competition and Trade Secrets
a. Confidentiality and Work Product. During the term of this
Agreement and thereafter without limitation of time, Executive shall not
knowingly divulge, furnish, or make available to any third person, company,
corporation or other organization (including but not limited to customers,
competitors or government officials), except in the course of performing his
duties as an Executive hereunder or with the Company's prior written consent,
trade secrets or other confidential information concerning the Company, its
subsidiaries or affiliates or the business of any of the foregoing, including
without limitation, confidential methods of operation and organization and
confidential sources of supply and customer lists, but Executive may make
disclosures as required by applicable law or orders without prior written notice
to the Company. For purposes of this Paragraph 9, information shall not be
deemed confidential if it (i) is within the public domain or (ii) becomes
publicly known other than through disclosure by Executive in violation of this
provision.
b. Non-Competition. During the Employment Term and for a
period of one (1) year thereafter, Executive agrees not to directly or
indirectly, own, control, manage, operate, participate or invest in, including
as an officer, director, shareholder, employee, consultant, agent, or otherwise
be connected with, in any manner, any business, enterprise or venture which is
engaged in the children's entertainment business, including, without limitation,
the sale or lease of vending machines, and any other business engaged in by the
Company during the Employment Term, except that nothing in this subparagraph
shall be deemed to prohibit the acquisition or holding of not more than five
percent (5%) of the shares or other securities of a publicly-owned corporation
if such securities are traded on a national securities exchange or over the
counter.
c. Solicitation. During the Employment Term and for a period
of one (1) year thereafter, Executive agrees not to directly or indirectly
solicit, employ or retain or arrange to have any other person, firm or other
entity solicit, employ, retain, or otherwise participate in tile employment or
retention of, any person who is then, or who has been, within the preceding six
months, an employee, consultant, technician or engineer of the Company, its
subsidiaries or affiliates.
d. In the event Executive shall violate any provisions of this
Paragraph 9 (which provisions Executive hereby acknowledges are reasonable and
equitable), Executive shall no longer be entitled to and hereby waives any and
all rights to any termination payment under this Agreement.
10. Indemnification and Insurance
a. The Company shall indemnify and hold harmless, and in any
threatened or filed action or proceeding, defend Executive against all expenses,
liabilities and losses (including attorneys' fees, judgments and fines, and
amounts paid or to be paid in any settlement) reasonably incurred or suffered by
Executive in connection with Executive's services as a director or officer of
the Company to the full extent permitted by the Bylaws of the Company as in
effect on the Commencement Date or, if greater, as permitted by applicable state
- 5 -
<PAGE>
law; provided that the indemnity offered shall never be greater than permitted
by applicable state law. To the extent that a change in law permits greater
indemnification than is currently provided by the Bylaws of the Company and a
corresponding amendment shall not be made in said Bylaws of the Company, it is
the intent of the parties hereto that Executive shall enjoy the greater benefits
so afforded by such change.
b. Executive shall be covered by a policy or policies of
insurance, in reasonable and customary amounts, with respect to: (i) directors'
and officers' liability; (ii) errors and omissions; and (iii) general liability.
Executive shall be a named insured or additional insured under such policies,
without right of subrogation against him. The obligations set forth in this
Paragraph 10 shall survive any termination of this Agreement.
c. Executive's rights to indemnification and insurance
pursuant to this Paragraph 10 shall not be exclusive of any other right which
Executive may have or hereafter acquire under any statute, or policies or
provisions of the Company. This Paragraph 10 shall not be deemed to affect any
rights to subrogation which may exist in any policy of directors' and officers'
liability.
11. Separability
Executive agrees that the provisions of Paragraph 8 hereof
constitute independent and separable covenants, for which Executive is receiving
consideration which shall survive the termination of employment and which shall
be enforceable by the Company notwithstanding any rights or remedies the Company
may have under any other provision hereof.
12. Specific Performance
Executive acknowledges that:
(i) the services to be rendered under the provisions of this
Agreement are of a special character and it would be difficult to replace such
services;
(ii) the Company is relying on the covenants contained herein,
including, without limitation, those contained in Paragraph 9 above, as a
material inducement for entering into this Agreement;
(iii) the Company may be damaged if the provisions thereof
are not specifically enforced; and
(iv) the award of monetary damages may not adequately protect
the Company in the event of a breach hereof by Executive.
By virtue thereof, Executive agrees and consents that if
Executive breaches any of the provisions of this Agreement, the Company, in
addition to any other rights and remedies available under this Agreement or
otherwise, shall (without any bond or other security being required and without
the necessity of proving monetary damages) be entitled to a temporary and/or
permanent injunction to be issued by a court of competent jurisdiction
restraining Executive from committing or continuing any violation of this
Agreement, or any other appropriate decree of specific performance. Such
remedies shall not be exclusive and shall be in addition to any other remedy
which the Company may have.
- 6 -
<PAGE>
13. Miscellaneous
a. Entire Agreement; Amendment. This Agreement constitutes the
entire employment agreement between the parties and may not be modified, amended
or terminated (other than pursuant to the terms hereof) except by a written
instrument executed by the parties hereto. All other agreements between the
parties pertaining to the employment or remuneration of Executive not
specifically contemplated hereby or incorporated or merged herein are terminated
and shall be of no further force or effect.
b. Assignment. This Agreement is not assignable by Executive
without the prior written consent of the Company and any purported assignment by
Executive of Executive's rights and/or obligations under this Agreement shall be
null and void. This Agreement may be assigned by the Company at any time, upon
delivery of written notice to Executive (with Executive's consent, not to be
unreasonably withheld), to any successor to the business of the Company, or to
any subsidiaries or affiliates of the Company. In the event that Executive does
not consent to the assignment of this Agreement, the Company shall have the
right to terminate this Agreement automatically with no further liability,
except for accrued and unpaid salary, and other previously earned, accrued and
unpaid benefits from the Company and its employee benefit plans.
c. Waivers, etc. No waiver of any breach or default hereunder
shall be considered valid unless in writing, and no such waiver shall be deemed
a waiver of any subsequent breach or default of the same or similar nature. The
failure of any party to insist upon strict adherence to any term of this
Agreement on any occasion shall not operate or be construed as a waiver of the
right to insist upon strict adherence to that term or any other term of this
Agreement on that or any other occasion.
d. Provisions Overly Broad. In the event that any term or
provision of this Agreement shall be deemed by a court of competent jurisdiction
to be overly broad in scope, duration or area of applicability, the court
considering the same shall have the power and hereby is authorized and directed
to modify such term or provision to limit such scope, duration or area, or all
of them, so that such term or provision is no longer overly broad and to enforce
the same as so limited. Subject to the foregoing sentence, in the event that any
provision of this Agreement shall be held to be invalid or unenforceable for any
reason, such invalidity or unenforceability shall attach only to such provision
and shall not affect or render invalid or unenforceable any other provision of
this Agreement.
e. Notices. Any notice permitted or required hereunder shall
be in writing and shall be deemed to have been given on the date of delivery or,
if mailed by certified mail, postage prepaid, return receipt requested,
documented overnight courier, or by facsimile transmission, on the date mailed
or transmitted.
(i) If to Executive to:
Gerard A. Reda at his address
set forth in the preamble to this Agreement
with a copy to:
- 7 -
<PAGE>
Joan Agestino, Esq.
Simonetti & Agnostino
250 Old Country Road
Garden City, New York 11530
(ii) If to the Company to:
the address set forth in the preamble
to this Agreement
Attention: President
with a copy to:
Squadron, Ellenoff, Plesent & Sheinfeld, LLP
551 Fifth Avenue
New York, New York 10176
Attention: Kermeth R. Koch, Esq.
Telecopy: (212) 697-6686
f. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York governing contracts made and
to be performed in New York without regard to conflict of law principles
thereof.
g. This Agreement shall be binding upon and inure to the
benefit of the parties and their respective heirs, executors, administrators,
personal representatives, successors and permitted assigns.
h. This Agreement may be executed in counterparts, each of
which shall be deemed an original, and each party may become a party hereto by
executing a counterpart hereof. This Agreement and any counterpart so executed
shall be deemed to be one and the same instrument. It shall not be necessary in
making proof of this Agreement or any counterpart hereof to produce or account
for any of the other counterparts.
- 8 -
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
EXECUTIVE CHILDROBICS, INC.
/s/ Gerard A. Reda By: /s/ Gerard A. Reda
- ---------------------- ------------------------
Gerard A. Reda Name: Gerard A. Reda
Title: President
- 9 -
<PAGE>
EXHIBIT A
CHILDROBICS, INC.
NONQUALIFIED STOCK OPTION LETTER AGREEMENT
TO: Gerard A. Reda
We are pleased to inform you that you have been selected by the Plan
Administrator of the Childrobics, Inc. (the "Company") 1996 Stock Incentive Plan
(the "Plan") to receive a nonqualified option for the purchase of shares of the
Company's common stock, $.01 par value, at an exercise price of $.01 per share
(the "exercise price"). A copy of the Plan is attached and the provisions
thereof, including, without limitation, those relating to withholding taxes, are
incorporated into this Agreement by reference.
The terms of the option are as set forth in the Plan and in this
Agreement. The most important of the terms set forth in the Plan are summarized
as follows:
Term. The term of the option is ten years from date of grant, unless
sooner terminated.
Exercise. During your lifetime only you can exercise the option. The
Plan also provides for exercise of the option by the personal representative of
your estate or the beneficiary thereof following your death. You may use the
Notice of Exercise in the form attached to this Agreement when you exercise the
option.
Payment for Shares. The option may be exercised by the delivery of:
(a) Cash, personal check (unless at the time of exercise the Plan
Administrator determines otherwise), or bank certified or cashier's checks;
(b) Unless the Plan Administrator in its sole discretion determines
otherwise, shares of the capital stock of the Company held by you having a fair
market value at the time of exercise, as determined in good faith by the Plan
Administrator, equal to the exercise price;
(c) Unless the Plan Administrator in its sole discretion determines
otherwise, a properly executed Notice of Exercise, together with instructions to
the Company to withhold from the shares that would otherwise be issued upon
exercise that number of shares having a fair market value equal to the option
exercise price; or
(d) Unless the Plan Administrator in its sole discretion determines
otherwise, a properly executed Notice of Exercise, together with irrevocable
instructions to a broker to promptly deliver to the Company the amount of sale
or loan proceeds to pay the exercise price.
Termination. The option will terminate immediately upon termination for
cause, as defined in the Plan, or three months after cessation of your
relationship with the Company or an Affiliate thereof, unless cessation is due
to death or total disability, in which case the option shall terminate 12 months
after cessation of such relationship.
- 10 -
<PAGE>
Transfer of Option. The option is not transferable except by will or by
the applicable laws of descent and distribution or pursuant to a qualified
domestic relations order.
Vesting. The option is vested according to the following schedule:
Period of Optionee's Continuous
Relationship with the Company
or Affiliate from the Date the Portion of Total Option
Option is Granted which is Exercisable
Date of Grant. The date of grant of the option is __________________.
YOUR PARTICULAR ATTENTION IS DIRECTED TO SECTION 8 OF THE PLAN WHICH
DESCRIBES CERTAIN IMPORTANT CONDITIONS RELATING TO FEDERAL AND STATE SECURITIES
LAWS THAT MUST BE SATISFIED BEFORE THE OPTION CAN BE EXERCISED AND BEFORE THE
COMPANY CAN ISSUE ANY SHARES TO YOU. THE COMPANY HAS NO OBLIGATION TO REGISTER
THE SHARES THAT WOULD BE ISSUED UPON THE EXERCISE OF YOUR OPTION, AND IF IT
NEVER REGISTERS THE SHARES, YOU WILL NOT BE ABLE TO EXERCISE THE OPTION UNLESS
AN EXEMPTION FROM REGISTRATION IS AVAILABLE. AT THE PRESENT TIME, EXEMPTIONS
FROM REGISTRATION UNDER FEDERAL AND STATE SECURITIES LAWS ARE VERY LIMITED AND
MIGHT BE UNAVAILABLE TO YOU PRIOR TO THE EXPIRATION OF THE OPTION. CONSEQUENTLY,
YOU MIGHT HAVE NO OPPORTUNITY TO EXERCISE THE OPTION AND TO RECEIVE SHARES UPON
SUCH EXERCISE. IN ADDITION, YOU SHOULD CONSULT WITH YOUR TAX ADVISOR CONCERNING
THE RAMIFICATIONS TO YOU OF HOLDING OR EXERCISING YOUR OPTIONS OR HOLDING OR
SELLING THE SHARES UNDERLYING SUCH OPTIONS.
You understand that, during any period in which the shares which may be
acquired pursuant to your option are subject to the provisions of Section 16 of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") (and you
yourself are also so subject), in order for your transactions under the Plan to
qualify for the exemption from Section 16(b) of the Exchange Act provided by
Rule 16b-3 promulgated under the Exchange Act, a total of six months must elapse
between the grant of the option and the sale of shares underlying the option.
- 11 -
<PAGE>
Please execute the Acceptance and Acknowledgement set forth below on
the enclosed copy of this Agreement and return it to the undersigned.
Very truly yours,
CHILDROBICS, INC.
By: _______________________________
Name:
Title:
- 12 -
<PAGE>
ACCEPTANCE AND ACKNOWLEDGEMENT
I, a resident of the State of ____________, accept the stock option
described above granted under the Childrobics, Inc. 1996 Stock Incentive Plan
(the "Plan"), and acknowledge receipt of a copy of this Agreement, including a
copy of the Plan. I have read and understand the Plan, including the provisions
of Section 8 thereof.
Dated: _________________________
________________________________ ________________________________
Taxpayer I.D. Number Signature
By his or her signature below, the spouse of the Optionee, if such
Optionee is legally married as of the date of such Optionee's execution of this
Agreement, acknowledges that he or she has read this Agreement and the Plan and
is familiar with the terms and provisions thereof, and agrees to be bound by all
the terms and conditions of this Agreement and the Plan.
Dated: _________________________
________________________________
Spouse's Signature
________________________________
Printed Name
- 13 -
<PAGE>
NOTICE OF EXERCISE
The undersigned, pursuant to a(n) [incentive] [nonqualified] Stock
Option Letter Agreement (the "Agreement") between the undersigned and
Childrobics, Inc. (the "Company"), hereby irrevocably elects to exercise
purchase rights represented by the Agreement, and to purchase thereunder shares
(the "Shares") of the Company's common stock, par value $.01 per share ("Common
Stock"), covered by the Agreement and herewith makes payment in full therefor.
1. If the sale of the Shares and the resale thereof has not, prior to
the date hereof, been registered pursuant to a registration statement filed and
declared effective under the Securities Act of 1933, as amended (the "Act"), the
undersigned hereby agrees, represents, and warrants that:
(a) the undersigned is acquiring the Shares for his or her own
account (and not for the account of others), for investment and not with a view
to the distribution or resale thereof;
(b) by virtue of his or her position, the undersigned has
access to the same kind of information which would be available in a
registration statement filed under the Act;
(c) the undersigned is a sophisticated investor;
(d) the undersigned understands that he or she may not sell or
otherwise dispose of the Shares in the absence of either (i) a registration
statement filed under the Act, or (ii) an exemption from the registration
provisions thereof; and
(e) The certificates representing the Shares may contain a
legend to the effect of subsection (d) of this Section 1.
2. If the sale of the Shares and the resale thereof has been
registered pursuant to a registration statement filed and declared effective
under the Act, the undersigned hereby represents and warrants that he or she
has received the
- 14 -
<PAGE>
applicable prospectus and a copy of the most recent annual report, as well as
all other material sent to shareholders generally.
3. The undersigned acknowledges that the number of shares of Common
Stock subject to the Agreement is hereafter reduced by the number of shares of
Common Stock represented by the Shares.
Very truly yours,
------------------------------------
(type name under signature line)
Social Security No. ________________
Address: ___________________________
------------------------------------
- 15 -
<PAGE>
Exhibit 6.22
Consulting Agreement between Conrad Gunther and Childrobics, Inc. dated as of
October 1, 1996, having a term of five years, pursuant to which Mr. Gunther has
been granted options to purchase 500,000 shares of Common Stock of Childrobics,
Inc., will receive monthly payments of $2,500 plus reimbursement of expenses,
and will receive additional consideration for special projects.
Consulting Agreement between Douglas Fox and Childrobics, Inc. dated as of
October 1, 1996, having a term of five years, pursuant to which Mr. Fox has been
granted options to purchase 500,000 shares of Common Stock of Childrobics, Inc.,
will receive monthly payments of $2,500 plus reimbursement of expenses, and will
receive additional consideration for special projects.
<PAGE>
EXHIBIT 8.4
Childrobics, Inc.
Insurance Schedule
<TABLE>
<CAPTION>
Carrier Insured Type of Coverage Coverage
- ------------ ---------------- ---------------- ----------
<S> <C> <C> <C>
St. Paul Group Coin Liability 1,000,000
Insurance Co. Turnpike
Tunnels & Tubes
U.S.F & G Group Coin Property & Auto 500,000
Turnpike
Tunnels & Tubes
Childrobics, Inc.
Genesis Childrobics, Inc. Directors and 1,000,000
Officers
U.S. F & G Childrobics, Inc. Employee 100,000
Dishonesty
Public Service Group Coin Workers Statutory
Mutual Turnpike Compensation
Tunnels & Tubes
Childrobics, Inc.
N.Y.S. Disability Group Coin Disability Statutory
Turnpike
Tunnels & Tubes
Childrobics, Inc.
</TABLE>
<PAGE>
EXHIBIT 9.2
CHILDROBICS, INC.
SCHEDULE OF LIENS
OCTOBER 3, 1996
<TABLE>
<CAPTION>
Financing Date of
Borrower Lien Holder Provided for Financing
- ---------------- -------------------- ------------------ ----------
<S> <C> <C> <C>
Childrobics, Inc. Active Capital Corp. Equipment 8/18/95
Chemical Bank S/T Line of Credit 8/29/95
Creative Engineering Equipment 10/27/95
Creative Engineering Equipment 12/11/95
Creative Engineering Equipment 1/8/95
Amusement Ass. Firestone Financing Equipment 8/14/95
Firestone Financing Equipment undated
Firestone Financing Equipment 10/16/95
Turnpike
Amusements Firestone Financing Equipment undated
Zamperla, Inc. (4) Equipment 7/11/95
Betson Equipment Equipment 8/7/95
Betson Equipment Equipment 12/26/95
Mondial Distributing Equipment 6/20/95
Betson Equipment Equipment 8/8/95
Betson Equipment Equipment 1/2/96
Just Kiddie
Rides, Inc. EAB Bank Equipment undated
EAB Bank Equipment 3/11/93
CPC Services Equipment 2/26/96
EAB Bank Equipment 5/3/93
EAB Bank Equipment 3/7/94
EAB Bank Equipment 4/13/94
Navistar Financial Corp. Equipment 5/18/95
Firstar Bank of Equipment undated
Milwaukee, NA
Firestone Financing Equipment 3/4/96
<PAGE>
Firestone Financing Equipment 2/26/96
Firestone Financing Equipment 3/3/96
CPC Services Equipment 2/26/96
Firstar Bank of Equipment 8/21/95
Milwaukee, NA
Firstar Bank of Equipment 3/15/96
Milwaukee, NA
</TABLE>
- 2 -
Exhibit 4
AGREEMENT OF SALE
DATED SEPTEMBER 25, 1996
BETWEEN
CHILDROBICS, INC.
a corporation existing under and by virtue of the laws the State of New York
(hereinafter referred to as the "Seller"), with its principal office at 200
Smith Street, Farmingdale, New York 11735,
AND
EXPRESS VENDING CORPORATION
a corporation existing under and by virtue of the laws the State of New Jersey,
(hereinafter referred to as the "Purchaser"), 120 Broadway, Suite 3660, New
York, New York 10271, to be owned in whole or in part by a publicly traded
company to be identified after the Closing, (hereinafter referred to as the
"Parent").
1. Agreement To Sell Upon the terms and conditions hereinafter set forth and on
the Closing Date (as hereinafter defined), Seller agrees to sell, transfer and
deliver to Purchaser, and Purchaser agrees to purchase, upon the terms and
conditions hereinafter set forth, One Hundred Percent (100%) of the issued and
outstanding shares (the "Shares") of FUN STATION USA OF LYNBROOK, INC., a
corporation existing under and by virtue of the laws the State of New York
(hereinafter referred to as the "Company").
2. The Assets Of The Company It is the understanding of the parties that the
Seller is representing that the assets of the Company (the "Assets") are as
follows:
(a) the inventory of merchandise, parts and supplies described in
Exhibit A-1 hereto (the "Merchandise");
(b) the equipment described in Exhibit A-2 hereto (the "Equipment");
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<PAGE>
(c) the furniture, fixtures and improvements described in Exhibit A-3
hereto (the"Improvements");
(d) the lease described in Exhibit A-4 hereto (the "Lease");
(e) the contracts and agreements described in Exhibit A-5 hereto
(the "Contracts");
(f) the accounts receivable as described an listed in Exhibit A-6
hereto (the "Accounts Receivable");
(g) the cash accounts including but not limited to bank, brokerage,
trust and escrow accounts, as listed in Exhibit A-7;
(h) the books and records solely related to the Company;
(i) all right, title and interest of Seller in the name FUN
STATION, inclusive of any dba's, trademarks and/or any
variants or other registrations thereof (the "Names") to the
extent owned by the Company; and
(j) any and all security deposits or down payments in connection with,
including but not limited to, all leases, contracts and purchases.
3. The Liabilities of the Company It is the understanding of the parties that
the Seller is representing that the liabilities of the Company (the
"Liabilities") are as follows:
(a) the existing secured and other debt described in Exhibit B-1
attached hereto (the "Existing Secured and Other Debt");
(b) the accrued federal and state taxes as listed in Exhibit B-2
attached hereto (the "Accrued Federal and State Taxes");
(c) the litigation described in Exhibit B-3 hereto (the "Litigation");
(d) the medical claims described in Exhibit B-4 (the "Medical Claims");
(e) the accrued payroll taxes as listed in Exhibit B-5 attached hereto
(the "Accrued
Payroll Taxes");
(f) the accrued vacation pay as listed in Exhibit B-6 attached hereto
(the "Accrued Vacation Pay");
(g) the workman's compensation claims described in Exhibit B-7 (the
"Workman's Compensation Claims");
(h) the unemployment claims described in Exhibit B-8 (the
"Unemployment Claims"); and
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<PAGE>
(i) the purchase money agreements, installment agreements or
service contracts described in Exhibit B-9 attached hereto
(the "Agreements and Contracts").
4. Purchase Price The purchase price to be paid by Purchaser to Seller for the
Shares is Three Hundred Twenty-Five Thousand Dollars ($325,000.00) payable as
follows:
(a) Five Thousand Dollars ($5,000.00) to be paid by Purchaser to
Seller on September 25, 1996, the execution date of this
Agreement;
(b) Forty-Five Thousand Dollars ($45,000.00) at the Closing (as
hereinafter defined);
(c) One Hundred Thousand Dollars ($100,000.00) evidenced by a
promissory note as provided in Exhibit C attached hereto (the
"Note") with interest payable monthly at the rate of Twelve
Percent (12%) per annum and fully payable two (2) years from the
Closing. The Note shall be secured by the assets of the Company,
which shall be evidenced by a security agreement executed by the
Company in favor of the Seller at the Closing in the form of
Exhibit D attached hereto (the "Security Agreement"). In the
event Seller desires to sell, transfer, pledge or assign the
Note then Seller shall obtain Purchasers consent, which
consent shall not be reasonably withheld. Purchaser hereby
consents to any such assignment by the Seller to Firestone
Capital or its affiliates and agrees to execute such
documents, which shall contain no additional guarantees, as
may be requested in connection with such assignment;
(d) One Hundred Fifty Thousand Dollars ($150,000.00) by the
assumption of existing debt including but not limited to
accounts payable, notes payable, loans payable, liens,
judgements, financing agreements or sales taxes payable of the
Company, including obligations with respect to the Lease. Any
amount in excess of the agreed $150,000.00 assumption of debt
and the actual amount of existing debt at the time of the
Closing will be deducted from the Note, as set forth in
Section 4(c) and if such excess is greater than the amount of
the Note, as provided in Section
3 of 16
<PAGE>
4(c), shall be deducted from the amount of cash or stock payable
pursuant to Section 4(e); and
(e) Either One Hundred Thousand Dollars ($100,000.00) by the delivery
of Twenty Five Thousand (25,000) Shares of restricted common
stock of the Parent (the "Parent Stock"), or Twenty Five Thousand
Dollars ($25,000.00) at the sole discretion of the Purchaser, due
within six (6) months after the date of Closing, however, if the
Parent is not a public company within six (6) months after the
date of Closing, the Purchaser shall be required to deliver
Twenty Five Thousand Dollars ($25,000). All parties to this
agreement acknowledge that the current value of the stock is
substantially less and possibly of minor value.
(i) In the event that the Purchaser elects or has
elected to deliver stock and the Parent Stock has a
closing bid price of less than Four Dollars ($4.00)
per share on the date on which the Seller is first
able to sell the Parent Stock either pursuant to an
effective registration statement covering the sale of
the Parent Stock by the Purchaser or pursuant to an
exemption from registration, the Purchaser agrees to
adjust the number of restricted shares issued by the
Parent by issuing such additional shares to the
Purchaser such that value of the shares of Parent
Stock issued to the Purchaser by the Parent pursuant
to this Agreement shall be equal to One Hundred
Thousand Dollars ($100,000.00), calculated by using
the average closing bid price of the shares in the
primary public marketplace as reported by a reputable
reporting service for the
4 of 16
<PAGE>
thirty (30) trading days prior to such date
multiplied by the number of shares of Parent Stock
issued to the Purchaser.
(ii) The Parent agrees to grant "piggy back" registration rights
on all shares of Parent Stock issued to Seller, pursuant to
Paragraph 4(e) hereof, on all registration statements filed
by the Parent after the date of issuance of restricted
common stock by Parent to Seller (the "Stock Transfer
Date"), other than on Form S-8. The Seller understands
that the inclusion of the shares in any registered offering
of the Parent securities is subject to the underwriters
approval, however Seller shall be allowed to register,
subject to underwriters approval, a pro rata amount of all
shares registered in such underwritten public offering by any
selling shareholders.
(iii)The Seller further agrees, that in the event the
Seller's shares of the Parent Stock are included in a
registered offering of the Parent, then the Purchaser
agrees to pay all expenses incurred by reason of the
registration of Seller's shares of the Parent Stock,
underwriting fees, commissions and discounts, on a
pro rata share basis.
(iv) In the event that, within a period of two (2) years from the
Stock Transfer Date, the sale of the shares of the Parent
Stock owned by the Seller have not been included in any
registration statement filed by the Parent, then the Parent
agrees to file, on the second year anniversary of the Stock
Transfer Date, subject to underwriters approval, a
registration statement with the Securities and Exchange
Commission covering the sale of the Parent Stock owned
by the Seller and to use its best efforts to have such
5 of 16
<PAGE>
registration statement declared effective.
5. Sales Tax If any sales tax becomes payable at or subsequent to the Closing in
connection with the transfer of any of the Shares hereunder, Purchaser shall pay
the same and shall indemnify and hold Seller harmless from and against any and
all liability in connection therewith. This provision shall survive the Closing.
6. Waiver of Bulk Transfer Requirements The parties waive compliance with the
bulk transfer provisions of the Uniform Commercial Code which may be applicable
to this transaction. Seller agrees to indemnify Purchaser against all claims
made by the creditors of Seller as result of such waiver.
7. Use of Purchase Price to Pay Encumbrances If there is any lien or encumbrance
affecting ownership of the Shares, which the Seller is obligated to pay and
discharge at or after the Closing, Seller may use any portion of the balance of
the purchase price to discharge it, or Seller may allow to the Purchaser the
amount thereof as a credit at the Closing.
8. Acceptable Funds All money payable under this agreement, unless otherwise
specified, shall be paid either:
(a) in cash, but not more than $1,000 shall be paid in cash;
(b) by good certified check of Purchaser, or official check of any
bank, savings bank, trust company, or savings and loan
association which is a member of the New York Clearing House,
payable to the direct order of Seller; or
(c) by wire transfer; or
(d) by attorney's escrow check; or
(e) as otherwise agreed to by the parties or their attorneys.
9. The Closing The "Closing" means the settlement of the obligations of
Seller and Purchaser to each other under this Agreement, including the payment
of the purchase price to Seller as provided
6 of 16
<PAGE>
in Paragraph 4 hereof and the delivery of the Closing documents provided for in
Paragraph 10 hereof. The Closing shall be held at the Law Office of Steven A.
Sanders, P.C., 120 Broadway, Suite 3660, New York, New York 10271 on or about
September 25, 1996 (the "Closing Date").
10. Closing Documents At the Closing Seller shall execute and/or deliver to
Purchaser:
(a) the Shares of the Company;
(b) all documents associated with the Company; any lease, bills,
vouchers, records showing the ownership of the furniture,
furnishings, equipment, other property used in the operation of the
Company; all other books of account, records and contracts of
the Company;
(c) such other instruments as may be necessary or proper to transfer
to Purchaser all other ownership interests in the Company to be
purchased under this Agreement;
(d) unaudited financial statements for the Company as at June 30,
1996, which the Seller represents and warrants as accurately
reflecting the Company's financial position as at June 30, 1996
and which shall provide an amount representing the Company's
assets and liabilities, which the Seller warrants that the
differential between the unaudited representations of the assets
and liabilities will not differ greater than fifteen percent (15%)
from the amount representing the Company's assets and liabilities
differential contained in the audited financial statements that
will be prepared by the Company's present Certified Public
Accountants at or after the Closing, at the expense of the
Purchaser, which shall not exceed $5,000. Any amount in excess
of the agreed $5,000.00 will be adjusted to the Note, as set forth
in Section 4(c);
(e) certified copies of resolutions duly adopted by the Board of
Directors of Seller authorizing the sale of 100% of the Shares
of the Company and the performance by Seller of its
obligations hereunder; and
(f) resignations of all officers and directors of the Company.
11. At the Closing Purchaser shall execute and deliver to Seller:
(a) the Note (Exhibit C);
7 of 16
<PAGE>
(b) the Security Agreement (Exhibit D);
(c) certified copies of resolutions duly adopted by the Board of
Directors of Purchaser authorizing the purchase of the Company's
Shares and the performance by Purchaser of its obligations
hereunder; and
(d) an agreement with Group Coin, Inc. (Exhibit E) in the form
attached as Exhibit E.
12. Closing Adjustments Adjustments shall be set forth in Exhibit G and
apportioned as set forth in Exhibit G-1. Any errors or omissions in computing
apportionment's shall be corrected after the Closing. This provision shall
survive the Closing and shall be adjusted from the Note, as set forth in Section
4(c) and if such excess is greater than the amount of the Note, as provided in
Section 4(c), shall be adjusted from the amount of cash or stock payable
pursuant to Section 4(e). At the Closing date, the Company shall have no
indebtedness payable, except as set forth in Paragraph 3.
13. Representations And Warranties Of Seller Seller represents and warrants
to Purchaser as follows:
(a) Seller has full power and authority to carry out and perform its
undertakings and obligations as provided herein;
(b) No action, approval, consent or authorization of any governmental
authority is necessary for Seller to consummate the transactions
contemplated hereby;
(c) The Company is a duly organized corporation since January 24,
1995, under the laws of the State of New York and is validly
existing and in good standing and is not required to qualify
for business in any other state;
(d) The Company is the owner of all of the Assets enumerated in
Paragraph 2 hereof, free of all liens, claims and encumbrances,
except as set forth in Paragraph 3;
(e) There are no material violations or allegations of violations of
any material law or governmental rule or regulation pending
against the Company;
(f) There are no judgments, liens, suits, actions or proceedings,
contemplated or, to the knowledge of the Company, pending against
the Company, except as set forth in Judgment, Liens, Suits,
Actions and Proceedings (Exhibit F) annexed hereto;
8 of 16
<PAGE>
(g) The Company has not entered into, and is not subject to, any:
(i) written contract or agreement for the employment of any
employee of the Company;
(ii) contract with any labor union or guild;
(iii) pension, profit sharing, retirement, bonus, insurance,
or similar plan with respect to any employee of the
Company; or
(iv) similar contract or agreement affecting or relating to
the Company;
(h) The Company has not entered into, and is not subject to, any
contract, agreement or obligation which would materially effect
this Transaction;
(i) This Agreement does not place the Company in breach of any
existing contract, agreement or obligation;
(h) The Lease is in full force and effect and without any default
by the Seller thereunder, except as set forth on Exhibit F.
All copies of the Lease provided by Company to Purchaser are
true and complete copies of the original Lease as annexed
hereto on Exhibit A-4 hereto;
(i) The Contracts as itemized in Contracts Exhibit A-5 annexed
hereto, are in full force and effect and without any default
by the Seller thereunder, except as set forth on Exhibit F.
All copies of the Contracts provided by Seller to Purchaser
are true and complete copies of the original Contracts as
annexed as Exhibit A-5 hereto;
(j) The Company has filed all federal, state and local tax returns
that it is required to file by the date hereof and paid all
taxes due in said returns, except as set forth on Exhibit F;
and
(k) The Company is in compliance with all applicable environmental
laws.
14. Representations And Warranties Of Purchaser Purchaser represents and
warrants to Seller as follows:
(a) Purchaser is a corporation duly organized under the laws of
the State of New Jersey, and is validly existing and in good
standing. Purchaser has full power and authority to execute
and deliver this Agreement, to consummate the transactions
contemplated hereby and to perform its obligations under this
Agreement.
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<PAGE>
(b) The execution and delivery by Purchaser of this Agreement and
the consummation of the transactions contemplated herein have
been duly authorized by the Board of Directors of Purchaser
and all other necessary corporate action of Purchaser will not
conflict with or breach any provision of its Articles of
Incorporation or By Laws. This Agreement constitutes the valid
and binding obligation of Purchaser enforceable against
Purchaser in accordance with its terms;
(c) No action, approval, consent or authorization of any governmental
authority is necessary for Purchaser to consummate the
transactions contemplated hereby;
(d) There are no judgments, liens, suits, actions or proceedings
pending or, to the best of Purchaser's knowledge, threatened
against Purchaser or its property.
15. No Other Representations Purchaser and Seller acknowledges that neither has
nor any representative or agent of either party has made any representation or
warranty (express or implied) regarding any matter or thing affecting or
relating to this Agreement, except as specifically set forth in this Agreement.
Purchaser has inspected the Assets. Purchaser agrees to take the Assets "as is"
and in their present condition, subject to reasonable use, wear, tear and
deterioration between now and the Closing date.
16. Conduct Of The Business Seller, until the Closing, shall:
(a) conduct the business of the Company in the normal, useful and
regular manner;
(b) use its best efforts to preserve the business and the goodwill of
the customers and suppliers of the Company and others having
relations with the Company;
(c) give Purchaser and its duly designated representatives reasonable
access to the premises of the Company; and
(d) shall not sell any of the assets of the Company as set forth
in Paragraph 2, nor incur additional debt other than normal
operating expenses, beyond those as set forth in Paragraph 3,
without the express written consent of the Purchaser or except
in the ordinary course of business.
17. Conditions To Closing The obligations of the parties to close hereunder
are subject to the
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<PAGE>
following conditions:
(a) All of the terms, covenants and conditions are to be complied
with or performed by the parties under this Agreement on or
before the Closing and that they will continue to be complied
with or performed in all material respects, in regards to
those representations and warranties that survive the Closing;
(b) All representations or warranties of the parties herein are true
in all material respects as of the day of the Closing;
(c) On the day of the Closing, there shall be no liens or encumbrances
against the Purchased Assets, except as set forth in Paragraph 3;
(d) If Purchaser shall be entitled to decline to close the
transactions contemplated by this Agreement, but Purchaser
nevertheless shall elect to close, Purchaser shall be deemed to
have waived all claims of any nature arising from the failure of
Seller to comply with the conditions or other provisions of this
Agreement of which Purchaser shall have actual knowledge at the
Closing;
(e) Obtaining any and all consents required in order to consummate
the transaction.
18. Covenant Not To Compete The Seller covenants not to establish, open, be
engaged in, nor in any manner whatsoever become interested, directly or
indirectly, either as employee, owner, partner, agent, shareholder, director,
officer, or otherwise other than a business which is publicly traded in which
the Seller and or shareholders in the aggregate own less than one percent (1%)
of the outstanding stock, in any business, trade or occupation similar to the
business sold hereunder, for a period of two years from the Closing date,
without the expressed written consent of the Purchaser, within a fifteen (15)
mile radius of the Company's present operational location.
19. Brokerage The parties hereto represent and warrant to each other that they
have not dealt with any broker or finder in connection with this Agreement or
the transactions contemplated hereby, and no broker or any other person is
entitled to receive any brokerage commission, finder's fee or similar
compensation in connection with this Agreement or the transactions contemplated
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hereby. Each of the parties shall indemnify and hold the other parties harmless
from and against all liability, claim, loss, damage or expense, including
reasonable attorneys' fees, pertaining to any broker, finder or other person
with whom such party has dealt. The provisions of this paragraph shall survive
the Closing.
20. Assignment Purchaser shall not assign this Agreement without the prior
written consent of Seller in each instance, which consent shall not be
unreasonably withheld. Any attempted assignment without Seller' consent shall be
null and void.
21. Arbitration Any dispute or controversy arising among the parties hereto
regarding any term, covenant or condition of this Agreement or the breach
thereof (other than a dispute arising from failure to pay indebtedness under the
Note (Exhibit C) or the Security Agreement (Exhibit D) annexed hereto shall,
upon written demand of any party hereto, be submitted to and determined by
arbitration in accordance with the rules of the American Arbitration
Association, in the following manner: Each party to the dispute shall appoint an
arbitrator within five (5) days of the notice of arbitration and the arbitrators
shall meet within ten (10) days and if they cannot come to a determination, then
they shall appoint unanimously an impartial arbitrator (in the event that they
cannot agree, they shall submit a request to the Supreme Court of the State of
New York, County of New York to appoint an impartial arbitrator) and the group
of arbitrator shall meet and determine. Any award or decision rendered shall be
made by means of a written opinion explaining the arbitrators' reasons for the
award or decision, and the award or decision shall be final and binding upon the
parties hereto. The arbitrators may not amend or vary any provision of this
Agreement. Judgment upon the award or decision rendered by the arbitrators may
be entered in any court of competent jurisdiction. The arbitrator shall apply
the law of the State of New York.
22. Notices Any notice or demand required or permitted to be made or given
hereunder shall be deemed sufficiently given or made if given by personal
service or by certified or registered mail, return receipt requested, addressed,
if to Seller or Purchaser, at Seller's address first above written, or if to
Purchaser, at Purchaser's address first above written. Either party may change
its address
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by like notice to the other party. Copies of all such notices, demands and other
communications simultaneously shall be given in the aforesaid manner.
To Seller's Attorneys: Squadron, Ellenoff, Plesent, Sheinfeld and Sorkin
Attorneys at Law
551 Fifth Avenue
New York, New York 10176
Attention: Josef B. Volman, Esq.
To Purchaser's Attorney: The Law Office of Steven A. Sanders, P.C.
120 Broadway, Suite 3660
New York, New York 10271
Attention: Steven A. Sanders, Esq.
23. Representations to Survive the Closing by the Seller The representations and
warranties of the Seller set forth in or made pursuant to this Agreement or any
other agreement entered into in connection herewith will remain in full force
and effect, regardless of any investigation, or statement as to the results
thereof, made by or on behalf of the Seller or controlling person and will
survive the Closing for a period of twenty-four (24) months from the day of the
Closing.
24. Indemnification by the Purchaser The Purchaser agrees to indemnify and hold
harmless the Seller from and against any liability, damage, cost or expense,
including reasonable attorney's fees inured as a result of breach by the
Purchaser of any material representation, warranty, agreement or covenant of the
Purchaser hereunder or contained in any agreement executed in connection
herewith.
25. Indemnification by the Seller The Seller agrees to indemnify and hold
harmless the Purchaser from and against any liability, damage, cost or expense,
including reasonable attorney's fees inured as a result of breach by the Seller
of any material representation, warranty, agreement or covenant
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of the Seller hereunder.
26. Counterparts This Agreement may be executed in counterparts all of which,
taken together, shall constitute a single Agreement between the parties to such
counterparts.
27. Entire Agreement This Agreement contains all of the terms agreed upon
between Seller and Purchaser with respect to the subject matter hereof. This
Agreement has been entered into after full investigation.
28. Changes Must Be In Writing This Agreement may not be altered, amended,
changed, modified, waived or terminated in any respect or particular unless the
same shall be in writing signed by the party to be bound.
29. Governing Law This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to
conflict of laws principles thereof.
30. Binding Effect This Agreement shall not be considered an offer or an
acceptance of an offer by Seller, and shall not be binding upon Seller until
executed and delivered by both Seller and Purchaser. Upon such execution and
delivery, this Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, executors, administrators, successors
and permitted assigns.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the 25th day
of September 1996.
SELLER:
CHILDROBICS, INC.
/s/ Salvatore Casaccio
- -----------------------
President
PURCHASER:
EXPRESS VENDING CORP.
/s/ William Gaherty
- -----------------------
President
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INDEX OF EXHIBITS
EXHIBIT TITLE
A - 1 Merchandise
A - 2 Equipment
A - 3 Improvements
A - 4 Lease
A - 5 Contracts
A - 6 Accounts Receivable
A - 7 Cash Accounts
B - 1 Existing Secured and Other Debt
B - 2 Accrued Federal and State Taxes
B - 3 Litigation
B - 4 Medical Claims
B - 5 Accrued Payroll Taxes
B - 6 Accrued Vacation Pay
B - 7 Workman's Compensation Claims
B - 8 Unemployment Claims
B - 9 Agreements and Contracts
C Note
D Security Agreement
E Group Coin, Inc. Agreement
F Judgments and Liens
G Adjustments
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Exhibit 5
AGREEMENT OF SALE
DATED SEPTEMBER 25, 1996
BETWEEN
CHILDROBICS, INC.
a corporation existing under and by virtue of the laws the State of New York
(hereinafter referred to as the "Seller"), with its principal office at 200
Smith Street, Farmingdale, New York 11735,
AND
EXPRESS VENDING CORPORATION
a corporation existing under and by virtue of the laws the State of New Jersey,
(hereinafter referred to as the "Purchaser"), 120 Broadway, Suite 3660, New
York, New York 10271, to be owned in whole or in part by a publicly traded
company to be identified after the Closing, (hereinafter referred to as the
"Parent").
1. Agreement To Sell Upon the terms and conditions hereinafter set forth and on
the Closing Date (as hereinafter defined), Seller agrees to sell, transfer and
deliver to Purchaser, and Purchaser agrees to purchase, upon the terms and
conditions hereinafter set forth, One Hundred Percent (100%) of the issued and
outstanding shares (the "Shares") of FUN ZONES OF DANBURY, INC., a corporation
existing under and by virtue of the laws the State of Connecticut (hereinafter
referred to as the "Company").
2. The Assets Of The Company It is the understanding of the parties that the
Seller is representing that the assets of the Company (the "Assets") are as
follows:
(a) the inventory of merchandise, parts and supplies described in
Exhibit A-1 hereto (the "Merchandise");
(b) the equipment described in Exhibit A-2 hereto (the "Equipment");
(c) the furniture, fixtures and improvements described in Exhibit A-3
hereto
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(the"Improvements");
(d) the lease described in Exhibit A-4 hereto (the "Lease");
(e) the contracts and agreements described in Exhibit A-5 hereto
(the "Contracts");
(f) the accounts receivable as described an listed in Exhibit A-6
hereto (the "Accounts Receivable");
(g) the cash accounts including but not limited to bank, brokerage,
trust and escrow accounts, as listed in Exhibit A-7;
(h) the books and records solely related to the Company;
(i) all right, title and interest of Seller in the name FUN ZONES,
inclusive of any dba's, trademarks and/or any variants or
other registrations thereof (the "Names") to the extent owned
by the Company; and
(j) any and all security deposits or down payments in connection with,
including but not limited to, all leases, contracts and purchases.
3. The Liabilities of the Company It is the understanding of the parties that
the Seller is representing that the liabilities of the Company (the
"Liabilities") are as follows:
(a) the existing secured and other debt described in Exhibit B-1
attached hereto (the "Existing Secured and Other Debt");
(b) the accrued federal and state taxes as listed in Exhibit B-2
attached hereto (the "Accrued Federal and State Taxes");
(c) the litigation described in Exhibit B-3 hereto (the "Litigation");
(d) the medical claims described in Exhibit B-4 (the "Medical Claims");
(e) the accrued payroll taxes as listed in Exhibit B-5 attached hereto
(the "Accrued Payroll Taxes");
(f) the accrued vacation pay as listed in Exhibit B-6 attached hereto
(the "Accrued Vacation Pay");
(g) the workman's compensation claims described in Exhibit B-7 (the
"Workman's Compensation Claims");
(h) the unemployment claims described in Exhibit B-8 (the
"Unemployment Claims"); and
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(i) the purchase money agreements, installment agreements or
service contracts described in Exhibit B-9 attached hereto
(the "Agreements and Contracts").
4. Purchase Price The purchase price to be paid by Purchaser to Seller for the
Shares is Two Hundred Fifty Thousand Dollars ($250,000.00) payable as follows:
(a) Five Thousand Dollars ($5,000.00) to be paid by Purchaser to
Seller on September 25, 1996, the execution date of this Agreement;
(b) Ninety-Five Thousand Dollars ($95,000.00) evidenced by a short
term promissory note as provided in Exhibit H attached hereto
(the "Short Term Note") with interest payable monthly at the
rate of Six Percent (6%) per annum and fully payable within
thirty (30) days from the date of Closing (as hereinafter
defined). In the event Seller desires to sell, transfer,
pledge or assign the Note then Seller shall obtain Purchasers
consent, which consent shall not be reasonably withheld;
(c) Fifty Thousand Dollars ($50,000.00) evidenced by:
(i) A promissory note in the amount of $25,000.00, as provided in
Exhibit C attached hereto (the "Note" or "Notes") with
interest payable monthly at the rate of Six Percent (6%) per
annum and fully payable within six (6) months from the date
of Closing. The Note shall be secured by the assets of the
Company, which shall be evidenced by a security agreement
executed by the Company in favor of the Seller at the Closing
in the form of Exhibit D attached hereto (the "Security
Agreement"). In the event Seller desires to sell, transfer,
pledge or assign the Note then Seller shall obtain Purchasers
consent, which consent shall not be reasonably withheld.
Purchaser hereby consents to any such assignment by the
Seller to Firestone Capital or its affiliates and agrees to
execute such documents, which shall contain no additional
guarantees, as may be requested in connection with such
assignment;
(ii) A promissory note in the amount of $25,000.00, as provided in
Exhibit C attached hereto (the "Note" or "Notes") with
interest
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payable monthly at the rate of Six Percent (6%) per
annum and fully payable within nine (9) months from
the date of Closing. The Note shall be secured by the
assets of the Company, which shall be evidenced by a
security agreement executed by the Company in favor
of the Seller at the Closing in the form of Exhibit D
attached hereto (the "Security Agreement"). In the
event Seller desires to sell, transfer, pledge or
assign the Note then Seller shall obtain Purchasers
consent, which consent shall not be reasonably
withheld. Purchaser hereby consents to any such
assignment by the Seller to Firestone Capital or its
affiliates and agrees to execute such documents,
which shall contain no additional guarantees, as may
be requested in connection with such assignment;
(d) Fifty Thousand Dollars ($50,000.00) by the assumption of existing
debt including but not limited to accounts payable, notes payable,
loans payable, liens, judgements, financing agreements or sales
taxes payable of the Company, including obligations with respect
to the Lease. Any amount in excess of the agreed $50,000.00
assumption of debt and the actual amount of existing debt at the
time of the Closing will be deducted from the Short Term Note, as
set forth in Section 4(b) and if such excess is greater than the
amount of the Short Term Note, as provided in Section 4(b), shall
be deducted from the Notes, as set forth in Section 4(c), and if
such excess is greater than the amount of the Notes, as set
forth in Section 4(c), shall be deducted from the amount of cash
or stock payable pursuant to Section 4(e), if any, then to the
balance of the Parent Stock; and
(e) Either One Hundred Thousand Dollars ($100,000.00) by the
delivery of Twenty Five Thousand (25,000) Shares of restricted
common stock of the Parent (the "Parent Stock"), or Fifty
Thousand Dollars ($50,000.00) at the sole discretion of the
Purchaser, due within twelve (12) months after the date of
Closing, however, if the Parent is not a public company within
twelve (12) months after the date of Closing, the Purchaser
shall be required to deliver Fifty Thousand Dollars
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152703-1 [s/c of 151775-1]
($50,000). All parties to this agreement acknowledge that the
current value of the stock is substantially less and possibly of
minor value.
(i) In the event that the Purchaser elects or has
elected to deliver stock and the Parent Stock has a
closing bid price of less than Four Dollars ($4.00)
per share on the date on which the Seller is first
able to sell the Parent Stock either pursuant to an
effective registration statement covering the sale of
the Parent Stock by the Purchaser or pursuant to an
exemption from registration, the Purchaser agrees to
adjust the number of restricted shares issued by the
Parent by issuing such additional shares to the
Purchaser such that value of the shares of Parent
Stock issued to the Purchaser by the Parent pursuant
to this Agreement shall be equal to One Hundred
Thousand Dollars ($100,000.00), calculated by using
the average closing bid price of the shares in the
primary public marketplace as reported by a reputable
reporting service for the thirty (30) trading days
prior to such date multiplied by the number of shares
of Parent Stock issued to the Purchaser.
(ii) The Parent agrees to grant "piggy back" registration
rights on all shares of Parent Stock issued to
Seller, pursuant to Paragraph 4(e) hereof, on all
registration statements filed by the Parent after the
date of issuance of restricted common stock by Parent
to Seller (the "Stock Transfer
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Date"), other than on Form S-8. The Seller
understands that the inclusion of the shares in any
registered offering of the Parent securities is
subject to the underwriters approval, however Seller
shall be allowed to register, subject to underwriters
approval, a pro rata amount of all shares registered
in such underwritten public offering by any selling
shareholders.
(iii) The Seller further agrees, that in the event the
Seller's shares of the Parent Stock are included in a
registered offering of the Parent, then the Purchaser
agrees to pay all expenses incurred by reason of the
registration of Seller's shares of the Parent Stock,
underwriting fees, commissions and discounts, on a
pro rata share basis.
(iv) In the event that, within a period of two (2) years from the
Stock Transfer Date, the sale of the shares of the Parent
Stock owned by the Seller have not been included in any
registration statement filed by the Parent, then the Parent
agrees to file, on the second year anniversary of the Stock
Transfer Date, subject to underwriters approval, a
registration statement with the Securities and Exchange
Commission covering the sale of the Parent Stock owned
by the Seller and to use its best efforts to have such
registration statement declared effective.
5. Sales Tax If any sales tax becomes payable at or subsequent to the Closing in
connection with the transfer of any of the Shares hereunder, Purchaser shall pay
the same and shall indemnify and hold Seller harmless from and against any and
all liability in connection therewith. This provision shall survive the Closing.
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6. Waiver of Bulk Transfer Requirements The parties waive compliance with the
bulk transfer provisions of the Uniform Commercial Code which may be applicable
to this transaction. Seller agrees to indemnify Purchaser against all claims
made by the creditors of Seller as result of such waiver.
7. Use of Purchase Price to Pay Encumbrances If there is any lien or encumbrance
affecting ownership of the Shares, which the Seller is obligated to pay and
discharge at or after the Closing, Seller may use any portion of the balance of
the purchase price to discharge it, or Seller may allow to the Purchaser the
amount thereof as a credit at the Closing.
8. Acceptable Funds All money payable under this agreement, unless otherwise
specified, shall be paid either:
(a) in cash, but not more than $1,000 shall be paid in cash;
(b) by good certified check of Purchaser, or official check of any
bank, savings bank, trust company, or savings and loan
association which is a member of the New York Clearing House,
payable to the direct order of Seller; or
(c) by wire transfer; or
(d) by attorney's escrow check; or
(e) as otherwise agreed to by the parties or their attorneys.
9. The Closing The "Closing" means the settlement of the obligations of Seller
and Purchaser to each other under this Agreement, including the payment of the
purchase price to Seller as provided in Paragraph 4 hereof and the delivery of
the Closing documents provided for in Paragraph 10 hereof. The Closing shall be
held at the Law Office of Steven A. Sanders, P.C., 120 Broadway, Suite 3660, New
York, New York 10271 on or about September 25, 1996 (the "Closing Date").
10. Closing Documents At the Closing Seller shall execute and/or deliver to
Purchaser:
(a) the Shares of the Company;
(b) all documents associated with the Company; any lease, bills,
vouchers, records showing the ownership of the furniture,
furnishings, equipment, other property
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used in the operation of the Company; all other books of account,
records and contracts of the Company;
(c) such other instruments as may be necessary or proper to transfer
to Purchaser all other ownership interests in the Company to be
purchased under this Agreement;
(d) unaudited financial statements for the Company as at June 30,
1996, which the Seller represents and warrants as accurately
reflecting the Company's financial position as at June 30, 1996
and which shall provide an amount representing the Company's
assets and liabilities, which the Seller warrants that the
differential between the unaudited representations of the assets
and liabilities will not differ greater than fifteen percent (15%)
from the amount representing the Company's assets and liabilities
differential contained in the audited financial statements that
will be prepared by the Company's present Certified Public
Accountants at or after the Closing, at the expense of the
Purchaser, which shall not exceed $5,000. Any amount in excess of
the agreed $5,000 will be adjusted to the Notes, as set forth
in Section 4(c);
(e) certified copies of resolutions duly adopted by the Board of
Directors of Seller authorizing the sale of 100% of the Shares
of the Company and the performance by Seller of its
obligations hereunder; and
(f) resignations of all officers and directors of the Company.
11. At the Closing Purchaser shall execute and deliver to Seller:
(a) the Notes (Exhibit C);
(b) the Security Agreement (Exhibit D);
(c) certified copies of resolutions duly adopted by the Board of
Directors of Purchaser authorizing the purchase of the Company's
Shares and the performance by Purchaser of its obligations
hereunder; and
(d) an agreement with Group Coin, Inc. (Exhibit E) in the form
attached as Exhibit E.
(e) certified copies of resolutions duly adopted by the Board of
Directors of Seller authorizing the sale of 100% of the Shares of
the Company and the performance by Seller of its obligations
hereunder;
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(f) certified copies of resolutions duly appointing the designated
officers of the Purchaser as the sole signatories on all the cash
accounts as listed in Exhibit A-7; and
(g) resignations of all officers and directors of the Company.
12. Closing Adjustments Adjustments shall be set forth in Exhibit G and
apportioned as set forth in Exhibit G-1. Any errors or omissions in computing
apportionment's shall be corrected after the Closing. This provision shall
survive the Closing and shall be adjusted from the Short Term Note as set forth
in Section 4(b) and if such excess is greater than the amount of the Short Term
Note as set forth in Section 4(b), shall be adjusted from the Notes as set forth
in Section 4(c) and if such excess is greater than the amount of the Notes as
set forth in Section 4(c), shall be adjusted from the amount of cash or stock
payable pursuant to Section 4(e). At the Closing date, the Company shall have no
indebtedness payable, except as set forth in Paragraph 3.
13. Representations And Warranties Of Seller Seller represents and warrants
to Purchaser as follows:
(a) Seller has full power and authority to carry out and perform its
undertakings and obligations as provided herein;
(b) No action, approval, consent or authorization of any governmental
authority is necessary for Seller to consummate the transactions
contemplated hereby;
(c) The Company is a duly organized corporation since
_____________________, under the laws of the State of
Connecticut and is validly existing and in good standing and
is not required to qualify for business in any other state;
(d) The Company is the owner of all of the Assets enumerated in
Paragraph 2 hereof, free of all liens, claims and encumbrances,
except as set forth in Paragraph 3;
(e) There are no material violations or allegations of violations of
any material law or governmental rule or regulation pending
against the Company;
(f) There are no judgments, liens, suits, actions or proceedings,
contemplated or, to the knowledge of the Company, pending against
the Company, except as set forth in Judgment, Liens, Suits,
Actions and Proceedings (Exhibit F) annexed hereto;
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(g) The Company has not entered into, and is not subject to, any:
(i) written contract or agreement for the employment of any
employee of the Company;
(ii) contract with any labor union or guild;
(iii) pension, profit sharing, retirement, bonus, insurance, or
similar plan with respect to any employee of the Company; or
(iv) similar contract or agreement affecting or relating to the
Company;
(h) The Company has not entered into, and is not subject to, any
contract, agreement or obligation which would materially effect
this Transaction;
(i) This Agreement does not place the Company in breach of any
existing contract, agreement or obligation;
(h) The Lease is in full force and effect and without any default
by the Seller thereunder, except as set forth on Exhibit F.
All copies of the Lease provided by Company to Purchaser are
true and complete copies of the original Lease as annexed
hereto on Exhibit A-4 hereto;
(i) The Contracts as itemized in Contracts Exhibit A-5 annexed
hereto, are in full force and effect and without any default
by the Seller thereunder, except as set forth on Exhibit F.
All copies of the Contracts provided by Seller to Purchaser
are true and complete copies of the original Contracts as
annexed as Exhibit A-5 hereto;
(j) The Company has filed all federal, state and local tax returns
that it is required to file by the date hereof and paid all
taxes due in said returns, except as set forth on Exhibit F;
and
(k) The Company is in compliance with all applicable environmental
laws.
14. Representations And Warranties Of Purchaser Purchaser represents and
warrants to Seller as follows:
(a) Purchaser is a corporation duly organized under the laws of the
State of New Jersey, and is validly existing and in good standing.
Purchaser has full power and authority to execute and deliver
this Agreement, to consummate the transactions
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contemplated hereby and to perform its obligations under this
Agreement.
(b) The execution and delivery by Purchaser of this Agreement and the
consummation of the transactions contemplated herein have been
duly authorized by the Board of Directors of Purchaser and all
other necessary corporate action of Purchaser will not conflict
with or breach any provision of its Articles of Incorporation or
By Laws. This Agreement constitutes the valid and binding
obligation of Purchaser enforceable against Purchaser in
accordance with its terms;
(c) No action, approval, consent or authorization of any governmental
authority is necessary for Purchaser to consummate the
transactions contemplated hereby;
(d) There are no judgments, liens, suits, actions or proceedings
pending or, to the best of Purchaser's knowledge, threatened
against Purchaser or its property.
15. No Other Representations Purchaser and Seller acknowledges that neither has
nor any representative or agent of either party has made any representation or
warranty (express or implied) regarding any matter or thing affecting or
relating to this Agreement, except as specifically set forth in this Agreement.
Purchaser has inspected the Assets. Purchaser agrees to take the Assets "as is"
and in their present condition, subject to reasonable use, wear, tear and
deterioration between now and the Closing date.
16. Conduct Of The Business Seller, until the Closing, shall:
(a) conduct the business of the Company in the normal, useful and
regular manner;
(b) use its best efforts to preserve the business and the goodwill of
the customers and suppliers of the Company and others having
relations with the Company;
(c) give Purchaser and its duly designated representatives reasonable
access to the premises of the Company; and
(d) shall not sell any of the assets of the Company as set forth
in Paragraph 2, nor incur additional debt other than normal
operating expenses, beyond those as set forth in Paragraph 3,
without the express written consent of the Purchaser or except
in the ordinary course of business.
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17. Conditions To Closing The obligations of the parties to close hereunder
are subject to the following conditions:
(a) All of the terms, covenants and conditions are to be complied
with or performed by the parties under this Agreement on or
before the Closing and that they will continue to be complied
with or performed in all material respects, in regards to
those representations and warranties that survive the Closing;
(b) All representations or warranties of the parties herein are true
in all material respects as of the day of the Closing;
(c) On the day of the Closing, there shall be no liens or encumbrances
against the Purchased Assets, except as set forth in Paragraph 3;
(d) If Purchaser shall be entitled to decline to close the
transactions contemplated by this Agreement, but Purchaser
nevertheless shall elect to close, Purchaser shall be deemed to
have waived all claims of any nature arising from the failure of
Seller to comply with the conditions or other provisions of this
Agreement of which Purchaser shall have actual knowledge at the
Closing;
(e) Obtaining any and all consents required in order to consummate
the transaction.
18. Covenant Not To Compete The Seller covenants not to establish, open, be
engaged in, nor in any manner whatsoever become interested, directly or
indirectly, either as employee, owner, partner, agent, shareholder, director,
officer, or otherwise other than a business which is publicly traded in which
the Seller and or shareholders in the aggregate own less than one percent (1%)
of the outstanding stock, in any business, trade or occupation similar to the
business sold hereunder, for a period of two years from the Closing date,
without the expressed written consent of the Purchaser, within a fifteen (15)
mile radius of the Company's present operational location.
19. Brokerage The parties hereto represent and warrant to each other that they
have not dealt with any broker or finder in connection with this Agreement or
the transactions contemplated hereby, and no broker or any other person is
entitled to receive any brokerage commission, finder's fee
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or similar compensation in connection with this Agreement or the transactions
contemplated hereby. Each of the parties shall indemnify and hold the other
parties harmless from and against all liability, claim, loss, damage or expense,
including reasonable attorneys' fees, pertaining to any broker, finder or other
person with whom such party has dealt. The provisions of this paragraph shall
survive the Closing.
20. Assignment Purchaser shall not assign this Agreement without the prior
written consent of Seller in each instance, which consent shall not be
unreasonably withheld. Any attempted assignment without Seller' consent shall be
null and void.
21. Arbitration Any dispute or controversy arising among the parties hereto
regarding any term, covenant or condition of this Agreement or the breach
thereof (other than a dispute arising from failure to pay indebtedness under the
Notes (Exhibit C) or the Security Agreement (Exhibit D) annexed hereto shall,
upon written demand of any party hereto, be submitted to and determined by
arbitration in accordance with the rules of the American Arbitration
Association, in the following manner: Each party to the dispute shall appoint an
arbitrator within five (5) days of the notice of arbitration and the arbitrators
shall meet within ten (10) days and if they cannot come to a determination, then
they shall appoint unanimously an impartial arbitrator (in the event that they
cannot agree, they shall submit a request to the Supreme Court of the State of
New York, County of New York to appoint an impartial arbitrator) and the group
of arbitrator shall meet and determine. Any award or decision rendered shall be
made by means of a written opinion explaining the arbitrators' reasons for the
award or decision, and the award or decision shall be final and binding upon the
parties hereto. The arbitrators may not amend or vary any provision of this
Agreement. Judgment upon the award or decision rendered by the arbitrators may
be entered in any court of competent jurisdiction. The arbitrator shall apply
the law of the State of New York.
22. Notices Any notice or demand required or permitted to be made or given
hereunder shall be deemed sufficiently given or made if given by personal
service or by certified or registered mail, return receipt requested, addressed,
if to Seller or Purchaser, at Seller's address first above written,
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or if to Purchaser, at Purchaser's address first above written. Either party may
change its address by like notice to the other party. Copies of all such
notices, demands and other communications simultaneously shall be given in the
aforesaid manner.
To Seller's Attorneys: Squadron, Ellenoff, Plesent, Sheinfeld and Sorkin
Attorneys at Law
551 Fifth Avenue
New York, New York 10176
Attention: Josef B. Volman, Esq.
To Purchaser's Attorney: The Law Office of Steven A. Sanders, P.C.
120 Broadway, Suite 3660
New York, New York 10271
Attention: Steven A. Sanders, Esq.
23. Representations to Survive the Closing by the Seller The representations and
warranties of the Seller set forth in or made pursuant to this Agreement or any
other agreement entered into in connection herewith will remain in full force
and effect, regardless of any investigation, or statement as to the results
thereof, made by or on behalf of the Seller or controlling person and will
survive the Closing for a period of twenty-four (24) months from the day of the
Closing.
24. Indemnification by the Purchaser The Purchaser agrees to indemnify and hold
harmless the Seller from and against any liability, damage, cost or expense,
including reasonable attorney's fees inured as a result of breach by the
Purchaser of any material representation, warranty, agreement or covenant of the
Purchaser hereunder or contained in any agreement executed in connection
herewith.
25. Indemnification by the Seller The Seller agrees to indemnify and hold
harmless the Purchaser from and against any liability, damage, cost or expense,
including reasonable attorney's fees inured
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as a result of breach by the Seller of any material representation, warranty,
agreement or covenant of the Seller hereunder.
26. Counterparts This Agreement may be executed in counterparts all of which,
taken together, shall constitute a single Agreement between the parties to such
counterparts.
27. Entire Agreement This Agreement contains all of the terms agreed upon
between Seller and Purchaser with respect to the subject matter hereof. This
Agreement has been entered into after full investigation.
28. Changes Must Be In Writing This Agreement may not be altered, amended,
changed, modified, waived or terminated in any respect or particular unless the
same shall be in writing signed by the party to be bound.
29. Governing Law This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to
conflict of laws principles thereof.
30. Binding Effect This Agreement shall not be considered an offer or an
acceptance of an offer by Seller, and shall not be binding upon Seller until
executed and delivered by both Seller and Purchaser. Upon such execution and
delivery, this Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, executors, administrators, successors
and permitted assigns.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the 25th day
of September 1996.
SELLER:
CHILDROBICS, INC.
/s/ Salvatore Casaccio
- ---------------------------
President
PURCHASER:
EXPRESS VENDING CORP.
/s/ William Gaherty
- ---------------------------
President
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<PAGE>
INDEX OF EXHIBITS
EXHIBIT TITLE
A - 1 Merchandise
A - 2 Equipment
A - 3 Improvements
A - 4 Lease
A - 5 Contracts
A - 6 Accounts Receivable
A - 7 Cash Accounts
B - 1 Existing Secured and Other Debt
B - 2 Accrued Federal and State Taxes
B - 3 Litigation
B - 4 Medical Claims
B - 5 Accrued Payroll Taxes
B - 6 Accrued Vacation Pay
B - 7 Workman's Compensation Claims
B - 8 Unemployment Claims
B - 9 Agreements and Contracts
C Notes
D Security Agreement
E Group Coin, Inc. Agreement
F Judgments and Liens
G Adjustments
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Exhibit 6
AGREEMENT OF SALE
DATED SEPTEMBER 25, 1996
BETWEEN
CHILDROBICS, INC.
a corporation existing under and by virtue of the laws the State of New York
(hereinafter referred to as the "Seller"), with its principal office at 200
Smith Street, Farmingdale, New York 11735,
AND
EXPRESS VENDING CORPORATION
a corporation existing under and by virtue of the laws the State of New Jersey,
(hereinafter referred to as the "Purchaser"), 120 Broadway, Suite 3660, New
York, New York 10271, to be owned in whole or in part by a publicly traded
company to be identified after the Closing, (hereinafter referred to as the
"Parent").
1. Agreement To Sell Upon the terms and conditions hereinafter set forth and on
the Closing Date (as hereinafter defined), Seller agrees to sell, transfer and
deliver to Purchaser, and Purchaser agrees to purchase, upon the terms and
conditions hereinafter set forth, One Hundred Percent (100%) of the issued and
outstanding shares (the "Shares") of KIDS KINGDOM AMUSEMENT, INC., a corporation
existing under and by virtue of the laws the State of New York (hereinafter
referred to as the "Company").
2. The Assets Of The Company It is the understanding of the parties that the
Seller is representing that the assets of the Company (the "Assets") are as
follows:
(a) the inventory of merchandise, parts and supplies described in
Exhibit A-1 hereto (the "Merchandise");
(b) the equipment described in Exhibit A-2 hereto (the "Equipment");
(c) the furniture, fixtures and improvements described in Exhibit A-3
hereto
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(the"Improvements");
(d) the lease described in Exhibit A-4 hereto (the "Lease");
(e) the contracts and agreements described in Exhibit A-5 hereto
(the "Contracts");
(f) the accounts receivable as described an listed in Exhibit A-6
hereto (the "Accounts Receivable");
(g) the cash accounts including but not limited to bank, brokerage,
trust and escrow accounts, as listed in Exhibit A-7;
(h) the books and records solely related to the Company;
(i) all right, title and interest of Seller in the name KIDS
KINGDOM, inclusive of any dba's, trademarks and/or any
variants or other registrations thereof (the "Names") to the
extent owned by the Company; and
(j) any and all security deposits or down payments in connection with,
including but not limited to, all leases, contracts and purchases.
3. The Liabilities of the Company It is the understanding of the parties that
the Seller is representing that the liabilities of the Company (the
"Liabilities") are as follows:
(a) the existing secured and other debt described in Exhibit B-1
attached hereto (the "Existing Secured and Other Debt");
(b) the accrued federal and state taxes as listed in Exhibit B-2
attached hereto (the "Accrued Federal and State Taxes");
(c) the litigation described in Exhibit B-3 hereto (the "Litigation");
(d) the medical claims described in Exhibit B-4 (the "Medical Claims");
(e) the accrued payroll taxes as listed in Exhibit B-5 attached hereto
(the "Accrued Payroll Taxes");
(f) the accrued vacation pay as listed in Exhibit B-6 attached hereto
(the "Accrued
Vacation Pay");
(g) the workman's compensation claims described in Exhibit B-7 (the
"Workman's Compensation Claims");
(h) the unemployment claims described in Exhibit B-8 (the
"Unemployment Claims"); and
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(i) the purchase money agreements, installment agreements or
service contracts described in Exhibit B-9 attached hereto
(the "Agreements and Contracts").
4. Purchase Price The purchase price to be paid by Purchaser to Seller for the
Shares is Four Hundred Thousand Dollars ($400,000.00) payable as follows:
(a) Five Thousand Dollars ($5,000.00) to be paid by Purchaser to
Seller on September 25, 1996, the execution date of this Agreement;
(b) Twenty Thousand Dollars ($20,000.00) evidenced by a short term
promissory note as provided in Exhibit H attached hereto (the
"Short Term Note") with interest payable monthly at the rate
of Six Percent (6%) per annum and fully payable within thirty
(30) days from the date of Closing (as hereinafter defined).
In the event Seller desires to sell, transfer, pledge or
assign the Note then Seller shall obtain Purchasers consent,
which consent shall not be reasonably withheld;
(c) One Hundred Twenty Five Thousand Dollars ($125,000.00) evidenced
by:
(i) A promissory note in the amount of Fifty Thousand Dollars
($50.000.00) as provided in Exhibit C attached hereto
(the "Note" or "Notes") with interest payable monthly
at the rate of Six Percent (6%) per annum fully
payable six (6) months from the Closing. The Note
shall be secured by the assets of the Company, which
shall be evidenced by a security agreement executed
by the Company in favor of the Seller at the Closing
in the form of Exhibit D attached hereto (the
"Security Agreement"). In the event Seller desires to
sell, transfer, pledge or assign the Note then Seller
shall obtain Purchasers consent, which consent shall
not be reasonably withheld. Purchaser hereby consents
to any such assignment by the Seller to Firestone
Capital or its affiliates and agrees to execute such
documents, which shall contain no additional
guarantees, as may be requested in connection with
such assignment;
(ii) A promissory note in the amount of Seventy-Five Thousand
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Dollars ($75,000.00) as provided in Exhibit C
attached hereto (the "Note" or "Notes") with interest
payable monthly at the rate of Six Percent (6%) per
annum fully payable twelve (12) months from the
Closing. The Note shall be secured by the assets of
the Company, which shall be evidenced by a security
agreement executed by the Company in favor of the
Seller at the Closing in the form of Exhibit D
attached hereto (the "Security Agreement"). In the
event Seller desires to sell, transfer, pledge or
assign the Note then Seller shall obtain Purchasers
consent, which consent shall not be reasonably
withheld. Purchaser hereby consents to any such
assignment by the Seller to Firestone Capital or its
affiliates and agrees to execute such documents,
which shall contain no additional guarantees, as may
be requested in connection with such assignment; and
(d) Two Hundred Fifty Thousand Dollars ($250,000.00) by the assumption
of existing debt including but not limited to accounts payable,
notes payable, loans payable, liens, judgements, financing
agreements or sales taxes payable of the Company, including
obligations with respect to the Lease. Any amount in excess of the
agreed $250,000.00 assumption of debt and the actual amount of
existing debt at the time of the Closing will be deducted from
the Short Term Note, as set forth in Section 4(b) and if such
excess is greater than the amount of the Short Term Note, as
provided in Section 4(b), shall be deducted from the Notes, as
set forth in Section 4(c).
5. Sales Tax If any sales tax becomes payable at or subsequent to the Closing in
connection with the transfer of any of the Shares hereunder, Purchaser shall pay
the same and shall indemnify and hold Seller harmless from and against any and
all liability in connection therewith. This provision shall survive the Closing.
6. Waiver of Bulk Transfer Requirements The parties waive compliance with
the bulk transfer
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provisions of the Uniform Commercial Code which may be applicable to this
transaction. Seller agrees to indemnify Purchaser against all claims made by the
creditors of Seller as result of such waiver.
7. Use of Purchase Price to Pay Encumbrances If there is any lien or encumbrance
affecting ownership of the Shares, which the Seller is obligated to pay and
discharge at or after the Closing, Seller may use any portion of the balance of
the purchase price to discharge it, or Seller may allow to the Purchaser the
amount thereof as a credit at the Closing.
8. Acceptable Funds All money payable under this agreement, unless otherwise
specified, shall be paid either:
(a) in cash, but not more than $1,000 shall be paid in cash;
(b) by good certified check of Purchaser, or official check of any
bank, savings bank, trust company, or savings and loan
association which is a member of the New York Clearing House,
payable to the direct order of Seller; or
(c) by wire transfer; or
(d) by attorney's escrow check; or
(e) as otherwise agreed to by the parties or their attorneys.
9. The Closing The "Closing" means the settlement of the obligations of Seller
and Purchaser to each other under this Agreement, including the payment of the
purchase price to Seller as provided in Paragraph 4 hereof and the delivery of
the Closing documents provided for in Paragraph 10 hereof. The Closing shall be
held at the Law Office of Steven A. Sanders, P.C., 120 Broadway, Suite 3660, New
York, New York 10271 on or about September 25, 1996 (the "Closing Date").
10. Closing Documents At the Closing Seller shall execute and/or deliver
to Purchaser:
(a) the Shares of the Company;
(b) all documents associated with the Company; any lease, bills,
vouchers, records showing the ownership of the furniture,
furnishings, equipment, other property used in the operation of the
Company; all other books of account, records and
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<PAGE>
contracts of the Company;
(c) such other instruments as may be necessary or proper to transfer
to Purchaser all other ownership interests in the Company to be
purchased under this Agreement;
(d) unaudited financial statements for the Company as at June 30,
1996, which the Seller represents and warrants as accurately
reflecting the Company's financial position as at June 30, 1996
and which shall provide an amount representing the Company's
assets and liabilities, which the Seller warrants that the
differential between the unaudited representations of the assets
and liabilities will not differ greater than fifteen percent (15%
from the amount representing the Company's assets and liabilities
differential contained in the audited financial statements that
will be prepared by the Company's present Certified Public
Accountants at or after the Closing, at the expense of the
Purchaser, which shall not exceed $5,000. Any amount in excess
of the agreed $5,000 will be adjusted to the Notes, as set forth
in Section 4(c);
(e) certified copies of resolutions duly adopted by the Board of
Directors of Seller authorizing the sale of 100% of the Shares
of the Company and the performance by Seller of its
obligations hereunder; and
(f) resignations of all officers and directors of the Company.
11. At the Closing Purchaser shall execute and deliver to Seller:
(a) the Notes (Exhibit C);
(b) the Security Agreement (Exhibit D);
(c) certified copies of resolutions duly adopted by the Board of
Directors of Purchaser authorizing the purchase of the Company's
Shares and the performance by Purchaser of its obligations
hereunder; and
(d) an agreement with Group Coin, Inc. (Exhibit E) in the form
attached as Exhibit E.
12. Closing Adjustments Adjustments shall be set forth in Exhibit G and
apportioned as set forth in Exhibit G-1. Any errors or omissions in computing
apportionment's shall be corrected after the Closing. This provision shall
survive the Closing and shall be adjusted from the Short Term
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Note as set forth in Section 4(b) and if such excess is greater than the amount
of the Short Term Note as set forth in Section 4(b), shall be adjusted from the
Notes as set forth in Section 4(c). At the Closing date, the Company shall have
no indebtedness payable, except as set forth in Paragraph 3.
13. Representations And Warranties Of Seller Seller represents and warrants
to Purchaser as follows:
(a) Seller has full power and authority to carry out and perform its
undertakings and obligations as provided herein;
(b) No action, approval, consent or authorization of any governmental
authority is necessary for Seller to consummate the transactions
contemplated hereby;
(c) The Company is a duly organized corporation since
_____________________, under the laws of the State of New York
and is validly existing and in good standing and is not
required to qualify for business in any other state;
(d) The Company is the owner of all of the Assets enumerated in
Paragraph 2 hereof, free of all liens, claims and encumbrances,
except as set forth in Paragraph 3;
(e) There are no material violations or allegations of violations of
any material law or governmental rule or regulation pending
against the Company;
(f) There are no judgments, liens, suits, actions or proceedings,
contemplated or, to the knowledge of the Company, pending against
the Company, except as set forth in Judgment, Liens, Suits,
Actions and Proceedings (Exhibit F) annexed hereto;
(g) The Company has not entered into, and is not subject to, any:
(i) written contract or agreement for the employment of any
employee of the Company;
(ii) contract with any labor union or guild;
(iii) pension, profit sharing, retirement, bonus, insurance,
or similar plan with respect to any employee of the
Company; or
(iv) similar contract or agreement affecting or relating to
the Company;
(h) The Company has not entered into, and is not subject to, any
contract, agreement or obligation which would materially effect
this Transaction;
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(i) This Agreement does not place the Company in breach of any
existing contract, agreement or obligation;
(h) The Lease is in full force and effect and without any default
by the Seller thereunder, except as set forth on Exhibit F.
All copies of the Lease provided by Company to Purchaser are
true and complete copies of the original Lease as annexed
hereto on Exhibit A-4 hereto;
(i) The Contracts as itemized in Contracts Exhibit A-5 annexed
hereto, are in full force and effect and without any default
by the Seller thereunder, except as set forth on Exhibit F.
All copies of the Contracts provided by Seller to Purchaser
are true and complete copies of the original Contracts as
annexed as Exhibit A-5 hereto;
(j) The Company has filed all federal, state and local tax returns
that it is required to file by the date hereof and paid all
taxes due in said returns, except as set forth on Exhibit F;
and
(k) The Company is in compliance with all applicable environmental
laws.
14. Representations And Warranties Of Purchaser Purchaser represents and
warrants to Seller as follows:
(a) Purchaser is a corporation duly organized under the laws of
the State of New Jersey, and is validly existing and in good
standing. Purchaser has full power and authority to execute
and deliver this Agreement, to consummate the transactions
contemplated hereby and to perform its obligations under this
Agreement.
(b) The execution and delivery by Purchaser of this Agreement and
the consummation of the transactions contemplated herein have
been duly authorized by the Board of Directors of Purchaser
and all other necessary corporate action of Purchaser will not
conflict with or breach any provision of its Articles of
Incorporation or By Laws. This Agreement constitutes the valid
and binding obligation of Purchaser enforceable against
Purchaser in accordance with its terms;
(c) No action, approval, consent or authorization of any governmental
authority is necessary for Purchaser to consummate the
transactions contemplated hereby;
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<PAGE>
(d) There are no judgments, liens, suits, actions or proceedings
pending or, to the best of Purchaser's knowledge, threatened
against Purchaser or its property.
15. No Other Representations Purchaser and Seller acknowledges that neither has
nor any representative or agent of either party has made any representation or
warranty (express or implied) regarding any matter or thing affecting or
relating to this Agreement, except as specifically set forth in this Agreement.
Purchaser has inspected the Assets. Purchaser agrees to take the Assets "as is"
and in their present condition, subject to reasonable use, wear, tear and
deterioration between now and the Closing date.
16. Conduct Of The Business Seller, until the Closing, shall:
(a) conduct the business of the Company in the normal, useful and
regular manner;
(b) use its best efforts to preserve the business and the goodwill of
the customers and suppliers of the Company and others having
relations with the Company;
(c) give Purchaser and its duly designated representatives reasonable
access to the premises of the Company; and
(d) shall not sell any of the assets of the Company as set forth
in Paragraph 2, nor incur additional debt other than normal
operating expenses, beyond those as set forth in Paragraph 3,
without the express written consent of the Purchaser or except
in the ordinary course of business.
17. Conditions To Closing The obligations of the parties to close hereunder
are subject to the following conditions:
(a) All of the terms, covenants and conditions are to be complied
with or performed by the parties under this Agreement on or
before the Closing and that they will continue to be complied
with or performed in all material respects, in regards to
those representations and warranties that survive the Closing;
(b) All representations or warranties of the parties herein are true
in all material respects as of the day of the Closing;
(c) On the day of the Closing, there shall be no liens or encumbrances
against the
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Purchased Assets, except as set forth in Paragraph 3;
(d) If Purchaser shall be entitled to decline to close the
transactions contemplated by this Agreement, but Purchaser
nevertheless shall elect to close, Purchaser shall be deemed to
have waived all claims of any nature arising from the failure of
Seller to comply with the conditions or other provisions of
this Agreement of which Purchaser shall have actual knowledge at
the Closing;
(e) Obtaining any and all consents required in order to consummate
the transaction.
18. Covenant Not To Compete The Seller covenants not to establish, open, be
engaged in, nor in any manner whatsoever become interested, directly or
indirectly, either as employee, owner, partner, agent, shareholder, director,
officer, or otherwise other than a business which is publicly traded in which
the Seller and or shareholders in the aggregate own less than one percent (1%)
of the outstanding stock, in any business, trade or occupation similar to the
business sold hereunder, for a period of two years from the Closing date,
without the expressed written consent of the Purchaser, within a fifteen (15)
mile radius of the Company's present operational location.
19. Brokerage The parties hereto represent and warrant to each other that they
have not dealt with any broker or finder in connection with this Agreement or
the transactions contemplated hereby, and no broker or any other person is
entitled to receive any brokerage commission, finder's fee or similar
compensation in connection with this Agreement or the transactions contemplated
hereby. Each of the parties shall indemnify and hold the other parties harmless
from and against all liability, claim, loss, damage or expense, including
reasonable attorneys' fees, pertaining to any broker, finder or other person
with whom such party has dealt. The provisions of this paragraph shall survive
the Closing.
20. Assignment Purchaser shall not assign this Agreement without the prior
written consent of Seller in each instance, which consent shall not be
unreasonably withheld. Any attempted assignment without Seller' consent shall be
null and void.
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21. Arbitration Any dispute or controversy arising among the parties hereto
regarding any term, covenant or condition of this Agreement or the breach
thereof (other than a dispute arising from failure to pay indebtedness under the
Notes (Exhibit C) or the Security Agreement (Exhibit D) annexed hereto shall,
upon written demand of any party hereto, be submitted to and determined by
arbitration in accordance with the rules of the American Arbitration
Association, in the following manner: Each party to the dispute shall appoint an
arbitrator within five (5) days of the notice of arbitration and the arbitrators
shall meet within ten (10) days and if they cannot come to a determination, then
they shall appoint unanimously an impartial arbitrator (in the event that they
cannot agree, they shall submit a request to the Supreme Court of the State of
New York, County of New York to appoint an impartial arbitrator) and the group
of arbitrator shall meet and determine. Any award or decision rendered shall be
made by means of a written opinion explaining the arbitrators' reasons for the
award or decision, and the award or decision shall be final and binding upon the
parties hereto. The arbitrators may not amend or vary any provision of this
Agreement. Judgment upon the award or decision rendered by the arbitrators may
be entered in any court of competent jurisdiction. The arbitrator shall apply
the law of the State of New York.
22. Notices Any notice or demand required or permitted to be made or given
hereunder shall be deemed sufficiently given or made if given by personal
service or by certified or registered mail, return receipt requested, addressed,
if to Seller or Purchaser, at Seller's address first above written, or if to
Purchaser, at Purchaser's address first above written. Either party may change
its address by like notice to the other party. Copies of all such notices,
demands and other communications simultaneously shall be given in the aforesaid
manner.
To Seller's Attorneys: Squadron, Ellenoff, Plesent, Sheinfeld and Sorkin
Attorneys at Law
551 Fifth Avenue
New York, New York 10176
Attention: Josef B. Volman, Esq.
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<PAGE>
152701-1 [s/c of 151758-1]
To Purchaser's Attorney: The Law Office of Steven A. Sanders, P.C.
120 Broadway, Suite 3660
New York, New York 10271
Attention: Steven A. Sanders, Esq.
23. Representations to Survive the Closing by the Seller The representations and
warranties of the Seller set forth in or made pursuant to this Agreement or any
other agreement entered into in connection herewith will remain in full force
and effect, regardless of any investigation, or statement as to the results
thereof, made by or on behalf of the Seller or controlling person and will
survive the Closing for a period of twenty-four (24) months from the day of the
Closing.
24. Indemnification by the Purchaser The Purchaser agrees to indemnify and hold
harmless the Seller from and against any liability, damage, cost or expense,
including reasonable attorney's fees inured as a result of breach by the
Purchaser of any material representation, warranty, agreement or covenant of the
Purchaser hereunder or contained in any agreement executed in connection
herewith.
25. Indemnification by the Seller The Seller agrees to indemnify and hold
harmless the Purchaser from and against any liability, damage, cost or expense,
including reasonable attorney's fees inured as a result of breach by the Seller
of any material representation, warranty, agreement or covenant of the Seller
hereunder.
26. Counterparts This Agreement may be executed in counterparts all of which,
taken together, shall constitute a single Agreement between the parties to such
counterparts.
27. Entire Agreement This Agreement contains all of the terms agreed upon
between Seller and Purchaser with respect to the subject matter hereof. This
Agreement has been entered into after full investigation.
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28. Changes Must Be In Writing This Agreement may not be altered, amended,
changed, modified, waived or terminated in any respect or particular unless the
same shall be in writing signed by the party to be bound.
29. Governing Law This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to
conflict of laws principles thereof.
30. Binding Effect This Agreement shall not be considered an offer or an
acceptance of an offer by Seller, and shall not be binding upon Seller until
executed and delivered by both Seller and Purchaser. Upon such execution and
delivery, this Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, executors, administrators, successors
and permitted assigns.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the 25th day
of September 1996.
SELLER:
CHILDROBICS, INC.
/s/ Salvatore Casaccio
- -------------------------
President
PURCHASER:
EXPRESS VENDING CORP.
/s/ William Gaherty
- -------------------------
President
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<PAGE>
INDEX OF EXHIBITS
EXHIBIT TITLE
A - 1 Merchandise
A - 2 Equipment
A - 3 Improvements
A - 4 Lease
A - 5 Contracts
A - 6 Accounts Receivable
A - 7 Cash Accounts
B - 1 Existing Secured and Other Debt
B - 2 Accrued Federal and State Taxes
B - 3 Litigation
B - 4 Medical Claims
B - 5 Accrued Payroll Taxes
B - 6 Accrued Vacation Pay
B - 7 Workman's Compensation Claims
B - 8 Unemployment Claims
B - 9 Agreements and Contracts
C Notes
D Security Agreement
E Group Coin, Inc. Agreement
F Judgments and Liens
G Adjustments
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Exhibit 7
SECOND AMENDMENT TO EMPLOYMENT TERMINATION AND OPTION
TERMINATION AGREEMENT
Agreement made this 27th day of September 1996, among Salvatore
Casaccio ("Casaccio"), A. Joseph Melnick ("Melnick"), Richard Bartlett
("Bartlett") and Childrobics, Inc. (the "Corporation").
WHEREAS, the parties hereto have previously entered into an agreement
entitled "Employment Termination and Option Agreement" as amended (the
"Agreement"); and
WHEREAS, the parties have been unable to satisfy certain of their
obligations at the Closing of the Agreement and the parties hereto desire that
the Agreement be amended as set forth herein.
NOW, THEREFORE, in consideration of the foregoing and of the respective
promises, representations, warranties and covenants herein contained, the
parties hereto do hereby agree as follows:
1. Section 2(b) of the Agreement is hereby amended as follows: (a) The
obligations of the Corporation to transfer to Casaccio, or a corporation of
which Casaccio is the sole shareholder, all the assets of the Corporation which
are used solely in connection with the operations of the Corporation
attributable to the Corporation's playcenter located on Avenue U in Brooklyn,
New York and the
<PAGE>
obligations of Casaccio to assume all of the liabilities attributable to the
operations at such location, and each and every obligation of the parties with
respect to such location as more fully set forth in Section 2(b) of the
Agreement shall be performed by the execution and delivery by the parties of (i)
an Assignment and Assumption of Lease, (ii) an Assignment and Assumption
Agreement, (iii) a Guaranty (of the Corporation's obligations under the Lease)
to be executed by Casaccio in favor of the Corporation, and (iv) a Secretary's
Certificate confirming the due authorization and execution of the Assignment and
Assumption of Lease, promptly following the consent of the landlord with respect
to such playcenter to the assignment of the lease.
(b) The Corporation agrees to reimburse Casaccio or a corporation of
which Casaccio is the sole shareholder, to the extent of proceeds, if any,
received from pending insurance claims relating to damage and theft occurring at
such playcenter, for expenses and losses associated with such damage and theft
incurred by Casaccio upon submission of written documentation evidencing such
expenses or losses. The Corporation shall not reimburse Casaccio, or the
corporation of which Casaccio is the sole shareholder, for damage or loss which
was repaired or replaced by the Corporation prior to August 31, 1996, regardless
of whether the funds used to fund such repairs or replacement were derived from
revenues generated by such playcenter.
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<PAGE>
However, it being acknowledged by the Corporation that this playcenter has been
operated for the benefit of Casaccio as if the transfer had occurred as of the
close of business on August 30, 1996, and to the extent such repairs or
replacement were paid by the Corporation from revenues derived from the
operation of such playcenter after August 30, 1996, Casaccio shall still be
entitled to reimbursement for such repairs or replacements. Any insurance
proceeds not remitted to Casaccio, or the corporation of which Casaccio is the
sole shareholder, because they are in excess of presented documentation shall be
retained to the Corporation.
(c) In recognition that the Corporation has continued and still
continues to receive revenues from credit card charges accepted at the Bayside,
Queens, Manhattan and Avenue U playcenters subsequent to August 30, 1996, upon
receipt of proceeds from credit card charges accepted at such playcenters
arising out of charges after August 30, 1996 such revenues shall be promptly
remitted to Casaccio upon receipt of documentation indicating such revenues were
derived from charges accepted after August 30, 1996. In addition, upon
presentation by Casaccio to the Corporation of documentation indicating that
revenues from any of such playcenters was used to pay obligations of the
Corporation unrelated to these playcenters, the Corporation shall promptly remit
such amounts to Casaccio. To the extent the
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<PAGE>
Corporation paid expenses relating to activities subsequent to August 30, 1996,
Casaccio shall remit such amounts to the Corporation, including, without
limitation, personnel expenses. Casaccio agrees that any revenues he has
received for pre-August 31, 1996 activities shall be promptly remitted to the
Corporation.
2. Section 2(c) of the Agreement is hereby amended as follows:
At the Closing, subject to the terms and conditions set forth herein, the
Corporation shall deliver to Casaccio and Bartlett:
(a) an assignment of all of the outstanding accounts payable of Fun
Station USA of Staten Island, Inc. a/k/a Fun Zones of Staten Island, Inc.
("Fun Station") to the subsidiaries of the Corporation in the form annexed
hereto as Exhibit A,
(b) a limited revocable stock proxy in the form annexed hereto as
Exhibit B,
(c) an executed stock power transferring all of the Corporation's
interest in Fun Station (the "Shares"), 50% to each of Casaccio and Bartlett.
The documents set forth in Sections 2(a) and 2(c) are to be held in
escrow by Manuel Rubeo, Esq. (the "Escrow Agent"). The parties acknowledge that
the transfer of the Shares is restricted by the terms of a right of first
refusal pursuant to a shareholder's agreement with respect to the stock of such
corporation (the "Right of First
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<PAGE>
Refusal") and that such shares are pledged to the shareholders of such
corporation as security under a Note (the "Note").
(d) The Escrow Agent shall release the documents set forth in Section
2(a) and (c) to Casaccio and Bartlett in the following events:
(i) the Escrow Agent shall have received written evidence that
the Right of First Refusal has been waived or satisfied by the minority
shareholders of Fun Station; and
(ii) the Escrow Agent shall have received written evidence
that the Note has been waived by the payee, satisfied in whole or in part or
reinstated by the payee; or
(iii) the Escrow Agent shall have received a court order to
release such documents.
In the event that the conditions in Section 2(d) are satisfied and
either Casaccio or Bartlett delivers to the Escrow Agent written instructions to
release the stock power from escrow, the Escrow Agent shall provide written
notice to the individual at the address first above written who did not send
such instruction notifying same that upon the expiration of 15 days from the
date of such notice, the Escrow Agent shall release all of the Corporation's
interest to the individual who sent such notice unless the Escrow Agent receives
written instructions to issue the stock powers to them jointly.
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<PAGE>
3. Unless the documents are released to the Corporation as set forth in
Section 4 herein, Casaccio and Bartlett shall at the Closing, assume the
obligations of the Corporation as set forth on the assumption agreement annexed
hereto as Exhibit C. Negotiations are presently pending between Casaccio,
Bartlett and the other shareholders of Fun Station. In the event that any monies
are required to be paid to the Landlord and/or other shareholders of Fun Station
as part of these negotiations or settlement of the disputes, the Corporation
agrees to advance up to $45,000.00 upon written instructions from Casaccio,
Bartlett or either of them and to credit same against the monies due to Casaccio
and Bartlett pursuant to the promissory notes to be delivered at the Closing on
a pro rata basis.
4. The Escrow Agent shall return the documents set
forth in Section 2(a) and (c) hereof to the Corporation in
the following events:
(i) If the Corporation is required to pay, pursuant to a
judgement by the shareholders of Fun Station or a monetary judgement by the
landlord with execution remaining unsatisfied, to either the shareholders of Fun
Station or the landlord with respect to the such playcenter, any sum; or
(ii) If Casaccio or Bartlett violate the terms of
the proxy set forth in Section 2(b); or
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<PAGE>
(iii) If Fun Station has not entered into, within a period of
twenty (20) days following the Closing, a duly authorized and executed agreement
with Group Coin Associates, Inc. for a minimum of three years, on substantially
the terms set forth in the Group Coin Associates, Inc. standard agreement so
long as Fun Station continues to pay Group under the current operating
arrangement, during such twenty-day period.
5. In the event that Casaccio or Bartlett commence a lawsuit on behalf
of Fun Station, Casaccio and Bartlett, jointly and severally, agree to advance
all fees, including attorney fees in connection with such lawsuit.
6. All capitalized terms used herein shall have the
same meanings as set forth in the Agreement.
7. The parties hereto agree to take such other actions and to deliver
such other documents as may be necessary to effectuate the purposes and
agreements set forth herein.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have duly executed this Agreement on the date first above written.
CHILDROBICS, INC.
By: /s/ Salvatore Casaccio
--------------------------
Name: Salvatore Casaccio
Title: President
/s/ Salvatore Casaccio
--------------------------
SALVATORE CASACCIO
/s/ Joseph Melnick
--------------------------
JOSEPH MELNICK
/s/ Richard Bartlett
--------------------------
RICHARD BARTLETT
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Exhibit 8
CONTACT: Childrobics, Inc.
(516) 694-0999
FOR IMMEDIATE RELEASE
CHILDROBICS, INC. ANNOUNCES A MAJOR RESTRUCTURING
AND REORGANIZATION. MR. GERARD A. REDA HAS BEEN NAMED
PRESIDENT AND CEO
Farmingdale, New York, October 4, 1996 - Childrobics, Inc.
announced today a restructuring of its business that included:
o The completion of a merger with Just Kiddie Rides, Inc. (also
of Farmingdale, NY)
o The sale and/or transfer of its under-performing "Play
Stations" for $410,000 plus assumption of all debt.
o The infusion of new capital in the form of a $1.5 million
loan from a group of institutional investors.
The sale of these Childrobics playcenters combined with the merger with Just
Kiddie Rides "will allow Childrobics to focus on its core business of
coin-operated games and rides for kids of all ages" said Mr. Reda the new CEO.
"The sale of these fixed sight locations, along with the elimination of
redundant operations should save the combined company over $6.0 million annually
and moreover the additional new capital, along with the financial strength of
the Just Kiddie Ride operation should virtually erase the trade debt that has
been a drag on the growth of Childrobics."
Mr. Reda's previous company, Just Kiddie Rides, Inc., is the premier supplier
and operator of coin-operated children's rides in North America. These "mini
attractions" including generic shapes and rides as well as custom products
ranging from the classic "Coney Island Carousel Horse" to "Corporate Logos" as
well as products and licensed properties from Hanna Barbera, D.C. Comics, Turner
Entertainment, United Feature Syndicate and the NASCAR. Some of Just Kiddie
Rides most popular rides include: Batmobile, Peanuts, Flintstones, Tom & Jerry
and the Jetsons. In just eight years, this previously private company has grown
to become the market store leader in the U.S. of coin-operated rides. This $6.5
million addition to Childrobics' revenue enjoys distribution and operating
contracts with many of America's finest retailers including: Toy "R" Us,
Walmart, BJ's Wholesale Club, King Kullen, Edwards, Foodtown and many others.
The company's announced sale of its three playcenters in Danbury CT, and
Lynbrook and Medford NY to Express Vending Corporation resulted in total
consideration of $410,000 in the form of cash and short term notes, and the
assumption of an aggregate debt of $450,000. In addition, the company also
transferred its playcenters in Manhattan as well as Bayside and Avenue "U" in
Brooklyn to Mr. Casaccio, previously of Childrobics, for the assumption of debt
and as part of his separation agreement.
<PAGE>
The company also announced the consummation of its Employment and Option
Termination Agreement with its three previous senior officers, Mr. Casaccio, Mr.
Melnick and Mr. Bartlett, its Chairman, President and Executive Vice President,
respectively. These individuals also resigned as directors of the company and
relinquished certain options previously granted to them by the company.
Mr. Conrad Gunther Jr. and Mr. Douglas Fox, the company's two outside
directors, expressed their enthusiasm for the potential of the "New Childrobics"
in a joint statement. "The company, previously in serious financial trouble, is
now on its way towards solid financial footing, thanks in part to the funding
and confidence of our institutional investors. Our trade and other short term
debt has been eliminated or restructured. The company's strategies and
operations are more single-mindedly focused. Most importantly, we have installed
a dynamic new leader, Mr. Gerard Reda. Jerry Reda is an executive with a proven
track record of success in this industry and is admired and respected by both
suppliers and customers. The future is now bright for the 'New Childrobics.'"
The company also announced the addition of Mr. Reda to the board and appointed
him Chairman as well as CEO. This brings the Board of Directors to a total of
three with two authorized positions remaining unfilled. Questions concerning
Childrobics should be directed to the Board located at 200 Smith Street,
Farmingdale, NY 11735.
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