Exhibit 4
FINANCING AGREEMENT
BY AND AMONG
STERLING Commercial CAPITAL, INC.,
▇▇▇▇▇▇▇ VENTURE CORP. and ▇▇▇▇ 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
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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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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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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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 ▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ (hereinafter
referred to as "Sterling"); ▇▇▇▇▇▇▇ VENTURE CORP., a New York corporation,
having its principal place of business at ▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇,
▇▇▇ ▇▇▇▇ ▇▇▇▇▇ (hereinafter referred to as "▇▇▇▇▇▇▇"); ▇▇▇▇ CAPITAL CORP., a New
York corporation, having its principal place of business at ▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ (hereinafter referred to as "▇▇▇▇")
(Sterling, ▇▇▇▇▇▇▇ and ▇▇▇▇ hereinafter referred to collectively as the
"Lender"); CHILDROBICS, INC., a New York corporation, having its principal place
of business at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ (hereinafter
referred to as "Childrobics"); JUST KIDDIE RIDES, INC.,a New York corporation
having its principal place of business at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇
▇▇▇▇▇ (hereinafter referred to as "JKR"); TURNPIKE AMUSEMENT DISTRIBUTING, INC.
a New York corporation having its principal place of business at ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ (hereinafter referred to as "Turnpike");
AMUSEMENT ASSOCIATES, INC., a New York corporation, having its principal place
of business at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ (hereinafter
referred to as "Amusement"); GROUP COIN ASSOCIATES, INC., a New York
corporation, having its principal place of business at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ (hereinafter referred to as "Group Coin"); and
TUNNELS & TUBES, INC., a New York corporation, having its principal place of
business at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ (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, ▇▇▇▇▇▇ ▇. ▇▇▇▇ ("▇▇▇▇"), 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 ▇▇▇▇ in consideration of his agreement
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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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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(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, ▇▇▇▇▇▇▇ and ▇▇▇▇, 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, ▇▇▇▇▇▇▇ and ▇▇▇▇,
respectively, at the addresses set forth in the Notes, or at such other location
as Sterling, ▇▇▇▇▇▇▇ or ▇▇▇▇, 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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(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 ▇▇▇▇ 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 ▇▇▇▇ 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
- 9 -
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 ▇▇▇▇ 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 ▇▇▇▇ (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
- 10 -
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
- 11 -
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 ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇▇▇
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 ▇▇▇▇, 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, ▇▇▇▇▇▇ discrimination or permit discrimination against any Person
belonging to any minority race or believing in any minority creed or religion.
- 12 -
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.
- 13 -
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, ▇▇▇▇▇▇▇ and ▇▇▇▇, 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
- 14 -
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 ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇, 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
- 15 -
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
- 16 -
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 ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇, 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.
- 17 -
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.
- 18 -
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;
- 19 -
(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 ▇▇▇▇▇▇
Enterprises, Inc. ("▇▇▇▇▇▇") 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 ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ 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
- 20 -
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
- 21 -
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 ▇▇▇▇'▇ 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
- 22 -
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.
- 23 -
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.
- 24 -
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.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇, President
▇▇▇▇▇▇▇ Venture Corp.
▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇ Capital Corp.
▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇▇ and ▇▇▇▇▇, P.C.
- 25 -
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇.▇. ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
If to the Borrowers:
Childrobics, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
with a copy to:
Squadron, Ellenoff, Plesent & ▇▇▇▇▇▇▇▇▇, LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, 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 ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇, P.C., ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇,
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.
- 26 -
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 -
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/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
---------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇,
Executive Vice President
▇▇▇▇▇▇▇ VENTURE CORP.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
---------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇, President
▇▇▇▇ CAPITAL CORP.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
---------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, President
CHILDROBICS, INC.
ATTEST:
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇ By: /s/▇▇▇▇▇▇ ▇. ▇▇▇▇
---------------------- ---------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇, President
JUST KIDDIE RIDES, INC.
ATTEST:
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇ By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇
----------------------- ---------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇, President
TURNPIKE AMUSEMENT DISTRIBUTING, INC.
ATTEST:
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇ By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇
----------------------- ---------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇, President
AMUSEMENT ASSOCIATES DISTRIBUTING, INC.
ATTEST:
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇ By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇
----------------------- ---------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇, President
- 28 -
GROUP COIN ASSOCIATES, INC.
ATTEST:
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇ By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇
----------------------- ---------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇, President
TUNNELS & TUBES, INC.
ATTEST:
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇ By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇
----------------------- ---------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇, President
- 29 -
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
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 ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ (hereinafter referred to as "Childrobics"); JUST
KIDDIE RIDES, INC., a New York corporation having its principal place of
business at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ (hereinafter referred
to as "LKR"); TURNPIKE AMUSEMENT DISTRIBUTING, INC. a New York corporation
having its principal place of business at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇
▇▇▇▇ ▇▇▇▇▇ (hereinafter referred to as "Turnpike"); AMUSEMENT ASSOCIATES, INC.,
a New York corporation, having its principal place of business at ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ (hereinafter referred to as "Amusement");
and GROUP COIN ASSOCIATES, INC., a New York corporation, having its principal
place of business at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ (hereinafter
referred to as "Group Coin"; and TUNNELS & TUBES, INC., a New York corporation,
having its principal place of business at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇
▇▇▇▇ ▇▇▇▇▇ (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 ▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇
▇▇▇▇ ▇▇▇▇▇ (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 ▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
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, ▇▇▇▇▇▇▇ Venture Corp. ("▇▇▇▇▇▇▇"), and ▇▇▇▇ Capital Corp.
("▇▇▇▇") (the Payee, ▇▇▇▇▇▇▇ and ▇▇▇▇ 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 -
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 -
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: ______________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇, President
JUST KIDDIE RIDES, INC.
ATTEST:
By: ______________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇, President
TURNPIKE AMUSEMENT DISTRIBUTING, INC.
ATTEST:
By: ______________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇, President
AMUSEMENT ASSOCIATES DISTRIBUTING, INC.
ATTEST:
By: ______________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇, President
GROUP COIN ASSOCIATES, INC.
ATTEST:
By: ______________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇, President
TUNNELS & TUBES, INC.
ATTEST:
By: ______________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇, President
- 4 -
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., ▇▇▇▇▇▇▇ VENTURE CORP. and ▇▇▇▇ 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 ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇,
▇▇▇ ▇▇▇▇ ▇▇▇▇▇, 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.
(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 -
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 -
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:
- 4 -
(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.
- 5 -
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 -
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.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇ Venture Corp.
▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇ Capital Corp.
▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
(b) If to the Company:
Childrobics, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
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 -
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: ________________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇, President
- 8 -
EXHIBIT 5.1
DISBURSEMENT LETTER/USE OF PROCEEDS
October 3, 1996
Sterling Commercial Capital, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
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)
▇▇▇▇▇▇ ▇. ▇▇▇▇
(Non-Compete Consideration) $ 250,000.00
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ $ 152,729.83
(Management Termination Fee:$50,000.00;
satisfaction of management loan:
$77,620.00; and deferred compensation:
$25,109.83)
▇▇▇▇▇▇▇▇▇ 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. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ $ 63,981.92
(Management Termination Fee:$50,000
and deferred compensation:$13,981.92)
▇▇▇▇▇, ▇▇▇▇▇▇▇▇ & Co. $ 50,000.00
(Accountant Fees)
Squadron, Ellenoff, Plesent
& ▇▇▇▇▇▇▇▇▇, LLP
(Borrowers' Legal Fees) $ 85,000.00
Firestone Financial Services $ 60,000.00
(Restructure of Debt and
bring financial obligations
current)
DISBURSEMENT LETTER/USE OF PROCEEDS
(Continued)
▇▇▇▇▇▇ Enterprises, Inc. $ 50,000.00
(Restructure of Debt and
bring financial obligations
current)
▇▇▇▇▇▇▇▇ and ▇▇▇▇▇, 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: ____________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇, President
JUST KIDDIE RIDES, INC.
By: ____________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇, President
TURNPIKE AMUSEMENT DISTRIBUTING, INC.
By: ____________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇, President
AMUSEMENT ASSOCIATES, INC.
By: ____________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇, President
GROUP COIN ASSOCIATES, INC.
By: ____________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇, President
TUNNELS & TUBES, INC.
By: ___________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇, President
- 2 -
EXHIBIT 6.5
Childrobics, Inc.
Statement of Operations
For the Period Ended June 30, 1996
Pro forma Continuing Discontinued
Consolidated Operations Operations
(1) (2)
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)
=========== ============ ============
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)
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 -
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
-------------- ------- ------- -------- ------- ------- -------
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
- 3 -
--------------------------------------------------------------------------------------
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 - - - - - -
▇▇▇▇▇▇ 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 - ▇▇▇▇▇▇▇▇ 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
- 4 -
----------------------------------------------------------------------------------------
CHANGES IN CASH Consolidated Consolidated Consolidated Conslidated Consolidated Conslidated
---------------
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 12 Months 12 Months
------- ------- ------- ------- ---------
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 (▇▇▇▇▇▇▇▇) 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) -
▇▇▇▇▇▇▇▇ 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 - - - - - -
- - - - - -
▇▇▇▇▇▇ 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
- 5 -
EXHIBIT 6.6
Financial Statements
Just Kiddie Rides, Inc.
Years ended September 30, 1995 and 1994
with Independent Accountants' Review Report
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 -
[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 -
Just Kiddie Rides, Inc.
Balance Sheets (Unaudited)
September 30,
Assets (Note 6) 1995 1994
----------------------------------
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
See independent accountants' review report and accompanying notes.
- 4 -
Just Kiddie Rides, Inc.
Statements of Income (Unaudited)
Year ended September 30,
1995 1994
----------------------------------
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
See independent accountants' review report and accompanying notes.
- 5 -
Just Kiddie Rides, Inc.
Statements of Shareholders' Equity (Unaudited)
Year ended September 30
Common Retained
Shares Stock Earnings Total
---------------------------------------------------------------------
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
=====================================================================
See independent accountants' review report and accompanying notes.
- 6 -
Just Kiddie Rides, Inc.
Statements of Cash Flows (Unaudited)
Year ended September 30,
1995 1994
---------------------------------
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
==============================================
See independent accountants' review report and accompanying notes.
- 7 -
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 -
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 -
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 -
[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 ▇▇▇▇ to the information.
November 17, 1995
- 11 -
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 -
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 -
Exhibit 6.7
None
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: ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, 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.
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.
Exhibit 6.13
None
Exhibit 6.17
A fee of $20,000 to ▇▇▇▇▇▇▇ ▇▇▇ and a fee of $20,000 to ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ is due in
connection with the negotiation and execution of the Termination Agreement, the
Merger Agreement, the Employment Agreement with ▇▇▇▇▇▇ ▇▇▇▇ and the Financing
Agreement.
EXHIBIT 6.20
CHILDROBICS, INC.
Listing of Outstanding Options & Warrants
and Share Price Guarantee
As of 9/3/96
Listing of Date Proceeds
all outstanding options: Granted Term Options Price to Company
------------------------ ------- ---- ------- ------- ----------
▇▇▇▇▇▇▇▇ 7/11/95 10 Years 50,000 $.06875 $34,375(1)
▇▇▇▇▇▇▇ 7/11/95 10 Years 50,000 $.06875 $34,375(1)
▇▇▇▇▇▇▇▇ 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
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
Below Market Options:
▇▇▇▇▇▇▇▇ 7/11/95 10 Years 375,000 $0.01 $3,750(1)
▇▇▇▇▇▇▇ 7/11/95 10 Years 375,000 $0.01 $3,750(1)
▇▇▇▇▇▇▇ 7/3/96 10 Years 200,000 $0.10 $20,000
Fox 7/3/96 10 Years 200,000 $0.10 $20,000
▇▇▇▇▇▇▇ 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
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, ▇▇▇▇▇▇▇ 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 ---------- -----------
-------------------------
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 -
EXHIBIT 6.22
EMPLOYMENT AGREEMENT
AGREEMENT dated this 30th day of September, 1996 between Childrobics,
Inc., a New York corporation with offices at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇
▇▇▇▇ ▇▇▇▇▇ (the "Company"), and ▇▇▇▇▇▇ ▇. ▇▇▇▇ residing at ▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇,
▇▇. ▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ("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.
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 -
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 -
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 -
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 -
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 -
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:
▇▇▇▇▇▇ ▇. ▇▇▇▇ at his address
set forth in the preamble to this Agreement
with a copy to:
- 7 -
▇▇▇▇ Agestino, Esq.
▇▇▇▇▇▇▇▇▇ & Agnostino
▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
(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 & ▇▇▇▇▇▇▇▇▇, LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇, Esq.
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
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 -
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
EXECUTIVE CHILDROBICS, INC.
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇ By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇
---------------------- ------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇ Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇
Title: President
- 9 -
EXHIBIT A
CHILDROBICS, INC.
NONQUALIFIED STOCK OPTION LETTER AGREEMENT
TO: ▇▇▇▇▇▇ ▇. ▇▇▇▇
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.
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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.
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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:
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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
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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
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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: ___________________________
------------------------------------
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Exhibit 6.22
Consulting Agreement between ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and Childrobics, Inc. dated as of
October 1, 1996, having a term of five years, pursuant to which ▇▇. ▇▇▇▇▇▇▇ 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 ▇▇▇▇▇▇▇ ▇▇▇ and Childrobics, Inc. dated as of
October 1, 1996, having a term of five years, pursuant to which ▇▇. ▇▇▇ 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.
EXHIBIT 8.4
Childrobics, Inc.
Insurance Schedule
Carrier Insured Type of Coverage Coverage
------------ ---------------- ---------------- ----------
St. ▇▇▇▇ 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.
EXHIBIT 9.2
CHILDROBICS, INC.
SCHEDULE OF LIENS
OCTOBER 3, 1996
Financing Date of
Borrower Lien Holder Provided for Financing
---------------- -------------------- ------------------ ----------
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
▇▇▇▇▇▇ Equipment Equipment 8/7/95
▇▇▇▇▇▇ Equipment Equipment 12/26/95
Mondial Distributing Equipment 6/20/95
▇▇▇▇▇▇ Equipment Equipment 8/8/95
▇▇▇▇▇▇ 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
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
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