<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 11, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
WORLD OF SCIENCE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
NEW YORK 8200 16-0963838
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER ID NO.)
JURISDICTION OF CLASSIFICATION CODE NO.)
INCORPORATION OR
ORGANIZATION)
900 JEFFERSON ROAD
BUILDING FOUR
ROCHESTER, NEW YORK 14623
(716) 475-0100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
FRED H. KLAUCKE, PRESIDENT
900 JEFFERSON ROAD
BUILDING FOUR
ROCHESTER, NEW YORK 14623
(716) 475-0100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
WITH COPIES TO:
THOMAS E. WILLETT, ESQ. KEITH F. HIGGINS, ESQ.
HARRIS BEACH & WILCOX, LLP ROPES & GRAY
130 EAST MAIN STREET ONE INTERNATIONAL PLACE
ROCHESTER, NEW YORK 14604 BOSTON, MASSACHUSETTS 02110
(716) 232-4440 (617) 951-7000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
MAXIMUM
AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF OFFERING REGISTRATION
SECURITIES TO BE REGISTERED PRICE(1) FEE
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<S> <C> <C>
Common Stock, par value $.01 per share................ $29,900,000 $9,060.60
</TABLE>
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(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o).
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----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED APRIL 11, 1997
2,600,000 SHARES
WORLD OF SCIENCE, INC.
COMMON STOCK
-----------
Of the 2,600,000 shares of common stock, par value $.01 per share (the
"Common Stock"), offered hereby (the "Offering"), 1,600,000 shares are being
sold by World of Science, Inc. (the "Company" or "World of Science") and
1,000,000 shares are being sold by certain stockholders of the Company (the
"Selling Stockholders"). See "Principal and Selling Stockholders." The Company
will not receive any of the proceeds from the sale of the shares by the Selling
Stockholders.
Prior to the Offering, there has been no public market for the Company's
Common Stock. It is currently anticipated that the initial public offering
price will be between $ and $ per share. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price. The Company has filed an application for the trading of its
Common Stock on the Nasdaq National Market under the symbol "WOSI."
-----------
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN MATTERS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share..................... $ $ $ $
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Total(3)...................... $ $ $ $
</TABLE>
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(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting offering expenses payable by the Company, estimated at
$ .
(3) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 390,000 shares of Common Stock solely to cover over-
allotments, if any. If such option is exercised in full, the total Price to
Public, Underwriting Discounts and Commissions and Proceeds to Company will
be $ , $ and $ , respectively. See "Underwriting."
-----------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by them and subject to
certain conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer or to reject any orders in whole or in part. It is expected
that delivery of the shares of Common Stock will be made on or about ,
1997.
A.G. EDWARDS & SONS, INC. RAYMOND JAMES & ASSOCIATES, INC.
The date of this Prospectus is , 1997.
<PAGE>
[INSIDE FRONT COVER PAGE OF PROSPECTUS]
[INSIDE OF GATEFOLD--PHOTOGRAPHS OF EXTERIORS OF PERMANENT AND SEASONAL STORES
AND PHOTOGRAPHS OF STORE PRODUCT AREAS]
[OUTSIDE OF GATEFOLD--MAP DESIGNATING LOCATIONS OF PERMANENT AND SEASONAL
STORES]
The Company intends to furnish its stockholders with annual reports
containing audited financial statements, and quarterly reports containing
unaudited financial information for the first three quarters of each fiscal
year.
This discussion contains certain forward-looking statements that involve
substantial risks and uncertainties. When used in this Prospectus, the words
"anticipate," "believe," "estimate," "expect" and similar expressions as they
relate to the Company or its management are intended to identify such forward-
looking statements. The Company's actual results, performance or achievements
could differ materially from those expressed in, or implied by, these forward-
looking statements as a result of, among other things, the factors set forth
in the section entitled "Risk Factors."
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH
SECURITIES, AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THIS
OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
----------------
* World of Science(R) is a registered trademark of the Company.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and the Financial Statements,
including the Notes thereto, appearing elsewhere in this Prospectus. Unless
otherwise indicated, all information in this Prospectus assumes that (i) the
Company has filed its Restated Certificate of Incorporation (the "Restated
Certificate of Incorporation") prior to the completion of the Offering, (ii)
the Company has completed a five-for-one split of the Common Stock, (iii) the
Underwriters' over-allotment option has not been exercised and (iv) the
Company's 1993 Stock Option Plan has been amended so that the aggregate number
of shares of Common Stock reserved for issuance under the Company's stock
option plans will be 565,000 shares. As used in this Prospectus, unless
otherwise indicated, the terms "fiscal" and "fiscal year" refer to the calendar
year in which the Company's fiscal year commences. For example, "fiscal 1996"
refers to the fiscal year ended February 1, 1997. The Company's fiscal year was
the 52-week period ending on the Sunday closest to January 31 for fiscal years
prior to fiscal 1996, and was the 53-week period ending on the Saturday closest
to January 31 for fiscal 1996.
THE COMPANY
World of Science is a leading specialty retailer of a variety of traditional
and distinctive science and nature products. The Company's merchandising
strategy emphasizes both the educational and entertainment values of its
products, which are offered at competitive prices in a stimulating retail
environment. World of Science has developed a broad customer base, as its
products appeal to customers of all ages for gift-giving, educational use and
entertainment. The Company operates both a permanent and seasonal store format.
At March 31, 1997, the Company operated 48 permanent stores and 62 seasonal
stores in 29 states, primarily in enclosed malls.
Permanent World of Science stores are open year-round under long-term leases,
contain an average of 2,100 square feet of selling space and maintain
approximately 2,600 stock keeping units ("SKUs") of inventory. Permanent stores
are also generally characterized by an upscale store facade and interior
fixture package. Seasonal stores are open during the holiday selling season, or
for an extended period beyond that season, under leases with shorter terms.
Seasonal stores contain an average of 1,500 square feet of selling space,
maintain approximately 1,950 SKUs of inventory, occupy available in-line mall
space, require minimal store build-out and utilize reusable fixtures.
Over the past five years, the Company's net sales have increased from $11.8
million in fiscal 1992 to $44.6 million in fiscal 1996, and net income has
increased from approximately $827,000 to $1.7 million during the same period.
Total stores operated during the holiday selling season increased from 31 in
fiscal 1992 to 129 in fiscal 1996.
BUSINESS STRATEGY
. DISTINCTIVE AND TRADITIONAL MERCHANDISE. World of Science stores offer a
variety of educationally and entertainment-oriented, distinctive science and
nature products, together with a broad assortment of more traditional science
and nature products. Many of the products offered in World of Science stores
are not widely available from other retailers within the malls occupied by
the Company's stores. The Company continually seeks new and distinctive
products and, accordingly, updates approximately one-third of its SKUs
annually.
. EDUCATIONAL AND ENTERTAINING SHOPPING EXPERIENCE. The Company's products are
displayed to encourage customers to browse, experiment with, and examine the
features and quality of the products as the store layout guides them through
up to 25 different product areas. This educational and entertaining shopping
experience places the customer in an environment where experimentation and
play are integral components of the buying experience.
. SUPERIOR CUSTOMER SERVICE. The Company employs enthusiastic and friendly
sales personnel who are trained to highlight the benefits of the products
offered and encourage customers to browse at their leisure.
. USE OF SEASONAL STORES. The seasonal store program enables the Company to
reach a broader customer base during the holiday selling season, as well as
to test prospective locations for permanent stores before making
3
<PAGE>
the required capital investment. The Company opportunistically seeks out
available in-line space in quality shopping malls which it can lease for
several months around the holiday selling season and, in some instances, for
an extended period thereafter. The cost of opening seasonal stores is
substantially lower and the lead time is substantially shorter than those
associated with permanent stores. In fiscal 1996, 46.1% of the Company's total
net sales were generated by seasonal stores.
. PRICE INTEGRITY. The Company's pricing strategy is to offer quality products
at fair prices. World of Science stores sell merchandise generally ranging in
price from less than $1.00 to $1,000. The Company does not engage in frequent
storewide sales or price mark-downs and believes it uses sales and price
mark-downs to a lesser degree than other retailers. The Company believes that
its pricing strategy fosters customer trust and confidence.
EXPANSION STRATEGY
The Company has grown by opening new permanent stores, by operating seasonal
stores to capture sales during the holiday selling season, and by increasing
sales volume from its existing permanent stores. Although management does not
believe there are geographical constraints on the location of future stores,
the Company's expansion strategy will focus primarily on opening stores in new
and existing markets in the eastern half of the United States before expanding
elsewhere. The Company believes that this strategy will allow it to increase
the recognition of the "World of Science" name, enhance operating efficiencies
and manage growth. The principal elements of the Company's expansion strategy
are as follows:
. NEW PERMANENT STORE OPENINGS. The Company currently operates 48 permanent
World of Science stores, including four new permanent stores which have
opened since the beginning of fiscal 1997. The Company expects to open a
total of approximately 12 permanent stores in fiscal 1997 and approximately
18 permanent stores in fiscal 1998 in both new and existing markets. In many
cases, permanent stores will replace seasonal stores and, in appropriate
circumstances, the Company may acquire or assume pre-existing leases of other
retail stores.
. ACTIVE SEASONAL STORE PROGRAM. The Company operated 85 World of Science
seasonal stores during the fiscal 1996 holiday selling season and currently
operates 62 seasonal stores. During the past three fiscal years, the Company
has only opened one permanent store in a pre-existing mall which was not
preceded by a seasonal store in the same mall. The Company plans to operate
approximately 100 seasonal stores during the holiday selling season in fiscal
1997 and approximately 120 seasonal stores in fiscal 1998.
. COMMITMENT TO STRONG INFRASTRUCTURE. The Company's expansion strategy
includes a commitment to make appropriate infrastructure investments. Over
the past two years, the Company has made significant investments in its
management information systems and distribution facilities, which have
contributed to efficiencies in inventory management and product distribution.
The Company was incorporated in New York in 1969. The Company's executive
offices are located at 900 Jefferson Road, Building Four, Rochester, New York
14623 and its telephone number is (716) 475-0100.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by:
The Company........... 1,600,000 shares
The Selling
Stockholders......... 1,000,000 shares
Total............... 2,600,000 shares
Common Stock outstanding
after the Offering..... 5,022,955 shares(1)
Use of proceeds......... To finance new store expansion and for working capital
and other general corporate purposes. See "Use of
Proceeds."
Proposed Nasdaq National
Market symbol.......... WOSI
</TABLE>
- --------
(1) Based on the number of shares of Common Stock outstanding at March 31,
1997. Does not include 565,000 shares of Common Stock reserved for issuance
under the Company's stock option plans, of which options for 165,000 shares
have been granted. See "Management--Stock Option Plans."
4
<PAGE>
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------------------------------
JANUARY 31, JANUARY 30, JANUARY 29, JANUARY 28, FEBRUARY 1,
1993 1994 1995 1996 1997
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AND STORE OPERATING DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Net sales.............. $ 11,794 $ 23,153 $ 31,335 $ 37,265 $ 44,563
Cost of sales and
occupancy expenses.... 7,365 14,861 20,788 23,957 28,630
----------- ----------- ----------- ----------- -----------
Gross profit........... 4,429 8,292 10,547 13,308 15,933
Selling, general and
administrative
expenses.............. 2,978 6,785 9,048 10,680 12,593
----------- ----------- ----------- ----------- -----------
Operating income....... 1,451 1,507 1,499 2,628 3,340
Interest expense, net.. 44 68 320 418 394
----------- ----------- ----------- ----------- -----------
Income before income
taxes................. 1,407 1,439 1,179 2,210 2,946
Income tax expense..... 580 600 460 906 1,210
----------- ----------- ----------- ----------- -----------
Net income............. $ 827 $ 839 $ 719 $ 1,304 $ 1,736
=========== =========== =========== =========== ===========
Net income per
share(1).............. $ .32 $ .23 $ .20 $ .35 $ .49
=========== =========== =========== =========== ===========
Weighted average number
of shares............. 2,607 3,641 3,683 3,755 3,545
STORE OPERATING DATA:
Selected Permanent
Store Data
Number of stores at
beginning of period... 17 23 27 33 37
Number of stores at end
of period............. 23 27 33 37 44
Total net sales........ $10,217,000 $12,720,000 $16,178,000 $20,241,000 $23,998,000
Percentage increase in
comparable store
net sales(2)(3)....... 6.2% 1.7% 2.9% 3.1% 3.5%
Total square footage at
end of period(4)...... 40,074 50,843 65,048 75,182 94,348
Average net sales per
square foot(2)(4)..... $ 307 $ 280 $ 274 $ 272 $ 275
Average net sales per
store(2)(4)........... $ 434,000 $ 495,000 $ 532,000 $ 544,000 $ 575,000
Selected Seasonal Store
Data
Number of stores at
beginning of period... 0 0 26 40 37
Peak number of stores
during period(5)...... 8 79 90 71 85
Total net sales........ $ 1,325,000 $10,323,000 $15,113,000 $17,019,000 $20,565,000
</TABLE>
<TABLE>
<CAPTION>
FEBRUARY 1, 1997
----------------------
ACTUAL AS ADJUSTED(6)
------- --------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................... $ 2,014 $
Working capital......................................... 5,818
Total assets............................................ 15,274
Total debt, including capital lease obligations......... 370
Stockholders' equity.................................... 10,480
</TABLE>
- --------
(1) Computed based on the weighted average number of shares of common stock and
common stock equivalents, calculated using the treasury stock method. For
fiscal 1992 through fiscal 1995, the weighted average number of shares
includes 654,550 shares owned by the Company's Chairman which were subject
to an option granted by him to the Company's former President, which option
terminated unexercised on January 17, 1996. The 654,550 shares were
considered both as issued and outstanding and as common stock equivalents
issued by the Company for those fiscal years. See "Business--Legal
Proceedings."
(2) Percentage increase in comparable store net sales, average net sales per
square foot and average net sales per store are adjusted to reflect a 52-
week year for all years presented. For fiscal 1996, which had 53 weeks, the
52-week period ended February 1, 1997 has been used.
(3) A comparable store is defined as a permanent store which was open as a
permanent store for at least one full fiscal year as of the beginning of
the fiscal year.
(4) Average net sales per square foot and average net sales per store include
only stores open for the entire fiscal year. Total square footage at end of
period reflects the gross leased space of permanent stores open at the end
of the period.
(5) Reflects the greatest number of seasonal stores open at any one time during
the fiscal year, which is historically during the fourth quarter.
(6) Adjusted to give effect to the Offering and the application of the net
proceeds therefrom. See "Use of Proceeds."
5
<PAGE>
RISK FACTORS
In addition to other information in this Prospectus, the following factors
should be carefully considered in evaluating the Company and its business
before purchasing the shares of Common Stock offered by this Prospectus.
SEASONALITY
The Company's business is subject to substantial seasonal variations in
demand. Historically, a significant portion of the Company's sales and all of
its net income have been realized during the holiday selling season, which
consists of the months of November and December, and sales and net income have
generally been significantly lower from January through October, resulting in
losses in the first three fiscal quarters. The operation of a substantial
number of seasonal stores during the holiday selling season increases the
seasonal nature of the Company's sales. Net sales in the fourth fiscal quarter
represented 58.7% and 57.7% of the Company's total net sales for fiscal 1995
and 1996, respectively. Sales generated during the holiday selling season will
continue to have a significant impact on the Company's results of operations.
If for any reason the Company's sales during any holiday selling season are
below expectations, or if there is a decrease in the availability of working
capital needed in the months prior to any holiday selling season, the
Company's profitability would be materially and adversely affected. The
Company must make decisions regarding the type and amount of inventory to buy
well in advance of the season in which it will be sold, especially for the
holiday selling season. Significant deviations from projected demand for
products, inclement weather, or generally unfavorable economic conditions
could have an adverse effect on the Company's business, financial condition
and results of operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Seasonality and Quarterly
Fluctuations."
FLUCTUATIONS IN QUARTERLY RESULTS
The Company's revenues and earnings may fluctuate from quarter to quarter
based upon a variety of factors, including the amount and timing of sales
contributed by new stores, the integration of new stores into the operations
of the Company, the success of its seasonal store program, costs associated
with opening new stores and other associated expenses. As a result of the
Company's expansion plans to open new stores in fiscal 1997, operating losses
for its first three quarters are likely to be higher than those in fiscal
1996. If the Company's operating results in future quarters are below the
expectations of securities analysts and investors, the market price of the
Company's Common Stock could be adversely affected. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Seasonality and Quarterly Results."
ABILITY TO IMPLEMENT EXPANSION STRATEGY
Substantially all of the Company's growth in revenues over the past five
years is attributable to revenues from the opening of additional stores. The
Company's future growth depends to a significant extent on the opening of new
permanent and seasonal stores, and to a lesser extent, on the Company's
ability to increase sales in its existing stores. At March 31, 1997, the
Company had 48 permanent stores and 62 seasonal stores in operation, primarily
in the eastern half of the United States. The Company currently plans to open
approximately 12 new permanent stores during fiscal 1997 and to operate a peak
number of approximately 100 seasonal stores in fiscal 1997, and to open
approximately 18 new permanent stores during fiscal 1998 and to operate a peak
number of approximately 120 seasonal stores in fiscal 1998, primarily in new
and existing markets in the eastern half of the United States. The Company's
ability to open and operate new stores profitably is dependent on, among other
factors, the availability of suitable sites on acceptable lease terms, the
availability of qualified store personnel, the Company's ability to obtain
adequate product inventory, the Company's financial resources and the
Company's ability to manage the operational aspects of growth. There can be no
assurance that the Company will be able to open and operate new stores on a
timely and profitable basis, that opening new stores in markets already served
by the Company will not adversely affect existing store profitability or
reduce comparable store net sales, or that comparable store net sales will
increase in the future. In addition, there can be no assurance that
6
<PAGE>
start-up costs for new stores will not increase as a result of inflation,
local economic conditions or other factors. Moreover, the retail leasing
environment may tighten, hindering the Company's expansion plans. Any of these
factors may have a material adverse effect upon the Company's future
performance and ability to meet its projections. In addition, with respect to
the Company's seasonal stores, there can be no assurance that the store
premises will remain available due to the Company's reliance on short-term
leases. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources" and "Business--
Expansion Strategy."
DISTRIBUTION CENTER RELOCATION
The Company currently conducts substantially all of its inventory
management, receiving and shipping at its central distribution facility
located in Rochester, New York near the Company's corporate headquarters.
Because of the Company's store expansion plans, the Company has signed a lease
to relocate its distribution center during the second quarter of fiscal 1997
to a larger facility also located near the Company's corporate headquarters.
Although management believes that the relocation will occur without any
material disruption to the Company's business, any material disruption in the
distribution of merchandise to the Company's stores, any delay in the
relocation, or any material increase in the cost of operating the Company's
existing distribution facility prior to the relocation could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business--Purchasing and Distribution."
MANAGEMENT OF GROWTH
The Company's ability to manage growth will depend, in part, on its ability
to recruit, hire, and train additional personnel, including key middle
management personnel and store sales personnel. Although the Company intends
to recruit or promote additional personnel as needed, there can be no
assurance that the Company will be successful in hiring or training sufficient
qualified individuals. Managing additional growth will require continued
development of the Company's financial and management controls, including
inventory management and accounting systems. A failure to successfully manage
sales growth could have a material adverse effect on the Company's business,
financial condition and results of operations.
COMPETITION
Competition for consumer spending is highly intense among specialty
retailers, traditional department stores and mass merchants in regional
shopping malls and other high traffic retail locations. The Company competes
against other retailers for suitable real estate locations and qualified
personnel. The specialty retail business has few barriers to entry. In
addition, as the Company expands into new markets, its success may depend in
part on its ability to gain market share from established competitors. Many of
the Company's competitors have substantially greater financial, marketing and
other resources than the Company. There can therefore be no assurance that the
Company will be able to compete successfully with them in the future. See
"Business--Competition."
ECONOMIC CONDITIONS
The Company's operating results may be adversely affected by general
economic conditions that impact consumers' disposable income, including
employment, business conditions, interest rates and tax policies. In addition,
because the Company's stores are located predominantly in the eastern half of
the United States, the Company is more sensitive to changes in the economy and
consumer attitudes in that geographic area than more geographically diverse
retailers. A deterioration in national or regional economic conditions could
have a material adverse effect on the Company's business, financial condition
and results of operations.
7
<PAGE>
CHANGING CONSUMER PREFERENCES
The Company's success depends in part upon its ability to anticipate and
respond to changing consumer preferences in a timely manner. Although the
Company attempts to stay abreast of lifestyle and consumer preference trends,
any failure by the Company to identify and respond to such trends could
adversely affect the Company's business, results of operations and financial
condition. The Company's success also depends upon the volume of sales and
traffic within the shopping malls it occupies, and the closing of anchor stores
in such malls could have a material adverse affect on the Company's business,
financial condition and results of operations.
DISTINCTIVE PRODUCTS
The Company's success depends to a large degree on its ability to introduce
in a timely manner new or updated products which are affordable, distinctive,
and not widely available from other retailers. The Company updates
approximately one-third of its SKUs every year. Although the Company believes
that there are a number of sources for many of its products, it relies on a
smaller number of sources for its distinctive products. Any event causing a
disruption of supplies from such sources, including insolvency of a significant
source or the imposition of additional import restrictions, could have a
material adverse effect on the Company's business, financial condition and
results of operations.
DEPENDENCE ON KEY EMPLOYEES
The Company's success depends, to a significant extent, upon the continued
services of a number of key employees. The loss of key employees, particularly
Fred Klaucke, President, Chief Executive Officer, and founder of the Company,
would have a material adverse effect on the Company's business, financial
condition and results of operations. The Company believes that its future
success also will depend upon its ability to attract and retain additional
highly skilled management personnel. Competition for such personnel is intense,
and there can be no assurance that the Company will be successful in attracting
and retaining such personnel. See "Management."
CONTROL BY OFFICERS AND DIRECTORS
Immediately after the Offering, the Company's officers and directors will
beneficially own approximately 34.9% of the outstanding shares of Common Stock.
Accordingly, the Company's officers and directors, if they vote in the same
manner, will have the effective ability to elect all of the Company's directors
and determine the outcome of practically all matters submitted to a vote of the
Company's stockholders. Moreover, they will have the ability to preclude the
approval of any matter requiring more than a majority vote of the stockholders.
This concentration of ownership may have the effect of delaying, deterring or
preventing a change of control of the Company, including transactions in which
the holders of Common Stock might receive a premium for their shares over
prevailing market prices. See "Principal and Selling Stockholders" and
"Description of Capital Stock."
POTENTIAL EFFECTS OF ANTI-TAKEOVER PROVISIONS.
The Company's Restated Certificate of Incorporation provides for authorized
but unissued shares of preferred stock (the "Preferred Stock"). The Company's
Board of Directors has the authority, without action by the Company's
stockholders, to fix the rights and preferences of and to issue shares of the
Preferred Stock, which may have the effect of delaying, deterring, or
preventing a change in control of the Company. The Company has also imposed
various procedural and other requirements that could make it more difficult for
stockholders to effect certain corporate actions. In addition, the
classification of the Board of Directors of the Company could have the effect
of delaying, deterring, or preventing a change in control of the Company,
including transactions in which the holders of Common Stock might receive a
premium for their shares over prevailing market prices. See "Management" and
"Description of Capital Stock."
8
<PAGE>
NO PRIOR MARKET FOR COMMON STOCK; POSSIBILITY OF VOLATILITY OF COMMON STOCK
PRICE
Prior to the Offering, there has been no public market for the Common Stock.
The initial public offering price for the shares of Common Stock will be
determined through negotiations among the Company and the representatives of
the Underwriters, and may not be indicative of the market price of the Common
Stock after the Offering. See "Underwriting." There can be no assurance that
an active trading market will develop or be sustained or that investors in the
Common Stock will be able to resell their shares at or above the initial
public offering price. In addition, the trading price of the Common Stock
could be subject to wide fluctuations in response to variations in the
Company's quarterly operating results, changes in earnings estimates by
analysts, conditions in the Company's business, announcements by the Company,
its product sources or competitors, or general market or economic conditions.
In addition, in recent years the stock market has experienced extreme price
and volume fluctuations. Such market fluctuations could have a material
adverse effect on the market price for the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of Common Stock after the Offering, or the availability of additional
shares of Common Stock for future sale in the public market could adversely
affect the market price of the Common Stock prevailing from time to time. Upon
completion of the Offering, the Company will have outstanding 5,022,955 shares
of Common Stock (5,412,955 shares if the underwriters' overallotment option is
exercised in full). The 2,600,000 shares of Common Stock offered hereby (and
the 390,000 shares issuable upon exercise of the underwriters' overallotment
option) will be freely tradeable in the open market. The remaining 2,422,955
shares that will be outstanding immediately after the Offering will be
eligible for sale in the open market pursuant to Rule 144 under the Securities
Act of 1933, as amended (the "Securities Act"), subject in the case of
shares, including shares held by Executive Officers, Directors and Selling
Stockholders, to 180-day lock-up agreements with the representatives of the
Underwriters. In addition, following the Offering, holders of approximately
shares have certain "piggyback" registration rights. In addition, as of the
date of this Prospectus, there were 165,000 shares of Common Stock issuable
upon exercise of outstanding stock options, of which are subject to 180-day
lock-up agreements with the representatives of the Underwriters. The Company
intends to register an additional 565,000 shares of Common Stock reserved for
issuance under its stock option plans approximately 90 days after completion
of the Offering. See "Principal and Selling Stockholders," "Shares Eligible
for Future Sale" and "Underwriting."
IMMEDIATE AND SUBSTANTIAL DILUTION
Investors purchasing shares of Common Stock in the Offering will incur
immediate dilution of $ per share, assuming an initial public offering
price of $ per share, in the net tangible book value of the Common Stock.
Additional dilution will occur upon exercise of outstanding stock options. See
"Dilution."
DIVIDENDS
The Company does not anticipate paying any cash dividends on the Common
Stock in the foreseeable future. In addition, the payment of dividends is
prohibited by certain covenants in the Company's loan agreements. See
"Dividend Policy."
9
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the Offering are estimated to be
approximately $ ($ if the over-allotment option granted to the
Underwriters is exercised in full) assuming an initial public offering price of
per share, after deduction of the underwriting discount and estimated
offering expenses. The Company intends to use approximately $7.0 million of the
net proceeds to finance new store expansion over the next two years. The
remaining net proceeds will be used for working capital and for general
corporate purposes, including approximately $300,000 for expansion and
relocation of the Company's distribution center and approximately $350,000 to
improve its point-of-sale system. The expected applications of the net proceeds
represent the Company's best estimates based upon its present plans and certain
assumptions regarding general economic and industry conditions and the
Company's anticipated future revenues and expenditures. If the Company's plans
change, or its assumptions change or prove to be incorrect, the Company may
reallocate some of the net proceeds within the above described categories or
use the portions thereof for other purposes.
Pending the application of the net proceeds as described above, such proceeds
will be placed in interest-bearing bank accounts or invested in short-term
United States government securities, certificates of deposit of major banks or
high-grade commercial paper.
The Company will not receive any of the proceeds from the sale of shares of
Common Stock by the Selling Stockholders.
DIVIDEND POLICY
The Company has not paid in the recent past and does not currently intend to
pay cash dividends on its Common Stock. The Company presently anticipates that
all of its future earnings will be retained for the development and expansion
of its business and, therefore, does not anticipate paying cash dividends on
its Common Stock in the foreseeable future. The payment of any future dividends
will be at the discretion of the Company's Board of Directors. In addition,
payment of dividends is prohibited by certain covenants in the Company's loan
agreements. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources" and Note 6 to the
Financial Statements.
10
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
February 1, 1997, and as adjusted to give effect to the issuance and sale of
shares of Common Stock offered hereby at an assumed initial public offering
price of $ per share of Common Stock, less estimated underwriting discounts
and estimated offering expenses.
<TABLE>
<CAPTION>
FEBRUARY 1, 1997
-------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Current installments of capital lease obligations and
current installments of long-term debt.................... $ 171 $
------- -------
Capital lease obligations and long-term debt, less current
installments.............................................. $ 199 $
------- -------
Stockholders' equity:
Preferred Stock, $.01 par value, 5,000,000 shares
authorized, no shares issued and outstanding............ -- --
Common Stock, $.01 par value, 10,000,000 shares
authorized, 3,422,955 shares issued and outstanding;
5,022,955 shares, as adjusted(1)........................ 34
Additional paid in capital................................. 2,703
Retained earnings.......................................... 7,743
------- -------
Total stockholders' equity............................... $10,480 $
------- -------
Total capitalization..................................... $10,850 $
======= =======
</TABLE>
- --------
(1) Does not include 565,000 shares of Common Stock reserved for issuance
under the Company's stock option plans, of which options for 165,000
shares have been granted. See "Management--Stock Option Plans."
11
<PAGE>
DILUTION
Purchasers of the Common Stock offered hereby will experience an immediate
and substantial dilution in the net tangible book value of their Common Stock
from the assumed initial public offering price. The net tangible book value of
the Company at February 1, 1997, was approximately $10.5 million, or $3.06 per
share. Net tangible book value per share is equal to net tangible assets
(tangible assets of the Company less total liabilities) divided by the number
of shares of Common Stock outstanding. Net tangible book value dilution per
share represents the difference between the amount per share paid by
purchasers of shares of Common Stock in the Offering and the pro forma net
tangible book value per share of Common Stock immediately after completion of
the Offering. After giving effect to the sale of 1,600,000 shares of Common
Stock offered by the Company (after deducting the underwriting discount and
estimated offering expenses), the pro forma net tangible book value of the
Company as of February 1, 1997, would have been approximately $ million, or
$ per share. This represents an immediate increase in net tangible book
value of $ per share to existing stockholders and an immediate dilution in
net tangible book value of $ per share to purchasers of Common Stock in the
Offering, as illustrated in the following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share of Common
Stock......................................................... $
Net tangible book value per share of Common Stock at February
1, 1997..................................................... $3.06
Increase per share attributable to new investors.............
-----
Net tangible book value per share of Common Stock adjusted
for the Offering............................................
-----
Immediate dilution per share of Common Stock to new investors.. $
=====
</TABLE>
The following table sets forth certain information with respect to the
number of shares of Common Stock purchased from the Company, the total cash
consideration paid and the average price paid per share of Common Stock by
existing stockholders:
<TABLE>
<CAPTION>
COMMON STOCK
PURCHASED TOTAL CONSIDERATION AVERAGE
----------------- ------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)... 3,422,955 68.1% $ 2,737,250 % $ .80
New investors(1)........... 1,600,000 31.9
--------- ----- ----------- -----
Total...................... 5,022,955 100.0% $ 100.0%
========= ===== =========== =====
</TABLE>
- --------
(1) Sales by the Selling Stockholders in the Offering will reduce the number
of shares held by existing stockholders to 2,422,955 shares, or 48.2% of
the total number of shares of Common Stock outstanding after the Offering
and will increase the number of shares held by new investors to 2,600,000
shares, or 51.8% of the total number of shares of Common Stock outstanding
after the Offering.
The calculations set forth above do not give effect to the possible exercise
of options granted or to be granted under the Company's stock option plans.
See "Management--Stock Option Plans."
12
<PAGE>
SELECTED FINANCIAL DATA
The statement of income data and balance sheet data for fiscal 1996 and
fiscal 1995 and the statement of income data for fiscal 1994 are derived from
the Financial Statements of the Company included elsewhere in this Prospectus,
which have been audited by KPMG Peat Marwick LLP, independent auditors. The
statement of income data for fiscal 1993 and fiscal 1992 and the balance sheet
data for fiscal 1994, fiscal 1993 and fiscal 1992 have been derived from
financial statements of the Company not included in this Prospectus, which
have also been audited by KPMG Peat Marwick LLP. The selected financial data
set forth below should be read in conjunction with the Company's Financial
Statements and the related notes thereto included elsewhere in this Prospectus
and "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------------------------------
JANUARY 31, JANUARY 30, JANUARY 29, JANUARY 28, FEBRUARY 1,
1993 1994 1995 1996 1997
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AND STORE OPERATING DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Net sales.............. $ 11,794 $ 23,153 $ 31,335 $ 37,265 $ 44,563
Cost of sales and
occupancy expenses.... 7,365 14,861 20,788 23,957 28,630
----------- ----------- ----------- ----------- -----------
Gross profit........... 4,429 8,292 10,547 13,308 15,933
Selling, general and
administrative
expenses.............. 2,978 6,785 9,048 10,680 12,593
----------- ----------- ----------- ----------- -----------
Operating income....... 1,451 1,507 1,499 2,628 3,340
Interest expense, net.. 44 68 320 418 394
----------- ----------- ----------- ----------- -----------
Income before income
taxes................. 1,407 1,439 1,179 2,210 2,946
Income tax expense..... 580 600 460 906 1,210
----------- ----------- ----------- ----------- -----------
Net income............. $ 827 $ 839 $ 719 $ 1,304 $ 1,736
=========== =========== =========== =========== ===========
Net income per
share(1).............. $ .32 $ .23 $ .20 $ .35 $ .49
=========== =========== =========== =========== ===========
Weighted average number
of shares............. 2,607 3,641 3,683 3,755 3,545
STORE OPERATING DATA:
Selected Permanent
Store Data
Number of stores at
beginning of period... 17 23 27 33 37
Number of stores at end
of period............. 23 27 33 37 44
Total net sales........ $10,217,000 $12,720,000 $16,178,000 $20,241,000 $23,998,000
Percentage increase in
comparable store net
sales(4)(5)........... 6.2% 1.7% 2.9% 3.1% 3.5%
Total square footage at
end of period(4)...... 40,074 50,843 65,048 75,182 94,348
Average net sales per
square foot(2)(4)..... $ 307 $ 280 $ 274 $ 272 $ 275
Average net sales per
store(2)(4)........... $ 434,000 $ 495,000 $ 532,000 $ 544,000 $ 575,000
Selected Seasonal Store
Data
Number of stores at
beginning of period... 0 0 26 40 37
Peak number of stores
during period(5)...... 8 79 90 71 85
Total net sales........ $ 1,325,000 $10,323,000 $15,113,000 $17,019,000 $20,565,000
</TABLE>
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 30, JANUARY 29, JANUARY 28, FEBRUARY 1,
1993 1994 1995 1996 1997
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents........... $2,196 $ 727 $ 655 $ 1,620 $ 2,014
Working capital........ 4,495 4,579 4,479 4,972 5,818
Total assets........... 6,650 8,879 10,615 12,855 15,274
Total debt, including
capital lease
obligations........... 66 369 563 437 370
Stockholders' equity... 5,800 6,640 7,441 8,745 10,480
</TABLE>
- --------
(1) Computed based on the weighted average number of shares of common stock
and common stock equivalents, calculated using the treasury stock method.
For fiscal 1992 through 1995, the weighted average number of shares
includes 654,550 shares owned by the Company's Chairman which were subject
to an option granted by him to the Company's former President, which
option terminated unexercised on January 17, 1996. The 654,550 shares were
considered both as issued and outstanding and as common stock equivalents
issued by the Company for those fiscal years. See "Business--Legal
Proceedings."
(2) Percentage increase in comparable store net sales, average net sales per
square foot and average net sales per store are adjusted to reflect a 52-
week year for all years presented. For fiscal 1996, which had 53 weeks,
the 52-week period ended February 1, 1997 has been used.
(3) A comparable store is defined as a permanent store which was open as a
permanent store for at least one full fiscal year as of the beginning of
the fiscal year.
(4) Average net sales per square foot and average net sales per store include
only stores open for the entire fiscal year. Total square footage at end
of period reflects the gross leased space of permanent stores open at the
end of the period.
(5) Reflects the greatest number of seasonal stores open at any one time
during the fiscal year, which is historically during the fourth quarter.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with, and is
qualified in its entirety by, the Financial Statements and the notes thereto
and "Selected Financial Data" included elsewhere in this Prospectus.
Historical operating results are not necessarily indicative of future results.
OVERVIEW
The Company is a leading speciality retailer of a variety of traditional and
distinctive science and nature products. The Company's net sales have grown
from $11.8 million in fiscal 1992 to $44.6 million in fiscal 1996, primarily
due to the Company's store expansion program and, to a lesser extent,
increases in comparable store net sales. The Company's retail establishments
consist of permanent and seasonal stores. Permanent World of Science stores
are open year-round under long-term leases, contain an average of 2,100 square
feet of selling space, maintain approximately 2,600 SKUs in inventory, and are
characterized by an upscale store facade and interior fixture package.
Seasonal stores are open during the holiday selling season, or for an extended
period beyond the holiday selling season, under shorter term leases with terms
ranging from month-to-month to three years. Seasonal stores contain an average
of 1,500 square feet of selling space, maintain approximately 1,950 SKUs in
inventory and are typically located in available in-line mall space. The cost
of opening seasonal stores is substantially lower and the lead time is
substantially shorter than those associated with permanent stores.
Since the Company's opening of its first World of Science store in 1984, the
Company has expanded to 48 permanent World of Science stores as of March 31,
1997. Since opening its first seasonal store in fiscal 1992, the Company has
increased the use of this store format, operating 85 seasonal stores during
the fiscal 1996 holiday selling season. The Company strives to maintain an
appropriate balance between permanent stores and seasonal stores, taking into
account such factors as management time demands, return on investment and site
availability. While the Company will continue its active program of seasonal
store operations, it is placing increasing emphasis on the opening of new
permanent stores. The Company presently anticipates opening a total of 12 new
permanent stores in fiscal 1997 and 18 new permanent stores in fiscal 1998.
The Company presently anticipates operating approximately 100 seasonal stores
during the fiscal 1997 holiday selling season and 120 seasonal stores during
the fiscal 1998 holiday selling season.
The Company's business is subject to substantial seasonal variations.
Historically, a significant portion of the Company's sales and all of its net
income have been realized during the months of November and December, and net
sales have generally been significantly lower from January through October,
resulting in losses in the first three fiscal quarters. The Company expects
that, given its dependence on the holiday selling season, it will continue to
experience losses in the first three fiscal quarters. In addition, as a result
of the Company's planned expansion, management believes that the Company may
experience greater losses in the first three quarters of fiscal 1997 than it
has experienced over the past two years.
Net sales consist almost entirely of merchandise purchased by customers in
the Company's stores. The Company's cost of sales and occupancy expenses
include the cost of operating the distribution center and other expenses
associated with acquiring inventory. Selling, general and administrative
expenses include non-occupancy store expenses and administrative overhead
expenses. The Company recognizes all expenses associated with the opening of
new permanent and seasonal stores as they are incurred, with the exception of
leasehold improvements and fixtures, which are capitalized. The cost of
closing stores is expensed in the period in which the decision to close the
store is made. The Company has not closed a permanent store since fiscal 1993.
A comparable store is a permanent store which has been open as a permanent
store for at least one full fiscal year as of the beginning of the fiscal
year. Comparable store net sales increases for fiscal 1994, 1995 and 1996 were
2.9%, 3.1% and 3.5%, respectively. The number of comparable stores in fiscal
1994, 1995 and 1996 was 22, 27 and 33, respectively. Although the average net
sales per permanent store has increased in each of the last three fiscal
years, average net sales per square foot for permanent stores has remained
relatively constant as a result of the Company increasing the size of
permanent stores opened.
14
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the fiscal years indicated, certain
financial data as a percentage of net sales. Results for any one or more
periods are not necessarily indicative of future results.
<TABLE>
<CAPTION>
PERCENTAGE CHANGE
PERCENTAGE OF NET SALES IN DOLLAR AMOUNTS
FOR FISCAL YEAR ENDED FROM FISCAL YEAR
----------------------------------- --------------------
JANUARY 29, JANUARY 28, FEBRUARY 1, 1994 TO 1995 TO
1995 1996 1997 1995 1996
----------- ----------- ----------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales............... 100.0% 100.0% 100.0% 18.9% 19.6%
Cost of sales and occu-
pancy expenses......... 66.3 64.3 64.2
----- ----- -----
Gross profit............ 33.7 35.7 35.8
Selling, general and ad-
ministrative expenses.. 28.9 28.7 28.3
----- ----- -----
Operating income........ 4.8 7.0 7.5 75.3 27.1
Interest expense, net... 1.0 1.1 0.9
----- ----- -----
Income before income
taxes.................. 3.8 5.9 6.6 87.4 33.3
Income tax expense...... 1.5 2.4 2.7
----- ----- -----
Net income.............. 2.3% 3.5% 3.9% 81.4% 33.1%
===== ===== =====
</TABLE>
Comparison of Fiscal 1996 to Fiscal 1995
Net Sales. Net sales increased to $44.6 million from $37.3 million, an
increase of $7.3 million, or 19.6%. Of this increase in net sales: $2.9
million was attributable to seven new permanent stores opened during fiscal
1996 and four permanent stores in operation for less than one year as of the
beginning of fiscal 1996; $798,000 was attributable to increased comparable
store net sales; and $3.6 million was attributable to net sales derived from
an increased number of seasonal stores operated during fiscal 1996, which more
than offset the slight decrease in average seasonal store net sales during the
holiday selling season. Comparable store net sales for the Company's permanent
stores increased 3.5% in fiscal 1996, as compared with a 3.1% increase in
fiscal 1995.
Costs of Sales and Occupancy Expenses. Cost of sales and occupancy expenses
increased to $28.6 million from $24.0 million, an increase of 19.2%. As a
percentage of net sales, it decreased slightly to 64.2% from 64.3%. The dollar
increase was due to increased store occupancy costs from more stores in
operation in fiscal 1996 and increased costs of sales due to higher net sales,
although these costs as a percentage of net sales remained relatively
constant.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $12.6 million from $10.7 million, an
increase of 17.8%, but decreased to 28.3% from 28.7% as a percentage of net
sales. Although selling, general and administrative expenses increased to
support higher net sales levels, the Company was able to spread the fixed
portion of corporate overhead over an increased sales base.
Interest Expense, Net. Net interest expense decreased to $394,000 in fiscal
1996 from $418,000 in fiscal 1995, primarily as a result of lower average
borrowing costs during fiscal 1996.
Comparison of Fiscal 1995 to Fiscal 1994
Net Sales. Net sales increased to $37.3 million from $31.3 million, an
increase of $6.0 million, or 18.9%. Of this increase in net sales: $3.6
million was attributable to four new permanent stores opened during fiscal
1995 and six new permanent stores in operation for less than one year as of
the beginning of fiscal 1995; $443,000 was attributable to increased
comparable store net sales; and $1.9 million was attributable to increased
seasonal store net sales. The increase in seasonal store net sales was due to
a greater number of stores being open for the full year in fiscal 1995, as
compared to fiscal 1994, and a significant increase in average seasonal store
net sales during the fiscal 1995 holiday selling season, which more than
offset any negative impact from a
15
<PAGE>
reduction in the peak number of seasonal stores from fiscal 1994 to fiscal
1995. Comparable store net sales for the Company's permanent stores increased
3.1% in fiscal 1995, as compared with a 2.9% increase in fiscal 1994.
Costs of Sales and Occupancy Expenses. Cost of sales and occupancy expenses
increased to $24.0 million from $20.8 million, an increase of 15.4%. As a
percentage of net sales, costs of sales and occupancy expenses decreased to
64.3% from 66.3%. The dollar increase was primarily due to increased costs of
sales from higher net sales. The decrease as a percentage of net sales was due
to increased efficiencies and productivity gains in the distribution center
achieved as a result of implementing a real-time inventory management and
location system, and lower product costs attributable to volume purchasing and
more favorable vendor negotiations. Store occupancy costs as a percentage of
net sales was relatively unchanged in fiscal 1995 as compared to fiscal 1994.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $10.7 million from $9.0 million, an
increase of 18.9%, but decreased as a percentage of net sales to 28.7% from
28.9%. The dollar increase is attributable to higher net sales levels.
Interest Expense, Net. Net interest expense increased to $418,000 for fiscal
1995 from $320,000 in fiscal 1994, primarily as a result of increased levels
of borrowing and higher borrowing costs.
Seasonality and Quarterly Results
The Company's business is subject to substantial seasonal variations in
demand. Historically, a significant portion of the Company's sales and all of
its net income have been realized during the months of November and December,
and levels of sales and net income have generally been substantially lower
from January through October, resulting in losses in the first three fiscal
quarters. In preparation for its holiday selling season, the Company
significantly increases inventories and related indebtedness, hires an
increased number of temporary employees in its stores and distribution center,
and incurs costs in setting up seasonal store locations. If, for any reason,
the Company's sales were to be substantially below seasonal norms during the
months of November and December, or if the Company could not hire a sufficient
number of qualified employees during the peak periods, the Company's business,
financial condition and results of operations would be adversely affected.
Quarterly results are also affected by the timing of new store openings and
the amount of revenue contributed by permanent and seasonal stores. The
following table shows certain quarterly information for the Company for fiscal
1995 and fiscal 1996. The information is unaudited and has been derived from
the Company's interim financial statements and includes, in the opinion of the
Company's management, all adjustments (consisting only of normal, recurring
accruals) necessary for a fair presentation of the results for such interim
periods. Results for any one or more periods are not necessarily indicative of
future results.
<TABLE>
<CAPTION>
FISCAL 1995 FISCAL 1996
---------------------------------- ----------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AND STORE OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $ 4,192 $5,485 $ 5,718 $21,870 $5,562 $6,370 $ 6,925 $25,706
Gross profit............ 849 1,364 1,311 9,784 1,263 1,558 1,469 11,643
Operating income
(loss)................. (1,236) (724) (1,223) 5,810 (951) (825) (1,655) 6,771
Net income (loss)....... (751) (502) (810) 3,367 (575) (545) (1,069) 3,925
Net income (loss) per
share(1)............... $ (.20) $ (.13) $ (.22) $ .90 $ (.16) $ (.15) $ (.30) $ 1.10
STORE OPERATING DATA:
New permanent stores
opened during period... 3 0 1 0 2 1 3 1
Permanent stores oper-
ated at end of period.. 36 36 37 37 39 40 43 44
Peak number of seasonal
stores during period... 40 40 66 71 38 46 75 85
</TABLE>
- --------
(1) Computed based on the weighted average number of shares of common stock
and common stock equivalents, calculated using the treasury stock method.
For fiscal 1995, the weighted average number of shares includes 654,550
shares owned by the Company's Chairman and which were subject to an option
granted by him to the Company's former President, which option terminated
unexercised on January 17, 1996. Those shares are treated as both issued
and outstanding and as common stock equivalents for that fiscal year. See
"Business--Legal Proceedings."
16
<PAGE>
Liquidity and Capital Resources
The primary sources of the Company's cash for working capital and capital
expenditures have been net cash flows from operating activities, capital lease
financings and bank borrowings. Seasonal working capital needs have been met
through short-term borrowings under a revolving line of credit.
The Company's primary capital requirements and working capital needs are
related to capital expenditures for new stores, purchase and upgrade of
management information systems and the purchase of inventory to meet seasonal
needs, particularly inventory for the holiday selling season. Cash flow from
operations decreased to $2.4 million in fiscal 1996 from $2.7 million in
fiscal 1995 due to increased levels of inventories and other working capital
items.
The Company has a revolving line of credit for inventory financing, secured
by the Company's inventory. Under this line, the Company may borrow up to the
lesser of $12.5 million or 80.0% of the Company's cost of inventory. The line
expires on February 28, 1998 and bears interest at the bank's prime rate. The
credit agreement for this line of credit prohibits the payment of cash
dividends or the purchase or redemption of the Company's capital stock in
excess of $50,000 in the aggregate in any fiscal year. The Company also has a
revolving term credit facility in the amount of $1.5 million for the purpose
of new store construction which bears interest at a rate of .25% over the
bank's prime rate. This facility is available for new store locations
identified by the Company by July of 1998, and borrowings under this line
mature in July of 2000. As of February 1, 1997, there were no amounts
outstanding under either of these lines of credit. Primarily as a result of
the holiday selling season, the Company experiences significant seasonal
fluctuations in its financing needs. Maximum borrowings under the Company's
revolving credit facilities peaked at $11.5 million, $8.9 million, and $9.5
million during fiscal 1996, fiscal 1995, and fiscal 1994, respectively, and
averaged $4.2 million, $4.2 million, and $3.3 million, respectively, for those
fiscal years. The Company also has an available line of credit for up to $1.0
million for multiple term loans to be used for leasehold improvements and
equipment. Under this line, the Company has a term loan with a principal
balance of $138,000 at February 1, 1997. The loan is payable in monthly
installments over a term of five years with interest payable at 7.4%, matures
on November 1, 1998 and is secured by the Company's equipment. The loan
agreement for this loan prohibits the payment of cash dividends. As of
February 1, 1997, outstanding capital lease obligations and total debt
amounted to $370,000, of which $232,000 represented capital lease obligations.
The capital lease obligations have terms expiring in fiscal 1999.
The capital expenditures associated with the opening of new permanent stores
range from $200,000 to $250,000, before landlord build-out allowances, if any,
which vary from site to site. The Company initially stocks each new permanent
store with approximately $90,000 to $100,000 of inventory, with peak inventory
levels during the holiday selling season reaching approximately $150,000 per
store. The capital expenditures associated with opening a seasonal store are
nominal as these stores require minimal build-out and utilize reusable
fixtures. Each seasonal store is initially stocked with approximately $50,000
of inventory, with peak inventory levels during the holiday selling season
reaching approximately $80,000 per store. It typically takes 4 to 6 months
from the time a lease is executed to the opening of a permanent store for
business. The lead time for a seasonal store is substantially shorter. Pre-
opening expenses for both permanent and seasonal stores are minimal, and are
expensed as incurred.
Capital expenditures in fiscal 1996, net of landlord build-out allowances,
were $1.7 million, as compared to $1.6 million in fiscal 1995. The Company
anticipates capital expenditures of approximately $2.5 million in fiscal 1997.
In addition to the cost of new store construction, the Company expects to make
capital expenditures of approximately $350,000 to upgrade its point-of-sale
systems and to invest approximately $300,000 for the relocation and expansion
of its distribution center to support planned store growth through fiscal
1999.
Management believes that operating cash flow, borrowings under the Company's
existing credit facilities, cash on hand and the net proceeds to be received
by the Company from this Offering, will be sufficient to finance the Company's
proposed expansion of its store base and to satisfy any other capital
requirements for at least the next two years.
17
<PAGE>
BUSINESS
INTRODUCTION
World of Science is a leading specialty retailer of a variety of traditional
and distinctive science and nature products. The Company's merchandising
strategy emphasizes both the educational and entertainment values of its
products, which are offered at competitive prices in a stimulating retail
environment. World of Science has developed a broad customer base, as its
products appeal to customers of all ages for gift-giving, educational use and
entertainment. The Company operates both a permanent and seasonal store
format. At March 31, 1997, the Company operated 48 permanent stores and 62
seasonal stores in 29 states, primarily in enclosed malls.
Permanent World of Science stores are open year-round under long-term
leases, contain an average of 2,100 square feet of selling space and maintain
approximately 2,600 SKUs of inventory. Permanent stores are also generally
characterized by an upscale store facade and interior fixture package.
Seasonal stores are open during the holiday selling season, or for an extended
period beyond that season, under leases with shorter terms. Seasonal stores
contain an average of 1,500 square feet of selling space, maintain
approximately 1,950 SKUs of inventory, occupy available in-line mall space,
require minimal store build-out and employ reusable fixtures.
The Company was founded in Rochester, New York in 1969, primarily to develop
and manufacture science kits for school systems. In 1973, the Company began
selling science and nature products through a mail order catalog and, in 1984,
opened its first retail store in the Rochester Museum and Science Center.
Based upon the success of its science and nature retail concept locally, the
Company decided in the late 1980's to focus exclusively on the retail store
segment of its business and discontinued its manufacturing operations. Its
catalog operations were phased out commencing in fiscal 1991.
BUSINESS STRATEGY
. DISTINCTIVE AND TRADITIONAL MERCHANDISE. World of Science stores offer a
variety of educationally and entertainment-oriented, distinctive science and
nature products, together with a broad assortment of more traditional
science and nature products. Many of the products offered in World of
Science stores are not widely available from other retailers within the
malls occupied by the Company's stores. The Company continually seeks new
and distinctive products and, accordingly, updates approximately one-third
of its SKUs annually.
. EDUCATIONAL AND ENTERTAINING SHOPPING EXPERIENCE. The Company's products are
displayed to encourage customers to browse, experiment with, and examine the
features and quality of the products as the store layout guides them through
up to 25 different product areas. This educational and entertaining shopping
experience places the customer in an environment where experimentation and
play are integral components of the buying experience.
. SUPERIOR CUSTOMER SERVICE. The Company employs enthusiastic and friendly
sales personnel who are trained to highlight the benefits of the products
offered and encourage customers to browse at their leisure.
. USE OF SEASONAL STORES. The seasonal store program enables the Company to
reach a broader customer base during the holiday selling season, as well as
to test prospective locations for permanent stores before making the
required capital investment. The Company opportunistically seeks out
available in-line space in quality shopping malls which it can lease for
several months around the holiday selling season and, in some instances, for
an extended period thereafter. The cost of opening seasonal stores is
substantially lower and the lead time is substantially shorter than those
associated with permanent stores. In fiscal 1996, 46.1% of the Company's
total net sales were generated by seasonal stores. The Company's flexible
store formats, combined with its distinctive merchandise, make World of
Science stores attractive to mall operators.
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<PAGE>
. PRICE INTEGRITY. The Company's pricing strategy is to offer quality products
at fair prices. World of Science stores sell merchandise generally ranging
in price from less than $1.00 to $1,000. The Company does not engage in
frequent storewide sales or price mark-downs and believes it uses sales and
price mark-downs to a lesser degree than other retailers. The Company
believes that its pricing strategy fosters customer trust and confidence.
EXPANSION STRATEGY
The Company has grown by opening new permanent stores, by operating seasonal
stores to capture sales during the holiday selling season, and by increasing
sales volume from its existing permanent stores. Although management does not
believe there are geographical constraints on the location of future stores,
the Company's expansion strategy will focus primarily on opening stores in new
and existing markets in the eastern half of the United States before expanding
elsewhere. The Company believes that this strategy will allow it to increase
the recognition of the "World of Science" name, enhance operating efficiencies
and manage growth. The principal elements of the Company's expansion strategy
are as follows:
. NEW PERMANENT STORE OPENINGS. The Company currently operates 48 permanent
World of Science stores, including four new permanent stores which have
opened since the beginning of fiscal 1997. The Company expects to open a
total of approximately 12 permanent stores in fiscal 1997 and approximately
18 permanent stores in fiscal 1998 in both new and existing markets. In many
cases, permanent stores will replace seasonal stores and, in appropriate
circumstances, the Company may acquire or assume pre-existing leases of
other retail stores. Although the Company may also evaluate opening stores
in non-mall locations, such as airports and museums, the Company has no
commitments for new permanent stores in non-mall locations. Of the 12 new
permanent stores the Company anticipates opening during fiscal 1997, four
stores were opened in February and March, two additional stores are under
construction and several other sites are under evaluation.
. ACTIVE SEASONAL STORE PROGRAM. The Company operated 85 World of Science
seasonal stores during the fiscal 1996 holiday selling season and currently
operates 62 seasonal stores. During the past three fiscal years, the Company
has only opened one permanent store in a pre-existing mall which was not
preceded by a seasonal store in the same mall. The Company plans to operate
approximately 100 seasonal stores during the holiday selling season in
fiscal 1997 and approximately 120 seasonal stores in fiscal 1998.
. COMMITMENT TO STRONG INFRASTRUCTURE. The Company's expansion strategy
includes a commitment to make appropriate infrastructure investments. Over
the past two years, the Company has made significant investments in its
management information systems and distribution facilities, which have
contributed to efficiencies in inventory management and product
distribution. In fiscal 1997, the Company plans to relocate its distribution
facility to a larger facility and enhance its point-of-sale system. The
Company periodically evaluates its store formats to maintain high standards
of attractiveness and an appropriate showcase for its science and nature
products.
MERCHANDISING
The Company's merchandising strategy emphasizes both the educational and
entertainment values of its products, which are offered at competitive prices
in a stimulating retail environment. The Company has a broad customer base and
its products appeal to customers of all ages for gift giving, educational use
and entertainment. Many of the products offered in World of Science stores are
not widely available from other retailers within the malls occupied by the
Company's stores. Each permanent store carries approximately 2,600 SKUs
displayed in separate product areas. The Company generally does not carry
licensed products or mass market television advertised products. In most
product categories, the Company offers a variety of traditional science and
nature products that customers would expect to encounter in a science and
nature store. These more traditional products are displayed together with the
Company's distinctive items. The Company is continually seeking new,
distinctive products consistent with its merchandising strategy. Historically,
the Company has updated approximately one-third of the items in its
merchandise assortment annually.
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<PAGE>
The Company's merchandising team attends trade shows to identify potential
new products, and the Company evaluates all new products prior to offering
them for sale in its stores. In addition, the Company seeks input and
suggestions from its store personnel and customers, and product selections are
sometimes made based upon such recommendations. The Company occasionally
designs its own products which are manufactured by third party sources. For
example, the Company's best-selling telescope product was designed by the
Company to be more user-friendly and to incorporate features not generally
found in comparably priced telescopes. The Company also employs a staff
geologist, who is responsible for evaluating mineral and fossil specimens for
sale in World of Science stores.
A typical permanent World of Science store has approximately 25 different
product areas and seasonal stores generally feature approximately 20 different
product areas, focused upon specific merchandising themes. The Company's
themes follow a strategically planned layout which encourages customers to
visit every theme within the store. Although not all of the available
merchandising themes are included in each World of Science store, the
following is a list of the principal merchandising themes, together with a
description of the typical products included in these themes.
<TABLE>
<C> <S>
. Activity Kits arts and crafts, behavioral science, archeology and
paleontology
. American Craftsman limited production kaleidoscopes, glass and metal
sculptures, jewelry, pottery bowls, vases and
decorative pieces with natural images
. Anatomy anatomical models, charts and books
. Animal Replicas mammals, marine life, reptiles, amphibians and insects
represented in self-assembled, molded or plush replicas
. Apparel distinctive T-shirts, hats and kits for ties and
scarves
. Astronomy telescopes, star finder charts, instructional models,
solar system charts and mobiles
. Biology microscopes, related labware, books for reference and
science projects, petri dishes, microscope sets and
slide sets
. Bird Watching binoculars, feeders, houses, field identification
guides, bird calls and books
. Botany & Garden
Accessories fountains, seed kits, figurines, plant growing kits,
garden sculpture, wind chimes and bells
. Chemistry experiment kits, science project resources, technical
labware and reference books
. Dinosaurs molded replicas, models, puzzles, games, books and kits
. Flight model rocketry, kites, boomerangs and flight discs
. Food Making kits for making chewing gum, chocolate, soda and
flavored vinegar
. Geography compasses, hiking staffs, educational puzzles, games
and maps
. Geology quality mineral and fossil collectibles for the
beginner to serious collectors
. Glow in the Dark astronomical and animal designs
. Impulse fascinating pick-up items, including spinning tops,
keychains, magnets and travel puzzles
. Jewelry natural gemstone, titanium, glass and nature images
. Magnetism magnets, building kits, floating tops and science
project kits
. Nostalgia old-fashioned toys and games
. Optics magnifiers, a wide range of kaleidoscopes and
teleidoscopes
. Physics traditional construction sets and robotic models
. Puzzles and Games jigsaw puzzles, brainteasers, travel games and other
board games
. Recorded Music music with enhancements of nature sounds, music for
relaxation and Celtic music
. Relaxation massage tools, books, aromatherapy, reflexology and
stress management
. Weather weather instruments, solar kits, umbrellas and
reference books
</TABLE>
Offering quality products at fair prices is a key element in the Company's
business strategy. The Company does not engage in frequent storewide sales or
price mark-downs and it believes it uses sales and price mark-downs to a
lesser degree than other retailers. The price range of products carried by
World of Science stores
20
<PAGE>
generally vary from less than $1.00 to $1,000. The average customer transaction
in fiscal 1996 was $20.30 for the five-weeks ending December 28, 1996 and was
$16.42 for the entire fiscal year.
PURCHASING AND DISTRIBUTION
The Company purchases its products from over 450 sources and is continually
in search of additional suppliers. The Company's merchandising team includes
the Company's President, Vice President of Operations and Merchandising
Manager. This team and other representatives of the Company attend trade shows
to identify potential new product sources. The Company's top 20 product sources
accounted for 45.7% of total purchases in fiscal 1996 and 54.2% of total
purchases in fiscal 1995. Approximately 80.0% of the Company's products are
sourced domestically, either directly or through manufacturers'
representatives, with the remaining 20.0% sourced abroad. No single supplier
furnished products representing more than 6.4% of net sales in fiscal 1996.
Inventory levels for each store, both on a SKU and dollar level, are
monitored weekly, with automatic replenishment orders made through the
Company's management information systems. This is accomplished based on a pre-
determined, maximum/minimum SKU stocking control system. Maximum/minimum SKU
inventory levels are reviewed and, if warranted, adjusted on a seasonal basis,
most notably in preparation for the year-end holiday selling season, and are
closely monitored for Company-wide stock reordering and initial holiday orders.
The Company typically ships products via ground freight for new store inventory
stocking or existing store replenishment orders. Replenishment orders are
typically filled within three days.
The Company leases a 55,000 square foot distribution center in Rochester, New
York, approximately three miles from the Company's corporate offices, from
which it conducts substantially all of its inventory management, receiving and
shipping. The Company has historically entered into short-term leases for
additional warehouse space during the third fiscal quarter to accommodate
inventory requirements in anticipation of the holiday selling season. The
current geographic concentration of its stores enables the Company to make
deliveries to stores on a weekly basis and enables it to restock its stores'
inventories promptly and efficiently from its distribution center. Deliveries
are generally made through common carriers. The distribution center uses a
personal computer based inventory location management system which incorporates
real time radio frequency ("RF") features to enable distribution center
personnel to receive, store, pick and check incoming and outgoing orders by SKU
in a paperless process. Because this system tracks inventory by location, order
pickers are directed by hand-held RF terminals to bar-coded SKU locations in
the sequence in which product is stored in the warehouse. The order pickers are
prompted to pick the proper quantity to fill orders to replenish the stores,
thus allowing orders to be efficiently picked.
Management has determined that the Company requires a larger distribution
facility to support the Company's anticipated growth. Accordingly, the Company
has leased a new facility containing 110,000 square feet, located within one
mile of the Company's corporate offices, and expects to relocate to this
distribution center during the second quarter of fiscal 1997. Management
believes that this new distribution facility will eliminate the need to lease
additional inventory storage space in anticipation of holiday selling seasons
through fiscal 1999.
STORE OPERATIONS
The Company's products are displayed to encourage customers to browse,
experiment with, and examine the features and quality of the products as the
store layout guides them through up to 25 different product areas. World of
Science stores offer customers an educational and entertaining shopping
environment where experimentation and play are integral components of the
buying experience. Management believes that providing well-trained,
knowledgeable and friendly store personnel is a key aspect of its business
strategy and contributes to the shopping experience. The Company's products
lend themselves to explanations and demonstrations, and store personnel with
product knowledge can assist customers with purchasing decisions. All store
personnel are trained in customer service, product features and the store's
point-of-sale system.
21
<PAGE>
The Company's store operations are managed by its Vice President of
Operations, who oversees a staff consisting of a regional manager, eleven
district managers and five area managers. The Company is presently seeking to
employ one additional regional manager. The regional manager oversees the
Company's district managers, who, in turn, may supervise one or more area
managers. District managers also oversee specific stores that are not managed
by area managers. District and area managers are responsible for all aspects
of the operations of stores in defined market areas. All World of Science
stores are generally staffed with one store manager, and permanent stores
typically also have an assistant store manager. Store managers are responsible
for many aspects of store operations, including store staffing and
development, visual presentation and shrinkage control. However, merchandise
replenishment is controlled centrally, to ensure adequate inventory levels,
consistent with the rate of sale at each store. All store management personnel
are paid on a salary basis and, as an incentive to increase sales, are
eligible to receive bonuses based on the store's sales performance during each
fiscal year. World of Science stores have a sales staff of approximately eight
hourly employees in permanent stores and approximately five hourly employees
in seasonal stores. The number of hourly employees increases to about 20 in
permanent stores and 10 in seasonal stores during the holiday selling season.
Permanent stores contain on average 2,100 square feet of selling space and
offer approximately 2,600 SKUs. The Company's permanent stores have an upscale
design which generally includes mahogany and brass fixturing, river-rock and
wood store facades and open product displays that encourage customers to
experiment and play with the merchandise. The Company periodically evaluates
its permanent store format to assure an upscale, modern appearance with eye-
catching window displays. In the case of the Company's newest permanent
stores, the Company updated its store format to include more open storefronts
and brighter interior spaces. Although the Company generally ensures that all
of its permanent stores employ the Company's upscale decorative style, the
Company may use less expensive facades and fixtures to adapt to particular
malls and markets. On average, the Company has refurbished its permanent
stores every three years.
Seasonal stores are typically opened in sites requiring minimal build-out
and are fixtured with wall systems and merchandise displays that can be
disassembled and re-used in other seasonal store locations. Seasonal stores
also carry lower inventory levels than permanent stores. A typical seasonal
store carries about 75% of the SKUs featured in the Company's permanent stores
and averages approximately 1,500 square feet of selling space. Seasonal stores
operate on month-to-month or short term leases of up to three years. The lead
time in opening a seasonal store is substantially shorter than the lead time
for permanent stores, enabling the Company to react quickly to market
opportunities.
World of Science stores are open seven days a week and the typical hours of
operation are from 10:00 a.m. to 9:00 p.m. Monday through Saturday and 11:00
a.m. to 6:00 p.m. on Sunday, with extended hours during the holiday selling
season. The Company's stores are generally open during the same business hours
as the enclosed malls in which they operate. Except with respect to
advertising required under certain of its mall leases, the Company does not
presently rely on advertising to generate sales and is dependent upon mall
traffic to attract customers.
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<PAGE>
STORE LOCATIONS AND PROPERTIES
The following table provides information concerning the location, type, and
number of stores operated by the Company.
<TABLE>
<CAPTION>
PEAK NUMBER OF
SEASONAL STORES
PERMANENT STORES SEASONAL STORES DURING FISCAL 1996
STATE AT MARCH 31, 1997 AT MARCH 31, 1997 HOLIDAY SELLING SEASON
----- ----------------- ----------------- ----------------------
<S> <C> <C> <C>
Alabama.......... 1 - 2
Arkansas......... - 1 1
Connecticut...... 3 1 2
Delaware......... 1 - -
Florida.......... 6 5 6
Georgia.......... - 2 3
Illinois......... - 2 2
Indiana.......... - 1 1
Iowa............. - 1 1
Kentucky......... - 1 2
Louisiana........ - 1 1
Maryland......... 2 3 3
Massachusetts.... 4 4 5
Michigan......... - 3 5
Mississippi...... - 1 2
Missouri......... - - 1
New Hampshire.... 1 2 3
New Jersey....... 3 1 3
New York......... 11 5 7
North Carolina... - 3 4
Ohio............. 2 9 9
Pennsylvania..... 6 5 6
Rhode Island..... - 1 1
South Carolina... - 1 2
Tennessee........ 4 - 1
Texas............ - 5 7
Vermont.......... - 1 1
Virginia......... 3 - 1
West Virginia.... 1 2 2
Wisconsin........ - 1 1
--- --- ---
Total............ 48 62 85
=== === ===
</TABLE>
World of Science stores are generally located in high traffic areas of
regional, enclosed shopping malls. The Company believes that the number of
desirable store sites likely to be available in the future will be adequate to
permit the Company to implement its expansion strategy. In selecting new store
locations, the Company evaluates the market areas, mall locations, anchor
stores, mall traffic patterns, mall sales per square foot, performance of
other speciality retail tenants, competition and occupancy, construction and
other costs associated with opening a store.
At March 31, 1997, the Company's 48 permanent stores occupied 104,696 gross
square feet of leased space, with the stores ranging in size from 1,000 to
3,000 square feet. The Company's permanent stores typically have lease terms
ranging from seven to ten years, and the lease terms for existing permanent
stores expire between 1998 and 2008. Seasonal stores have lease terms ranging
from month-to-month to three years. The Company's
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<PAGE>
store leases generally provide for percentage rent based upon sales. See Note
4 of the Notes to the Company's Financial Statements.
The Company's corporate headquarters are located in a 35,000 square foot
facility which is comprised of 8,000 square feet of office space and 27,000
square feet of warehouse space. The facility is leased from the State of New
York at an annual rent of approximately $78,000. The term of this lease,
inclusive of three five-year renewal options, expires in 2013, and the lease
provides for rental increases for each renewal term based on increases in the
consumer price index, not to exceed 20% of the then current rent.
The Company recently entered into a sublease for a new distribution center.
The facility, which is located within one mile of the Company's office,
contains approximately 110,000 square feet of warehouse space. The sublease is
triple net and is for a term of 37 months ending in the year 2000, and the
Company has two one-year renewal options. The base monthly rental for this
facility is approximately $31,500.
MANAGEMENT INFORMATION SYSTEMS
The Company uses an IBM AS/400 (model 510) for its management information
systems, which handles all major informational requirements of the Company's
business, including sales, warehousing and distribution, purchasing, inventory
control, merchandise planning and replenishment as well as various accounting
functions. At the store level, the Company uses a point-of-sale computer
system with the capability to provide sales data and to maintain perpetual
inventory data on a per-SKU basis. All software applications which run on the
AS/400 are licensed by World of Science and have been customized according to
Company specifications.
The Company tracks its inventory by electronic data interchange between the
AS/400 and the Company warehouse and its stores. All inventory is bar-coded
where practical. The system polls each of its stores each evening to upload
sales data, to update inventory status and to determine replenishment
requirements. Weekly sales information is retained for each store, allowing
the Company to analyze sales performance by store, market and SKU.
COMPETITION
Competition for consumer spending is highly intense among specialty
retailers, traditional department stores and mass merchants in regional
shopping malls and other high traffic retail locations. The Company competes
against other retailers for suitable real estate locations and qualified
personnel. The Company believes that its distinctive and traditional
merchandise, educational and entertaining shopping experience, superior
customer service, use of seasonal stores and price integrity distinguishes it
from other specialty retailers. The specialty retail business has few barriers
to entry. In addition, as the Company expands into new markets, its success
may depend in part on its ability to gain market share from established
competitors. Many of the Company's competitors have substantially greater
financial, marketing and other resources than the Company. There can therefore
be no assurance that the Company will be able to compete successfully with
them in the future.
EMPLOYEES
As of March 31, 1997, the Company employed 206 regular full-time employees,
of which 161 were salaried staff and 45 were hourly workers. The Company also
employed 700 part-time employees. The Company regularly supplements its work
force with part-time employees during the holiday selling season. The Company
employed approximately 1,300 part-time employees during the fiscal 1996
holiday selling season. Substantially all of the Company's part-time employees
work at the store level. None of the Company's employees are represented by
labor unions and the Company believes its employee relations are very good.
LEGAL PROCEEDINGS
Late in fiscal 1996, the Company's former President commenced an arbitration
proceeding in Rochester, New York, in which he alleged that he terminated his
employment for good cause and, as a result, is entitled to
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<PAGE>
certain benefits pursuant to an employment agreement with the Company. He is
seeking $12,750, representing the alleged value of unexercised stock options
formerly held by him, an incentive bonus for fiscal 1995 and medical and
health benefits for two fiscal years after his termination from the Company.
The Company has filed its answer to the claim denying his allegations. No
hearing date has yet been set. The Company believes that it has performed in
all respects its obligations under the employment agreement and intends to
vigorously contest the claim.
The same former officer also commenced an action in the Supreme Court of New
York, Monroe County, against the Company's Chairman and the Company's legal
counsel (who also serves as the Company's Secretary and as a Director) in
which he alleges that certain misrepresentations were made to him as to the
value of an option granted to him in 1990 to purchase 654,550 shares of common
stock of the Company owned by the Chairman. The plaintiff has asserted a cause
of action for fraud and is seeking $1 million in damages. The defendants in
that action have filed a motion to dismiss the claims in that action and have
indicated to the Company their belief that the claims are without merit and
their intent to vigorously contest the claims. Although the Company is not a
party to this action, it has assumed responsibility for expenses incurred in
defending the action. In addition, because the Chairman is a principal
stockholder of the Company, under generally accepted accounting principles any
amounts paid by him under any judgment against him or in settlement of the
suit will be required to be treated as a non-cash expense to the Company and
therefore reflected as such in its financial statements. Although the Company
cannot predict the ultimate disposition of these matters, it does not believe
that the resolutions will have any material effect on its business, financial
position or results of operations.
In addition, the Company is a party to legal proceedings from time to time
in the normal course of its business. In the opinion of management, any
liability that the Company might incur upon the resolution of these
proceedings will not, in the aggregate, have a material adverse effect on the
Company's business, financial condition and results of operations. The Company
maintains general liability insurance coverage in amounts deemed to be
adequate by management.
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<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The following table sets forth certain information with respect to executive
officers, directors and certain other key employees of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION(S) HELD
---- --- ----------------
Directors and Executive Officers
<S> <C> <C>
Fred H. Klaucke................ 60 Chairman of the Board of Directors, President and
Chief Executive Officer
Charles A. Callahan............ 47 Vice President of Finance, Chief Financial Officer and
Assistant Secretary
Christine M. Luchi............. 44 Vice President of Operations
Richard B. Callen.............. 54 Secretary, Director
Thomas A. James................ 56 Director
Thomas J. Scanlon.............. 50 Director
Other Key Employees
Kathryn A. Bull................ 40 Regional Manager
Alden B. Chevlen............... 45 Director of Leasing
Russell E. Eliason............. 33 Controller
Jason E. Torchia............... 30 MIS Manager
Paul H. Thompson............... 43 Merchandise Manager
Peter A. Roden................. 40 Warehouse Manager
</TABLE>
- --------
FRED H. KLAUCKE is the founder of the Company and has served as Chief
Executive Officer and Chairman of the Board of Directors of the Company since
its incorporation in 1969 and as President since 1996.
CHARLES A. CALLAHAN has served as Vice President of Finance and Chief
Financial Officer of the Company since 1994, and as Assistant Secretary since
1992. Mr. Callahan joined the Company as Controller in 1992. He has over 25
years of experience in accounting and financial management including five
years with KPMG Peat Marwick LLP.
CHRISTINE M. LUCHI has served as Vice President of Operations of the Company
since 1996. Ms. Luchi joined the Company in 1990 as a Regional Manager. From
1992 until 1996, Ms. Luchi served as Director of Operations. Prior to joining
the Company, Ms. Luchi held retail positions with General Host Corporation,
where she served as training manager and district sales manager, and Tenneco
Corporation, where she held the positions of district and division manager and
franchise consultant. Ms. Luchi has additional consulting experience in the
areas of operations and sales training.
RICHARD B. CALLEN has served as Secretary and a Director of the Company
since 1969. Mr. Callen is a partner in the law firm of Darweesh, Callen, Lewis
& VonDohlen, which is legal counsel to the Company. See "Certain Relationships
and Related Transactions."
THOMAS A. JAMES has served as a Director of the Company since 1992. Since
1969, Mr. James has served as the chairman of the board of directors and chief
executive officer of both Raymond James & Associates, Inc., one of the
underwriters in this Offering, and its parent company, Raymond James
Financial, Inc. Mr. James also serves as a director of Arbor Health Care, Inc.
and IMCO Recycling, Inc. See "Certain Relationships and Related Transactions."
THOMAS J. SCANLON has served as a Director of the Company since December,
1996. Mr. Scanlon is administrative vice president of Manufacturers and
Traders Trust Company, a Buffalo, New York based
26
<PAGE>
commercial bank ("M&T Bank"), and has been an officer of M&T Bank since 1991.
Since 1993, Mr. Scanlon has served as president of M&T Capital Corporation, an
investment company specializing in venture capital investments ("M&T Capital")
and a wholly owned subsidiary of M&T Bank.
PAUL H. THOMPSON has served as Merchandising Manager of the Company since
1993. He joined the Company in 1990 as a store manager. From 1991 until 1993,
Mr. Thompson served as an Area Supervisor.
KATHRYN A. BULL has served as Regional Manager of the Company since 1996. She
joined the Company in 1995 as a District Manager. Ms. Bull has 20 years of
retail experience, including multi-unit supervision and project coordination
with London Fog, Jockey International and the Limited Group.
ALDEN B. CHEVLEN has served as the Company's Director of Leasing since 1996.
Prior to joining the Company, Mr. Chevlen served as assistant director of
leasing for American Greetings Corporation from 1990 to 1996. Mr. Chevlen, who
is also an attorney, served as a corporate senior staff attorney for the Edward
J. DeBartolo Corporation from 1983 to 1989.
RUSSELL E. ELIASON has served as Comptroller of the Company since 1996. He
joined the Company in 1993 as Assistant Controller. Prior to joining the
Company Mr. Eliason held the position of manager of general accounting and
financial reporting for a discount drug store division of Melville Corporation.
JASON E. TORCHIA has served as MIS Manager of the Company since 1996. He
joined the Company in 1995 as a computer programmer analyst and was later
promoted to senior programmer analyst. Prior to joining the Company, Mr.
Torchia held various computer programmer positions with a catalog and retail
pet supply operation.
PETER A. RODEN has served as Warehouse Manager of the Company since 1985. He
joined the Company in 1976 in the shipping department.
The Company's Restated Certificate of Incorporation provides for a Board of
Directors of between three and twelve directors, and the number of directors is
currently fixed at four. Under the terms of the Company's Restated Certificate
of Incorporation and Bylaws, the Board of Directors is composed of three
classes of similar size, each elected in a different year, so that only
approximately one-third of the Board of Directors is elected in any single
year. Mr. Klaucke is in a class elected for a term expiring in 2000 and until
his successor is elected and qualified; Mr. Callen and Mr. James are in a class
elected for a term expiring in 1999 and until their successors are elected and
qualified; and Mr. Scanlon is in a class elected for a term expiring in 1998
and until his successor is elected and qualified. Mr. James and Mr. Scanlon
have been nominated as directors pursuant to certain agreements by which the
Company is bound. In addition, the Company is a party to a voting agreement
among M&T Capital, Messrs. Klaucke, Callen and James and the former President
of the Company (the "Voting Agreement"). Each party to the Voting Agreement
that is a stockholder of the Company is obligated to vote all of the shares of
Common Stock of the Company held by him for the slate of nominees for director
proposed by the Company. See "Certain Relationships and Related Transactions."
The Company has been informed by Mr. Scanlon that M&T Capital has not been
actively involved in investment activities within the last three years and its
shares of Common Stock of the Company are one of its few remaining significant
assets. Mr. Scanlon has informed the Company that, because he is serving as a
director pursuant to agreements related to M&T Capital's ownership of shares of
Common Stock of the Company, all of which shares are being sold in the
Offering, it is his intent to resign as a director of the Company upon the
expiration of his present term in 1998, or earlier if a successor is identified
by the Company. Mr. James has also indicated his intention to resign as a
director of the Company upon the expiration of his present term in 1999, or
earlier if a successor is identified by the Company. The Company is presently
seeking to identify at least one additional independent director with
experience in the retailing industry.
27
<PAGE>
The Board of Directors of the Company will have an Audit Committee
consisting of two members (Messrs. and ). The purpose of the Audit
Committee is to review the results of operations of the Company with officers
of the Company who are responsible for accounting matters and, from time to
time, with the Company's independent auditors. Following the completion of the
Offering, the Company expects to establish a Compensation Committee. The
Compensation Committee will recommend annual compensation arrangements for the
Company's executive officers and will review annual compensation arrangements
for all other officers and significant employees. There are no family
relationships among the directors and officers of the Company.
DIRECTOR COMPENSATION
Members of the Board of Directors of the Company are reimbursed for their
expenses incurred in connection with attending any meeting. In addition,
directors of the Company are eligible for the grant of options pursuant to the
1993 Employee Stock Option Plan of the Company. Messrs. Callen and James have
each been granted an option to purchase 10,000 shares of Common Stock, which
options are exercisable at any time prior to their expiration in 2004.
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the
compensation paid or accrued by the Company for services in all capacities to
the Company's Chief Executive Officer and its other two Executive Officers who
earned more than $100,000 from the Company in fiscal 1996 (the "Named
Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION(1) COMPENSATION AWARDS
--------------------------------------------
NAME AND PRINCIPAL SALARY BONUS SECURITIES UNDERLYING ALL OTHER
POSITION FISCAL YEAR ($) ($)(2) OPTIONS/SARS COMPENSATION
- ------------------ ----------- ----------- -------------------------------- ------------
<S> <C> <C> <C> <C> <C>
Fred H. Klaucke......... 1996 $ 178,365 $ 75,000 -- --
Chairman of the Board
of Directors,
President and Chief
Executive Officer
Charles A. Callahan..... 1996 $ 90,193 $ 27,058 25,000 --
Vice President of
Finance, Chief
Financial Officer and
Assistant Secretary
Christine M. Luchi...... 1996 $ 77,365 $ 23,181 25,000 --
Vice President of Oper-
ations
</TABLE>
- --------
(1) No Named Executive Officer received other annual compensation in excess of
the lesser of $50,000 or 10% of his or her salary and bonus.
(2) Amounts in this column include bonuses earned under an employment
agreement in the case of Mr. Klaucke, and discretionary performance-based
bonuses in the case of the other Named Executive Officers.
28
<PAGE>
The following table sets forth information concerning stock option grants
made during fiscal 1996 to the executive officers named in the Summary
Compensation Table above. The Company has not granted any stock appreciation
rights.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF % OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM (4)
OPTIONS EMPLOYEES IN PRICE EXPIRATION -----------------------
NAME GRANTED(#)(1) FISCAL YEAR(2) ($/SHARE)(3) DATE 5% 10%
- ---- ------------- -------------- ------------ -------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Fred H. Klaucke......... 0 -- -- -- -- --
Charles A. Callahan..... 25,000 22.7% $2.50 August 5, 2006 $ 39,300 $ 99,500
Christine M. Luchi...... 25,000 22.7% $2.50 August 5, 2006 $ 39,300 $ 99,500
</TABLE>
- --------
(1) Options granted are exercisable at the rate of 20% upon date of grant and
an additional 20% on each anniversary date thereafter.
(2) Based on an aggregate of 110,000 shares subject to options granted to
employees of the Company in fiscal 1996.
(3) The exercise price per share of the options granted was equal to the fair
market value of the Common Stock on the date of grant, as determined by
the Board of Directors.
(4) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock price appreciation of 5% and 10%
compounded annually from the date the respective options were granted to
their expiration date, and are not intended to forecast possible future
appreciation, if any, in the price of the Company's Common Stock. The
gains shown are net of the option exercise price, but do not include
deductions for federal or state income taxes or other expenses associated
with the exercise of the options or the sale of the underlying shares. The
actual gains, if any, on the stock option exercises will depend on the
future performance of the Common Stock, the option holder's continued
employment through the option period and the date on which the options are
exercised.
The following table sets forth information concerning the number of
unexercised options and the fiscal 1996 year-end value of unexercised options
on an aggregated basis held by each of the Named Executive Officers. The
Company has not granted any stock appreciation rights and no options were
exercised in fiscal 1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
FISCAL YEAR-END(#) FISCAL YEAR-END($)(#)(1)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Fred H. Klaucke............. 15,000 0 $ $
Charles A. Callahan......... 15,000 20,000 $ $
Christine M. Luchi.......... 15,000 20,000 $ $
</TABLE>
- --------
(1) There was no public trading market for the Common Stock at the end of
fiscal 1996. Accordingly, as permitted by the rules of the Securities and
Exchange Commission, these values have been calculated on the basis of the
assumed initial public offering price of $ per share less the exercise
price payable for such shares.
29
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company currently has no separate compensation or stock option committee
or other board committee performing equivalent functions. These functions have
been performed by the Company's Board of Directors, which includes one full
time employee of the Company.
EMPLOYMENT AGREEMENT
The Company has entered into an Employment Agreement with Fred Klaucke
pursuant to which Mr. Klaucke serves as the Chairman of the Board of Directors
and Chief Executive Officer of the Company and receives an annual salary of
$175,000. Mr. Klaucke is also entitled to an annual bonus of up to $75,000.
The amount of the bonus is determined based upon the Company's operating
profit as compared with its budget projections. The Agreement also provides
that, in the event Mr. Klaucke's employment is terminated by him for "good
reason" or in the event of a "change in control" of the Company, Mr. Klaucke
shall be paid: (i) his full base salary through the date of termination plus
any current bonus entitlements; (ii) a lump sum payment equal to the greater
of $250,000 or the amount of salary that would have been paid to Mr. Klaucke
from the date of termination to the end of the term of the Agreement; and
(iii) in lieu of shares of Common Stock issuable upon the exercise of stock
options exercisable on the date of such termination or change in control, the
difference in cash between the closing price of a share of Common Stock as
reported on any organized stock exchange on such date and the per share
exercise price of each option to buy a share of Common Stock held by Mr.
Klaucke on such date. In addition, under the Employment Agreement, the
termination of Mr. Klaucke's employment by him for good reason or the
occurrence of a change of control entitles Mr. Klaucke to continue
participation in certain benefits plans and the payment of any legal fees and
expenses incurred by Mr. Klaucke in enforcing his rights under the Agreement
or disputing any termination or change of control. A change in control is
generally defined to include the acquisition by a person or entity, or persons
or entities acting as a group, of beneficial ownership of 25% or more of the
outstanding shares of the Company, certain changes in the majority membership
of the Board of Directors, and sales of all or substantially all of the assets
of the Company. Termination by Mr. Klaucke of his employment for good reason
is generally defined to include his removal as an officer of the Company, the
assignment of duties inconsistent with his position, a reduction in his base
salary, the relocation outside the Rochester area, and the failure by the
Company to obtain assumption of the Agreement by any successor in interest to
the Company. The initial term of the Agreement expires on January 31, 1998 and
the Agreement automatically renews for additional two-year terms, unless
terminated by either party on 60 days notice prior to the expiration of any
renewal term.
STOCK OPTION PLANS
The Company has adopted two stock option plans, the 1993 Employee Stock
Option Plan and the 1989 Stock Option Plan (collectively, the "Stock Option
Plans"). An aggregate of 565,000 shares of Common Stock are reserved for
issuance under the Stock Option Plans. The purposes of the Stock Option Plans
are to enable the Company to attract and retain qualified persons to serve as
directors, employees, consultants and advisors, and to align the interests of
such persons with the interests of stockholders by giving them a personal
interest in the value of the Common Stock. Options granted under the Stock
Option Plans may either be options that are intended to qualify as "incentive
stock options" within the meaning of Section 422 of the Internal Revenue Code
or options that are not intended to so qualify ("Nonstatutory Options").
Options granted to members of the Board of Directors who are not also
employees of the Company will be Nonstatutory Options. Stock appreciation
rights may be granted in connection with Nonstatutory Options. Such rights are
exercisable by the optionee at any time a related Nonstatutory Option could be
exercised, and are payable, at the discretion of the Board of Directors, in
cash, shares of Common Stock or any combination thereof. The exercise of a
stock appreciation right results in the cancellation of the related
Nonstatutory Option. No stock appreciation rights have been granted under the
Stock Option Plans.
As of the date of this Prospectus, there were outstanding options to
purchase 165,000 shares of Common Stock at a weighted average price of $2.50
per share, 77,000 of which are presently exercisable. Each of the key
employees listed under "Management" has been granted stock options under the
Company's Stock Option Plans.
30
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company in the normal course of business has retained the law firm of
Darweesh, Callen, Lewis & VonDohlen, of which Mr. Richard Callen is a partner,
for legal services and expects to do so during the current year.
Raymond James & Associates, Inc. is acting as one of the managing
underwriters in the Offering. See "Underwriting." Thomas James, a Director of
the Company, is the chairman and chief executive officer of Raymond James &
Associates, Inc. and Raymond James Financial, Inc., the parent company of that
firm. See "Principal and Selling Stockholders." Certain shares of Common Stock
beneficially owned by Mr. James are subject to certain registration rights
under the Securities Act at the Company's expense, except for incremental
underwriting discounts and commissions, stock transfer taxes, if any, on the
shares sold and fees and disbursements of any separate legal counsel; certain
indemnities; certain rights of first refusal in connection with certain
proposed issuances of capital stock; and certain rights of co-sale in
connection with proposed sales of Common Stock by certain stockholders,
including Mr. Fred Klaucke. Mr. James is also a party to a voting agreement
with Fred Klaucke and the former President of the Company, pursuant to which
Mr. Klaucke and the former President agreed to vote their shares of Common
Stock of the Company for the election of Mr. James as a Director of the
Company, in consideration of Mr. James agreement to vote his shares of Common
Stock of the Company for the election of Fred Klaucke, Richard Callen and the
former President as Directors of the Company. The obligations of Mr. Klaucke
and the former President of the Company under this agreement cease in the
event Mr. James's total share holdings are reduced by an amount equal to 80%
or more of his current holdings. See "Principal and Selling Stockholders."
In December of 1992, the Company entered into a Stock Purchase Agreement
with M&T Capital, of which Mr. Thomas Scanlon, a Director of the Company, is
President. That agreement, among other things, provides M&T Capital certain
registration rights under the Securities Act at the Company's expense, except
for incremental underwriting discounts and commissions, stock transfer taxes,
if any, on the shares sold and fees and disbursements of any separate legal
counsel; certain indemnities; certain rights of first refusal in connection
with certain proposed issuances of capital stock; and certain rights of co-
sale in connection with proposed sales of Common Stock by certain
stockholders, including Mr. Fred Klaucke. Under this Agreement, the Company is
also obligated to nominate a representative of M&T Capital for election as a
Director of the Company. This right terminates at such time as M&T Capital's
stock holdings are reduced by an amount equal to 80% or more of its current
holdings. M&T Capital is also a party to the Voting Agreement, together with
the Company, Fred Klaucke, Richard Callen, Thomas James, and the former
President of the Company pursuant to which, each party to the Voting Agreement
who is a stockholder of the Company is obligated to vote all of the shares of
Common Stock of the Company held by him for the slate of nominees for director
proposed by the Company, which slate will include a person nominated by M&T
Capital. The terms of the Voting Agreement are binding upon any transferee of
the Common Stock held by a stockholder who is a party to the Agreement, except
a transferee in or after an initial public offering who is not an affiliate of
the Company or the transferring stockholder.
31
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock, and as adjusted to reflect the sale of
shares of Common Stock in the Offering (assuming no exercise of the
Underwriters' over-allotment option), by: (i) each of the Company's directors,
(ii) each of the Named Executive Officers, (iii) all directors and executive
officers as a group, (iv) each person known by the Company to own beneficially
more than 5% of the Common Stock and (v) each Selling Stockholder. Except as
set forth below, the business address of each Selling Stockholder beneficially
owning more than 5% of the Common Stock is c/o the Company at 900 Jefferson
Road, Building Four, Rochester, New York 14623.
<TABLE>
<CAPTION>
COMMON STOCK
-------------------------------------------------------
BENEFICIALLY BENEFICIALLY
OWNED PRIOR TO BE SOLD OWNED AFTER
TO THE OFFERING IN THE OFFERING THE OFFERING
------------------- --------------- -------------------
DIRECTORS, EXECUTIVE % OF OUT- % OF OUT-
OFFICERS AND 5% NUMBER STANDING NUMBER NUMBER STANDING
STOCKHOLDERS OF SHARES SHARES OF SHARES OF SHARES SHARES
- -------------------- --------- --------- --------------- --------- ---------
<S> <C> <C> <C> <C> <C>
Fred H.
Klaucke(1)(2)(3)....... 1,522,140 44.0% 100,000 1,422,140 28.3%
Thomas A. James(2)(4)... 222,890 6.5% 13,890(5) 209,000 4.2%
Richard B.
Callen(2)(6)........... 40,000 1.2% 11,665 28,335 *
Thomas J. Scanlon(2).... -- -- -- -- --
Charles A. Calla-
han(1)(7).............. 25,855 * -- 25,855 *
Christine M.
Luchi(1)(8)............ 29,500 * -- 29,500 *
All executive officers
and directors as a
group (6 persons)(9)... 1,840,385 52.7% 125,555 1,714,830 33.7%
M&T Capital Corpora-
tion(10)............... 555,555 16.2% 555,555 -- --
<CAPTION>
OTHER SELLING
STOCKHOLDERS
- -------------
<S> <C> <C> <C> <C> <C>
B&J Management Corpora-
tion................... 12,500 * 12,500 -- --
Robert Brody............ 15,000 * 3,035 11,965 *
Franklin Crowder & Susan
Alport................. 27,500 * 27,500 -- --
Gaston V. DiBello....... 5,000 * 1,520 3,480 *
Robert G. Fisher........ 30,000 * 15,170 14,830 *
Frank Fleischer......... 3,750 * 1,140 2,610 *
John E. Francis......... 18,750 * 5,310 13,440 *
Andrew Glanz............ 5,000 * 5,000 -- --
Elliot Glanz............ 15,000 * 5,000 10,000 *
Benjamin A. Goldman..... 10,000 * 6,000 4,000 *
Margot A. Green......... 13,890 * 2,780 11,110 *
Harbus Investors,
Inc. .................. 13,890 * 13,890 -- --
Jefferson Harkins....... 10,000 * 10,000 -- --
Donna Hodak............. 2,500 * 1,520 980 *
Pamela K. Hodak......... 2,500 * 1,520 980 *
Tony Hodak.............. 2,500 * 1,520 980 *
Jeffrey Huenink......... 10,000 * 10,000 -- --
Allan Katz.............. 10,000 * 10,000 -- --
Lincoln Kinnicutt....... 18,500 * 11,225 7,275 *
Harley G. Kushel........ 2,500 * 300 2,200 *
L. Wayne LeRoux......... 10,000 * 10,000 -- --
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK
-------------------------------------------------------
BENEFICIALLY BENEFICIALLY
OWNED PRIOR TO BE SOLD OWNED AFTER
TO THE OFFERING IN THE OFFERING THE OFFERING
------------------- --------------- -------------------
% OF OUT- % OF OUT-
OTHER SELLING NUMBER STANDING NUMBER NUMBER STANDING
STOCKHOLDERS OF SHARES SHARES OF SHARES OF SHARES SHARES
- ------------- --------- --------- --------------- --------- ---------
<S> <C> <C> <C> <C> <C>
Dorothy Livadas......... 6,000 * 3,640 2,360 *
Joseph E. Lundy......... 10,000 * 10,000 -- --
David A. Metzger........ 20,000 * 6,600 13,400 *
Frederick W. Metzger.... 153,000 4.5% 30,345 122,655 2.4%
Henry N. Metzger........ 40,700 1.2% 6,600 34,100 *
Gabriel S. Miller
Trust.................. 18,750 * 9,375 9,375 *
Marc H. Miller Trust.... 18,750 * 9,375 9,375 *
Ronald L. Miller........ 71,250 2.1% 35,625 35,625 *
Sheila L. Miller........ 10,000 * 5,000 5,000 *
Michael Milvain......... 10,000 * 7,000 3,000 *
Alton R. Neal........... 3,500 * 2,125 1,375 *
Marvin A. Posner........ 5,000 * 5,000 -- --
William J. Schifino..... 13,750 * 3,940 9,810 *
1770-1780 East Ridge
Road, Inc. ............ 37,930 1.1% 7,670 30,260 *
Edith Sherdlower........ 10,000 * 10,000 -- --
Sheila Szewczuk......... 2,500 * 1,520 980 *
John P. Uphoff.......... 11,000 * 3,035 7,965 *
Linda Winton............ 15,000 * 15,000 -- --
Joan N. Witzel.......... 5,000 * 2,000 3,000 *
Robert F. Witzel........ 10,000 * 4,000 6,000 *
</TABLE>
- --------
* Less than 1%
(1) Named Executive Officers of the Company
(2) Directors of the Company
(3) Includes 15,000 shares subject to currently exercisable stock options.
(4) Includes 199,000 shares held by trusts of which Mr. James is the sole
trustee and 13,890 shares held by Harbus Investors, Inc., in which Mr.
James holds an economic interest. Includes 10,000 shares subject to
currently exercisable stock options. Mr. James's business address is:
Raymond James Financial, Inc., 880 Carillon Parkway, St. Petersburg,
Florida 33716.
(5) The 13,890 shares to be sold consist of the shares owned by Harbus
Investors, Inc.
(6) Includes 10,000 shares subject to currently exercisable stock options and
18,335 shares held by a bank as custodian for Mr. Callen's IRA Account.
(7) Includes 15,000 shares subject to currently exercisable stock options.
(8) Includes 15,000 shares subject to currently exercisable stock options.
(9) Includes shares subject to currently exercisable stock options.
(10) M&T Capital's business address is: Attention: Thomas J. Scanlon, One
Fountain Plaza, 9th Floor, Buffalo, New York 14203.
33
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following summary describes the Certificate of Incorporation of the
Company,
as restated in its entirety, prior to the consummation of the Offering.
The authorized capital stock of the Company consists of 10,000,000 shares of
Common Stock, par value $.01 per share (the "Common Stock") and 5,000,000
shares of Preferred Stock of the Company, par value $.01 per share (the
"Preferred Stock"). As of the date of this Prospectus there were 3,422,955
shares of Common Stock outstanding held of record by 76 stockholders and no
shares of Preferred Stock outstanding. The following description is a summary
and is subject to and qualified in its entirety by reference to the provisions
of the Restated Certificate of Incorporation filed as an exhibit to the
Registration Statement of which this Prospectus is a part.
COMMON STOCK
Voting Rights. Each holder of Common Stock is entitled to one vote for each
share owned of record on all matters voted upon by stockholders, and do not
have cumulative voting rights.
Dividends. Holders of Common Stock are entitled to receive dividends if, as
and when declared by the Board of Directors out of funds legally available
therefor, subject to the dividend and liquidation rights of any Preferred
Stock that may be issued and outstanding. Under the New York Business
Corporation Law ("BCL") no dividend or other distribution (including
redemptions or repurchases of shares of capital stock) may be made if after
giving effect to such distribution, the Company would not be able to pay its
debts as they become due in the usual course of business, or the Company's
total assets would be less than the sum of its total liabilities plus the
amount that would be needed at the time of a liquidation to satisfy the
preferential rights of any holders of Preferred Stock. See "Dividend Policy."
Liquidation. In the event of a liquidation, dissolution or winding-up of the
Company, the holders of Common Stock are entitled to share equally and ratably
in the assets of the Company, if any, remaining after the payment of all debts
and liabilities of the Company and the liquidation preference of any
outstanding Preferred Stock.
Other Provisions. The Common Stock has no preemptive rights, no cumulative
voting rights and no redemption, sinking fund or conversion provisions. The
shares of Common Stock offered hereby, when issued, will be fully paid and
non-assessable.
Transfer Agent and Registrar. The transfer agent and registrar for the
Common Stock is Marine Midland Bank.
Listing. The Company has filed an application for the Common Stock to be
traded on the Nasdaq National Market under the trading symbol "WOSI".
PREFERRED STOCK
The Board of Directors of the Company is authorized, without further
stockholder action, but subject to any limitations prescribed by the BCL or
the rules of the Nasdaq National Market or other organizations on whose
systems stock of the Company may be traded or listed, to divide any or all
shares of the authorized Preferred Stock into series and to fix and determine
the designations, preferences and relative, participating, optional or other
special rights, and qualifications, limitations or restrictions thereon, of
any series so established, including voting powers, dividend rights,
liquidation preferences, redemption rights and conversion privileges. As of
the date of this Prospectus, the Board of Directors has not authorized the
issuance of any shares of Preferred Stock and there are no definitive plans,
agreements or understandings for the authorization or issuance of any shares
of Preferred Stock.
34
<PAGE>
CERTAIN ANTI-TAKEOVER PROVISIONS
Provisions Under the Certificate and By-Laws
The Restated Certificate of Incorporation and the By-Laws of the Company
contain certain provisions that could make the acquisition of the Company by
means of a tender offer, a proxy contest or otherwise difficult. These
provisions are expected to discourage certain types of coercive takeover
practices and inadequate takeover bids and to encourage persons seeking to
acquire control of the Company to negotiate first with the Company's Board of
Directors. The Company believes that the benefits of these provisions outweigh
the potential disadvantages of discouraging such change of control proposals
because, among other things, negotiation of such change of control proposals
might result in an improvement of their terms. The description set forth below
is intended as a summary only and is qualified in its entirety by reference to
the Restated Certificate of Incorporation and the By-Laws of the Company,
which have been filed as exhibits to the Company's Registration Statement of
which this Prospectus is a part.
Staggered Board of Directors. The Restated Certificate of Incorporation and
the By-Laws of the Company provide that the Board of Directors will be divided
into three classes of directors, each class constituting one-third of the
total number of directors and with the classes serving staggered three-year
terms beginning in 1997. The classification of the directors will have the
effect of making it more difficult for stockholders, including those holding a
majority of the outstanding shares, to force an immediate change in the
composition of the Board of Directors.
Preferred Stock. Depending upon the rights of the Preferred Stock, the
issuance of Preferred Stock could have an adverse effect on holders of Common
Stock by delaying or preventing a change in control of the Company, making
removal of the present management of the Company more difficult or resulting
in restrictions upon the payment of dividends and other distributions to the
holders of Common Stock.
Removal of Directors and Filling of Vacancies. The Restated Certificate of
Incorporation provides that a director of the Company may be removed only for
cause and only by action of the board or upon the affirmative vote of the
holders of 75% of the securities entitled to vote an election of directors.
Newly created directorships and board of director vacancies resulting from
death, removal or other causes may be filled only by a majority vote of the
then remaining directors. Accordingly, it will be more difficult for
stockholders, including those holding the majority of the outstanding shares,
to force an immediate change in the composition of the Board of Directors.
Special Meetings of Stockholders. The Bylaws of the Company provide that
special meetings of stockholders of the Company may be called only by the
Chairman, the President, a majority of the members of the Board of Directors
or by the holders of 75% of the outstanding stock entitled to vote on an issue
proposed to be considered at the special meeting.
Advance Notice Requirements for Stockholder Proposals and Director
Nominations. The Bylaws establish an advance notice procedure for the
nomination, other than by or at the direction of the Board of Directors or
committee thereof, of candidates for election as director as well as for other
stockholder proposals to be considered at stockholder's meetings.
Section 912 of the New York Business Corporation Law
Upon consummation of the Offering, the Company will be subject to the
provisions of Section 912 of the BCL (the "Anti-takeover Law") regulating
corporate takeovers. The Anti-takeover Law prevents certain New York
corporations, including those whose securities are quoted on the Nasdaq
National Market, from engaging, under certain circumstances, in a "business
combination" (which includes a merger or sale of more than 10% of the
corporation's assets) with an "interested shareholder" (a shareholder who is
the owner of, or is an affiliate or associate of the corporation and at any
time within the prior five years did own 20% or more of the corporation's
outstanding voting stock) for five years following the date that such
shareholder became an
35
<PAGE>
"interested shareholder," unless the "business combination" or the purchase of
stock by the "interested shareholder" is approved by the board of directors of
such corporation before the "interested shareholder" becomes an "interested
shareholder."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding 5,022,955
shares of Common Stock (5,412,955 shares if the Underwriters' over allotment
option is exercised in full). Of these shares, the 2,600,000 shares sold in
the Offering will be immediately eligible for resale in the public market
without restriction under the Securities Act, except for any shares purchased
by an "Affiliate" (as that term is defined under the Securities Act) of the
Company, which will be subject to the resale limitations of Rule 144 under the
Securities Act. The remaining 2,422,955 shares of Common Stock outstanding
following the Offering (the "Previously Issued Shares") may be publicly sold
in accordance with an applicable exemption from registration, such as those
provided by Rule 144 promulgated under the Securities Act.
In general, under Rule 144, beginning 90 days after the date of this
Prospectus, an Affiliate of the Company or other person (or persons whose
shares are aggregated) who has beneficially owned Previously Issued Shares for
at least one year, will be entitled to sell in any three-month period a number
of shares that does not exceed the greater of (i) 1% of the then outstanding
shares of the Company's Common Stock (approximately 5,412,955 shares
immediately after the Offering, if the Underwriters' over-allotment option is
exercised in full) or (ii) the average weekly trading volume of the Company's
Common Stock on the Nasdaq National Market during the four calendar weeks
immediately preceding the date on which notice of the sale is filed with the
Securities and Exchange Commission. Sales pursuant to Rule 144 are subject to
certain requirements relating to manner of sale, notice and availability of
current public information about the Company. A person (or persons whose
shares are aggregated) who is not deemed to have been an Affiliate of the
Company at any time during the 90 days immediately preceding the sale and who
has beneficially owned "Restricted Securities" (as that term is defined under
Rule 144) for at least two years is entitled to sell such shares pursuant to
Rule 144(k) without regard to the limitations described above.
All Executive Officers and Directors and holders of Previously Issued
Shares, including all Selling Stockholders, have agreed to enter into
agreements with the representatives of the Underwriters ("Lock-up Agreements")
pursuant to which they will agree that, during the 180-day period after the
date of this Prospectus, they will not, except with the prior consent of A.G.
Edwards & Sons, Inc., directly or indirectly offer for sale, sell, contract to
sell or otherwise dispose of any shares of Common Stock, any securities
exchangeable for Common Stock or rights to acquire such shares, or request the
registration for the offer or sale of any of the foregoing. In addition, the
Company has agreed that during such period it will not, without the prior
consent of A.G. Edwards & Sons, Inc., directly or indirectly offer for sale,
sell, contract to sell or otherwise dispose of any shares of Common Stock, any
securities exchangeable for Common Stock or any other rights to acquire such
shares. See "Underwriting." At the expiration of such lock-up period all of
the Previously Issued Shares will be eligible for sale in the open market
pursuant to Rule 144(k), subject in the case of shares held by affiliates of
the Company to the volume and manner of sale limitations of Rule 144.
Previously Issued Shares may also be resold (i) to a person whom the seller
reasonably believes is a qualified institutional buyer within the meaning of
Rule 144A under the Securities Act purchasing for its own account or for the
account of a qualified institutional buyer in a transaction meeting the
requirements of Rule 144A and (ii) in an offshore transaction complying with
Rules 903 or 904 of Regulation S under the Securities Act.
An employee of the Company who purchased shares or was awarded options to
purchase shares pursuant to a written compensatory plan or contract meeting
the requirements of Rule 701 under the Securities Act is entitled to rely on
the resale provisions of Rule 701 under the Securities Act which permits
Affiliates and non-Affiliates to sell their Rule 701 shares without having to
comply with the holding period restrictions of Rule 144, in each
36
<PAGE>
case commencing 90 days after the date of this Prospectus. In addition, non-
Affiliates may sell Rule 701 shares without complying with the public
information, volume and notice provisions of Rule 144.
The Company has entered into written agreements with holders of
approximately shares of Common Stock pursuant to which those stockholders
have been granted certain piggyback registration rights. The shares of Common
Stock owned by M&T Capital and beneficially owned by Thomas James, a Director
of the Company and an affiliate of Raymond James & Associates, Inc., an
underwriter in the Offering, are entitled to such piggyback registration
rights. Pursuant to the piggyback registration rights, the Company is required
to pay all expenses of the Offering, except for (i) underwriting discounts and
commissions on the shares sold by the Selling Stockholders, (ii) stock
transfer taxes, if any, on the shares sold by the Selling Stockholders, and
(iii) fees and disbursements of any separate counsel for the Selling
Stockholders. M&T Capital and certain other Selling Stockholders have
exercised their registration rights in connection with the Offering, as a
result of which their shares of Common Stock are being offered for sale. See
"Principal and Selling Stockholders."
Following the effectiveness of the registration statement covering the
shares of Common Stock offered hereby, the Company will register under the
Securities Act 565,000 shares of Common Stock reserved for issuance upon the
exercise of stock options granted or to be granted under the Company's stock
option plans. The Company expects to file a registration statement on Form S-8
to register these shares approximately 90 days after completion of the
Offering and expects that this registration will automatically become
effective upon filing. Accordingly, shares registered under such registration
statement and acquired pursuant to the Plan will be available for sale in the
open market upon the expiration of the public sale restrictions described
below (see "Underwriting"), subject to Rule 144 volume limitations applicable
to Affiliates, except to the extent such shares are subject to vesting
restrictions with the Company. As of the date of this Prospectus, there were
options to purchase 165,000 shares of Common Stock for prices ranging from
$1.80 to $3.00 per share, outstanding under the Company's Stock Option Plans
(including options to acquire 105,000 shares granted to Executive Officers and
Directors that are subject to the Lock-up Agreements described above) 77,000
of which are currently exercisable. See "Management--Stock Option Plans."
Prior to the Offering, there has been no public market for the Common Stock
of the Company. Future sales of substantial amounts of Common Stock in the
public market could adversely affect market prices prevailing from time to
time. Sales of substantial amounts of Common Stock of the Company in the
public market after the restrictions lapse could adversely affect the
prevailing market price and the ability of the Company to raise equity capital
in the future.
37
<PAGE>
UNDERWRITING
Subject to the terms and conditions of an Underwriting Agreement among the
Company, the Selling Stockholders, and A.G. Edwards & Sons, Inc. and Raymond
James & Associates, Inc. (the "Representatives"), the underwriters listed
below (the "Underwriters") have severally agreed to purchase from the Company
and the Selling Stockholders the aggregate number of shares of the Company's
Common Stock set forth opposite their respective names below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
- ------------ ---------
<S> <C>
A.G. Edwards & Sons, Inc..............................................
Raymond James & Associates, Inc.......................................
Total............................................................. 2,600,000
=========
</TABLE>
Pursuant to the terms of the Underwriting Agreement, the Underwriters will
acquire the shares of Common Stock offered hereby from the Company and the
Selling Stockholders at the public offering price set forth on the cover page
hereof less the underwriting discounts and commissions set forth on the cover
page. The Underwriters propose to offer the shares to the public at the public
offering price set forth on the cover page. Some of the shares offered to the
public will be sold to certain dealers at the public offering price less a
dealers' concession not in excess of $ per share. The Underwriters and such
dealers may allow a discount not in excess of $ per share to other dealers.
After the shares are released for sale to the public, the public offering
price and other terms may be varied by the Representatives.
The nature of the obligations of the Underwriters is such that if any of the
shares offered hereby are purchased, all of such shares must be purchased.
The Company has granted to the Underwriters an option for 30 days to
purchase (at the public offering price less the underwriting discounts and
commissions shown on the cover page of this Prospectus) up to 390,000
additional shares. The Underwriters may exercise such option only to cover
over-allotments of shares made in connection with the sale of the shares
offered hereby. To the extent the Underwriters exercise such option, each of
the Underwriters will have a firm commitment, subject to certain conditions,
to purchase approximately the same percentage of the option shares that the
number of shares of Common Stock to be purchased by it shown in the above
table bears to 2,600,000, and the Company will be obligated, pursuant to the
option, to sell such shares to the Underwriters.
Mr. Thomas James, who is a Director of the Company and the beneficial owner
of shares of Common Stock of the Company, is also the chairman of the board of
directors and chief executive officer of Raymond James & Associates, Inc., a
Representative in this Offering, and Raymond James Financial, Inc., its parent
company. As a result, this Offering is being made pursuant to the provisions
of Rule 2720 of the Conduct Rules of the National Association of Securities
Dealers, Inc. Accordingly, A.G. Edwards & Sons, Inc. is acting as a "qualified
independent underwriter" within the meaning of Rule 2720. It is assuming the
responsibilities of acting as a qualified independent underwriter in pricing
the Offering and conducting due diligence.
The Company, all Executive Officers and Directors, and holders of
Previously Issued Shares, including all Selling Stockholders, have agreed to
enter into Lock-up Agreements pursuant to which they will agree that they will
agree that, during the 180-day period after the date of this Prospectus, they
will not directly or indirectly offer for sale, sell, contract to sell, or
otherwise dispose of, any shares of Common Stock, any securities exchangeable
for the Common Stock or any other rights to acquire such shares or, in the
case of holders of shares, request the registration for the offer or sale of
any of the foregoing (other than shares offered hereby), without the prior
written consent of A.G. Edwards & Sons, Inc.
38
<PAGE>
Prior to the Offering, there has been no public market for the Common Stock.
The initial public offering price of the shares of Common Stock will be
negotiated among the Company and the Representatives. In addition to
prevailing market conditions, among the factors that may be considered in
determining the initial public offering price of the shares of Common Stock
are the Company's historical financial performance, estimates of the business
potential and earning prospects of the Company, an assessment of the Company's
management and the consideration of the above factors in relation to the
market valuations of companies in similar business.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended, or to contribute to payments the
Underwriters may be required to make in respect thereof.
In connection with the Offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in
accordance with Rule 104 of Regulation M under the Securities Exchange Act of
1934, pursuant to which such persons may bid for or purchase Common Stock for
the purpose of stabilizing its market price. The Underwriters also may create
a short position for the account of the Underwriters by selling more Common
Stock in connection with the Offering than they are committed to purchase from
the Company and the Selling Stockholders, and in such case may purchase Common
Stock in the open market following completion of the Offering to cover all or
a portion of such short position. The Underwriters may also cover all or a
portion of such short position, up to 390,000 shares of Common Stock, by
exercising the Underwriters' over-allotment option referred to above. In
addition, A.G. Edwards & Sons, Inc., on behalf of the Underwriters, may impose
"penalty bids" under contractual arrangements with the Underwriters whereby it
may reclaim from an Underwriter (or dealer participating in the offering) for
the account of the other Underwriters, the selling concession with respect to
Common Stock that is distributed in the Offering but subsequently purchased
for the account of the Underwriters in the open market. Any of the
transactions described in this paragraph may result in the maintenance of the
price of the Common Stock at a level above that which might otherwise prevail
in the open market. None of the transactions described in this paragraph is
required, and, if they are undertaken, they may be discontinued at any time.
The Representatives have advised the Company that they do not expect sales
to any accounts over which they exercise discretionary authority to exceed 5%
of the total number of shares of Common Stock offered hereby.
The Underwriters have reserved approximately shares of Common Stock for
sale, at the initial public offering price, to employees of the Company and
certain other individuals. The number of shares available for sale to the
general public will be reduced to the extent such persons purchase such
reserved shares. Any reserved shares not so purchased will be offered by the
Underwriters to the general public on the same basis as the other shares
offered hereby.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company and the Selling Stockholders by Harris Beach & Wilcox
LLP, Rochester, New York. Certain legal matters in connection with the
Offering will be passed upon for the Underwriters by Ropes & Gray, Boston,
Massachusetts. Ropes & Gray will rely on the opinion of Harris Beach & Wilcox
LLP with respect to certain matters of New York law.
39
<PAGE>
EXPERTS
The financial statements of World of Science, Inc. as of February 1, 1997
and January 28, 1996 and for each of the years in the three-year period ended
February 1, 1997 have been included herein and in the Registration Statement
in reliance upon the report of KPMG Peat Marwick LLP, independent certified
public accountants, appearing elsewhere herein, and upon the authority of said
firm as experts in accounting and auditing.
AVAILABLE INFORMATION
This Prospectus constitutes a part of a Registration Statement on Form S-1
filed by the Company with the Commission under the Securities Act through the
Electronic Data Gathering and Retrieval ("EDGAR") system with respect to the
Common Stock offered hereby. This Prospectus omits certain of the information
contained in the Registration Statement and reference is hereby made to the
Registration Statement and related exhibits and schedules for further
information with respect to the Company and the Common Stock offered hereby.
Any statements contained herein concerning the provisions of any document are
not necessarily complete, and in each such instance reference is made to the
copy of such document filed as an exhibit to the Registration Statement. Each
such statement is qualified in its entirety by such reference. The
Registration Statement and the exhibits and schedules forming a part thereof
can be inspected and copied at the public reference facilities maintained by
the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549,
and should also be available for inspection and copying at the following
regional offices of the Commission: 7 World Trade Center, Suite 1300, New
York, New York 10048; and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511. Copies of such material can be obtained
from the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. Registration statements, reports,
proxy and information statements filed through the EDGAR system are publicly
available through the Commission's Internet web site at "http://www.sec.gov".
40
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report............................................. F-2
Balance Sheets as of January 28, 1996 and February 1, 1997............... F-3
Statements of Income for the years ended January 29, 1995, January 28,
1996 and February 1, 1997............................................... F-4
Statements of Stockholders' Equity for the years ended January 29, 1995,
January 28, 1996 and February 1, 1997................................... F-5
Statements of Cash Flows for the years ended January 29, 1995, January
28, 1996 and February 1, 1997........................................... F-6
Notes to Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE>
WHEN THE COMPANY FILES ITS RESTATED CERTIFICATE OF INCORPORATION AND
COMPLETES A FIVE-FOR-ONE STOCK SPLIT AS DESCRIBED IN NOTE 2, WE WILL BE IN A
POSITION TO RENDER THE FOLLOWING REPORT.
MARCH 20, 1997 KPMG PEAT MARWICK LLP
INDEPENDENT AUDITORS' REPORT
The Board of Directors
World of Science, Inc.:
We have audited the accompanying balance sheets of World of Science, Inc. as
of January 28, 1996 and February 1, 1997, and the related statements of
income, stockholders' equity and cash flows for each of the years in the
three-year period ended February 1, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of World of Science, Inc. as
of January 28, 1996 and February 1, 1997, and the results of its operations
and its cash flows for each of the years in the three-year period ended
February 1, 1997, in conformity with generally accepted accounting principles.
Rochester, New York
March 20, 1997, except as to
note 4 which is as of March 31, 1997
and the second to last paragraph of note 1,
and note 2 which are as of April 16, 1997
F-2
<PAGE>
WORLD OF SCIENCE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 28, FEBRUARY 1,
1996 1997
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 1,620,043 $ 2,014,253
Accounts receivable.................................. 65,494 54,339
Inventories.......................................... 5,971,841 6,927,037
Prepaid expenses and other current assets............ 249,701 386,181
Deferred income taxes................................ 335,000 368,000
----------- -----------
Total current assets............................... 8,242,079 9,749,810
Property, equipment and leasehold improvements, net.... 4,331,785 4,983,718
Deferred income taxes.................................. 281,000 540,000
----------- -----------
$12,854,864 $15,273,528
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt............... $ 64,243 $ 69,161
Current installments of obligations under capital
leases.............................................. 87,239 101,620
Accounts payable..................................... 1,353,873 1,569,226
Accrued expenses..................................... 672,656 636,304
Accrued sales taxes.................................. 84,517 91,670
Income taxes payable................................. 1,007,099 1,463,427
----------- -----------
Total current liabilities.......................... 3,269,627 3,931,408
Long-term debt, excluding current installments......... 137,292 68,456
Obligations under capital leases, excluding current in-
stallments............................................ 148,314 130,399
Accrued occupancy expense.............................. 555,102 662,890
----------- -----------
Total liabilities.................................. 4,110,335 4,793,153
----------- -----------
Commitments and contingencies (notes 4, 6, 8 and 10)
Stockholders' equity:
Preferred stock, $.01 par value. Authorized 5,000,000
shares; no shares issued and outstanding............ -- --
Common stock, $.01 par value. Authorized 10,000,000
shares; issued and outstanding 3,422,955 shares..... 34,230 34,230
Additional paid-in capital........................... 2,703,020 2,703,020
Retained earnings.................................... 6,007,279 7,743,125
----------- -----------
Total stockholders' equity......................... 8,744,529 10,480,375
----------- -----------
$12,854,864 $15,273,528
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
WORLD OF SCIENCE, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------
JANUARY 29, JANUARY 28, FEBRUARY 1,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net sales.............................. $31,334,716 $37,265,071 $44,562,851
Cost of sales and occupancy expenses... 20,788,259 23,956,946 28,629,721
----------- ----------- -----------
Gross profit......................... 10,546,457 13,308,125 15,933,130
Selling, general and administrative ex-
penses................................ 9,047,698 10,680,612 12,592,779
----------- ----------- -----------
Operating income..................... 1,498,759 2,627,513 3,340,351
Interest expense, net.................. (319,927) (417,846) (394,505)
----------- ----------- -----------
Income before income taxes........... 1,178,832 2,209,667 2,945,846
Income taxes........................... 460,000 906,000 1,210,000
----------- ----------- -----------
Net income........................... $ 718,832 $ 1,303,667 $ 1,735,846
=========== =========== ===========
Net income per share................. $ 0.20 $ 0.35 $ 0.49
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
WORLD OF SCIENCE, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
----------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
--------- ------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Balance at January 30,
1994................... 3,347,955 $33,480 $2,621,270 $3,984,780 $ 6,639,530
Issuance of common stock
at $1.10 per share..... 75,000 750 81,750 -- 82,500
Net income.............. -- -- -- 718,832 718,832
--------- ------- ---------- ---------- -----------
Balance at January 29,
1995................... 3,422,955 34,230 2,703,020 4,703,612 7,440,862
Net income.............. -- -- -- 1,303,667 1,303,667
--------- ------- ---------- ---------- -----------
Balance at January 28,
1996................... 3,422,955 34,230 2,703,020 6,007,279 8,744,529
Net income.............. -- -- -- 1,735,846 1,735,846
--------- ------- ---------- ---------- -----------
Balance at February 1,
1997................... 3,422,955 $34,230 $2,703,020 $7,743,125 $10,480,375
========= ======= ========== ========== ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
WORLD OF SCIENCE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------
JANUARY 29, JANUARY 28, FEBRUARY 1,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................. $ 718,832 $ 1,303,667 $ 1,735,846
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization......... 674,295 948,952 1,280,266
Change in assets and liabilities:
(Increase) decrease in:
Accounts receivable................. 255,605 79,628 11,155
Inventories......................... (503,814) (613,027) (955,196)
Prepaid expenses and other current
assets............................. (100,376) 48,398 (136,480)
Deferred income taxes............... (225,000) (134,000) (292,000)
(Decrease) increase in:
Accounts payable.................... 391,260 437,005 215,353
Accrued expenses.................... 148,473 189,561 (36,352)
Accrued sales taxes................. 93,354 (63,303) 7,153
Income taxes payable................ (52,731) 374,122 456,328
Accrued occupancy expense........... 160,038 124,828 107,788
----------- ----------- -----------
Net cash provided by operating ac-
tivities.......................... 1,559,936 2,695,831 2,393,861
----------- ----------- -----------
Cash flows from investing activities--
capital expenditures,
net of minor disposals................. (1,614,615) (1,579,030) (1,691,854)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common
stock................................. 82,500 -- --
Proceeds from issuance of long-term
debt.................................. 725,000 -- --
Principal payments on long-term debt... (783,749) (59,349) (63,918)
Principal payments on capital leases... (40,587) (92,545) (243,879)
----------- ----------- -----------
Net cash used in financing activities... (16,836) (151,894) (307,797)
----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents............................ (71,515) 964,907 394,210
Cash and cash equivalents at beginning
of year................................ 726,651 655,136 1,620,043
----------- ----------- -----------
Cash and cash equivalents at end of
year................................... $ 655,136 $ 1,620,043 $ 2,014,253
=========== =========== ===========
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest.............................. $ 321,987 $ 430,873 $ 405,624
Income taxes.......................... $ 737,731 $ 665,878 $ 1,045,671
=========== =========== ===========
Noncash investing and financing activi-
ty:
Acquisition of equipment under a capi-
tal lease............................ $ 293,117 $ 26,350 $ 240,345
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
WORLD OF SCIENCE, INC.
NOTES TO FINANCIAL STATEMENTS
THREE-YEAR PERIOD ENDED FEBRUARY 1, 1997
(1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
World of Science, Inc. (the Company), a Rochester, New York based
corporation, markets and distributes a large variety of science and nature
related products through its World of Science(R) retail stores, generally
located in regional shopping malls in the eastern half of the United States.
Fiscal Year
Reference to a fiscal year refers to the calendar year in which such fiscal
year commences. Accordingly, fiscal 1994 ended on January 29, 1995, fiscal
1995 ended on January 28, 1996 and fiscal 1996 ended on February 1, 1997.
In fiscal 1996, the Company changed its fiscal year end to the Saturday
closest to January 31. Previously the Company's fiscal year ended on the
Sunday closest to January 31. There were 52 weeks in fiscal years 1994 and
1995, and 53 weeks in fiscal 1996.
Cash Equivalents
Cash equivalents consist of amounts on deposit with banks and money market
funds.
Inventories
Inventories are stated at the lower of weighted average cost or market.
Property, Equipment and Leasehold Improvements
Property, equipment and leasehold improvements are stated at cost.
Depreciation is computed for book and tax purposes using straight-line and
accelerated methods over the following periods:
<TABLE>
<S> <C>
Furniture, equipment and
temporary store fixtures........ 4-9 years
Leasehold improvements........... 4-10 years (or lease term, if shorter)
Truck............................ 4 years
</TABLE>
Construction allowances received from shopping mall operators, consisting of
cash payments and/or free rent periods, are deducted from the cost of
leasehold improvements.
Occupancy Expense
Occupancy expense is recorded on the straight-line basis over the term of
the leases, including certain leases under which lease payments escalate over
the term of the lease. Accrued occupancy expense is recorded for the excess of
expense determined on a straight-line basis over cash payments during the
escalation period.
Income Taxes
Deferred tax assets and liabilities are recognized for the estimated future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates in effect for the year in which those temporary differences are expected
to be recovered or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period which includes
the enactment date.
F-7
<PAGE>
WORLD OF SCIENCE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Store Openings and Closings
The Company expenses all costs associated with the opening of a store in the
current period, with the exception of leasehold improvements and fixtures
which are capitalized. The Company accrues the anticipated cost of closing a
store, including remaining lease obligations, if any, and the undepreciated
cost of leasehold improvements in the period in which the decision to close
the store is made.
Stock Option Plans
Prior to fiscal 1996, the Company accounted for its stock option plans in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, Accounting for Stock Issued to Employees, and related interpretations.
As such, compensation expense would be recorded on the date of grant only if
the current market price of the underlying stock exceeded the exercise price.
The Company adopted SFAS No. 123, Accounting for Stock-Based Compensation, in
fiscal 1996 which permits entities to recognize as expense over the vesting
period the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income and pro
forma earnings per share disclosures for employee stock option grants made in
fiscal 1995 and future years as if the fair-value-based method defined in SFAS
No. 123 had been applied. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma disclosure
provisions of SFAS No. 123.
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
in fiscal 1996. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceed the fair value of the assets. Assets
to be disposed of are reported at the lower of the carrying amount or fair
value less costs to sell. Adoption of this Statement did not have a material
impact on the Company's financial position, results of operations, or
liquidity.
Per Share Amounts
Net income per share is calculated using the weighted average number of
shares outstanding during the year increased by dilutive common stock
equivalents which include outstanding stock options and warrants, including an
option granted by the Company's Chairman and Chief Executive Officer to
purchase shares personally owned by him as discussed in note 10. Under the
rules of the Securities and Exchange Commission, stock options granted within
one year of the anticipated initial public offering of common stock (See note
2) are included as common stock equivalents for each of the fiscal years 1994,
1995, and 1996.
All share and per share amounts included in the financial statements
retroactively reflect a five-for-one stock split effective April 16, 1997 as
described in note 2. Weighted average shares outstanding totaled 3,682,522,
3,755,306, and 3,545,099 for fiscal 1994, 1995 and 1996. Primary and fully
diluted earnings per share are the same for fiscal years 1994, 1995 and 1996.
F-8
<PAGE>
WORLD OF SCIENCE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" which is
effective for the Company in fiscal 1997. This statement simplifies the
standards for computing earnings per share but is not expected to result in
any material dilution of earnings per share.
(2) INITIAL PUBLIC OFFERING
On April 4, 1997, the Company's Board of Directors authorized the filing of
a registration statement for the initial public offering of its common stock.
In connection with this offering, the Company's Board of Directors approved an
increase in the authorized number of shares of common stock to 10,000,000, a
reduction in the par value of common stock from $0.05 to $0.01 per share, a
five-for-one stock split, authorization of a new class of 5,000,000 shares of
preferred stock, none of which has been issued, and an increase in the number
of common shares reserved for issuance under the Stock Option Plans to 565,000
shares. On April 16, 1997 the Company's shareholders approved a restated
certificate of incorporation to effect this recapitalization.
The Company expects that the net proceeds from the initial public offering
will be approximately at a per share price of $ per share.
(3) PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
A summary of property, equipment and leasehold improvements follows:
<TABLE>
<CAPTION>
JANUARY 28, FEBRUARY 1,
1996 1997
----------- -----------
<S> <C> <C>
Leasehold improvements--open stores.............. $4,281,064 5,139,806
Furniture, equipment and temporary store fix-
tures........................................... 2,455,103 3,056,180
Truck............................................ 16,115 --
Construction in progress......................... 169,917 314,931
---------- ---------
6,922,199 8,510,917
Less accumulated depreciation and amortization... 2,590,414 3,527,199
---------- ---------
$4,331,785 4,983,718
========== =========
</TABLE>
Construction allowances received from shopping mall developers totaling
$899,776, $575,712 and $981,035 in fiscal 1994, 1995 and 1996, respectively,
have been recorded as reductions of leasehold improvements.
Construction in progress at February 1, 1997 consists of leasehold
improvements and fixtures for stores which will be opening in fiscal 1997. All
stores with construction in progress at January 28, 1996 were opened during
the year ended February 1, 1997.
(4) LEASE AGREEMENTS
The Company leases retail space for stores, warehouse space, and vans. The
Company is granted concessions for certain leases related to retail space to
offset the cost of leasehold improvements. The Company records the concessions
as a reduction in the cost of leasehold improvements and charges gross rent
expense on a straight-line basis over the initial term of the lease.
F-9
<PAGE>
WORLD OF SCIENCE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The future minimum lease payments under noncancelable operating leases
executed as of March 31, 1997 and the present value of future minimum capital
lease payments as of February 1, 1997 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- -----------
<S> <C> <C>
Fiscal year:
1997................................................ $116,418 $ 5,408,169
1998................................................ 115,614 3,980,970
1999................................................ 12,495 3,838,253
2000................................................ -- 3,470,866
2001................................................ -- 3,297,048
After 2001.......................................... -- 10,119,777
-------- -----------
Total minimum lease payments........................ 244,527 $30,115,083
===========
Less amount representing interest..................... 12,508
--------
Present value of net minimum capital lease payments... 232,019
Less current installments of obligations under capital
leases............................................... 101,620
--------
Obligations under capital leases, excluding current
installments......................................... $130,399
========
</TABLE>
Certain lease agreements for retail space provide for contingent rental
payments in excess of the minimum required payments if the specific store
exceeds certain sales levels. Rent expense in excess of the minimum required
amounts for the stores was $156,074, $246,880, and $212,559 for the fiscal
years 1994, 1995 and 1996, respectively.
Total rent expense under all leases amounted to $4,804,909, $5,768,239 and
$7,090,192 for fiscal years 1994, 1995 and 1996, respectively.
(5) INCOME TAXES
Income tax expense (benefit) for fiscal years 1994, 1995, and 1996, consists
of the following:
<TABLE>
<CAPTION>
FEDERAL STATE TOTAL
---------- -------- ----------
<S> <C> <C> <C>
1994
Current................................... $ 527,000 $158,000 $ 685,000
Deferred.................................. (187,000) (38,000) (225,000)
---------- -------- ----------
$ 340,000 $120,000 $ 460,000
========== ======== ==========
1995
Current................................... $ 808,000 $232,000 $1,040,000
Deferred.................................. (112,000) (22,000) (134,000)
---------- -------- ----------
$ 696,000 $210,000 $ 906,000
========== ======== ==========
1996
Current................................... $1,163,000 $339,000 $1,502,000
Deferred.................................. (242,000) (50,000) (292,000)
---------- -------- ----------
$ 921,000 $289,000 $1,210,000
========== ======== ==========
</TABLE>
F-10
<PAGE>
WORLD OF SCIENCE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
A reconciliation of the expected tax expense, computed by applying the
statutory income tax rate of 34% to income before income taxes, to the actual
income tax expense follows:
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- ----------
<S> <C> <C> <C>
Computed expected tax expense................ $401,000 $751,000 $1,002,000
State taxes, net of federal benefit.......... 80,000 139,000 191,000
Charitable contributions..................... (33,000) -- --
-------- -------- ----------
Other, net................................... 12,000 16,000 17,000
-------- -------- ----------
$460,000 $906,000 $1,210,000
======== ======== ==========
Effective tax rate......................... 39.0% 41.0% 41.0%
======== ======== ==========
</TABLE>
The significant components of deferred tax assets are presented below:
<TABLE>
<CAPTION>
JANUARY 28, FEBRUARY 1,
1996 1997
----------- -----------
<S> <C> <C>
Deferred tax assets:
Inventory.......................................... $142,000 $341,000
Accrued occupancy expense.......................... 227,000 272,000
Depreciation....................................... 247,000 268,000
Other.............................................. -- 27,000
-------- --------
Total gross deferred tax assets.................. 616,000 908,000
Less valuation allowance........................... -- --
-------- --------
Net deferred tax assets.......................... $616,000 $908,000
======== ========
</TABLE>
In assessing the realizability of deferred tax assets, management evaluates
whether it is more likely than not that some or all of the deferred tax assets
will be realized. The ultimate realization of deferred tax assets is dependent
upon the generation of future taxable income during the periods in which those
temporary differences become deductible. Management considers the projected
future taxable income and tax planning strategies in making this assessment.
Based on the level of historical taxable income and estimates of future
taxable income over the periods which the deferred tax assets are deductible,
management believes it is more likely than not that the Company will realize
the benefits of these deductible differences. Accordingly, a valuation
allowance against total gross deferred tax assets is not considered necessary.
(6) LINES OF CREDIT
The Company has available lines of credit with a bank which had no
outstanding balances as of January 28, 1996 and February 1, 1997. A
description of the lines of credit follows:
<TABLE>
<CAPTION>
AVAILABLE
DESCRIPTION PURPOSE RATE MATURITY AMOUNT
----------- ------------------ ----------- ------------- --------------
<S> <C> <C> <C> <C>
Revolving line of credit Inventory Prime February 1998 $12,500,000 or
80% of the
inventory
Revolving line of Store construction
credit/multiple term and inventory
facilities Prime + .25% January 1999(1) $1,500,000
</TABLE>
- --------
(1) Any multiple term loans under this line are payable in 18 equal monthly
installments of principal commencing February 1 of the first calendar year
after issuance of each loan.
F-11
<PAGE>
WORLD OF SCIENCE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Company pays a commitment fee on the unused portion of the revolving
lines of credit which is calculated at a rate of 1/4 of 1.0%. The lines are
collateralized by warehouse and store inventory.
The revolving line of credit includes sublimits of $12,000,000 for banker
acceptances and $1,000,000 for import letters of credit. At January 28, 1996
and February 1, 1997 no banker acceptances were outstanding, and the Company
was contingently liable under outstanding letters of credit of $153,951 and
$181,193, respectively.
The lines of credit contain restrictive covenants including requirements to
achieve certain financial ratios involving levels of net income, stockholders
equity, and inventory. The covenants restrict the Company from declaring any
dividends on common stock or purchasing, redeeming or retiring any of its
common stock in excess of $50,000 in aggregate in any fiscal year. The Company
was in compliance with such covenants at February 1, 1997.
The maximum outstanding balance under these lines of credit during fiscal
years 1995 and 1996 were $8,928,600 and $11,515,000, respectively. The average
balances outstanding were $4,242,000 and $4,224,000 for fiscal 1995 and 1996,
respectively.
(7) LONG-TERM DEBT
In addition to the $1,500,000 revolving line of credit/multiple term
facilities described in note 6, the Company has an available $1,000,000 line
for multiple term loans to be used for leasehold improvements and equipment.
Any multiple term loans under this line will mature in 60 months and the
available line expires in October 1997. Term loans originated under this line
will bear interest at prime plus 0.5% or the Company may opt for a fixed rate.
Under this line, the Company has a term loan with an outstanding balance of
$137,617 at February 1, 1997, for office and warehouse renovation and
equipment. This loan is payable in monthly installments of approximately
$6,400, including interest at 7.4% through November 1, 1998 and is secured by
equipment. The remaining available amount under the line is approximately
$862,000 as of February 1, 1997.
(8) BENEFIT PLANS
The Company does not currently offer and has not offered in the past,
postemployment or postretirement benefits to its current or former employees,
and accordingly, does not have a recorded liability for such benefits.
On January 29, 1996, the Company began sponsoring a 401(k) plan for all
employees who have met certain eligibility requirements. The Company matches
50% of employee contributions to the plan up to a maximum match of 2.5% of
employee compensation. For fiscal 1996, total expenses under the plan were
$66,532.
(9) STOCK OPTIONS AND WARRANTS
The Company has two Stock Option Plans (the Plans) for employees and
directors. The Plans authorize the issuance of options to purchase up to
565,000 shares of the Company's common stock adjusted for the five for one
stock split described in note 2. The Plans provide for options which may be
issued as qualified incentive stock options under Section 422A of the Internal
Revenue Code of 1986, as amended, as well as nonqualified stock options.
Options under the Plans are granted at the discretion of the Board of
Directors. The exercise price of qualified incentive stock options under the
Plans will not be less than the fair market value of the Company's
F-12
<PAGE>
WORLD OF SCIENCE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
stock at the date of grant, as determined by the Board of Directors, except in
the case of an optionee owning more than 10% of the total combined voting
power of all classes of stock of the Company, the price at which shares of
stock may be purchased shall not be less than 110% of the fair market value.
Options to the extent vested can be exercised immediately. The options expire
five years from the date of grant for options granted to a person then owning
more than 10% of the voting power of all common stock and ten years from the
date of grant for all other officers and employees. Stock appreciation rights
may be granted in connection with stock options. Such rights are exercisable
by the optionee at any time a related option could be exercised, and are
payable in cash, common stock or any combination. The exercise of a stock
appreciation right results in cancellation of the related option. No stock
appreciation rights have been granted under the Plans.
Options granted in fiscal 1996 vest 20% upon grant date with the remaining
80% vesting ratably over a four year period. Options granted prior to fiscal
1996 vested 100% upon grant date.
At February 1, 1997, there were 325,000 shares available for grant under the
Plans. The per share weighted-average fair value of stock options granted
during fiscal 1996 was $2.00 on the date of grant using the Black Scholes
option-pricing model with the following weighted-average assumptions: No
expected dividend yield, weighted average expected volatility of 53.5%, risk-
free interest rate of 6.72%, and an expected life of ten years.
The Company applies APB Opinion No. 25 in accounting for its Plans and,
accordingly, no compensation cost has been recognized for its stock options in
the financial statements. Had the Company determined compensation cost based
on the fair value at the grant date for its stock options under SFAS No. 123,
the Company's net income for fiscal 1996 would have been reduced to the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
1996
----------
<S> <C>
Net income:
As reported................................................... $1,735,846
Pro forma..................................................... 1,699,308
Net income per share:
As reported................................................... $ 0.49
Pro forma..................................................... 0.48
</TABLE>
Proforma net income reflects only options granted in fiscal 1996. Therefore,
the full impact of calculating compensation cost for stock options under SFAS
No. 123 is not reflected in the pro forma net income amounts presented above
because compensation cost is reflected over the options' vesting period of
five years and compensation cost for options granted prior to January 29, 1995
is not considered.
F-13
<PAGE>
WORLD OF SCIENCE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The following is a summary of the change in options outstanding for fiscal
1994, 1995 and 1996:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
OPTIONS PRICE
--------- --------
<S> <C> <C>
Outstanding at January 30, 1994........................... 125,000 $1.40
Granted................................................. 20,000 2.10
Exercised............................................... (75,000) 1.10
Terminated.............................................. -- --
-------
Outstanding at January 29, 1995........................... 70,000 1.92
Granted................................................. -- --
Exercised............................................... -- --
Terminated.............................................. -- --
-------
Outstanding at January 28, 1996........................... 70,000 1.92
Granted................................................. 110,000 2.77
Exercised............................................... -- --
Terminated.............................................. (15,000) 1.80
-------
Outstanding at February 1, 1997........................... 165,000 2.50
=======
</TABLE>
At February 1, 1997, the range of exercise prices and weighted-average
remaining contractual life of outstanding options was $1.80--$3.00 and 8.5
years, respectively.
At January 28, 1996 and February 1, 1997, the number of options exercisable
was 70,000 and 77,000, respectively, and the weighted-average exercise price
of those options was $1.92 and $2.19, respectively.
In fiscal 1989, the Company granted an investment group, of which one member
is a director and stockholder of the Company, warrants to purchase 102,500
shares of common stock at $2.10 per share. These warrants expired unexercised
in May 1995.
(10) LEGAL PROCEEDINGS
In September 1990, the Company's Chairman and Chief Executive Officer (CEO)
granted the Company's former President an option to purchase 654,550 shares of
stock personally owned by the CEO at a price of $1.45 per share subject to
certain conditions and restrictions. This option terminated upon the former
President's resignation on January 17, 1996.
The option under this agreement is considered a common stock equivalent of
the Company and is included in the computation of net income per share for
fiscal 1994 and 1995 using the treasury stock method. The treatment of the
option in this manner reduced net income per share by $.01 and $.02 in fiscal
1994 and 1995, respectively.
In August 1996, the former President commenced legal action against the
Chief Executive Officer and the Company's legal counsel (who also serves as a
director) in which he alleges there was a misrepresentation as to the value of
the option.
In October 1996, the same former President of the Company commenced an
arbitration proceeding in which he alleged that he was entitled to certain
benefits pursuant to an employment agreement.
An unfavorable outcome of these legal proceedings would result in a charge
to the Company's earnings. However, in the opinion of the Company's management
the resolution of these matters, as well as other legal proceedings incidental
to its business, will not have a material adverse effect on the Company's
financial position, results of operations, or liquidity.
F-14
<PAGE>
[INSIDE BACK PAGE OF PROSPECTUS]
[Photographs of Interiors of Stores]
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDERS OR ANY OF THE UNDER-
WRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITA-
TION OF ANY OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK
OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SO-
LICITATION OF ANY OFFER TO BUY THE SHARES OF COMMON STOCK BY ANYONE IN ANY JU-
RISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO,
OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THE PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UN-
DER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
Use of Proceeds........................................................... 10
Dividend Policy........................................................... 10
Capitalization............................................................ 11
Dilution.................................................................. 12
Selected Financial Data................................................... 13
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 14
Business.................................................................. 18
Management................................................................ 26
Certain Relationships and Related
Transactions............................................................. 31
Principal and Selling Stockholders........................................ 32
Description of Capital Stock.............................................. 34
Shares Eligible for Future Sale........................................... 36
Underwriting.............................................................. 38
Legal Matters............................................................. 39
Experts................................................................... 40
Available Information..................................................... 40
Index to Financial Statements............................................. F-1
</TABLE>
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDI-
TION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UN-
DERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,600,000 SHARES
WORLD OF SCIENCE, INC.
COMMON STOCK
----------------
PROSPECTUS
----------------
A.G. EDWARDS & SONS, INC.
RAYMOND JAMES &ASSOCIATES, INC.
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses in connection with the issuance
and distribution of the Common Stock being registered, other than underwriting
discounts and commissions. All amounts except the registration fee payable to
the Securities and Exchange Commission ("SEC") and the National Association of
Securities Dealers, Inc. ("NASD") are estimates.
<TABLE>
<S> <C>
SEC Registration Fee.............................................. $ 9,060
NASD Filing Fee................................................... 3,490
Nasdaq National Market Listing Fee................................ *
Legal Fees and Expenses........................................... *
Accountants Fees and Expenses..................................... *
Printing and Engraving Fees....................................... *
Blue Sky Fees and Expenses........................................ *
Transfer Agent and Registrar Fee and Expenses..................... *
Miscellaneous..................................................... *
-------
Total........................................................... $ *
=======
</TABLE>
- --------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 722 of the New York Business Corporation Law (the "BCL") empowers a
New York corporation to indemnify any persons who are, or are threatened to
be, parties to any action or proceeding (other than one by or in the right of
the corporation to procure a judgment in its favor), whether civil or
criminal, by reason of the fact that such person (or such person's testator or
intestate), was an officer or director of such corporation, or served at the
request of such corporation as a director, officer, employee, agent, or in any
other capacity, of another corporation or enterprise. The indemnity may
include judgments, fines, amounts paid in settlement and reasonable expenses,
including attorneys' fees actually and necessarily incurred by such person as
a result of such action or proceeding, or any appeal therein, provided that
such officer or director acted in good faith, for a purpose that he or she
reasonably believed to be in or, in the case of service for another
corporation, not opposed to, the best interests of the corporation and, for
criminal actions or proceedings, in addition, had no reasonable cause to
believe his or her conduct was unlawful. A New York corporation may indemnify
officers and directors against amounts paid in settlement and reasonable
expenses, including attorneys' fees, actually and necessarily incurred by him
or her in connection with the defense or settlement of an action by or in the
right of the corporation under the same conditions, except that no
indemnification is permitted in respect of (1) a threatened action, or a
pending action which is settled or otherwise disposed of, or (2) any claim,
issue or matter as to which such person shall have been adjudged to be liable
to the corporation, unless and only to the extent judicially approved. Where
an officer or director is successful on the merits or otherwise in the defense
of an action referred to above, the corporation must indemnify him or her
against the expenses which such officer or director actually and reasonably
incurred.
In accordance with Section 402(b) of the BCL, the Certificate of
Incorporation of the Company contains a provision to limit the personal
liability of the directors of the Company to the fullest extent permitted
under the BCL; provided, however, that there shall be no limitation of a
director's liability for acts or omissions committed in bad faith, or that
involved intentional misconduct or a knowing violation of law, or from which a
director personally gained a financial profit or other advantage to which he
or she was not legally entitled. The effect of this provision is to eliminate
the personal liability of directors to the Company and its shareholders for
monetary damages for actions involving a breach of their fiduciary duty of
care, including any such actions involving gross negligence.
II-1
<PAGE>
Article VIII of the Form of By-Laws of the Company provides for
indemnification for the officers and directors of the Company to the full
extent permitted by applicable law.
In addition, the Company is obligated under the provisions of the
Underwriting Agreement to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended, or to contribute to payments the Underwriters may be required to make
in respect thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling the
Registrant pursuant to the foregoing provisions, the Registrant has been
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Except for the issuance of 15,000 shares of Common Stock (75,000 shares
after the stock split) of the Company to Fred Klaucke on May 27, 1994 in
connection with Mr. Klaucke's exercise of a portion of his stock options, the
Company has made no offers or sales of its securities within the past three
years. The issuance of shares of Common Stock to Mr. Klaucke was exempt from
the registration requirements of the Securities Act of 1933 pursuant to
Section 4(2) thereof.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<C> <S>
1 Form of Underwriting Agreement.
3.1 Form of Restated Certificate of Incorporation of the Company.
3.2 Form of Bylaws of the Company, as amended.
4 Specimen Certificate of Common Stock of the Company.*
5 Opinion of Harris Beach & Wilcox, LLP.*
10.1 Employment Agreement dated February 1, 1996 by and between the Company
and Fred H. Klaucke.
10.2 Covenant Not-to-Compete and Non-Disclosure Agreement dated June, 1989 of
Fred H. Klaucke.
10.3 1993 Employee Stock Option Plan of the Company.*
10.4 1989 Incentive Stock Option Plan of the Company.
10.5 Form of Stock Purchase Agreement dated August, 1992 by and between the
Company and certain investors.
10.6 Form of Stock Purchase Agreement dated December, 1992 by and between the
Company and certain investors.
10.7 Stock Purchase Agreement dated December 17, 1992 by and between the
Company and M&T Capital Corporation.
10.8 Voting Agreement dated December 17, 1992 by and among Fred H. Klaucke,
James J. Froehler, Richard B. Callen, Thomas A. James, M&T Capital
Corporation and the Company.*
10.9 Lease Agreement dated as of September 11, 1968 between the Company and
Genesee Valley Regional Market Authority, together with all amendments
thereto.*
10.10 Lease Agreement dated as of March 29, 1994 between the Company and BF
Realty Investors Rochester II Limited Partnership.*
10.11 Sublease dated as of March 31, 1997 between the Company and Tertrac
Associates.*
11 Computation of Earnings Per Share.
23 Consent of experts.
(a) Consent of counsel is included in Exhibit 5 above.
(b) Consent of KPMG Peat Marwick LLP.
27 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment
II-2
<PAGE>
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(a) To provide to the underwriters at the closing specified in the
underwriting agreements, certificates in such denominations and registered
in such names as required by the underwriters to permit prompt delivery to
each purchaser.
(b) That, for purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) under the Securities Act of 1933 shall be deemed to be
part of this Registration Statement as of the time it was declared
effective.
(c) That, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of
such issue.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE SECURITIES ACT OF 1933, THE REGISTRANT HAS DULY CAUSED THIS
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF ROCHESTER, STATE OF NEW YORK ON
APRIL 11, 1997.
World of Science, Inc.
/s/ Fred H. Klaucke
By: _________________________________
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints FRED H. KLAUCKE and CHARLES A. CALLAHAN, and
any one of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution and re-substitution for him, and in his name, place and
stead, in any and all capacities, to sign any and all pre-effective or post-
effective amendments to this Registration Statement on Form S-1 and to file
the same, with all exhibits thereto and other documents in connection
therewith, with the United States Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and each and every act and thing requisite or
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or any of them, or their
substitutes, may lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ Fred H. Klaucke President and Chief April 11, 1997
- ------------------------------------- Executive Officer,
FRED H. KLAUCKE Chairman of the
Board
/s/ Charles A. Callahan Vice President of April 11, 1997
- ------------------------------------- Finance, Chief
CHARLES A. CALLAHAN Financial Officer
and Assistant
Secretary
/s/ Thomas A. James Director April 11, 1997
- -------------------------------------
THOMAS A. JAMES
/s/ Richard B. Callen Director April 11, 1997
- -------------------------------------
RICHARD B. CALLEN
/s/ Thomas J. Scanlon Director April 10, 1997
- -------------------------------------
THOMAS J. SCANLON
II-4
<PAGE>
EXHIBIT 1
___ SHARES
COMMON STOCK
($___ PAR VALUE)
UNDERWRITING AGREEMENT
----------------------
_________________, 1997
A.G. EDWARDS & SONS, INC.
RAYMOND JAMES & ASSOCIATES, INC.
As Representatives of the Several Underwriters
c/o A.G. Edwards & Sons, Inc.
One North Jefferson Avenue
St. Louis, Missouri 63103
The undersigned, World of Science, Inc., a New York corporation (the
"Company") and the persons listed on Schedule I hereto (the "Selling
Shareholders"), hereby address you as the representatives (the
"Representatives") of each of the persons, firms and corporations listed on
Schedule II hereto (collectively, the "Underwriters") and hereby confirm their
agreement with the several Underwriters as follows:
1. DESCRIPTION OF SHARES. The Company proposes to issue and sell to the
Underwriters ___ shares of its Common Stock, par value $___ per share, and the
Selling Shareholders propose to sell to the Underwriters a total of ___ shares
of the Company's Common Stock, par value $___ per share, as set forth on
Schedule I hereto (such ___________ shares of Common Stock are herein referred
to as the "Firm Shares"). Solely for the purpose of covering over-allotments in
the sale of the Firm Shares, the Company further propose to grant to the
Underwriters the right to purchase up to an additional 15% of Firm Shares (the
"Option Shares"), as provided in Section 3 of this Agreement. The Firm Shares
and the Option Shares are herein sometimes referred to as the "Shares" and are
more fully described in the Prospectus hereinafter defined.
2. PURCHASE, SALE AND DELIVERY OF FIRM SHARES. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company agrees and each Selling
Shareholder agrees, severally and not jointly, to sell to the Underwriters, and
each such Underwriter agrees, severally and not jointly, (a) to purchase from
the Company and from each of the Selling Shareholders, pro rata, at a purchase
price of $___ per share, the number of Firm Shares set forth opposite the name
of such Underwriter in Schedule II hereto and (b) to purchase from the Company
any
<PAGE>
additional number of Option Shares which such Underwriter may become obligated
to purchase pursuant to Section 3 hereof.
The Company and the Selling Shareholders will deliver definitive
certificates for the Firm Shares at the office of A.G. Edwards & Sons, Inc., 77
Water Street, New York, New York ("Edwards' Office"), or such other place as you
and the Company may mutually agree upon, for the accounts of the Underwriters
against payment to the Company and the Selling Shareholders of the purchase
price for the Firm Shares sold by them to the several Underwriters by wire
transfer or certified or bank cashiers' check in clearing house (same day
available) funds payable to the order of the Company and the Selling
Shareholders, respectively, and delivered to One North Jefferson Avenue, St.
Louis, Missouri 63103, or at such other place as may be agreed upon between you
and the Company (the "Place of Closing"), at 10:00 a.m., St. Louis time, on
_____________, 1997, or at such other time and date not later than five full
business days thereafter as you and the Company may agree, such time and date of
payment and delivery being herein called the "Closing Date."
The certificates for the Firm Shares so to be delivered will be made
available to you for inspection at Edwards' Office (or such other place as you
and the Company may mutually agree upon) at least one full business day prior to
the Closing Date and will be in such names and denominations as you may request
at least three full business days prior to the Closing Date.
It is understood that an Underwriter, individually, may (but shall not be
obligated to) make payment on behalf of the other Underwriters whose checks
shall not have been received prior to the Closing Date for Shares to be
purchased by such Underwriter. Any such payment by an Underwriter shall not
relieve the other Underwriters of any of their obligations hereunder.
It is understood that the Underwriters propose to offer the Shares to the
public upon the terms and conditions set forth in the Registration Statement
hereinafter defined.
3. PURCHASE, SALE AND DELIVERY OF THE OPTION SHARES. The Company hereby
grants options to the Underwriters to purchase from the Company up to [_____]
Option Shares, on the same terms and conditions as the Firm Shares; provided,
--------
however, that such options may be exercised only for the purpose of covering any
- -------
over-allotments which may be made by them in the sale of the Firm Shares. No
Option Shares shall be sold or delivered unless the Firm Shares previously have
been, or simultaneously are, sold and delivered.
The options are exercisable on behalf of the several Underwriters by you,
as Representatives, at any time, and from time to time, before the expiration of
30 days from the date of this Agreement, for the purchase of all or part of the
Option Shares covered thereby, by notice given by you to the Company in the
manner provided in Section 13 hereof, setting forth the number of Option Shares
as to which the Underwriters are exercising the options,
-2-
<PAGE>
and the date of delivery of said Option Shares, which date shall not be more
than five business days after such notice unless otherwise agreed to by the
parties. You may terminate the options at any time, as to any unexercised
portion thereof, by giving written notice to the Company to such effect.
You, as Representatives, shall make such allocation of the Option Shares
among the Underwriters as may be required to eliminate purchases of fractional
Shares.
Delivery of the Option Shares with respect to which the options shall have
been exercised shall be made to or upon your order at Edwards' Office (or at
such other place as you and the Company may mutually agree upon), against
payment by you of the per share purchase price to the Company by wire transfer
or certified or bank cashier's check or checks, payable in clearing house (same
day available) funds. Such payment and delivery shall be made at 10:00 a.m.,
St. Louis time, on the date designated in the notice given by you as above
provided for, unless some other date and time are agreed upon, which date and
time of payment and delivery are called the "Option Closing Date." The
certificates for the Option Shares so to be delivered will be made available to
you for inspection at Edwards' Office at least one full business day prior to
the Option Closing Date and will be in such names and denominations as you may
request at least three full business days prior to the Option Closing Date. On
the Option Closing Date, the Company shall provide the Underwriters such
representations, warranties, opinions and covenants with respect to the Option
Shares as are required to be delivered on the Closing Date with respect to the
Firm Shares.
4. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY AND THE
SELLING SHAREHOLDERS.
(a) The Company represents and warrants to and agrees with each Underwriter
that:
(i) A registration statement (Registration No. 333-____) on Form
S-1 with respect to the Shares, including a preliminary prospectus, and
such amendments to such registration statement as may have been required to
the date of this Agreement, has been carefully prepared by the Company
pursuant to and in conformity with the requirements of the Securities Act
of 1933, as amended (the "Act"), and the Rules and Regulations (the "Rules
and Regulations") of the Securities and Exchange Commission (the
"Commission") thereunder and has been filed with the Commission under the
Act. Copies of such registration statement, including any amendments
thereto, each related preliminary prospectus (meeting the requirements of
Rule 430 or 430A of the Rules and Regulations) contained therein, the
exhibits, financial statements and schedules have heretofore been delivered
by the Company to you. If such registration statement has not become
effective under the Act, a further amendment to such registration
statement, including a form of final prospectus, necessary to permit such
registration statement to become effective will be filed promptly by the
Company with the
-3-
<PAGE>
Commission. If such registration statement has become effective under the
Act, a final prospectus containing information permitted to be omitted at
the time of effectiveness by Rule 430A of the Rules and Regulations will be
filed promptly by the Company with the Commission in accordance with Rule
424(b) of the Rules and Regulations. The term "Registration Statement" as
used herein means the registration statement as amended at the time it
becomes or became effective under the Act (the "Effective Date"), including
financial statements and all exhibits and, if applicable, the information
deemed to be included by Rule 430A of the Rules and Regulations and
including any registration statement that may be filed pursuant to Rule
462(b) of the Rules and Regulations. The term "Prospectus" as used herein
means (i) the prospectus as first filed with the Commission pursuant to
Rule 424(b) of the Rules and Regulations or, (ii) if no such filing is
required, the form of final prospectus included in the Registration
Statement at the Effective Date or (iii) if a Term Sheet or Abbreviated
Term Sheet (as such terms are defined in Rule 434(b) and 434(c),
respectively, of the Rules and Regulations) is filed with the Commission
pursuant to Rule 424(b)(7) of the Rules and Regulations, the Term Sheet or
Abbreviated Term Sheet and the last Preliminary Prospectus filed with the
Commission prior to the time the Registration Statement became effective,
taken together. The term "Preliminary Prospectus" as used herein shall mean
a preliminary prospectus as contemplated by Rule 430 or 430A of the Rules
and Regulations included at any time in the Registration Statement.
(ii) The Commission has not issued, and is not to the knowledge of
the Company threatening to issue, an order preventing or suspending the use
of any Preliminary Prospectus or the Prospectus nor instituted proceedings
for that purpose. Each Preliminary Prospectus at its date of issue, the
Registration Statement and the Prospectus and any amendments or supplements
thereto contains or will contain, as the case may be, all statements which
are required to be stated therein by, and in all material respects conform
or will conform, as the case may be, to the requirements of, the Act and
the Rules and Regulations. Neither the Registration Statement nor any
amendment thereto, as of the applicable Effective Date, and neither the
Prospectus nor any supplement thereto, contains or will contain, as the
case may be, any untrue statement of a material fact or omits or will omit
to state any material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading; provided, however, that the Company makes
-------- -------
no representation or warranty as to information contained in or omitted
from the Registration Statement or the Prospectus, or any such amendment or
supplement, in reliance upon, and in conformity with, written information
furnished to the Company by or on behalf of the Underwriters specifically
for use in the preparation thereof.
(iii) The filing of the Registration Statement and the execution and
delivery of this Agreement have been duly authorized by the Board of
Directors of the Company; this Agreement constitutes a valid and legally
binding obligation of the
-4-
<PAGE>
Company enforceable in accordance with its terms (except to the extent the
enforceability of the indemnification and contribution provisions of
Section 7 hereof may be limited by public policy considerations as
expressed in the Act as construed by courts of competent jurisdiction, and
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other laws affecting creditors' rights
generally and by general principles of equity); the issue and sale of the
Shares by the Company and the performance of this Agreement and the
consummation of the transactions herein contemplated will not result in a
violation of the Company's certificate of incorporation or bylaws or result
in a breach or violation of any of the terms and provisions of, or
constitute a default under, or result in the creation or imposition of any
lien, charge or encumbrance upon any properties or assets of the Company
under, any statute, or under any indenture, mortgage, deed of trust, note,
loan agreement, sale and leaseback arrangement or other agreement or
instrument to which the Company is a party or by which it is bound or to
which any of the properties or assets of the Company is subject, or any
order, rule or regulation of any court or governmental agency or body
having jurisdiction over the Company or their properties; no consent,
approval, authorization, order, registration or qualification of or with
any court or governmental agency or body is required for the consummation
of the transactions herein contemplated, except such as may be required by
the National Association of Securities Dealers, Inc. (the "NASD") or under
the Act or Rules and Regulations or any state securities laws.
(iv) Except as described in the Prospectus, the Company has not
sustained since the date of the latest audited financial statements
included in the Prospectus any material loss or interference with its
business from fire, explosion, flood or other calamity, whether or not
covered by insurance, or from any labor dispute or court or governmental
action, order or decree. Except as contemplated in the Prospectus,
subsequent to the respective dates as of which information is given in the
Registration Statement and the Prospectus, the Company has not incurred any
material liabilities or material obligations, direct or contingent, other
than in the ordinary course of business, or entered into any material
transactions not in the ordinary course of business, and there has not been
any material change in the capital stock or long-term debt of the Company
or any material adverse change in the condition (financial or other), net
worth, business, affairs, management, prospects or results of operations of
the Company. The Company has filed all necessary federal, state and
foreign income and franchise tax returns and paid all taxes shown as due
thereon; all tax liabilities are adequately provided for on the books of
the Company except to such extent as would not materially adversely affect
the business of the Company; the Company has made all necessary payroll tax
payments and is current and up-to-date as of the date of this Agreement;
and the Company has no knowledge of any tax proceeding or action pending or
threatened against the Company which might materially adversely affect its
business or property.
-5-
<PAGE>
(v) Except as described in the Prospectus, there is not now pending
or, to the knowledge of the Company, threatened or contemplated, any
action, suit or proceeding to which the Company is a party before or by any
court or public, regulatory or governmental agency or body which might be
expected to result (individually or in the aggregate) in any material
adverse change in the condition (financial or other), business or prospects
of the Company, or might be expected to materially and adversely affect
(individually or in the aggregate) the properties or assets thereof; and
there are no contracts or documents of the Company which would be required
to be filed as exhibits to the Registration Statement by the Act or by the
Rules and Regulations which have not been filed as exhibits to the
Registration Statement.
(vi) The Company has duly and validly authorized capital stock as
described in the Prospectus; all outstanding shares of Common Stock of the
Company and the Shares conform, or when issued will conform, to the
description thereof in the Registration Statement and the Prospectus and
have been or, when issued and paid for, will be duly authorized, validly
issued, fully paid and nonassessable; and the issuance of the Shares to be
purchased from the Company hereunder is not subject to preemptive rights.
(vii) The Company has been duly incorporated and are validly existing
as corporations in good standing under the laws of the states or other
jurisdictions in which it is incorporated, with full power and authority
(corporate and other) to own, lease and operate its properties and conduct
its businesses as described in the Registration Statement; the Company is
duly qualified to do business as foreign corporation in good standing in
each state or other jurisdiction in which its ownership or leasing of
property or conduct of business legally requires such qualification, except
where the failure to be so qualified would not have a material adverse
effect on the ability of the Company to conduct its business as described
in the Registration Statement; and the Company does not have and has never
had any subsidiary.
(viii) KPMG Peat Marwick LLP, the accounting firm which has certified
the financial statements filed with the Commission as a part of the
Registration Statement, is an independent public accounting firm within the
meaning of the Act and the Rules and Regulations.
(ix) The financial statements and schedules of the Company,
including the notes thereto, filed with and as a part of the Registration
Statement, are accurate in all material respects and present fairly the
financial position of the Company as of the respective dates thereof and
the results of operations and statements of cash flow for the respective
periods covered thereby, all in conformity with generally accepted
accounting principles applied on a consistent basis throughout the periods
involved except as otherwise disclosed in the Prospectus. The selected
financial data included in
-6-
<PAGE>
the Registration Statement and Prospectus present fairly the information
shown therein and have been compiled on a basis consistent with that of the
audited financial statements in the Registration Statement and Prospectus.
(x) The Company is not in default with respect to any contract or
agreement to which it is a party; provided that this representation shall
not apply to defaults which in the aggregate are not materially adverse to
the condition, financial or other, or the business or prospects of the
Company.
(xi) The Company is not in violation of any other laws, ordinances
or governmental rules or regulations to which it is subject, and the
Company has not failed to obtain any other license, permit, franchise,
easement, consent, or other governmental authorization necessary to the
ownership, leasing and operation of its properties or to the conduct of its
business, which violation or failure would materially adversely affect the
business, operations, affairs, properties, prospects, profits or condition
(financial or other) of the Company. The Company has not, at any time
during the past five years, (A) made any unlawful contributions to any
candidate for any political office, or failed fully to disclose any
contribution in violation of law, or (B) made any payment to any state,
federal or foreign government official, or other person charged with
similar public or quasi-public duty (other than payment required or
permitted by applicable law).
(xii) Except as described in the Prospectus, the Company owns or
possesses, or can acquire on reasonable terms, adequate patents, patent
licenses, trademarks, service marks and trade names necessary to conduct
the business now operated by them, and the Company has not received any
notice of infringement of or conflict with asserted rights of others with
respect to any patents, patent licenses, trademarks, service marks or trade
names which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would have a material adverse effect on the
conduct of the business, operations, financial condition or income of the
Company.
(xiii) The Company has good and marketable title to all property owned
by it, free and clear of all liens, encumbrances, restrictions and defects
except such as are described in the Registration Statement or do not
interfere with the use made and proposed to be made of such property; and
any property held under lease or sublease by the Company is held under
valid, subsisting and enforceable leases or subleases with such exceptions
as are not material and do not interfere with the use made and proposed to
be made of such property by the Company, and the Company has no notice or
knowledge of any material claim of any sort which has been, or may be,
asserted by anyone adverse to the Company's rights as lessee or sublessee
under any lease or sublease described above, or affecting or questioning
the Company's rights to the continued possession of the leased or subleased
premises under any such lease or sublease in conflict with the terms
thereof.
-7-
<PAGE>
(xiv) Except as described in the Prospectus, there is no factual
basis for any action, suit or other proceeding involving the Company or any
of its material assets for any failure of the Company, or any predecessor
thereof, to comply with any requirements of federal, state or local
regulation relating to air, water, solid waste management, hazardous or
toxic substances, or the protection of health or the environment. Except as
described in the Prospectus, none of the property owned or leased by the
Company is, to the best knowledge of the Company, contaminated with any
waste or hazardous substances, and the Company may not be deemed an "owner
or operator" of a "facility" or "vessel" which owns, possesses, transports,
generates or disposes of a "hazardous substance" as those terms are defined
in (S)9601 of the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, 42 U.S.C. (S)9601 et seq.
------
(xv) No labor disturbance exists with the employees of the Company
or is imminent which would have a material adverse effect on the Company.
(xvi) The Company has not taken and will not take, directly or
indirectly, any action designed to or which might reasonably be expected to
cause or result in stabilization or manipulation of the price of the
Company's Common Stock, and the Company is not aware of any such action
taken or to be taken by affiliates of the Company.
(xvii) The Company is not an "investment company" or a company
"controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(xviii) The Company carries, or is covered by, insurance in such
amounts and covering such risks as the Company believes is adequate for the
conduct of its business and the value of its respective properties and as
is customary for companies engaged in similar industries.
(xix) The Company is in compliance in all material respects with all
presently applicable provisions of the Employee Retirement Income Security
Act of 1974, as amended, including the regulations and published
interpretations thereunder ("ERISA"); no "reportable event" (as defined in
ERISA) has occurred with respect to any "pension plan" (as defined in
ERISA) for which the Company would have any liability; the Company has not
incurred and does not expect to incur liability under (i) Title IV of ERISA
with respect to termination of, or withdrawal from, any "pension plan" or
(ii) Sections 412 or 4971 of the Internal Revenue Code of 1986, as amended,
including the regulations and published interpretations thereunder (the
"Code"); and each "pension plan" for which the Company would have any
liability that is intended to be qualified under Section 401(a) of the Code
is so qualified in all material respects and
-8-
<PAGE>
nothing has occurred, whether by action or by failure to act, which would
cause the loss of such qualification.
(xx) The Common Stock has been duly authorized for listing on the
National Association of Securities Dealers, Inc. Automated
Quotation/National Market System ("Nasdaq National Market System").
(b) Each Selling Shareholder severally, and not jointly, represents and
warrants to and agrees with each Underwriter and the Company that:
(i) All authorizations and consents necessary for the execution and
delivery by it of this Agreement and the sale and delivery of the Shares to
be sold by such Selling Shareholder hereunder have been given and are in
full force and effect on the date hereof and will be in full force and
effect on the Closing Date (and, if applicable, the Option Closing Date).
(ii) Such Selling Shareholder has, and on the Closing Date (and, if
applicable, the Option Closing Date) will have, good and valid title to the
Shares to be sold by such Selling Shareholder, free and clear of all liens,
mortgages, pledges, encumbrances, claims, equities and security interests
whatsoever, and will have, full right, power and authority to enter into
this Agreement and to sell, assign, transfer and deliver the Shares to be
sold by such Selling Shareholder hereunder.
(iii) Upon delivery of and payment for such Shares hereunder, the
several Underwriters will acquire valid and unencumbered title to such
Shares to be sold by such Selling Shareholder hereunder, free and clear of
all liens, mortgages, pledges, encumbrances, claims, equities and security
interests whatsoever.
(iv) The consummation by such Selling Shareholder of the
transactions contemplated herein and the fulfillment by such Selling
Shareholder of the terms hereof will not result in a violation or breach of
any terms or provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, note, loan agreement, sale and leaseback
arrangement or other agreement or instrument to which such Selling
Shareholder is a party, or of any order, rule or regulation applicable to
such Selling Shareholder of any court or of any regulatory body of an
administrative agency or other governmental body having jurisdiction.
(v) Such Selling Shareholder has not taken and will not take,
directly or indirectly, any action designed to or which might be reasonably
expected to cause or result in stabilization or manipulation of the price
of the Company's Common Stock, and such Selling Shareholder is not aware of
any such action taken or to be taken by affiliates of such Selling
Shareholder.
-9-
<PAGE>
(vi) When the Registration Statement becomes effective and at all
times subsequent thereto, such information in the Registration Statement
and Prospectus and any amendments or supplements thereto as specifically
refers to such Selling Shareholder will not contain any untrue statement of
a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading.
(vii) Certificates in negotiable form representing all of the Shares
to be sold by such Selling Shareholder hereunder have been placed in the
custody of _________ and ________________ (the "Custodians") under a
Custody Agreement (the "Custody Agreement"), duly executed and delivered by
such Selling Shareholder, with the Custodians having the authority to
deliver the Shares to be sold by such Selling Shareholder hereunder, and
that such Selling Shareholder has duly executed and delivered a Power of
Attorney (the "Power of Attorney") appointing ______________ and
_____________ as such Selling Shareholder's attorneys-in-fact (the
"Attorneys-in-Fact") with the Attorneys-in-Fact having authority to execute
and deliver this Agreement on behalf of such Selling Shareholder, to
determine the purchase price to be paid by the Underwriters to the Selling
Shareholders as provided in Section 2, to authorize the delivery of the
Shares to be sold by it hereunder and otherwise to act on behalf of such
Selling Shareholder in connection with the transactions contemplated by
this Agreement and such Custody Agreement.
(viii) The Shares represented by the certificates held in custody for
such Selling Shareholder under the Custody Agreement are subject to the
interests of the Underwriters hereunder, and the arrangements made by such
Selling Shareholder for such custody, and the appointment by such Selling
Shareholder of the Custodians under the Custody Agreement and of the
Attorneys-in-Fact by the Power of Attorney, are to that extent irrevocable.
(ix) The obligations of such Selling Shareholders hereunder shall
not be terminated by operation of law, whether by the death or incapacity
of any individual Selling Shareholder or by the occurrence of any other
event, and if any Selling Shareholder should die or become incapacitated,
or if any other such event should occur before the delivery of the Shares
hereunder, certificates representing the Shares shall be delivered by or on
behalf of each Selling Shareholder in accordance with the terms and
conditions of this Agreement and of the Custody Agreement, and actions
taken by the Custodians pursuant to the Custody Agreement or by the
Attorneys-in-Fact pursuant to the Power of Attorney shall be as valid as if
such death, incapacity or other event had not occurred, regardless of
whether or not the Custodians or Attorneys-in-Fact, or any of them, shall
have received notice of such death, incapacity or other event.
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(x) Such Selling Shareholder is not prompted to sell shares of
Common Stock by any information concerning the Company which is not
included in the Registration Statement.
(c) Any certificate signed by any officer of the Company and delivered to
you or to counsel for the Underwriters shall be deemed a representation and
warranty by the Company to each Underwriter as to the matters covered thereby;
and any certificate signed by or on behalf of the Selling Shareholders as such
and delivered to you or to counsel for the Underwriters shall be deemed a
representation and warranty by the Selling Shareholders to each Underwriter as
to the matters covered thereby.
5. ADDITIONAL COVENANTS. The Company and, where expressly indicated, the
Selling Shareholders, covenant and agree with the several Underwriters that:
(a) If the Registration Statement is not effective under the Act, the
Company will use its best efforts to cause the Registration Statement to become
effective as promptly as possible, and it will notify you, promptly after it
shall receive notice thereof, of the time when the Registration Statement has
become effective. The Company (i) will prepare and timely file with the
Commission under Rule 424(b) of the Rules and Regulations, if required, a
Prospectus containing information previously omitted at the time of
effectiveness of the Registration Statement in reliance on Rule 430A of the
Rules and Regulations or otherwise or a Term Sheet or Abbreviated Term Sheet, as
applicable; (ii) will not file any amendment to the Registration Statement or
supplement to the Prospectus of which the Underwriters shall not previously have
been advised and furnished with a copy or to which the Underwriters shall have
reasonably objected in writing or which is not in compliance with the Rules and
Regulations; and (iii) will promptly notify you after it shall have received
notice thereof of the time when any amendment to the Registration Statement
becomes effective or when any supplement to the Prospectus has been filed.
(b) The Company will advise the Underwriters promptly, after it shall
receive notice or obtain knowledge thereof, of any request of the Commission for
amendment of the Registration Statement or for supplement to the Prospectus or
for any additional information, or of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or the use of
the Prospectus or of the institution or threatening of any proceedings for that
purpose, and the Company will use its best efforts to prevent the issuance of
any such stop order preventing or suspending the use of the Prospectus and to
obtain as soon as possible the lifting thereof, if issued.
(c) The Company will cooperate with the Underwriters and their counsel in
endeavoring to qualify the Shares for sale under the securities laws of such
jurisdictions as they may have reasonably designated and will make such
applications, file such documents, and furnish such information as may be
necessary for that purpose, provided the Company shall not be required to
qualify as a foreign corporation or to file a general consent to service
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of process in any jurisdiction where it is not now so qualified or required to
file such a consent or to subject itself to taxation as doing business in any
jurisdiction where it is not now so taxed. The Company will, from time to time,
file such statements, reports, and other documents, as are or may be required to
continue such qualifications in effect for so long a period as is reasonably
required for the offering, sale and distribution of the Shares.
(d) The Company will deliver to, or upon the order of, the Underwriters,
without charge from time to time, as many copies of any Preliminary Prospectus
as they may reasonably request. The Company will deliver to, or upon the order
of, the Underwriters without charge as many copies of the Prospectus, or as it
thereafter may be amended or supplemented, as they may from time to time
reasonably request. The Company consents to the use of such Prospectus by the
Underwriters and by all dealers to whom the Shares may be sold, both in
connection with the offering or sale of the Shares and for such other purposes
and for such period of time thereafter as the Prospectus is required by law to
be delivered in connection with the offering or sale of the Shares. The Company
will deliver to the Underwriters at or before the Closing Date two signed copies
of the Registration Statement and all amendments thereto including all exhibits
filed therewith, and will deliver to the Underwriters such number of copies of
the Registration Statement, without exhibits, and of all amendments thereto, as
they may reasonably request.
(e) If, during the period in which a prospectus is required by law to be
delivered by an Underwriter or dealer, any event shall occur as a result of
which, in the judgment of the Company or in your judgment or in the opinion of
counsel for the Underwriters, it becomes necessary to amend or supplement the
Prospectus in order to make the statements therein, in light of the
circumstances existing at the time the Prospectus is delivered to a purchaser,
not misleading, or if it is necessary at any time to amend or supplement the
Prospectus to comply with any law, the Company promptly will prepare and file
with the Commission an appropriate amendment to the Registration Statement or
supplement to the Prospectus so that the Prospectus as so amended or
supplemented will not, in the light of the circumstances when it is so
delivered, be misleading, or so that the Prospectus will comply with law.
(f) The Company will make generally available to its shareholders and will
file as an exhibit in a report pursuant to the Securities Exchange Act of 1934,
as amended (the "1934 Act"), as soon as it is practicable to do so, but in any
event not later than 15 months after the effective date of the Registration
Statement, an earnings statement in reasonable detail, covering a period of at
least 12 consecutive months beginning after the effective date of the
Registration Statement, which earnings statement shall satisfy the requirements
of Section 11(a) of the Act and Rule 158 of the Rules and Regulations and will
advise the Underwriters in writing when such statement has been so made
available.
(g) The Company will, for a period of five years from the Closing Date,
deliver to the Underwriters at their principal executive offices a reasonable
number of copies of annual reports, quarterly reports, current reports and
copies of all other documents, reports and
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information furnished by the Company to its shareholders or filed with any
securities exchange pursuant to the requirements of such exchange or with the
Commission pursuant to the Act or the 1934 Act. The Company will deliver to the
Underwriters similar reports with respect to any significant subsidiaries, as
that term is defined in the Rules and Regulations, which are not consolidated in
the Company's financial statements. Any report, document or other information
required to be furnished under this paragraph (g) shall be furnished as soon as
practicable after such report, document or information becomes available.
(h) The Company will apply the proceeds from the sale of the Shares as set
forth in the description under "Use of Proceeds" in the Prospectus, which
description complies in all material respects with the requirements of Item 504
of Regulation S-K.
(i) The Company will supply you with copies of all correspondence to and
from, and all documents issued to and by, the Commission in connection with the
registration of the Shares under the Act.
(j) Prior to the Closing Date (and, if applicable, the Option Closing
Date), the Company will furnish to you, as soon as they have been prepared,
copies of any unaudited interim financial statements of the Company for any
periods subsequent to the periods covered by the financial statements appearing
in the Registration Statement and the Prospectus.
(k) Prior to the Closing Date (and, if applicable, the Option Closing
Date), neither the Company nor any Selling Shareholder will issue any press
releases or other communications directly or indirectly and will hold no press
conferences with respect to the Company or any of its subsidiaries, the
financial condition, results of operations, business, properties, assets or
liabilities of the Company, or the offering of the Shares, without your prior
written consent.
(l) For a period of 180 days from the Effective Date, the Company will not,
and will use its best efforts to cause its directors and officers to not,
directly or indirectly offer for sale, sell, contract to sell or otherwise
dispose of any shares of the Company's Common Stock, any securities exchangeable
for Common Stock or any other rights to acquire such shares without your prior
written consent, except for the Shares sold hereunder and except for sales of
shares of Common Stock to the Company's employees or directors pursuant to the
exercise of options under the Company's stock option plans.
(m) For a period of 180 days from the Effective Date, the Selling
Shareholders will not directly or indirectly offer for sale, sell, contract to
sell or otherwise dispose of any shares of the Company's Common Stock, any
securities exchangeable for Common Stock or rights to acquire such shares
without your prior written consent, except for the Shares sold hereunder or
request the registration for the offer or sale of any of the foregoing (or as to
which such person has the right to direct the disposition of).
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<PAGE>
(n) The Company has caused each officer and director and specific
shareholders of the Company as requested by you, to furnish to you, on or prior
to the date of this agreement, a letter or letters, in form and substance
satisfactory to the Underwriters, pursuant to which each such person shall agree
not to, directly or indirectly, offer for sale, sell, contract to sell or
otherwise dispose of any shares of the Company's Common Stock, any securities
exchangeable for Common Stock or rights to acquire such shares or request the
registration for the offer or sale of any of the foregoing (or as to which such
person has the right to direct the disposition of) for a period of 180 days
after the Effective Date without your prior written consent (the "Lockup
Agreements").
(o) The Company, and any subsidiaries of the Company in the future, will
maintain and keep accurate books and records reflecting their assets and
maintain internal accounting controls which provide reasonable assurance that
(1) transactions are executed in accordance with management's authorization, (2)
transactions are recorded as necessary to permit the preparation of the
Company's financial statements, and, if applicable, such subsidiaries on a
consolidated basis, and to maintain accountability for the assets of the Company
and such subsidiaries, (3) access to the assets of the Company and such
subsidiaries is permitted only in accordance with management's authorization,
and (4) the recorded accounts of the assets of the Company and such subsidiaries
are compared with existing assets at reasonable intervals.
6. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The several obligations of
the Underwriters to purchase and pay for the Shares, as provided herein, shall
be subject to the accuracy, as of the date hereof and as of the Closing Date
(and, if applicable, the Option Closing Date), of the representations and
warranties of the Company and the Selling Shareholders contained herein, to the
performance in all material respects by the Company and the Selling Shareholders
of their covenants and obligations hereunder, and to the following additional
conditions:
(a) All filings required by Rule 424 and Rule 430A of the Rules and
Regulations shall have been made. No stop order suspending the effectiveness of
the Registration Statement, as amended from time to time, shall have been issued
and no proceeding for that purpose shall have been initiated or, to the
knowledge of the Company or any Underwriter, threatened or contemplated by the
Commission, and any request of the Commission for additional information (to be
included in the Registration Statement or the Prospectus or otherwise) shall
have been complied with to the reasonable satisfaction of the Underwriters.
(b) No Underwriter shall have disclosed in writing to the Company on or
prior to the Closing Date (and, if applicable, the Option Closing Date), that
the Registration Statement or Prospectus or any amendment or supplement thereto
contains an untrue statement of fact which, in the opinion of counsel to the
Underwriters, is material, or omits to state a fact which, in the opinion of
such counsel, is material and is required to be stated therein or is necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading.
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<PAGE>
(c) On the Closing Date (and, if applicable, the Option Closing Date), you
shall have received the opinion of Harris, Beach & Wilcox LLP, counsel for the
Company, addressed to you and dated the Closing Date (and, if applicable, the
Option Closing Date), to the effect that:
(i) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the states or other
jurisdictions in which it is incorporated, with full corporate power and
authority to own, lease and operate its properties and conduct its business
as described in the Registration Statement; the Company is duly qualified
to do business as a foreign corporation in good standing in each state or
other jurisdiction in which its ownership or leasing of property or conduct
of business legally requires such qualification, except where the failure
to be so qualified would not have a material adverse effect on the ability
of the Company to conduct its business as described in the Registration
Statement; and, to the knowledge of such counsel after due inquiry, the
Company has no, and never has had any subsidiary.
(ii) The Company has duly and validly authorized capital stock as
set forth under the heading "Capitalization" in the Prospectus; all
outstanding shares of Common Stock of the Company and the Shares conform to
the description thereof in the Prospectus under the heading "Description of
Capital Stock", and the outstanding shares of Common Stock have been duly
authorized and are validly issued, fully paid and non-assessable; the
Shares to be sold by the Company have been duly authorized and, when
delivered and paid for in accordance with this Agreement, will be validly
issued, fully paid and non-assessable, and the shareholders of the Company
have no preemptive rights with respect to the Shares.
(iii) Except as described in or contemplated by the Prospectus, to
the knowledge of such counsel after due inquiry, there are no outstanding
securities of the Company convertible or exchangeable into or evidencing
the right to purchase or subscribe for any shares of capital stock of the
Company and there are no outstanding or authorized options, warrants or
rights of any character obligating the Company to issue any shares of its
capital stock or any securities convertible or exchangeable into or
evidencing the right to purchase or subscribe for any shares of such stock.
(iv) Except as described in the Prospectus, to the knowledge of such
counsel after due inquiry, no holder of any securities of the Company or
any other person has the right, contractual or otherwise, which has not
been satisfied or effectively waived, to cause the Company to sell or
otherwise issue to them, or to permit them to underwrite the sale of, any
of the Shares or the right to have any Shares or other securities of the
Company included in the Registration Statement or the right, as a
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result of the filing of the Registration Statement, to require registration
under the Act of any shares of Common Stock or other securities of the
Company.
(v) Such counsel has been advised by the staff of the Commission
that the Registration Statement has become effective under the Act and, to
the knowledge of such counsel after due inquiry, no stop order suspending
the effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending or
contemplated under the Act.
(vi) The Registration Statement and the Prospectus, and each
amendment or supplement thereto, as of their respective effective or issue
date, comply as to form and appear on their face to be appropriately
responsive in all material respects to the requirements of the Act and the
applicable rules and regulations (except that such counsel need express no
opinion as to the financial statements and financial statement schedules
contained therein).
(vii) The descriptions in the Registration Statement and Prospectus
of contracts and other documents filed as exhibits to the Registration
Statement are accurate in all material respects; all other material
agreements between the Company and third parties expressly referenced in
the Prospectus are legal, valid and binding obligations of the Company.
(viii) No authorization, approval, consent, order, registration or
qualification of or with of any court or governmental body, authority or
agency is required with respect to the Company in connection with the
transactions contemplated by this Agreement, except such as may be required
under the Act or the Rules and Regulations or as may be required by the
NASD or under state securities laws in connection with the purchase and
distribution of the Shares by the Underwriters.
(ix) The filing of the Registration Statement has been duly
authorized by the Board of Directors of the Company. This Agreement has
been duly authorized, executed and delivered by the Company. The
performance of this Agreement and the consummation of the transactions
herein contemplated will not result in a violation of the Company's
certificate of incorporation or bylaws or result in a breach or violation
of any of the terms and provisions of, or constitute a default under, or
result in the creation or imposition of any lien, charge or encumbrance
upon any properties or assets of the Company under, any statute, or under
any indenture, mortgage, deed of trust, note, loan agreement, sale and
leaseback arrangement, or any other agreement or instrument known to such
counsel after due inquiry to which the Company is a party or by which it is
bound or to which any of the properties or assets of the Company are
subject, or any order, rule or regulation known to such counsel after due
inquiry of any court or governmental agency or body having jurisdiction
over the Company or its properties, except, in the case of any such
violation, breach, default, creation or
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<PAGE>
imposition, to such extent as does not materially adversely affect the
business of the Company.
(x) To the knowledge of such counsel after due inquiry,(A) there
are no material (individually or in the aggregate) legal, governmental or
regulatory proceedings pending or threatened to which the Company is a
party or of which the business or properties of the Company is the subject
which are not disclosed in the Registration Statement and Prospectus; (B)
there are no contracts or documents of a character required to be described
in the Registration Statement or the Prospectus or to be filed as an
exhibit to the Registration Statement which are not described or filed as
required; and (C) there are no statutes or regulations required to be
described in the Registration Statement or Prospectus which are not
described as required.
(xi) To the knowledge of such counsel after due inquiry, the Company
holds all licenses, certificates, permits and approvals from all state,
federal and other regulatory authorities, and have satisfied in all
material respects the requirements imposed by regulatory bodies,
administrative agencies or other governmental bodies, agencies or
officials, that are required for the Company lawfully to own, lease and
operate its properties and conduct its business as described in the
Prospectus, and, to the knowledge of such counsel after due inquiry, the
Company is conducting its business in compliance in all material respects
with all of the laws, rules and regulations of each jurisdiction in which
it conducts its business.
(xii) The statements made in the Registration Statement under the
captions "Dividend Policy", "Capitalization", "Description of Capital
Stock", and "Certain Provisions of the Certificate and Bylaws", to the
extent that they constitute summaries of documents referred to therein or
matters of law or legal conclusions, have been reviewed by such counsel and
are accurate summaries and fairly present the information disclosed
therein.
(xiii) The Company is not an "investment company" or a company
"controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
Such counsel shall confirm that in the course of its duties in connection with
the preparation of the Registration Statement and Prospectus, nothing came to
such counsel's attention that would lead them to believe that either the
Registration Statement or Prospectus or any amendment or supplement thereto
(other than the financial statements and financial statement schedules contained
therein as to which such counsel need express no opinion) contains any untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
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In rendering the foregoing opinion, such counsel may rely, provided that the
opinion shall state that you and they are entitled to so rely, (1) as to matters
involving laws of any jurisdiction other than New York or the United States,
upon opinions addressed to the Underwriters of other counsel satisfactory to
them and Ropes & Gray, and (2) as to all matters of fact, upon certificates and
written statements of the executive officers of, and accountants for, the
Company.
(d) On the Closing Date (and, if applicable, the Option Closing Date), you
shall have received the opinion of Harris, Beach & Wilcox LLP, counsel to the
Selling Stockholders, addressed to you and dated the Closing Date (and, if
applicable, the Option Closing Date), to the effect that:
(i) Each Selling Shareholder has duly authorized, executed and
delivered the Custody Agreement and Power of Attorney, appointing Marine
Midland Bank as such Selling Shareholder's Custodians with authority to
take custody of and deliver the Shares as represented by certificates on
behalf of such Selling Shareholder in connection with the transactions
contemplated by this Agreement and the Custody Agreement and appointing
Fred H. Klaucke and Charles A. Callahan as such Selling Shareholder's
attorneys-in-fact with authority to execute and deliver this Agreement on
behalf of such Selling Shareholder and otherwise to act on behalf of such
Selling Shareholder in connection with the transactions contemplated by
this Agreement and the Power of Attorney.
(ii) This Agreement has been duly authorized, executed and delivered
on behalf of the Selling Shareholders.
(iii) Each Selling Shareholder has full legal right, power and
authority, and any approval required by law (other than as required by the
Act, the NASD and state securities and Blue Sky Laws) to sell, assign,
transfer and deliver the Shares to be sold by such Selling Shareholder.
(iv) No consent, approval, authorization or order of any court, or
governmental agency or body is required for consummation of the
transactions contemplated by this Agreement in connection with the Shares
to be sold by each Selling Shareholder hereunder except such as may be
required under the Act or the Rules and Regulations or as may be required
by the NASD or under state securities laws.
(v) Immediately prior to the time of delivery of the Shares being
purchased from the Selling Shareholders, each Selling Shareholder was the
sole registered owner of the Shares to be sold by such Selling Shareholder.
Following such time of delivery, each of the Underwriters will be the
registered owner of the Shares purchased by it from such Selling
Shareholder and, assuming the Underwriters purchase such Shares in
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good faith and without notice of any adverse claim, the Underwriters, in
addition to acquiring all rights of such Selling Shareholder in such
Shares, will acquire such Shares, free of any adverse claim, and free of
any lien in favor of the Company, and any restrictions on transfer imposed
by the Company.
In rendering the foregoing opinion, such counsel may rely, provided that the
opinion shall state that you and they are entitled to so rely, (1) as to matters
involving laws of any jurisdiction other than the State of New York or the
United States, upon opinions addressed to the Underwriters of other counsel
satisfactory to them and Ropes & Gray, and (2) as to all matters of fact, upon
certificates and written statements of the Selling Shareholders.
(e) You shall have received on the Closing Date (and, if applicable, the
Option Closing Date), from Ropes & Gray, counsel to the Underwriters, such
opinion or opinions, dated the Closing Date (and, if applicable, the Option
Closing Date) with respect to the incorporation of the Company, the validity of
the Shares, the Registration Statement, the Prospectus and other related matters
as you may reasonably require; the Company and Selling Shareholders shall have
furnished to such counsel such documents as they reasonably request for the
purpose of enabling them to pass on such matters.
(f) You shall have received at or prior to the Closing Date from Ropes &
Gray a memorandum or memoranda, in form and substance satisfactory to you, with
respect to the qualification or exemption for offering and sale by the
Underwriters of the Shares under state securities or Blue Sky laws of such
jurisdictions as the Underwriters may have designated to the Company.
(g) On the Effective Date and on the Closing Date (and, if applicable, the
Option Closing Date), you shall have received from KPMG Peat Marwick, LLP, a
letter or letters, dated the Effective Date and the Closing Date (and, if
applicable, the Option Closing Date), respectively, in form and substance
satisfactory to you, confirming that they are independent public accountants
with respect to the Company within the meaning of the Act and the published
Rules and Regulations, and the answer to Item 509 of Regulation S-K set forth in
the Registration Statement is correct insofar as it relates to them, and stating
to the effect set forth in Schedule III hereto.
(h) Except as contemplated in the Prospectus, (i) the Company shall not
have sustained since the date of the latest audited financial statements
included in the Prospectus any loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by insurance, or from
any labor dispute or court or governmental action, order or decree; and (ii)
subsequent to the respective dates as of which information is given in the
Registration Statement and the Prospectus, the Company shall not have incurred
any liability or obligation, direct or contingent, or entered into transactions,
and there shall not have been any change in the capital stock or long-term debt
of the Company or any change in the condition (financial or other), net worth,
business, affairs, management, prospects or results
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of operations of the Company, the effect of which, in any such case described in
clause (i) or (ii), is in your judgment so material or adverse as to make it
impracticable or inadvisable to proceed with the public offering or the delivery
of the Shares being delivered on such Closing Date (and, if applicable, the
Option Closing Date) on the terms and in the manner contemplated in the
Prospectus.
(i) There shall not have occurred any of the following: (i) a suspension
or material limitation in trading in securities generally on the New York Stock
Exchange or the American Stock Exchange or the establishing on such exchanges by
the Commission or by such exchanges of minimum or maximum prices which are not
in force and effect on the date hereof; (ii) a general moratorium on commercial
banking activities declared by either federal or state authorities; (iii) the
outbreak or escalation of hostilities involving the United States or the
declaration by the United States of a national emergency or war, if the effect
of any such event specified in this clause (iii) in your judgment makes it
impracticable or inadvisable to proceed with the public offering or the delivery
of the Shares in the manner contemplated in the Prospectus; (iv) any calamity or
crisis, change in national, international or world affairs, act of God, change
in the international or domestic markets, or change in the existing financial,
political or economic conditions in the United States or elsewhere, if the
effect of any such event specified in this clause (iv) makes it impracticable or
inadvisable in your reasonable judgment to proceed with the public offering or
the delivery of the Shares in the manner contemplated in the Prospectus; or (v)
the enactment, publication, decree, or other promulgation of any federal or
state statute, regulation, rule, or order of any court or other governmental
authority, or the taking of any action by any federal, state or local government
or agency in respect of fiscal or monetary affairs, if the effect of any such
event specified in this clause (v) in your reasonable judgment makes it
impracticable or inadvisable to proceed with the public offering or the delivery
of the Shares in the manner contemplated in the Prospectus.
(j) You shall have received certificates, dated the Closing Date (and, if
applicable, the Option Closing Date) and signed by the President and the Chief
Financial Officer of the Company stating that (i) they have carefully examined
the Registration Statement and the Prospectus as amended or supplemented and
nothing has come to their attention that would lead them to believe that either
the Registration Statement or the Prospectus, or any amendment or supplement
thereto as of their respective effective or issue dates, contained, and the
Prospectus as amended or supplemented at such Closing Date, contains any untrue
statement of a material fact, or omits to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading, and, that (ii) all
representations and warranties made herein by the Company are true and correct
at such Closing Date, with the same effect as if made on and as of such Closing
Date, and all agreements herein to be performed by the Company on or prior to
such Closing Date have been duly performed in all material respects.
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(k) The Company and each of the Selling Shareholders shall not have failed,
refused, or been unable, at or prior to the Closing Date (and, if applicable,
the Option Closing Date) to have performed in all material respects any
agreement on their part to be performed or any of the conditions herein
contained and required to be performed or satisfied by them at or prior to such
Closing Date.
(l) The Company and the Selling Shareholders shall have furnished to you at
the Closing Date (and, if applicable, the Option Closing Date) such other
certificates as you may have reasonably requested as to the accuracy, on and as
of such Closing Date, of the representations and warranties of the Company and
the Selling Shareholders herein and as to the performance by the Company and the
Selling Shareholders of their obligations hereunder.
(m) The Shares shall have been approved for trading upon official notice of
issuance on the Nasdaq National Market System.
(n) Each of the Lockup Agreements described in Section 5(n) shall be in
full force and effect as of the Closing Date (and, if applicable, the Option
Closing Date).
All such opinions, certificates, letters and documents will be in compliance
with the provisions hereof only if they are reasonably satisfactory to you and
to Ropes & Gray, counsel for the several Underwriters. The Company and Selling
Shareholders will furnish you with such conformed copies of such opinions,
certificates, letters and documents as you may request.
If any of the conditions specified above in this Section 6 shall not have been
satisfied at or prior to the Closing Date (and, if applicable, the Option
Closing Date) or waived by you in writing, this Agreement may be terminated by
you on notice to the Company and the Selling Shareholders.
7. INDEMNIFICATION.
(a) The Company and each Selling Shareholder listed on Schedule IV hereto
(the "Principal Selling Shareholders") agree, jointly and severally, to
indemnify and hold harmless each Underwriter and each person, if any, who
controls any Underwriter within the meaning of the Act, against any losses,
claims, damages or liabilities, joint or several, to which such Underwriter or
such controlling person may become subject, under the Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon an untrue statement or alleged untrue statement
of a material fact contained in the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement thereto, or in any
blue sky application or other document executed by the Company or based on any
information furnished in writing by the Company, filed in any jurisdiction in
order to qualify any or all of the Shares under the securities laws thereof
("Blue Sky Application"), or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements
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therein, in light of the circumstances under which they were made, not
misleading; and will reimburse each Underwriter and each such controlling person
for any legal or other expenses reasonably incurred by such Underwriter or such
controlling person in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that neither the Company
nor any Principal Selling Shareholders shall be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in the Registration Statement, such Preliminary Prospectus or the
Prospectus, or such amendment or supplement, or any Blue Sky Application in
reliance upon and in conformity with written information furnished to the
Company by you or by any Underwriter through you, specifically for use in the
preparation thereof; and provided, further, that in no event shall the liability
of any such Principal Selling Shareholder for indemnification under this
subsection (a) exceed the proceeds received by such Principal Selling
Shareholder in the offering. This indemnity agreement shall be in addition to
any liabilities which the Company and each Principal Selling Shareholder,
respectively, may otherwise have.
(b) Each Selling Shareholder (other than a Principal Selling Shareholder)
agrees, jointly and not severally, to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of the Act, against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter or controlling person may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or any Blue Sky Application or arise out of or
are based upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission was
made in the Registration Statement, such Preliminary Prospectus or the
Prospectus, or such amendment or supplement, or any Blue Sky Application, in
reliance upon and in conformity with written information furnished to the
Company or any Underwriter by such Selling Shareholder specifically for use in
the preparation thereof; and will reimburse any legal or other expenses
reasonably incurred by each Underwriter and each person, if any, who controls
any Underwriter within the meaning of the Act, in connection with investigating
or defending any such loss, claim, damage, liability or action; provided,
--------
however, that in no event shall the liability of any such Selling Shareholder
- -------
for indemnification under this subsection (b) exceed the proceeds received by
such Selling Shareholder in the offering. This indemnity agreement shall be in
addition to any liabilities which the Selling Shareholders may otherwise have.
(c) Each Underwriter agrees, jointly and not severally, to indemnify and
hold harmless the Company, each of its directors, each of its officers who have
signed the Registration Statement and, each person, if any, who controls the
Company within the meaning of the Act, and each Selling Shareholder, against any
losses, claims, damages or
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<PAGE>
liabilities, joint or several, to which the Company or any such director,
officer or controlling person or any such Selling Shareholder may become
subject, under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the Registration Statement, any Preliminary Prospectus, the Prospectus, any
amendment or supplement thereto, or any Blue Sky Application or arise out of or
are based upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission was
made in the Registration Statement, such Preliminary Prospectus or the
Prospectus, such amendment or supplement, or any Blue Sky Application in
reliance upon and in conformity with written information furnished to the
Company by such Underwriter specifically for use in the preparation thereof; and
will reimburse any legal or other expenses reasonably incurred by the Company or
any such director, officer or controlling person or any such Selling Shareholder
in connection with investigating or defending any such loss, claim, damage,
liability or action. This indemnity agreement shall be in addition to any
liabilities which the Underwriters may otherwise have.
(d) Any party which proposes to assert the right to be indemnified under
this Section 7 shall, within ten days after receipt of notice of commencement of
any action, suit or proceeding against such party in respect of which a claim is
to be made against an indemnifying party under this Section 7, notify each such
indemnifying party of the commencement of such action, suit or proceeding,
enclosing a copy of all papers served, but the omission so to notify such
indemnifying party of any such action, suit or proceeding shall not relieve such
indemnifying party from any liability which it may have to any indemnified party
otherwise than under this Section 7. In case any such action, suit or
proceeding shall be brought against any indemnified party and it shall notify
the indemnifying party of the commencement thereof, the indemnifying party shall
be entitled to participate in, and, to the extent that it shall wish, jointly
with any other indemnifying party, similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party, and
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party for any legal or other expenses, other than
reasonable costs of investigation, subsequently incurred by such indemnified
party in connection with the defense thereof. The indemnified party shall have
the right to employ its own counsel in any such action, but the fees and
expenses of such counsel shall be at the expense of such indemnified party
unless (i) the employment of counsel by such indemnified party at the expense of
the indemnifying party has been authorized by the indemnifying party, (ii) the
indemnified party shall have been advised by such counsel in a written opinion
that there may be a conflict of interest between the indemnifying party and the
indemnified party in the conduct of the defense, or certain aspects of the
defense, of such action (in which case the indemnifying party shall not have the
right to direct the defense of such action with respect to those matters or
aspects of the defense on which a conflict exists or may exist on behalf of the
indemnified party), or (iii) the
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<PAGE>
indemnifying party shall not in fact have employed counsel to assume the defense
of such action, in any of which events such fees and expenses to the extent
applicable shall be borne by the indemnifying party. It is understood, however,
that the indemnifying parties shall, in connection with any one such action,
suit or proceeding or separate but substantially similar or related actions,
suits or proceedings in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and expenses of
only one separate firm of attorneys (in addition to any local counsel) at any
time for all indemnified parties not having actual or potential differing
interests among themselves, which firm shall be designated in writing by A.G.
Edwards & Sons, Inc. An indemnifying party shall not be liable for any
settlement of any action or claim effected without its consent. Each indemnified
party, as a condition of such indemnity, shall cooperate in good faith with the
indemnifying party in the defense of any such action or claim.
(e) If the indemnification provided for in this Section 7 is for any
reason, other than pursuant to the terms thereof, judicially determined (by the
entry of a final judgment or decree by a court of competent jurisdiction and the
expiration of time to appeal or the denial of the last right to appeal) to be
unavailable to an indemnified party under subsections (a), (b) or (c) above in
respect of any losses, claims, damages or liabilities (or actions in respect
thereof) referred to therein, then each indemnifying party shall, in lieu of
indemnifying such indemnified party, contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions in respect thereof) in such proportion as is appropriate
to reflect the relative benefits received by the Company, the Selling
Shareholders and the Underwriters from the offering of the Shares. If, however,
the allocation provided by the immediately preceding sentence is not permitted
by applicable law, then each indemnifying party shall contribute to such amount
paid or payable by such indemnified party in such proportion as is appropriate
to reflect not only such relative benefits but also the relative fault, as
applicable, of the Company, the Selling Shareholders and the Underwriters in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions in respect thereof), as well as other
relevant equitable considerations. The relative benefits received by, as
applicable, the Company, the Selling Shareholders, and the Underwriters shall be
deemed to be in the same proportion as the total net proceeds from the offering
(before deducting expenses) received by the Company and the Selling Shareholders
bear to the total underwriting discounts and commissions received by the
Underwriters, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault shall be determined by reference to, among other
things, whether the untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company, the Selling Shareholders or the Underwriters and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Company, the Selling Shareholders and the
Underwriters agree that it would not be just and equitable if contributions
pursuant to this subsection (e) were determined by pro rata allocation (even if
the Underwriters were treated as one entity for such purpose) or by any other
method of allocation which does not take account of the equitable considerations
referred to above in this subsection (e). The amount paid or payable
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<PAGE>
by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions in respect thereof) referred to above in this subsection
(e) shall be deemed to include any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this subsection (e), (i) no
Underwriter shall be required to contribute any amount in excess of the
underwriting discounts and commissions applicable to the Shares purchased by
such Underwriter and (ii) no Selling Shareholder shall be required to contribute
more than the net proceeds received by such Selling Shareholder in the offering.
No person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations in
this subsection (e) to contribute are several in proportion to their respective
underwriting obligations and not joint.
8. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. All
representations, warranties, and agreements of the Company and the Selling
Shareholders contained in Sections 7 and 11 herein or in certificates delivered
pursuant hereto, and the agreements of the Underwriters contained in Section 7
hereof, shall remain operative and in full force and effect regardless of any
termination or cancellation of this Agreement or any investigation made by or on
behalf of any Underwriter or any controlling person, the Company or any of its
officers, directors or any controlling persons, or the Selling Shareholders, and
shall survive delivery of the Shares to the Underwriters hereunder.
9. SUBSTITUTION OF UNDERWRITERS.
(a) If any Underwriter shall default in its obligation to purchase the
Shares which it has agreed to purchase hereunder, you may in your discretion
arrange for you or another party or other parties to purchase such Shares on the
terms contained herein. If within thirty-six hours after such default by any
Underwriter you do not arrange for the purchase of such Shares, then the Company
and the Selling Shareholders shall be entitled to a further period of thirty-six
hours within which to procure another party or parties reasonably satisfactory
to you to purchase such Shares on such terms. In the event that, within the
respective prescribed periods, you notify the Company and the Selling
Shareholders that you have so arranged for the purchase of such Shares, or the
Company and the Selling Shareholders notify you that they have so arranged for
the purchase of such Shares, you or the Company and the Selling Shareholders
shall have the right to postpone the Closing Date for a period of not more than
seven days, in order to effect whatever changes may thereby be made necessary in
the Registration Statement or the Prospectus, or in any other documents or
arrangements, and the Company agrees to file promptly any amendments to the
Registration Statement or the Prospectus which in your opinion may thereby be
made necessary. The term "Underwriter" as used in this Agreement shall include
any persons substituted under this Section 9 with like effect as if such person
had originally been a party to this Agreement with respect to such Shares.
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<PAGE>
(b) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters made by you or the Company
and the Selling Shareholders as provided in subsection (a) above, the aggregate
number of Shares which remains unpurchased does not exceed one tenth of the
total Shares to be sold on the Closing Date, then the Company and the Selling
Shareholders shall have the right to require each non-defaulting Underwriter to
purchase the Shares which such Underwriter agreed to purchase hereunder and, in
addition, to require each non-defaulting Underwriter to purchase its pro rata
share (based on the number of Shares which such Underwriter agreed to purchase
hereunder) of the Shares of such defaulting Underwriter or Underwriters for
which such arrangements have not been made; but nothing herein shall relieve a
defaulting Underwriter from liability for its default.
(c) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters made by you or the Company
and the Selling Shareholders as provided in subsection (a) above, the number of
Shares which remains unpurchased exceeds one tenth of the total Shares to be
sold on the Closing Date, or if the Company and the Selling Shareholders shall
not exercise the right described in subsection (b) above to require the non-
defaulting Underwriters to purchase Shares of the defaulting Underwriter or
Underwriters, then this Agreement shall thereupon terminate, without liability
on the part of any non-defaulting Underwriter or the Company and the Selling
Shareholders except for the expenses to be borne by the Company and the
Underwriters as provided in Section 11 hereof and the indemnity and contribution
agreements in Section 7 hereof; but nothing herein shall relieve a defaulting
Underwriter from liability for its default.
10. EFFECTIVE DATE AND TERMINATION.
(a) This Agreement shall become effective at 1:00 p.m., St. Louis time, on
the first business day following the effective date of the Registration
Statement, or at such earlier time on or after the Effective Date as you in your
discretion shall first release the Shares for offering to the public; provided,
--------
however, that the provisions of Section 7 and 11 shall at all times be
- -------
effective. For the purposes of this Section 10(a), the Shares shall be deemed
to have been released to the public upon release by you of the publication of a
newspaper advertisement relating to the Shares or upon release of telegrams,
facsimile transmissions or letters offering the Shares for sale to securities
dealers, whichever shall first occur.
(b) This Agreement may be terminated by you at any time before it becomes
effective in accordance with Section 10(a) by notice to the Company and the
Selling Shareholders; provided, however, that the provisions of this Section 10
-------- -------
and of Section 7 and Section 11 hereof shall at all times be effective. In the
event of any termination of this Agreement pursuant to Section 9 or this Section
10(b) hereof, the Company and the Selling Shareholders shall not then be under
any liability to any Underwriter except as provided in Section 7 or Section 11
hereof.
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<PAGE>
(c) This Agreement may be terminated by you at any time at or prior to the
Closing Date by notice to the Company and the Selling Shareholders if any
condition specified in Section 6 hereof shall not have been satisfied on or
prior to the Closing Date. Any such termination shall be without liability of
any party to any other party except as provided in Sections 7 and 11 hereof.
(d) This Agreement also may be terminated by you, by notice to the Company
and the Selling Shareholders, as to any obligation of the Underwriters to
purchase the Option Shares, if any condition specified in Section 6 hereof shall
not have been satisfied at or prior to the Option Closing Date or as provided in
Section 9 of this Agreement. If you terminate this Agreement as provided in
Sections 10(b), 10(c) or 10(d), you shall notify the Company and the Selling
Shareholders by telephone or telegram, confirmed by letter.
11. COSTS AND EXPENSES. The Company will bear and pay the costs and
expenses incident to the registration of the Shares and public offering thereof,
including, without limitation, (a) the fees and expenses of the Company's
accountants and the fees and expenses of counsel for the Company, (b) the
preparation, printing, filing, delivery and shipping of the Registration
Statement, each Preliminary Prospectus, the Prospectus and any amendments or
supplements thereto (except as otherwise expressly provided in Section 5(d)
hereof) and the printing, delivery and shipping of this Agreement, the Agreement
Among Underwriters, the Selected Dealer Agreement, Underwriters' Questionnaires
and Powers of Attorney and Blue Sky Memoranda, (c) the furnishing of copies of
such documents (except as otherwise expressly provided in Section 5(d) hereof)
to the Underwriters, (d) the registration or qualification of the Shares for
offering and sale under the securities laws of the various states, including the
reasonable fees and disbursements of Underwriters' counsel relating to such
registration or qualification, (e) the fees payable to the NASD and the
Commission in connection with their review of the proposed offering of the
Shares, (f) all printing and engraving costs related to preparation of the
certificates for the Shares, including transfer agent and registrar fees, (g)
all initial transfer taxes, if any, (h) all fees and expenses relating to the
authorization of the Shares for trading on the Nasdaq National Market System,
(i) all travel expenses, including air fare and accommodation expenses, of
representatives of the Company in connection with the offering of the Shares and
(j) all of the other costs and expenses incident to the performance by the
Company of the registration and offering of the Shares; provided, however, that
-------- -------
the Underwriters will bear and pay the fees and expenses of the Underwriters'
counsel (other than fees and disbursements relating to the registration or
qualification of the Shares for offering and sale under the securities laws of
the various states), the Underwriters' out-of-pocket expenses, and any
advertising costs and expenses incurred by the Underwriters incident to the
public offering of the Shares; and provided, further, that the Company will bear
and pay the fees and expenses of the Selling Shareholders' counsel.
If this Agreement is terminated by you in accordance with the provisions of
Section 10(c), the Company shall reimburse the Underwriters for all of their
out-of-pocket expenses, including the reasonable fees and disbursements of
counsel to the Underwriters.
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<PAGE>
12. DEFAULT OF SELLING SHAREHOLDERS. Failure or refusal by any of the
Selling Shareholders to sell and deliver on the Closing Date the Shares agreed
to be sold and delivered by such Selling Shareholder shall in no manner relieve
the other Selling Shareholders or the Company of their respective obligations
under this Agreement. If any Selling Shareholder should fail or refuse to sell
and deliver his Shares, the remaining Selling Shareholders shall have the right
hereby granted to increase, pro rata or otherwise, the number of Shares to be
sold by them hereunder to the total number of Shares to be sold by all Selling
Shareholders as set forth in Schedule I. If the remaining Selling Shareholders
do not fully exercise the right to increase the number of Shares to be sold by
them, the Underwriters, at your option, will have the right to elect to purchase
or not to purchase the Shares to be sold by the Company and the remaining
Selling Shareholders. In the event the Underwriters purchase the Shares of the
Company and such other Selling Shareholders pursuant to this Section 12, the
Closing Date shall be postponed for a period of not more than seven days in
order that the Registration Statement and Prospectus or other documents may be
amended or supplemented to the extent necessary under the provisions of the Act
and the Rules and Regulations or under the securities laws of any jurisdiction.
If the Underwriters determine not to purchase the Shares of the Company and the
other Selling Shareholders, if any, this Agreement shall terminate and neither
the Company nor the Underwriters nor any other Selling Shareholder shall be
under any obligation under this Agreement except as provided in Section 7 hereof
and except for the obligation of the Company to pay for such expenses as are set
forth in Section 11 hereof. Nothing herein shall relieve a defaulting Selling
Shareholder from liability for his default or from liability under Section 7
hereof or for expenses imposed by this Agreement upon such Selling Shareholder.
13. NOTICES. All notices or communications hereunder, except as herein
otherwise specifically provided, shall be in writing and if sent to the
Underwriters shall be mailed, delivered, sent by facsimile transmission, or
telegraphed and confirmed c/o A.G. Edwards & Sons, Inc. at One North Jefferson
Avenue, St. Louis, Missouri 63103, Attention: Syndicate, facsimile number (314)
955-7387, or if sent to the Company shall be mailed, delivered, sent by
facsimile transmission, or telegraphed and confirmed to the Company at World of
Science, Inc., Building Four, 900 Jefferson Road, Rochester, NY 14623,
Attention: ________________, facsimile number (716) 475-1370, or if sent to any
Selling Shareholder shall be mailed, delivered, sent by facsimile transmission
or telegraphed and confirmed to such Selling Shareholder, c/o the Attorney-in-
Fact at _______________. Notice to any Underwriter pursuant to Section 7 shall
be mailed, delivered, sent by facsimile transmission, or telegraphed and
confirmed to such Underwriter's address as it appears in the Underwriters'
Questionnaire furnished in connection with the offering of the Shares or as
otherwise furnished to the Company and the Selling Shareholder.
14. PARTIES. This Agreement shall inure to the benefit of and be binding
upon the Underwriters and the Selling Shareholders, and the Company and their
respective successors and assigns. Nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any person, corporation or
other entity, other than the parties hereto and
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their respective successors and assigns and the controlling persons, officers
and directors referred to in Section 7, any legal or equitable right, remedy or
claim under or in respect of this Agreement or any provision herein contained;
this Agreement and all conditions and provisions hereof being intended to be and
being for the sole and exclusive benefit of the parties hereto and their
respective successors and assigns and said controlling persons and said officers
and directors, and for the benefit of no other person, corporation or other
entity. No purchaser of any of the Shares from any Underwriter shall be
construed a successor or assign by reason merely of such purchase.
In all dealings with the Company and the Selling Shareholders under this
Agreement you shall act on behalf of each of the several Underwriters, the
Company, and the Selling Shareholders shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of the Underwriters, made or
given by you on behalf of the Underwriters, as if the same shall have been made
or given in writing by the Underwriters.
15. COUNTERPARTS. This Agreement may be executed by any one or more of
the parties hereto in any number of counterparts, each of which shall be deemed
to be an original, but all such counterparts shall together constitute one and
the same instrument.
16. PRONOUNS. Whenever a pronoun of any gender or number is used herein,
it shall, where appropriate, be deemed to include any other gender and number.
17. APPLICABLE LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Missouri.
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If the foregoing is in accordance with your understanding, please so indicate in
the space provided below for that purpose, whereupon this letter shall
constitute a binding agreement among the Company, each of the Selling
Shareholders and the Underwriters.
WORLD OF SCIENCE, INC.
By: _____________________________
Title: _____________________________
Selling Shareholders Named in Schedule I Hereto
By: _______________________________
Attorney-in-Fact
Accepted in St. Louis,
Missouri as of the date
first above written, on
behalf of ourselves and each
of the several Underwriters
named in Schedule II hereto.
A.G. EDWARDS & SONS, INC.
RAYMOND JAMES & ASSOCIATES, INC.
By: A.G. EDWARDS & SONS, INC.
By: ____________________________________
Title: __________________________________
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<PAGE>
SCHEDULE I
Number of
Selling Shareholders Firm Shares
- -------------------- -----------
____________________________ _____
____________________________ _____
____________________________ _____
____________________________ _____
____________________________ _____
____________________________ _____
____________________________ _____
____________________________ _____
____________________________ _____
____________________________ _____
____________________________ _____
____________________________ _____
____________________________ _____
____________________________ _____
____________________________ _____
____________________________ _____
____________________________ _____
Total _____
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SCHEDULE II
Name Number of Shares
- ---- ----------------
A.G. Edwards & Sons, Inc.
Raymond James & Associates, Inc.
____________________________ _____
____________________________ _____
____________________________ _____
____________________________ _____
____________________________ _____
____________________________ _____
____________________________ _____
____________________________ _____
____________________________ _____
____________________________ _____
____________________________ _____
____________________________ _____
____________________________ _____
____________________________ _____
____________________________ _____
____________________________ _____
____________________________ _____
Total _____
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SCHEDULE III
Pursuant to Section 6(g) of the Underwriting Agreement, KPMG Peat
Marwick, LLP shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with respect to
the Company within the meaning of the Act and the applicable Rules and
Regulations thereunder.
(ii) In their opinion, the financial statements and any supplementary
financial information and schedules audited (and, if applicable,
prospective financial statements and/or pro forma financial information
examined) by them and included in the Prospectus or the Registration
Statement comply as to form in all material respects with the applicable
accounting requirements of the Act and the applicable Rules and Regulations
thereunder; and, if applicable, they have made a review in accordance with
standards established by the American Institute of Certified Public
Accountants ("AICPA") of the unaudited interim financial statements,
selected financial data, pro forma financial information, prospective
financial statements and/or condensed financial statements derived from
audited financial statements of the Company for the periods specified in
such letter, as indicated in their reports thereon, copies of which have
been furnished to the Representatives of the Underwriters (the
"Representatives").
(iii) On the basis of limited procedures, not constituting an audit in
accordance with generally accepted auditing standards, consisting of a
reading of the unaudited financial statements and other information
referred to below, performing the procedures specified by the AICPA for a
review of interim financial information as discussed in SAS No. 71, Interim
Financial Information, on the latest available interim financial statements
of the Company, inspection of the minute books of the Company since the
date of the latest audited financial statements included in the Prospectus,
inquiries of officials of the Company responsible for financial and
accounting matters and such other inquiries and procedures as may be
specified in such letter, nothing came to their attention that caused them
to believe that:
(A) any material modifications should be made to the unaudited
statements of consolidated income, statements of financial position
and statements of consolidated cash flows included in the Prospectus
for them to be in conformity with generally accepted accounting
principles, or the unaudited statements of income, statements of
consolidated financial position and statements of cash flows included
in the Prospectus do not comply as to form in all material respects
with the applicable accounting requirements of the Act and the related
published Rules and Regulations thereunder.
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(B) any other unaudited income statement data and balance sheet items
included in the Prospectus do not agree with the corresponding items
in the unaudited financial statements from which such data and items
were derived, and any such unaudited data and items were not
determined on a basis substantially consistent with the basis for the
corresponding amounts in the audited financial statements included in
the Prospectus.
(C) the unaudited financial statements which were not included in the
Prospectus but from which were derived any unaudited condensed
financial statements referred to in Clause (A) and any unaudited
income statement data and balance sheet items included in the
Prospectus and referred to in Clause (B) were not determined on a
basis substantially consistent with the basis for the audited
financial statements included in the Prospectus.
(D) any unaudited pro forma condensed financial statements included in
the Prospectus do not comply as to form in all material respects with
the applicable accounting requirements of the Act and the published
rules and regulations thereunder or the pro forma adjustments have not
been properly applied to the historical amounts in the compilation of
those statements.
(E) as of a specified date not more than five days prior to the date
of such letter, there have been any changes in the capital stock or
any increase in the long-term debt of the Company, or any decreases in
working capital, net current assets or net assets or other items
specified by the Representatives, or any changes in any items
specified by the Representatives, in each case as compared with
amounts shown in the latest balance sheet included in the Prospectus,
except in each case for changes, increases or decreases which the
Prospectus discloses have occurred or may occur or which are described
in such letter.
(F) for the period from the date of the latest financial statements
included in the Prospectus to the specified date referred to in
Clause (E) there were any decreases in net revenues or operating
profit or the total or per share amounts of net income or any other
changes in any other items specified by the Representatives, in each
case as compared with the comparable period of the preceding year and
with any other period of corresponding length specified by the
Representatives, except in each case for changes, decreases or
increases which the Prospectus discloses have occurred or may occur or
which are described in such letter.
(iv) In addition to the audit referred to in their report(s) included
in the Prospectus and the limited procedures, inspection of minute books,
inquiries and other procedures referred to in paragraph (iii) above, they
have carried out certain specified
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procedures, not constituting an audit in accordance with generally accepted
auditing standards, with respect to certain amounts, percentages and
financial information specified by the Representatives, which are derived
from the general accounting records of the Company for the periods covered
by their reports and any interim or other periods since the latest period
covered by their reports, which appear in the Prospectus, or in Part II of,
or in exhibits and schedules to, the Registration Statement specified by
the Representative, and have compared certain of such amounts, percentages
and financial information with the accounting records of the Company and
have found them to be in agreement.
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SCHEDULE IV
PRINCIPAL SELLING SHAREHOLDERS
- ------------------------------
- ------------------------------
- ------------------------------
- ------------------------------
- ------------------------------
- ------------------------------
- ------------------------------
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EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
WORLD OF SCIENCE, INC.
UNDER SECTION 402 OF THE BUSINESS CORPORATION LAW
The undersigned, for the purpose of forming a corporation pursuant to
Section 402 of the New York Business Corporation Law, hereby certifies:
1. The name of the Corporation is WORLD OF SCIENCE, INC.
2. The purpose for which it is formed is to engage in any lawful act or
activity for which a corporation may be organized under the Business Corporation
Law, provided that the Corporation is not formed to, nor will it, engage in any
act or activity requiring the consent or approval of any state official,
department, board, agency or other body without such consent or approval first
being obtained.
3. The office of the Corporation is to be located in Monroe County, New
York State.
4. A. Classes and Series of Capital Stock. The total number of shares
-----------------------------------
which the Corporation is authorized to issue is Fifteen Million (15,000,000)
shares, of which Ten Million (10,000,000) shares shall be Common Stock, with a
par value of $.01 per share, and Five Million (5,000,000) shares shall be
Preferred Stock, with a par value of $.01 per share.
B. Designations, Powers, Preferences, Rights, Qualifications,
----------------------------------------------------------
Limitations and Restrictions Relating to the Capital Stock. The following is a
- ----------------------------------------------------------
statement of the designations, powers, preferences and rights in respect of the
classes of the capital stock of the Corporation, and the qualifications,
limitations or restrictions thereof, and of the authority with respect thereto
expressly vested in the Board of Directors of the Corporation (the "Board of
Directors"):
1. Preferred Stock. The Preferred Stock may be issued from time to
---------------
time in one or more series, the number of shares of Preferred Stock and any
designation of each series and the powers, preferences and rights of the shares
of Preferred Stock of each series, and the qualifications, limitations or
restrictions thereof, to be as stated and expressed in a resolution or
resolutions providing for the issue of such series adopted by the Board of
Directors, subject to the limitations prescribed by law. The Board of Directors
in any such resolution or resolutions is expressly authorized to state for each
such series: (i) The voting powers, if any, of the holders of Preferred Stock
of such series; (ii) The rate per annum and the times at and conditions upon
which the holders of Preferred Stock of such series shall be entitled to receive
dividends, and whether such dividends shall be cumulative or non-cumulative and,
if cumulative, the terms upon which such dividends shall be cumulative; (iii)
The price or prices and the time or times at and the manner in which the
Preferred Stock of such series shall be redeemable, if redeemable; (iv) The
rights to which the holders of the shares of Preferred Stock of such series
shall be entitled upon any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation; (v) The terms, if any, upon which shares of
Preferred Stock of such series shall be convertible into, or exchangeable for,
shares of capital stock of any other class or classes or of any other series of
the same or any other class or classes, including the price or prices or the
rate or rates of conversion or exchange and the terms of adjustment, if any; and
(vi) Any other designations, preferences, and relative, participating, optimal
or other special rights, and qualifications, limitations or restrictions thereof
to the full extent now or hereafter permitted by the laws of New York State and
the provisions of this Certificate of Incorporation. The Board of Directors is
also expressly authorized to increase or decrease (but not below the number of
shares of such series then outstanding) the number of shares of any series
subsequent to the issue of shares of that series. In case the number of shares
of any such series shall be so decreased, the shares constituting such decrease
shall resume the status that they had prior to the adoption of the resolution
originally fixing
<PAGE>
the number of shares of such series. All shares of the Preferred Stock of any
one series shall be identical to each other in all respects, except that shares
of any one series issued at different times may differ as to the dates from
which dividends thereon, if cumulative, shall be cumulative.
2. Common Stock. All shares of Common Stock shall be identical with
------------
each other in every respect. The shares of Common Stock shall entitle the
holders thereof to one vote for each share upon all matters upon which
shareholders have the right to vote. Subject to the preferences, privileges and
powers with respect to each class of capital stock of the Corporation having any
priority over the Common Stock, and the restrictions and qualifications thereof,
the holders of the Common Stock shall have and possess all rights pertaining to
capital stock of the Corporation.
No holder of shares of Common Stock shall be entitled as such, as a matter of
preemptive right, to subscribe for, purchase or otherwise acquire any part of
any new or additional issue of stock of any class whatsoever of the Corporation,
or of securities convertible into stock of any class whatsoever of the
Corporation, or of any warrants or other instruments evidencing rights or
options to subscribe for, purchase or otherwise acquire such stock or
securities, whether now or hereafter authorized or whether issued for cash or
other consideration or by way of dividend.
5. Board of Directors
------------------
A. Number of Directors. The number of directors of the Corporation
-------------------
shall not be less than three (3) nor more than twelve (12), the exact number to
be fixed from time to time by the Board of Directors.
B. Classification of Board. The Board of Directors shall be divided
-----------------------
into three classes in respect of term of office, each class to contain as near
as may be one-third of the whole number of the total number of directors, with
the terms of office of one class expiring each year. At each annual meeting of
stockholders, one class of directors shall be elected to serve until the annual
meeting of stockholders held three years next following and until their
successors shall be elected and shall qualify.
C. Vacancies. Newly created directorships and Board of Director
---------
vacancies resulting from death, removal, or other causes shall only be filled by
a majority vote of the remaining directors.
D. Powers of the Board of Directors. In furtherance and not in
--------------------------------
limitation of the powers conferred by statute, the Board of Directors is
expressly authorized to make, alter, amend, rescind or repeal from time to time
any of the By-laws of the Corporation, provided, however, that any By-law made
by the Board of Directors may be altered, amended, or repealed by the holders of
not less than a majority of the capital stock of the Corporation entitled to
vote thereon at any annual meeting or at any special meeting called for that
purpose. Notwithstanding the foregoing, the provisions of Article II, Section
3; Article III, Sections 1 through 4; and Article IX of the By-Laws of the
Corporation shall only be altered, amended, rescinded or repealed by (A) vote of
a majority of the entire Board of Directors of the Corporation or (B) the
affirmative vote of the holders of not less than seventy-five percent (75%) of
the shares of each class of the capital stock of the Corporation entitled to
vote.
6. Supermajority Provisions
------------------------
A. Removal of Directors. Directors may not be removed without
--------------------
cause. Directors may be removed for cause at any time by a vote of a majority
of the entire Board of Directors or by the holders of not less than seventy-five
percent (75%) of the outstanding shares of capital stock entitled to vote for
the election of directors.
<PAGE>
B. Amendments. The provisions set forth in Paragraph 5 or this
----------
Paragraph 6 may not be altered, amended, rescinded, or repealed in any respect
unless such action is approved by the affirmative vote of the holders of not
less than seventy-five percent (75%) of the outstanding shares of each class of
the Corporation's capital stock entitled to vote.
7. Registered Office and Agent. The Secretary of State of the State of
---------------------------
New York is hereby designated as the agent of the Corporation upon whom process
in any action or proceeding against it may be served and the address to which
the Secretary of State shall mail a copy of process in any action or proceeding
against the corporation which may be served upon him is 900 Jefferson Road,
Building Four, Rochester, New York 14623.
8. Limitation of Director Liability No director of the Corporation shall
--------------------------------
be personally liable to the Corporation or its shareholders for damages for any
breach of duty in such capacity except where a judgment or other final
adjudication adverse to said director establishes: that the director's acts or
omissions were in bad faith or involved intentional misconduct or a knowing
violation of law; that the director personally gained a financial profit or
other advantage to which he or she was not entitled; or that the director's acts
violated Section 719 of the New York Business Corporation Law.
<PAGE>
EXHIBIT 3.2
BY-LAWS
OF
WORLD OF SCIENCE, INC.
(AS AMENDED THROUGH APRIL ____, 1997)
ARTICLE I -- OFFICES
Section 1. Registered Office. The registered office of World of Science,
--------- -----------------
Inc. (the "Corporation") shall be in the City of Rochester, County of Monroe,
State of New York.
Section 2. Other Offices. The Corporation may also have offices at such
--------- -------------
other places both within and without the State of New York as the Board of
Directors may from time to time determine.
ARTICLE II -- MEETINGS OF STOCKHOLDERS.
Section 1 Place of Meeting. Meetings of the stockholders shall be held at
--------- ----------------
such time and place, either within or without the State of New York, as shall be
designated from time to time by the Board of Directors.
Section 2. Annual Meetings. The annual meeting of stockholders shall be
--------- ---------------
held on such date and at such time as shall be designated from time to time by
the Board of Directors, at which meetings the stockholders shall elect, in
accordance with Article III of these By-laws, by a plurality vote those
Directors belonging to the class or classes of directors to be elected at such
meeting, and transact such other business as may properly be brought before the
meeting.
Section 3. Special Meetings. Unless otherwise prescribed by law or by the
--------- ----------------
Restated Certificate of Incorporation (the "Certificate of Incorporation"),
special meetings of stockholders may be called only by the President, Chairman
or a Co-Chairman of the Board, if there be one, pursuant to a resolution adopted
by a majority of the entire Board of Directors, or the holders of 75% of the
outstanding stock of the Corporation entitled to vote on an issue proposed to be
considered at the special meeting. Notice of any special meeting shall indicate
that it is being issued by or at the direction of the person or persons calling
the special meeting and shall state the purposes for which such special meeting
is called. Business transacted at all special meetings shall be confined to the
matters specified in the notice of the meeting.
Section 4. Notice of Meetings. Except as otherwise provided by law,
--------- ------------------
written notice of each meeting of the stockholders, whether annual or special,
shall be given, either by personal delivery or by first class mail, not less
than 10 nor more than 50 days before the date of the meeting to each stockholder
of record entitled to notice of the meeting. If mailed, such notice shall be
deemed given when deposited in the United States mail, postage prepaid, directed
to the stockholder at such stockholder's address as it appears on the records of
the Corporation. Each such notice shall state the place, date and hour of the
meeting. Notice of any meeting of stockholders shall not be required to be given
to any stockholder who shall attend such meeting in person or by proxy without
protesting prior to the conclusion of the meeting the lack of proper notice to
such stockholder, or who shall in writing waive notice thereof. Notice of
adjournment of a meeting of stockholders need not be given if the time and place
to which it is adjourned are announced at such meeting, unless the adjournment
is for more than 30 days or, after adjournment, a new record date is fixed for
the adjourned meeting.
Section 5. Quorum. Except as otherwise provided by law or by the
--------- ------
Certificate of Incorporation, the holders of a majority of the capital stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business. If, however, such quorum shall not
be present or represented at any meeting of the stockholders, the stockholders
entitled to vote thereat, present in
<PAGE>
person or represented by proxy, shall have power to adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be presented or represented. At such adjourned meeting at which a
quorum shall be presented or represented, any business may be transacted which
might have been transacted at the meeting as originally noticed. If the
adjournment is for more than 30 days, or if after the adjournment a new record
date is fixed for the adjourned meeting, a notice of the adjourned meeting shall
be given to each stockholder entitled to vote at the meeting.
Section 6. Voting. Unless otherwise provided by law or by the Certificate
--------- ------
of Incorporation, each stockholder of record of Common Stock shall be entitled
at each meeting of stockholders to one vote for each share of such stock, in
each case, registered in such stockholder's name on the books of the Corporation
(1) on the date fixed pursuant to Section 5 of Article V of these By-laws as the
record date for the determination of stockholders entitled to notice of and to
vote at such meeting; or (2) if no such record date shall have been so fixed,
then at the close of business on the day next preceding the day on which notice
of such meeting is given, or, if notice is waived, at the close of business on
the day on which the meeting is held. At each meeting of the stockholders, all
corporate actions to be taken by vote of the stockholders (except as otherwise
required by law and except as otherwise provided in the Certificate of
Incorporation or these By-laws) shall be authorized by a majority of the votes
cast affirmatively or negatively by the stockholders entitled to vote thereon
who are present in person or represented by proxy, and where a separate vote by
class is required, a majority of the votes cast affirmatively or negatively by
the stockholders of such class who are present in person or represented by proxy
shall be the act of such class. Unless required by law or determined by the
Chairman of the meeting to be advisable, the vote on any matter, including the
election of directors, need not be by written ballot. In the case of a vote by
written ballot, each ballot shall be signed by the stockholder voting, or by
such stockholder's proxy, and shall state the number of shares voted.
Section 7. List of Stockholders Entitled to Vote. The officer of the
--------- -------------------------------------
Corporation who has charge of the stock ledger of the Corporation shall prepare
and make, at least ten days before every meeting of stockholders, a complete
list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder of the Corporation who is
present.
Section 8. Stock Ledger. The stock ledger of the Corporation shall be the
--------- ------------
only evidence as to who are the stockholders entitled to examine the stock
ledger, the list required by Section 7 of this Article II or the books of the
Corporation, or to vote in person or by proxy at any meeting of stockholders.
Section 9. Notice of Business. No business may be transacted at an annual
--------- ------------------
meeting of stockholders, other than business that is either (a) specified in the
notice of meeting (or any supplement thereto) given by or at the direction of
the Board of Directors (or any duly authorized committee thereof), (b) otherwise
properly brought before the annual meeting by or at the direction of the Board
of Directors (or any duly authorized committee thereof) or (c) otherwise
properly brought before the annual meeting by any stockholder of the Corporation
(i) who is a stockholder of record on the date of the giving of the notice
provided for in this Section 9 of this Article II and on the record date for the
determination of stockholders entitled to vote at such annual meeting and (ii)
who complies with the notice procedures set forth in this Section 9.
2
<PAGE>
In addition to any other applicable requirements, for business to be
properly brought before an annual meeting by a stockholder, such stockholder
must have given timely notice thereof in proper written form to the Secretary of
the Corporation.
To be timely, a stockholder's notice to the Secretary must be delivered to
or mailed and received at the principal executive offices of the Corporation not
less than 90 days nor more than 120 days in advance of the date of the
Corporation's proxy statement and notice released to stockholders in connection
with the immediately preceding annual meeting of stockholders; provided,
however, that in the event that the annual meeting is called for a date that is
not within 30 days before or the date contemplated by that notice, notice by the
stockholder in order to be timely must be so received not later than the close
of the business on the tenth day following the day on which such notice of the
date of the annual meeting was mailed or public disclosure of the date of the
annual meeting was made, whichever first occurs.
To be in proper written form, a stockholder's notice to the Secretary must
set forth as to each matter such stockholder proposes to bring before the annual
meeting (i) a brief description of the business proposed to be brought before
the annual meeting and the reasons for conducting such business at the annual
meeting, (ii) the name and record address of such stockholder, (iii) the class
or series and number of shares of capital stock of the Corporation which are
owned beneficially or of record by such stockholder, (iv) a description of all
arrangements or understandings between such stockholder and any other person or
persons (including their names) in connection with the proposal of such business
by such stockholder and any material interest of such stockholder in such
business and (v) a representation that such stockholder intends to appear in
person or by proxy at the annual meeting to bring such business before the
meeting.
No business shall be conducted at the annual meeting of stockholders except
business brought before the annual meeting in accordance with the procedures set
forth in this Section 9 of this Article II; provided, however, that, once
business has been properly brought before the annual meeting in accordance with
such procedures, nothing in this Section 9 of this Article II shall be deemed to
preclude discussion by any stockholder of any such business. If the Chairman of
an annual meeting determines that business was not properly brought before the
annual meeting in accordance with the foregoing procedures, the Chairman shall
declare to the meeting that the business was not properly brought before the
meeting and such business shall not be transacted or discussed.
ARTICLE III -- DIRECTORS
Section 1. Number of Directors. The business and affairs of the
--------- -------------------
Corporation shall be managed by or under the direction of a Board of Directors
consisting of a number of directors, divided into such classes and subject to
such other provisions as are set forth in the Certificate of Incorporation.
Except as otherwise provided in the Certificate of Incorporation, the exact
number of directors shall be fixed from time to time by the Board of Directors.
Section 2. Classified Board. The Board of Directors shall be divided into
--------- ----------------
three classes in respect of term of office, each class to contain as near as may
be one-third of the whole number of the total number of directors, with the
terms of office of one class expiring each year. At each annual meeting of
stockholders, one class of directors shall be elected to serve until the annual
meeting of stockholders held three years next following and until their
successors shall be elected and shall qualify.
Section 3. Nomination of Directors. Only persons who are nominated in
--------- -----------------------
accordance with the following procedures shall be eligible for election as
directors of the Corporation, except as may be otherwise provided in the
Certificate of Incorporation. Nominations of persons for election to the Board
3
<PAGE>
of Directors may be made at any annual meeting of stockholders or at any special
meeting of stockholders called for the purpose of electing directors, (a) by or
at the direction of the Board of Directors or Nominating Committee thereof or
(b) by any stockholder of the Corporation (i) who is a stockholder of record on
the date of the giving of the notice provided for in this Section 3 of this
Article III and on the record date for the determination of stockholders
entitled to vote at such meeting and (ii) who complies with the notice
procedures set forth in this Section 3 of this Article III.
In addition to any other applicable requirements, for a nomination to be
made by a stockholder, such stockholder must have given timely notice thereof in
proper written form to the Secretary of the Corporation.
To be timely, a stockholder's notice to the Secretary must be delivered to
or mailed and received at the principal executive offices of the Corporation (a)
in the case of an annual meeting, not less than 90 days nor more than 120 days
in advance of the date of the Corporation's proxy statement and notice released
to stockholders in connection with the immediately preceding annual meeting of
stockholders; provided, however, that in the event that the annual meeting is
called for a date that is not within 30 days before or the date contemplated by
that notice, notice by the stockholder in order to be timely must be so received
not later than the close of business on the tenth day following the day on which
such notice of the date of the annual meeting was mailed or public disclosure of
the date of the annual meeting was made, whichever first occurs; and (b) in the
case of a special meeting of stockholders called for the purpose of electing
directors, not later than the close of business on the tenth day following the
day on which public disclosure of the date of the special meeting was made.
To be in proper written form, a stockholder's notice to the Secretary must
set forth (a) as to each person whom the stockholder proposes to nominate for
election as a director (i) the name, age, business address and residence address
of the person, (ii) the principal occupation or employment of the person, (iii)
the class or series and number of shares of capital stock of the Corporation
which are owned beneficially or of record by the person and (iv) any other
information relating to the person that would be required to be disclosed in a
proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
and regulations promulgated thereunder; and (b) as to the stockholder giving the
notice (i) the name and record address of such stockholder, (ii) the class or
series and number of shares of capital stock of the Corporation which are owned
beneficially or of record by such stockholder, (iii) a description of all
arrangements or understandings between such stockholder and each proposed
nominee and any other person or persons (including their names) pursuant to
which the nomination(s) are to be made by such stockholder, (iv) a
representation that such stockholder intends to appear in person or by proxy at
the meeting to nominate the persons named in its notice and (v) any other
information relating to such stockholder that would be required to be disclosed
in a proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Exchange Act and the rules and regulations promulgated thereunder. Such notice
must be accompanied by a written consent of each proposed nominee to being named
as a nominee and to serve as a director if elected.
Subject to Section 5 of this Article III, no person shall be eligible for
election as a director of the Corporation unless nominated in accordance with
the procedures set forth in this Section 3 of this
Article III. If the Chairman of the meeting determines that a nomination was not
made in accordance with the foregoing procedures, the Chairman shall declare to
the meeting that the nomination was defective and such defective nomination
shall be disregarded.
Section 4. Removal of Directors. Directors of the Corporation may be
--------- --------------------
removed only as provided in Paragraph A of Article 6 of the Certificate of
Incorporation.
4
<PAGE>
Section 5. Vacancies and Newly Created Directorships. Any newly created
--------- -----------------------------------------
directorship resulting from an increase in the number of directors or any other
vacancy occurring in the Board of Directors may be filled by a majority vote of
the remaining directors, except as may be otherwise provided in the Certificate
of Incorporation. Any director of any class elected to fill a vacancy shall
hold office until the next meeting of stockholders at which the election of
directors is in the regular order of business, and until his or her successor
has been elected and shall qualify.
Section 6. Duties and Powers. The business of the Corporation shall be
--------- -----------------
managed by or under the direction of the Board of Directors, except as may be
otherwise provided by statute or by the Certificate of Incorporation.
Section 7. Meetings. The Board of Directors of the Corporation may hold
--------- --------
meetings, both regular and special, either within or without the State of New
York. Regular meetings of the Board of Directors may be held without notice at
such time and at such place as may from time to time be determined by the Board
of Directors. Special meetings of the Board of Directors may be called by the
Chairman or any Co-Chairman, if there be one, the Chief Executive Officer, the
President or any two directors. Notice thereof stating the place, date and hour
of the meeting shall be given to each director either by mail not less than 48
hours before the date of the meeting, by telephone, electronic facsimile or
telegram on 24 hours' notice, or on such shorter notice as the person or persons
calling such meeting may deem necessary or appropriate in the circumstances,
provided that notice need not be given to any director who shall, either before
or after the meeting, submit a signed waiver of such notice or who shall attend
such meeting without protesting, prior to or at its commencement, the lack of
notice to such director.
Section 8. Quorum. Except as may be otherwise specifically provided by
--------- ------
law, the Certificate of Incorporation or these By-laws, at all meetings of the
Board of Directors, one-half of the entire Board of Directors shall constitute a
quorum for the transaction of business, and the act of a majority of the
directors present at any meeting at which there is a quorum shall be the act of
the Board of Directors. If a quorum shall not be present at any meeting of the
Board of Directors, the directors present thereat may adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present.
Section 9 Actions of Board. Unless otherwise provided by the Certificate
--------- ----------------
of Incorporation or these Bylaws, any action required or permitted to be taken
at any meeting of the Board of Directors or of any committee thereof may be
taken without a meeting if all the members of the Board of Directors or
committee, as the case may be, consent thereto in writing and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
Section 10 Meetings by Means of Conference Telephone. Unless otherwise
---------- -----------------------------------------
provided by the Certificate of Incorporation or these By-laws, members of the
Board of Directors of the Corporation, or any committee designated by the Board
of Directors, may participate in a meeting of the Board of Directors or such
committee by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in a meeting pursuant to this Section 10 shall constitute
presence in person at such meeting.
Section 11. Committees. The Board of Directors may, by resolution passed
---------- ----------
by a majority of the entire Board of Directors, designate one or more
committees, each committee to consist of three or more of the directors of the
Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of any such committee. In the absence or disqualification
of a member of a committee, and in the absence of a designation by the Board of
Directors of an alternate member to replace the absent
5
<PAGE>
or disqualified member, the member or members thereof present at any meeting and
not disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any absent or disqualified member. Any committee,
to the extent allowed by law and provided in the resolution establishing such
committee, shall have and may exercise all the powers and authority of the Board
of Directors in the management of the business and affairs of the Corporation.
Each committee shall keep regular minutes and report to the Board of Directors
when required.
Section 12. Compensation. The directors may be paid their expenses, if
---------- ------------
any, of attendance at each meeting of the Board of Directors and may be paid a
fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
Section 13. Interested Directors. No contract or transaction between the
---------- --------------------
Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorized the contract or transaction, or solely because the vote or votes of
such person or persons are counted for such purpose if (i) the material facts as
to the relationship or interest of such person or persons and as to the contract
or transaction are disclosed or are known to the Board of Directors or the
committee, and the Board of Directors or committee in good faith authorizes the
contract or transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested directors be less than a
quorum; or (ii) the material facts as to the relationship or interest of such
persons or persons and as to the contract or transaction are disclosed or are
known to the stockholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by vote of the stockholders.
Common or interested directors may be counted in determining the presence of a
quorum at a meeting of the Board of Directors or of a committee which authorizes
the contract or transaction.
Section 14. Meaning of "entire Board of Directors". As used in this
---------- -------------------------------------
Article III and in these Bylaws generally, the term "entire Board of Directors"
means the total number of directors which the Corporation would have if there
were no vacancies.
Section 15. Chairman and Co-Chairman of the Board of Directors. The Board
---------- --------------------------------------------------
of Directors may appoint one of its members as Chairman and one or more of its
members as Co-Chairmen of the Board of Directors. The Chairman or a Co-Chairman
of the Board of Directors, if there be one, shall preside at all meetings of the
stockholders and of the Board of Directors and shall have such other powers and
perform such other duties as may be prescribed by the Board of Directors or as
provided in these By-laws or as otherwise may normally be incident to such
office.
Section 16. Vice Chairman. The Board of Directors may also appoint one or
---------- -------------
more of its members as Vice Chairman of the Board of Directors, who shall
preside at all meetings of the stockholders and of the Board of Directors in the
absence of the Chairman or Co-Chairman, and shall have such other powers and
perform such other duties as may be prescribed by the Board of Directors or as
provided in these By-laws or as otherwise may normally be incident to such
office (including, without limitation, the power and authority to exercise the
authority of the Chairman or the Co-Chairmen in the absence or disability of
such person or persons).
6
<PAGE>
ARTICLE IV -- OFFICERS
Section 1. General. The officers of the Corporation shall be a Chief
--------- -------
Executive Officer, a President, a Secretary and a Treasurer. The officers of the
Corporation may also include, at the discretion of the Board of Directors, a
Chief Financial Officer and one or more Vice Presidents (including, without
limitation, Assistant, Executive and Senior), Vice Chairmen, Assistant
Secretaries, Assistant Treasurers and other officers. The officers of the
Corporation shall be chosen by the Board of Directors, except that the Board may
from time to time authorize any officer to appoint and remove any other officer
or agent and to prescribe such person's authority and duties. Any number of
offices may be held by the same person, unless otherwise prohibited by law, the
Certificate of Incorporation or these By-laws. The officers of the Corporation
need not be stockholders of the Corporation nor need such officers be directors
of the Corporation.
Section 2. Election. Each Officer shall hold office for the term for
--------- --------
which elected or appointed by the Board of Directors and shall exercise such
powers and perform such duties as are provided in these By-laws or as shall be
determined from time to time by the Board of Directors; and all officers of the
Corporation shall hold office until their successors are chosen and qualified,
or until their earlier death, resignation or removal. Any officer may be
removed, either with or without cause, by the Board of Directors, at any regular
or special meeting thereof, or by any officer upon whom such power of removal
may be conferred by the Board of Directors, except that an officer chosen by the
Board of Directors may be removed only by the Board of Directors. A vacancy
occurring in any office of the Corporation shall be filled in the manner
prescribed in these By-laws for regular appointments to such office. The
salaries and other compensation of all officers of the Corporation shall be
fixed by the Board of Directors or in accordance with procedures and approval
authorities established by the Board of Directors.
Section 3. Voting Securities Owned by the Corporation. Powers of attorney,
--------- ------------------------------------------
proxies, waivers of notice of meeting, consents and other instruments relating
to securities owned by the Corporation may be executed in the name of and on
behalf of the Corporation by the Chief Executive Officer, the President or any
Vice President and any such officer may, in the name of and on behalf of the
Corporation, take all such action as any such officer may deem advisable to vote
in person or by proxy at any meeting of security holders of any corporation in
which the Corporation may own securities and at any such meeting shall possess
and may exercise any and all rights and powers incident to the ownership of such
securities and which, as the owner thereof, the Corporation might have exercised
and possessed if present. The Board of Directors may, by resolution, from time
to time confer like powers upon any other person or persons.
Section 4. Chief Executive Officer. The chief executive officer shall be
--------- -----------------------
the Chief Executive Officer of the Corporation and shall have the powers and
perform the duties incident to that position. Subject to the Board of Directors,
the Chief Executive Officer shall be in general and active charge of the entire
business and affairs of the Corporation, and shall be its chief policy-making
officer. The Chief Executive Officer shall see to it that all orders and
resolutions of the Board of Directors are carried into effect. The Chief
Executive Officer shall execute all bonds, mortgages, contracts and other
instruments of the Corporation requiring a seal, under the seal of the
Corporation, except where required or permitted by law to be otherwise signed
and executed and except that the other officers of the Corporation may sign and
execute documents when so authorized by these By-laws, the Board of Directors or
the Chief Executive Officer. In the absence or disability of the Chairman of the
Board of Directors or any Co-Chairman or Vice Chairman, or if there be none, the
Chief Executive Officer shall preside at all meetings of the stockholders and
the Board of Directors. The Chief Executive Officer shall also perform such
other duties and may exercise such other powers as from time to time may be
assigned to the Chief Executive Officer by these By-laws or by the Board of
Directors.
7
<PAGE>
Section 5. President. The President shall perform such duties and exercise
--------- ---------
such powers as are incident to that position, and shall perform such other
duties and exercise such other powers as may from time to time be prescribed by
the Board of Directors.
Section 6 Vice Presidents. At the request of the Chief Executive Officer
--------- ---------------
or in the absence of the Chief Executive Officer or in the event of the
inability or refusal to act of the Chief Executive Officer (and if there be no
Chairman or Co-Chairman or any Vice Chairman of the Board of Directors), the
Vice President or the Vice Presidents, if there is more than one (in the order
designated by the Board of Directors) shall perform the duties of the Chief
Executive Officer, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the Chief Executive Officer. Each Vice
President shall perform such other duties and have such other powers as the
Board of Directors from time to time may prescribe. If there be no Chairman or
Co-Chairman or any Vice Chairman of the Board of Directors and no Vice
President, the Board of Directors shall designate the officer of the Corporation
who, in the absence of the Chief Executive Officer or in the event of the
inability or refusal of the Chief Executive Officer to act, shall perform the
duties of the Chief Executive Officer, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the Chief Executive
Officer.
Section 7. Secretary. The Secretary shall attend all meetings of the
--------- ---------
Board of Directors and all meetings of stockholders and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary shall also perform like duties for the standing committees when
required. The Secretary shall give, or cause to be given, notice of all meetings
of the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or
Chief Executive Officer, under whose supervision the Secretary shall be. If the
Secretary shall be unable or shall refuse to cause to be given notice of all
meetings of the stockholders and special meetings of the Board of Directors, and
if there be no Assistant Secretary, then either the Board of Directors or the
Chief Executive Officer may choose another officer to cause such notice to be
given. The Secretary shall have custody of the seal of the Corporation and the
Secretary or any Assistant Secretary, if there be one, shall have authority to
affix the same to any instrument requiring it and when so affixed, it may be
attested by the signature of the Secretary or by the signature of any such
Assistant Secretary. The Board of Directors may give general authority to any
other officer to affix the seal of the Corporation and to attest the affixing by
his or her signature. The Secretary shall see that all books, reports,
statements, certificates and other documents and records required by law to be
kept or filed are properly kept or filed, as the case may be.
Section 8. Chief Financial Officer. The Chief Financial Officer shall be
--------- -----------------------
the principal officer of the Corporation having responsibility for financial
matters and shall perform such duties as may be assigned to him by the Board of
Directors or the Chairman or any Co-Chairman.
Section 9. Treasurer. The Treasurer shall have the custody of the
--------- ---------
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the Chief Executive Officer and the Board of
Directors, at its regular meetings, or when the Board of Directors so requires,
an account of all the Treasurer's transactions as Treasurer and of the financial
condition of the Corporation.
Section 10. Assistant Secretaries. Except as may be otherwise provided in
---------- ---------------------
these By-laws, Assistant Secretaries, if there be any, shall perform such duties
and have such powers as from time to time may be assigned to them by the Board
of Directors, the Chief Executive Officer, the President, any Vice Chairman, if
there be one, or the Secretary, and in the absence of the Secretary or in the
8
<PAGE>
event of the disability of the Secretary or refusal of the Secretary to act,
shall perform the duties of the Secretary, and when so acting, shall have all
the powers of and be subject to all the restrictions upon the Secretary.
Section 11. Assistant Treasurers. Assistant Treasurers, if there be any,
---------- --------------------
shall perform such duties and have such powers as from time to time may be
assigned to them by the Board of Directors, the Chief Executive Officer, any
Vice President, if there be one, or the Treasurer, and in the absence of the
Treasurer or in the event of the disability of the Treasurer or refusal of the
Treasurer to act, shall perform the duties of the Treasurer, and when so acting,
shall have all the powers of and be subject to all the restrictions upon the
Treasurer. If required by the Board of Directors, an Assistant Treasurer shall
give the Corporation a bond in such sum and with such surety or sureties as
shall be satisfactory to the Board of Directors for the faithful performance of
the duties of such office and for the restoration to the Corporation, in case of
such Assistant Treasurer's death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in the possession or under the control of such Assistant Treasurer
belonging to the Corporation.
Section 12. Other Officers. Such other officers as the Board of Directors
---------- --------------
may choose shall perform such duties and have such powers as from time to time
may be assigned to them by the Board of Directors. The Board of Directors may
delegate to any other officer of the Corporation the power to choose such other
officers and to prescribe their respective duties and powers.
ARTICLE V -- STOCK
Section 1. Form of Certificates. Every holder of stock in the Corporation
--------- --------------------
shall be entitled to have a certificate signed, in the name of the Corporation
(i) by the Chairman of the Board of Directors, the Co-Chairman of the Board of
Directors, the President or a Vice President and (ii) by the Treasurer or an
Assistant Treasurer, or the Secretary or an Assistant Secretary of the
Corporation, certifying the number of shares in the Corporation owned by such
holder.
Section 2. Signatures. Any or all the signatures on the certificate may
--------- ----------
be a facsimile. In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed upon a certificate shall have
ceased to be such officer, transfer agent or registrar before such certificate
is issued, it may be issued by the Corporation with the same effect as if such
person were such officer, transfer agent or registrar at the date of issue.
Section 3. Lost Certificates. The Board of Directors may direct a new
--------- -----------------
certificate to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed. When authorizing such issue of a new certificate, the
Board of Directors may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate, or the legal representative of such person, to advertise the same
in such manner as the Board of Directors shall require and/or to give the
Corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the Corporation with respect to the certificate alleged
to have been lost, stolen or destroyed.
Section 4. Transfers. Stock of the Corporation shall be transferable in
--------- ---------
the manner prescribed by law and in these By-laws. Transfers of stock shall be
made on the books of the Corporation only by the person named in the certificate
or by the person's attorney lawfully constituted in writing and upon the
surrender of the certificate therefor, which shall be canceled before a new
certificate shall be issued.
9
<PAGE>
Section 5. Record Date. In order that the Corporation may determine the
--------- -----------
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, the Board of Directors may fix, in advance, a record
date, which shall not be more than 30 days nor less than ten days before the
date of such meeting, nor more than 30 days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
Section 6. Beneficial Owners. The Corporation shall be entitled to
--------- -----------------
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise required by
law.
ARTICLE VI -- NOTICES
Section 1. Notices. Whenever written notice is required by law, the
--------- -------
Certificate of Incorporation or these By-laws, to be given to any director,
member of a committee or stockholder, such notice may be given by mail,
addressed to such director, member of a committee or stockholder, at the address
of such person as it appears on the records of the corporation, with postage
thereon prepaid, and such notice shall be deemed to be given at the time when
the same shall be deposited in the United States mail. Written notice may also
be given personally or by electronic facsimile, telegram, telex, cable or
overnight courier.
Section 2. Waivers of Notice. Whenever any notice is required by law, the
--------- -----------------
Certificate of Incorporation or these By-laws, to be given to any director,
member of a committee or stockholder, a waiver thereof in writing, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto.
ARTICLE VII -- GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the
--------- ---------
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, and may be paid in cash, in property, or in shares of the capital
stock. Before payment of any dividend, there may be set aside out of any funds
of the Corporation available for dividends such sum or sums as the Board of
Directors from time to time, in its absolute discretion, deems proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for any proper
purpose, and the Board of Directors may modify or abolish any such reserve.
Section 2. Disbursements. All checks or demands for money and notes of
--------- -------------
the Corporation shall be signed by such officer or officers or such other person
or persons as the Board of Directors may from time to time designate.
Section 3. Fiscal Year. The fiscal year of the Corporation shall be fixed
--------- -----------
by resolution of the Board of Directors.
10
<PAGE>
Section 4. Corporate Seal. The corporate seal shall have inscribed
--------- --------------
thereon the name of the Corporation, the year of its organization and the words
"Corporate Seal New York." The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE VIII -- INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 1. Right to Indemnification. Each person who was or is made a
--------- ------------------------
party or is threatened to be made a party to or is otherwise involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he or she
is or was a director or an officer of the Corporation or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to an employee benefit plan
(hereinafter an "indemnitee"), whether the basis of such proceeding is alleged
action in an official capacity as a director, officer, employee or agent or in
any other capacity while serving as a director, officer, employee or agent,
shall be indemnified and held harmless by the Corporation to the fullest extent
authorized by the New York Business Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than such law permitted the Corporation to provide prior to such
amendment), against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement) reasonably incurred or suffered by such indemnitee in connection
therewith; provided, however, that the Corporation shall indemnify any such
indemnitee in connection with a proceeding (or part thereof) initiated by such
indemnitee only if such proceedings (or part thereof) was authorized by the
Board of Directors of the Corporation.
Section 2. Right to Advancement of Expenses. The right to indemnification
--------- --------------------------------
conferred in Section 1 of this ARTICLE VIII shall include the right to be paid
by the Corporation the expenses (including attorneys' fees) incurred in
defending any such proceeding in advance of its final disposition (hereinafter
an "advancement of expenses"); provided, however, that, if the New York Business
Corporation Law requires, an advancement of expenses incurred by an indemnitee
in his or her capacity as a director or officer (and not in any other capacity
in which service was or is rendered by such indemnitee, including, without
limitation, service to an employee benefit plan) shall be made only upon
delivery to the Corporation of an undertaking (hereinafter an "undertaking"), by
or on behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal (hereinafter a "final adjudication") that such
indemnitee is not entitled to be indemnified for such expenses under this
Section 2 or otherwise. The rights to indemnification and to the advancement of
expenses conferred in Sections 1 and 2 of this ARTICLE VIII shall be contract
rights and such rights shall continue as to an indemnitee who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
indemnitee's heirs, executors and administrators.
Section 3 Non-Exclusivity of Rights. The rights to indemnification and to
--------- -------------------------
the advancement of expenses conferred in this ARTICLE VIII shall not be
exclusive of any other right which any person may have or hereafter acquire
under any statute, the Corporation's Certificate of Incorporation, By-laws,
agreement, vote of stockholders or disinterested directors or otherwise.
Section 4. Insurance. The Corporation may maintain insurance, at its
--------- ---------
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the New York Business Corporation Law.
11
<PAGE>
Section 5. Indemnification of Employees and Agents of the Corporation. The
--------- ----------------------------------------------------------
Corporation may, to the extent authorized from time to time by the Board of
Directors, grant rights to indemnification and to the advancement of expenses to
any employee or agent of the Corporation to the fullest extent of the provisions
of this Article with respect to the indemnification and advancement of expenses
of directors and officers of the Corporation.
ARTICLE IX -- AMENDMENTS
Except as otherwise provided in the Certificate of Incorporation, these By-laws
may be altered, amended or repealed, in whole or in part, or new By-laws may be
adopted (i) upon a vote of a majority of the entire Board of Directors or (ii)
by the affirmative vote of the holders of a majority of the combined voting
power of the then outstanding shares of stock of all classes and series of stock
the holders of which are entitled to vote generally in the election of
directors, voting together as a single class. Notwithstanding the foregoing,
the provisions of Article II, Section 3; Article III, Sections 1 through 4; and
Article IX of these By-Laws shall only be altered, amended, rescinded or
repealed by (A) vote of a majority of the entire Board of Directors of the
Corporation or (B) the affirmative vote of the holders of not less than seventy-
five percent (75%) of the shares of each class of the capital stock of the
Corporation entitled to vote.
12
<PAGE>
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
AGREEMENT made as of the 1st day of February, 1996, between WORLD OF
SCIENCE, INC., a New York corporation with offices located at 900 Jefferson
Road, Building 4, Rochester, New York ("Employer") and FRED H. KLAUCKE, residing
at 420 Lake Road, Webster, New York 14580 ("Employee") as follows:
W I T N E S S E T H:
- - - - - - - - - -
1. TERM OF EMPLOYMENT. Employer hereby employs Employee and Employee hereby
------------------
agrees to perform services for Employer for a two year term commencing February
1, 1996 and terminating on January 31, 1998. This Employment Agreement shall
automatically renew for successive two year terms thereafter, unless either the
Employer or Employee shall have notified the other in writing at least sixty
(60) days prior to the expiration of the term of the Employment Agreement that
the Employment Agreement shall not be renewed. The terms and conditions of the
Employment Agreement for each renewal term shall contain the same terms and
conditions, except that the amount of compensation payable to Employee shall be
renegotiated each term.
2. NATURE OF EMPLOYMENT. Employee shall be the Chairman of the Board of
--------------------
Directors and chief Executive Officer of the Employer and in such capacity shall
be responsible for the overall operations of Employer. Employee agrees to
perform such specific duties as may be assigned to Employee from time to time by
Employer. Employee agrees to devote Employee's full time and attention to the
performance of Employee's duties, and shall not perform services for any other
person or party without the written consent of Employer.
3. COMPENSATION. Employee shall receive as compensation for services
------------
rendered to Employer the following:
A. A base annual salary of $175,000.00, payable in equal weekly
installments, or such other installments as shall be consistent with Employer's
payroll practices. The base salary of
<PAGE>
Employee may be increased during the term of this Employment Agreement at the
discretion of the Board of Directors.
B. Employee shall receive as additional compensation for each year
of this Agreement an incentive bonus calculated on the Corporation's operating
profit (as hereinafter defined), as follows:
AMOUNT OF
OPERATING PROFIT BONUS PAYABLE
---------------- ---------------
An amount equal to or greater $25,000.00, plus an additional
than the prior year's amount equal to $25,000.00
operating profit, but less divided by a fraction. The
than the current year's fraction numerator shall be
budgeted operating profit the amount by which the actual
current year-end operating
profit exceeds the prior
year's operating profit, and
the denominator shall be the
difference between the prior
year's operating profit and
the current year's budgeted
operating profit.
An amount equal to or greater $50,000.00, plus an additional
than the current year's amount equal to $25,000.00
budgeted operating profit, but divided by a fraction. The
less than 115% of the current numerator shall be the amount
year's budgeted operating by which the actual current
profit year-end operating profit
exceeds the current year
budgeted operating profit, and
the denominator shall be the
difference between the current
year budgeted operating profit
and 115% of the current year
budgeted operating profit.
An amount equal to or greater $75,000.00
than 115% of the current
year's budgeted operating
profit.
2
<PAGE>
1. Operating Profit Defined. The term "operating profit" shall
mean the combined gross income from the operations of the Company, and its
subsidiaries, if any, other than capital gains, less the Company's and
subsidiaries' combined expenses, deductions and credits attributable to such
operations. The operating profit shall be determined on a consolidated basis by
the annual audit prepared in accordance with generally accepted principles of
accounting by the certified public accountants regularly employed by the Company
and their determination shall be binding and conclusive on the parties hereto.
In computing the operating profit, no deduction shall be taken or allowance made
for (i) federal or state income taxes; (ii) for the payments required by this or
other bonus or incentive plans; (iii) interest income or expense.
2. Apportionment. For those periods of Employees' employment
that do not coincide with the Company's fiscal year, the amount of the bonus
shall be based upon the proportion of operating profit that the number of months
Employee is in the employ of Employer during such fiscal year bears the fiscal
year.
3. Payment. Payment of the bonus shall be made no later than
90 days after the fiscal year end of the Employer for the fiscal year for which
the calculation is made and shall be accompanied by a copy of the annual audit
on which the bonus is based.
4. Modification of Incentive Bonus Calculation. Employer
reserves the right to abolish or modify the incentive bonus or incentive bonus
calculation at any time during the term of the Employment Agreement. Any such
abolition or modification shall only be effective for the following year of the
Employment Agreement.
C. The Employer may provide Employee with life insurance, disability
insurance, medical/hospital insurance, reimbursement of uncovered medical
expenses, and such other fringe benefits as Employer shall determine. Employee
shall also
3
<PAGE>
receive such other Employer paid fringe benefits as shall be made generally
available to other employees of the Employer. Employer reserves the right,
however, to terminate any employee fringe benefit or employee benefit plan
currently available to employees, and Employer makes no representation that such
employee benefits shall continue during the term of Employee's employment.
4. TERMINATION OF EMPLOYMENT AGREEMENT BY EMPLOYEE FOR GOOD REASON.
---------------------------------------------------------------
Employee may terminate this Employment Agreement for "Good Reason" which shall
be defined as follows:
A. Without Employee's written consent, the removal of Employee as an
officer, or the assignment to Employee of any duties inconsistent with
Employee's current position, duty or responsibility with Employer.
B. A reduction by the Employer in Employee's base salary as in
effect on the date hereof or as the same may be increased from time to time.
C. The Employer requiring Employee to be based anywhere other than
the Rochester, New York area.
D. The failure of the Employer to obtain the assumption of this
Agreement by any successor to the Employer, whether direct or indirect, by
purchase, merger, consolidation or otherwise, to all or substantially all of the
business and/or assets of the Employer.
5. TERMINATION OF EMPLOYMENT AGREEMENT BY EMPLOYEE FOLLOWING CHANGE IN
-------------------------------------------------------------------
CONTROL. Employee may terminate this Employment Agreement within one year
- -------
following the occurrence of a "change in control of the Employer", as defined in
this Paragraph. For purposes of this Agreement, a "change in control of the
Employer" shall be deemed to have occurred on the date on which any of the
following shall have occurred:
A. Any one person or entity, or more than one person or entity acting
as a group, acquires beneficial ownership (as such term is defined in Rule 13d-3
under the Securities Exchange
4
<PAGE>
Act of 1934, as Amended) of securities of the Employer, that, together with all
prior securities owned by such person, entity, or group, possess greater than
25% of the total combined voting power of the Employer's then outstanding
securities, or greater than 25% of the total fair market value of the Employer's
then outstanding securities; or
B. The sale of all or substantially all or the assets of the
Employer to a person or entity other than a parent, subsidiary or affiliate of
the Employer; or
C. During any period of two consecutive years, individuals who at
the beginning of such period constitute the Board of Directors of the Employer
cease for any reason to constitute at least a majority thereof, unless the
election or the nomination for election by the Employer's shareholders of each
new director was approved by a vote of at least two-thirds of the directors then
still in office who were directors at the beginning of the period. The
designation by either Thomas James or M & T Capital Corp. of a successor
director to any director previously designated by them shall not be considered
in determining whether a change of control has occurred.
6. SEVERANCE BENEFITS PAYABLE IN THE EVENT OF TERMINATION BY EMPLOYEE FOR
----------------------------------------------------------------------
GOOD REASON OR UPON CHANGE OF CONTROL OF EMPLOYER. In the event the Employee
- -------------------------------------------------
shall elect to terminate employment for "Good Reason" or "change in control of
the Employer", the Employer shall pay the Employee the following severance
benefits:
A. Employee's full base salary through the date of Employee's
termination at the rate then in effect immediately prior to the date of
termination, plus any bonus to which Employee is entitled pursuant to Paragraph
3(B) of this Agreement.
B. A lump sum payment equal to the greater of (i) the amount of
salary that would have been paid to Employee from the date of termination of
Employee to the end of the term of this
5
<PAGE>
Employment Agreement had termination not occurred, or (ii) $250,000.00. This
lump sum payment as well as any salary due under Subparagraph (A) above shall be
paid within thirty days of the date or termination.
C. The Employer shall also pay all legal fees and expenses incurred
by Employee as a result of such termination (including all such fees and
expenses, if any, incurred in contesting or disputing any such termination or in
seeking to obtain or enforce any right or benefit provided by this Agreement).
D. In lieu of shares of common stock of the Employer issuable
upon exercise of any outstanding stock option granted to Employee under any
Employer's stock option plan which is exercisable on the date of termination of
employment, Employee shall receive an amount in cash equal to the product of (i)
the difference obtained by subtracting the per share exercise price of each
option held by Employee then exercisable from the closing price of the
Employer's shares as reported on any organized stock exchange on the date of
termination, and (ii) the number of Employer's shares covered by each such
option.
E. The Employer shall maintain in effect for the benefit of the
Employee for a two year period after the date of termination all Employee
benefit plans and programs in which the Employee was entitled to participate
immediately prior to the date of termination provided that continued
participation is possible under the general terms and provisions of such plan or
program. In the event that such participation in any such plan or program is
prohibited, the Employer shall arrange to provide Employee with benefits
substantially similar to those which Employee was entitled to receive under such
plan or program.
F. In addition to all other amounts payable to Employee under this
Paragraph 6, Employee shall be entitled to receive all benefits which may be
payable under any Employer retirement plan, deferred compensation plan, or any
other plan or agreement relating to retirement benefits.
6
<PAGE>
7. NON-DISCLOSURE OF TRADE SECRETS AND CONFIDENTIAL INFORMATION.
------------------------------------------------------------
Employee acknowledges that knowledge of the Employer's formulas, products,
pricing, methods of manufacture and distribution, and vendor and customer lists,
is of a confidential and secret nature and of great value to the Employer. The
Employee agrees not to divulge to any person, either during or after the
termination of his employment, any information acquired by him concerning such
formulas, products, pricing, methods of manufacture and distribution, vendor and
customer lists, or any other trade secrets of the Employer. Upon termination of
his employment, the Employee agrees to deliver forthwith to the Employer all
records, memoranda, and other written data relating to such formulas, products,
pricing, methods of manufacture and distribution, and vendor and customer lists.
8. MISCELLANEOUS. This Agreement supersedes all prior agreements and
-------------
understandings between the parties and may not be changed unless in writing,
executed by the parties hereto; shall be interpreted under and pursuant to the
laws of the State of New York; shall inure to the benefit of and shall be
binding upon the parties hereto, their legal representatives, successors and
assigns. This Agreement may be executed in several counterparts, each of which
shall be an original and all of which shall constitute but one and the same
instrument.
9. ARBITRATION. Any dispute or controversy arising under or in connection
------------
with this Agreement shall be settled exclusively by arbitration in the City of
Rochester, New York in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrator's award in
any Court having jurisdiction.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above written.
WORLD OF SCIENCE, INC.
By: /s/ Charles A. Callahan, CFO
----------------------------------
Authorized Officer
/s/ Fred H. Klaucke
----------------------------------
Fred H. Klaucke
8
<PAGE>
EXHIBIT 10.2
COVENANT NOT-TO-COMPETE
-----------------------
AND
---
NON-DISCLOSURE AGREEMENT
------------------------
1. Restrictive Covenant. I agree that during the course of my
--------------------
employment I shall work full time for EDUCATIONAL MODULES, INC. (the "Employer")
and that for a period of one year following termination of my employment, I will
not engage, whether directly or indirectly, in the same business as the Employer
in any geographic area in which the Employer shall then be doing business. By
reason of my acquisition of confidential information during the term of my
employment, it is agreed that any breach of this agreement by me shall entitle
the employer in addition to any legal remedies available to the employer, to
apply to any court of competent jurisdiction to enjoin any violation of this
paragraph. In the event that a court of competent jurisdiction shall find that
the scope and duration of this clause shall not be reasonably necessary to
protect the legitimate business interest of the Employer, then the Employer and
myself agree that a court of competent jurisdiction may amend this paragraph to
provide a reasonable restriction on competition as to area and time which
restriction shall then be binding upon Employer and myself.
2. Non-disclosure. I acknowledge that during the course of my
--------------
employment I have learned or will learn of programs, products, methods of
manufacture and distribution, and of vendor and customer lists of Employer and
that such knowledge or information is of confidential and a secret nature and of
great value to the Employer. I agree not to divulge to any person, either during
or after the termination of my employment, any information acquired by me
concerning such programs, products, methods of manufacture and distribution,
vendor and customer lists, or any other trade secrets of the Employer. Upon
termination of my employment, I agree to deliver forthwith to the Employer all
records, memoranda, and other
<PAGE>
-2-
written data relating to such programs, products, methods of manufacture and
distribution, and vendor and customer lists.
3. The foregoing restrictive covenant and non-disclosure provisions
shall immediately terminate upon the sale of all or substantially all of the
assets of the Employer or a sale of a majority interest in the outstanding
common stock of the Employer.
IN WITNESS WHEREOF, I have executed this agreement this day of June,
1989.
/s/ Fred H. Klaucke
-------------------
Fred H. Klaucke
<PAGE>
EXHIBIT 10.4
INCENTIVE STOCK OPTION PLAN
---------------------------
1. Grant of Options. The Board of Directors of EDUCATIONAL MODULES,
----------------
INC., a New York corporation, is hereby authorized by a majority vote of its
members to issue stock options from time to time on the corporation's behalf to
any one or more persons who at the date of such grant are full-time employees of
the corporation. Any option granted under this Plan shall be granted within ten
(10) years from the date hereof.
2. Amount of Stock. The aggregate amount of stock which may be purchased
---------------
pursuant to options granted under this Plan shall be twenty-five thousand
(25,000) shares of the corporation's common stock.
3. Limitation. The amount of aggregate fair market value of the stock
----------
(determined at the time of the grant of the option) for which any employee may
be granted options hereunder in any calendar year shall not exceed the sum of
$100,000.
4. Exercise. Any option granted pursuant to this Plan shall contain
--------
provisions, established by the corporation's Board of Directors, setting forth
the manner of exercise of such option. In no event, however, shall any option
granted to a person then owning more than ten percent (10%) of the voting power
of all of the corporation's stock be exercisable by its terms after the
expiration of five (5) years from the date of the grant thereof, nor shall any
other option granted hereunder be exercisable by its terms after the expiration
of ten (10) years from the date of the grant thereof.
5. Nontransferability. The terms of any option granted under this Plan
------------------
shall include a provision making such option nontransferable by the optionee,
except upon death, and exercisable during the optionee's lifetime only by the
optionee.
6. Purchase Price. The purchase price for a share of the stock subject
--------------
to any option granted hereunder shall be not less than the fair market value of
the stock on the date of grant of the option, said fair market value to be
determined in good faith
<PAGE>
- 2 -
at the time of grant of such option by decision of the corporation's Board of
Directors; provided, however, that in the case of an option granted to any
person then owning more than ten percent (10%) of the voting power of all of the
corporation's stock, the purchase price per share of the stock subject to option
shall be not less than one hundred ten percent (110%) of the fair market value
of the stock on the date of grant of the option, determined in good faith as
aforesaid.
7. Stockholder Approval; Effective Date. This Plan shall be subject to
------------------------------------
the approval of the stockholders of the corporation following the adoption of
the Plan by the corporation's Board of Directors. The effective date of this
Plan is May 31, 1989.
8. Stock Reserve. The corporation at all times during the term of this
-------------
Plan shall reserve and keep available such number of shares of its common stock
as will be sufficient to satisfy the requirements of this Plan, and shall pay
all fees and expenses necessarily incurred by the corporation in connection with
the exercise of the options granted hereunder.
9. Other Terms. Any option granted hereunder shall contain such other
-----------
and additional terms, not inconsistent with the terms of the Plan, which are
deemed necessary or desirable by the Board of Directors, or by legal counsel to
the corporation, and such other terms shall include those which, together with
the terms of this Plan, shall constitute such option as an "Incentive Stock
Option" within the meaning of Section 422A of the Internal Revenue Code.
Adopted May 31, 1989.
<PAGE>
EXHIBIT 10.5
EDUCATIONAL MODULES, INC.
STOCK PURCHASE AGREEMENT
Board of Directors August____, 1992
Educational Modules, Inc.
Gentlemen:
The undersigned (the "Purchaser") hereby purchases____shares of the Common
Stock of Educational Modules, Inc., a New York corporation (the "Company") at a
purchase price of $9.00 per share for an aggregate purchase price of $_________.
Summary
-------
The Company was organized in March, 1969, as a New York corporation.
Pursuant to its Articles of Incorporation, as amended, (the "Articles of
Incorporation"), the Company is authorized to issue 2,000,000 shares of Common
Stock, $.05 par value, of which 437,646 shares are currently outstanding. The
Company is offering for sale up to 36,556 shares of its common stock. Upon
completion of this Offering, assuming all 36,556 shares are sold, there will be
outstanding 474,202 shares of Common Stock and Warrants to purchase an
additional 20,000 shares.
The Offering
------------
The Company is raising from the sale of the shares $329,004. The shares
will not be registered under the Securities Act of 1933, as amended (the
"Securities Act"), Chapter 517, Florida Statutes, (the "Florida Investor
Protection Act"), or any other state or federal securities laws, on the grounds
that the transaction in which the shares are to be issued qualifies for
applicable exemptions from the securities registration requirements of such
statutes. The exemptions being claimed include, but are not necessarily limited
to, those available under Sections 3(b) and 4(2) of the Securities Act, and
Section 517.061(12) of the Florida Investor Protection Act; and, the reliance by
the Company upon the exemptions from the securities registration requirements of
federal and state securities laws is predicated in part on the representations,
understandings and covenants set forth in this Stock Purchase Agreement.
Company Representations and Warranties
--------------------------------------
The Company hereby represents and warrants to each Purchaser as follows:
1. To the best of its knowledge, there is no action, suit, customer
claim, proceeding or investigation at law or in equity or by or before any
governmental instrumentality or other agency now pending or threatened against
or affecting the Company, nor does the Company know of any valid basis therefor
which, if proven, would
<PAGE>
be reasonably expected to materially and adversely affect the Company's
business, properties, assets, prospects or condition (financial or otherwise).
2. To the best of its knowledge, the Company is not in default (a) under
its Articles of Incorporation or Bylaws, or any indenture, mortgage, lease,
purchase or sales order, or any other contract, agreement or instrument to which
the Company is a party or by which it or any of its property is bound or
affected or (b) with respect to any order, writ, injunction or decree of any
court or any federal, state, municipal or other domestic or foreign governmental
department, commission, board, bureau, agency or instrumentality. The company
does not know of any condition, event or act which constitutes, or which after
notice, lapse of time, or both, would constitute, a default under any of the
foregoing.
3. To the best of its knowledge, the Company has complied in all material
respects with all federal, state, local and foreign laws, ordinances,
regulations and orders applicable to it, its business or the ownership of its
assets.
4. The execution, delivery and performance by the Company of this
Agreement, have been duly authorized by all requisite corporate action by the
Company; and, this Agreement constitutes the valid and binding obligation of the
Company, enforceable in accordance with its terms, except to the extent that
enforcement hereof is limited by or contrary to (i) bankruptcy, insolvency or
other similar laws affecting the enforcement of creditors' rights generally, or
(ii) general equitable principles. The execution, delivery and performance of
this Agreement, will not (a) violate any provision of present law, statute, rule
or regulation, or any present ruling, writ, injunction, order, judgment or
decree of any court, administrative agency or other governmental body applicable
to the Company or any of its properties or assets or (b) to the best of its
knowledge, conflict with or result in any breach of any of the terms, conditions
or provisions of, or constitute (with due notice or lapse of time, or both) a
default (or give rise to any right of termination, cancellation or acceleration)
under or result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of the Company under the
Articles of Incorporation or Bylaws, or any note, indenture, mortgage, lease
agreement or other contract, agreement or instrument to which the Company is
presently a party or by which it or any of its property is presently bound or
affected.
5. The issuance, sale and delivery of the Shares have been duly
authorized by all requisite corporate action of the Company, and when issued,
sold and delivered in accordance with this Agreement, the shares of Common Stock
will be validly issued and outstanding, fully paid and nonassessable, and not
subject to preemptive or any other similar rights of the stockholders of the
Company or others except as provided herein or in a document referred to herein.
6. No brokers or finders are being utilized by the Company in connection
with this Offering, and no commissions or fees of any kind will be paid by the
Company to any person in connection with this Offering.
2
<PAGE>
7. The Company has maintained, and the Company will continue to maintain
at all times, insurance coverage for the Company and its properties to the
extent that the Company reasonably determines to be appropriate under the
circumstances and in accordance with practices in the industry.
8. The Company's audited Fiscal 1991-92 financial statements are attached.
CONDITIONS TO CLOSING OF PURCHASER
As a condition to closing, the Company hereby agrees to the following:
Registration Rights
1. Incidental Registration. If the Company at any time
-----------------------
proposes for any reason to register any of its securities under the
Securities Act (other than pursuant to a registration statement on Form
S-8, S-14 or S-15 or similar or successor form (collectively, "Excluded
Forms")), it shall at such time promptly give written notice to all
Purchasers of its intention so to do, and, upon the written request, given
within 30 days after receipt of any such notice, of any such Purchase to
register any shares of Common Stock (which request shall specify the shares
intended to be sold or disposed of by such holders and shall state the
intended method of disposition of such shares by the prospective seller),
the Company shall use its best efforts to cause all such shares of Common
Stock to be registered under the Securities Act promptly upon receipt of
the written request of such holders for such registration, all to the
extent requisite to permit the sale or other disposition (in accordance
with the intended methods thereof, as aforesaid) by the prospective seller
or sellers of the Common Stock so registered. In the event that the
proposed registration by the Company is, in whole or in part, an
underwritten public offering of securities of the Company, any request
pursuant to this Section 1 to register Common Stock may specify that such
shares are to be included in the underwriting (a) on the same terms and
conditions as those on which any Common Stock is otherwise being sold
through underwriters under such registration or (b) on terms and conditions
comparable to those normally applicable to offerings of common stock in
reasonably similar circumstances in the event that no shares of Common
Stock are being sold through underwriters under such registration;
provided, however, that if the managing underwriter determines and advises
-------- -------
in writing that the inclusion of all Common Stock proposed to be included
in the underwritten public offering and other issued and outstanding shares
of Common Stock proposed to be included therein by persons other than those
owned by Purchasers (the "Other Shares") would interfere with the
successful marketing of such securities, then the number of shares of
Common Stock and Other Shares to be included in such underwritten public
offering shall be reduced, pro rata; provided, however, that in no event
-------- -------- -------
may such reduction have the effect of not permitting at least
3
<PAGE>
33-1/3 of the shares of Common Stock subject to this Agreement to be included
in the underwritten public offering.
2. Preparation and Filing. If and whenever the Company is under an
----------------------
obligation pursuant to the provisions of Section 1 to use its best efforts to
effect the registration of any Common Stock, the Company shall, as expeditiously
as practicable:
(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 in accordance with Section 4(b);
(b) prepare and file with to 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 until the earlier of the date on which (i) all Common
Stock registered pursuant thereto shall have been sold, (ii) the holders of
said Purchaser's Common Stock being so registered agree to terminate said
registration, (iii) the registration rights hereunder terminate and (iv) 90
days from the date such registration statement shall have become effective,
and to comply with the provisions of the Securities Act with respect to the
sale or other disposition of all Common Stock covered by such registration
statement;
(c) furnish to each selling stockholder such number of copies of
a summary prospectus or other prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and
such other documents to facilitate the public sale or other disposition of
such Common Stock;
(d) use its best efforts to register or qualify the Common Stock
covered by such registration statement under the securities or "blue sky"
laws of such jurisdictions as each such seller reasonably request
(provided, however, that the Company shall not be required to consent to
-----------------
general service of process for all purposes in any jurisdiction where it is
not then qualified) and do any and all other acts or things which may be
necessary or advisable to enable such seller to consummate the public sale
or other disposition in such jurisdictions of such securities;
4
<PAGE>
(e) notify each seller of Common Stock covered by such registration
statement, at any time when a prospectus relating thereto covered by such
registration statement is required to be delivered under the Securities Act
within the appropriate period mentioned in Section 3(b), of the happening
of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of
a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in the
light of the circumstances then existing and, at the request of such
seller, prepare and furnish to such seller a reasonable number of copies of
a supplement to or an amendment of such prospectus as may be necessary so
that, as thereafter delivered to the purchasers of such shares, such
prospectus shall not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make
the statements therein not misleading in the light of the circumstances
then existing; and
(f) furnish, at the request of any holder or holders requesting
registration of Common Stock pursuant to Section 1, on the date that such
Common Stock is delivered to the underwriters for sale in connection with
such registration, if such securities are being sold through underwriters,
or, if such securities are not being sold through underwriters, on the date
that the registration statement with respect to such securities become
effective, (i) an opinion, dated such date, of the counsel representing the
Company for the purposes of such registration, in form and substance as is
customarily given to underwriters in an underwritten public offering,
addressed to the underwriters, if any, and to the Company; and (ii) a
letter dated such date, from the independent certified public accountants
of the Company, in form and substance as is customarily given by
independent certified public accountants to underwriters in an underwritten
public offering, addressed to the underwriters, if any, and to the holder
or holders making such request.
3. Expenses. All expenses incurred by the Company, in complying with
--------
Section 2, including, without limitation, all registration and filing fees
(including all expenses incident to filing with the National Association of
Securities Dealers, Inc.), fees and expenses of complying with securities and
"blue sky" laws, printing expenses and fees and disbursements of counsel,
including with respect to each registration
5
<PAGE>
effected pursuant to Section 1, and the Company's independent certified public
accounts (but excluding the compensation of regular employees of the Company
which shall be paid in any event by the Company) shall be paid by the Company.
In the case of a registration under Section 1, the selling stockholders will
bear all incremental costs that would not be incurred except for the exercise by
the Purchasers of their rights under Section 1.
4. Indemnification. In the event of any registration of any Common Stock
---------------
under the Securities Act pursuant to Section 1, the Company shall indemnify and
hold harmless the seller of such shares, each broker or any other person acting
on behalf of such seller and each other person, if any, who controls any of the
foregoing persons, within the meaning of the Securities Act, against any losses,
claims, damages or liabilities, joint or several, to which any of the foregoing
persons may become subject under the Securities Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon an untrue statement or alleged untrue statement
of a material fact contained in any registration statement under which such
Common Stock was registered under the Securities Act, any preliminary prospectus
or final prospectus contained therein, or any amendment or supplement thereto,
or any document prepared and/or furnished by the Company incident to the
registration or qualification of any Common Stock, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading
or, with respect to any prospectus, necessary to make the statements therein in
light of the circumstances under which they were made not misleading, or any
violation by the Company of the Securities Act or state securities or "blue sky"
laws applicable to the Company and relating to action or inaction required of
the Company in connection with such registration or qualification under such
state securities or blue sky laws; and shall reimburse such seller, such
underwriter, broker or other person acting on behalf of such seller and each
such controlling person for any legal or any other expenses reasonably incurred
by any of them in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the Company shall
-----------------
not be liable in any such can to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in said registration statement,
said preliminary prospectus or said prospectus or said amendment or supplement
or any document incident to the registration or qualification of any Common
Stock in reliance upon and in conformity with written information furnished to
the Company through an instrument duly executed by such seller or such
underwriter specifically for use in the preparation thereof.
6
<PAGE>
Before Common Stock held by any prospective seller shall be included in any
registration pursuant to this Agreement, such prospective seller and any
underwriter acting on its behalf shall have agreed to indemnify and hold
harmless (in the same manner and to the same extent as set forth in the
preceding paragraph) the Company, each director of the Company, each officer of
the Company who shall sign such registration statement and any person who
controls the Company within the meaning of the Securities Act, with respect to
any untrue statements or omission from such registration statement, any
preliminary prospectus or final prospectus contained therein, or any amendment
or supplement thereto, if such untrue statement or omission was made in reliance
upon and in conformity with written information furnished to the Company through
an instrument duly executed by such seller or such underwriter specifically for
use in the preparation of such registration statement, preliminary prospectus,
final prospectus or amendment or supplement; provided that the maximum amount of
--------
liability in respect of such indemnification shall be limited, in the case of
each prospective seller of Common Stock, to an amount equal to the net proceeds
actually received by such prospective seller from the sale of Common Stock
effected pursuant to such registration.
Promptly after receipts by and indemnified party of notice of the
commencement of any action involving a claim referred to in the preceding
paragraphs of this Section 4, such indemnified party will, if a claim in respect
thereof is made against an indemnifying party, give written notice to the latter
of such claim and/or the commencement of such action. In case any such action is
brought against an indemnified party, the indemnifying party will be entitled to
participate in and to assume the defense thereof, jointly with any other
indemnifying party similarly notified to the extent that it may wish, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnified party shall be responsible for any legal or
other expenses subsequently incurred by the latter in connection with the
defense thereof, provided that if any indemnified party shall have reasonably
--------
concluded that there may be one or more legal defenses available to the
indemnifying party, or that such claim or litigation involves or could have an
effect upon matters beyond the scope of the indemnity agreement provided in this
Section 4, the indemnifying party shall not have the right to assume defense of
such action on behalf of such indemnified party and such indemnifying party
shall reimburse such indemnified party and any person controlling such
indemnified party for that portion of to fees and expenses of any counsel
retained by the indemnified party which are reasonably related to the matters
covered by the indemnity agreement provided in this Section 4.
The indemnifying party shall not make my settlement of any claims
indemnified against hereunder without the written consent of the
7
<PAGE>
indemnified party or parties, which consent shall not be unreasonably withheld.
Notwithstanding the foregoing provisions of this Section 4, if pursuant to
an underwritten public offering the Company, the selling shareholders and the
underwriters enter into an underwriting or purchase agreement relating to such
offering which contains provisions of indemnification, this Section 4 shall
be deemed inoperative for purposes of such offering.
5. Securities Act Registration Statements. Except for securities of the
--------------------------------------
Company registered on Excluded Forms, the Company shall not file any
registration statement under the Securities Act covering any securities unless
it shall first have given each Purchaser written notice thereof. The Company
further covenants that each Purchaser shall have the right, at any time when it
may be deemed by the Company to be a controlling person of the Company, to
participate in the preparation of such registration statement and to request the
insertion therein of material furnished to the Company in writing which in such
Purchaser's judgment should be included. In connection with any registration
statement referred to in this Section 5, the Company will indemnify, to the
extent permitted by law, each Purchaser, their partners, officers and directors
and each person, if any, who controls such Purchaser within the meaning of
Section 15 of the Securities Act, against all losses, claims, damages,
liabilities and expenses caused by any untrue statement or alleged untrue
statement of a material fact contained in any registration statement or
prospectus or any preliminary prospectus or any amendment thereto or supplement
thereto or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims, damages,
liabilities or expenses are caused by any untrue statement or alleged untrue
statement or omission contained in written information furnished to the Company
by such Purchaser expressly for use in such registration statement. If, in
connection with any such registration statement, such Purchaser shall furnish
written information to the Company expressly for use in the registration
statement, such Purchaser will indemnify to the extent permitted by law the
Company, the directors, each of its officers who sign such registration
statement and each person, if any, who controls the Company within the meaning
of the Securities Act against all losses, claims, damages, liabilities and
expenses caused by any untrue statement or alleged untrue statement of a
material fact or any omission or alleged omission of a material fact required to
be stated in the registration statement or prospectus or any preliminary
prospectus or any amendment thereof or supplement thereto or necessary to make
the statement therein not misleading, buy only to the extent that such untrue
statement or alleged untrue statement or such omission or alleged omission is
contained in information so furnished in writing by such Purchaser for
8
<PAGE>
use therein. Any Purchaser selling Common Stock pursuant to a registration
statement filed by the Company shall furnish to the Company and such other
parties as the Company may designate such information and execute such
documents regarding the Common Stock held by and to be sold or otherwise
disposed of by such Purchaser as the Company shall request.
Right of First Refusal (Purchasers)
1. Generally. The Company shall not issue, sell or exchange,
---------
agree to issue, sell or exchange, or reserve or set aside for issuance,
sale or exchange, any (i) shares of Common Stock, Preferred Stock or any
other equity security of the Company, (ii) any debt security or
capitalized lease with an equity feature of the Company or (iii) any
option, warrant or other right to subscribe for, purchase or otherwise
acquire any equity security or any such debt security or capitalized lease
of the Company (except as may be issued to banks or leasing companies in
order to obtain financing or secure leases of equipment), at a price equal
to or less than $9.00 per share unless in each case the Company shall have
first offered to sell to the Purchasers as a group such Purchasers'
Proportionate Percentage of such securities (the "Offered Securities"), at
a price and on such other terms as shall have been specified by the Company
in writing delivered to the Purchasers (the "Offer"), which Offer by its
terms shall remain open and irrevocable for a period of 20 days from the
date it is delivered by the Company to the Purchasers.
2. Notice of Acceptance. Notice of the Purchasers' intention to
--------------------
accept, in whole or in part, an Offer shall be evidenced by a writing
signed by a representative of the Purchasers and delivered to the Company
prior to the end of the 20-day period of such Offer, setting forth such
portion of the Offered Securities the Purchasers elect to purchase (the
"Notice of Acceptance").
3. Refused Securities. In the event that Notices of Acceptance
------------------
are not given by the Purchasers in respect of all the Offered Securities,
the Company shall have 90 days from the expiration of the foregoing 20-day
period, to sell all or any part of such Offered Securities a to which a
Notice of Acceptance has not been given by the Purchasers (the "Refused
Securities") to any other person or persons, but only upon terms and
conditions in all respects, including without limitation, unit price and
interest rates, which are no more favorable, in the aggregate, to such
other person or persons or less favorable to the Company that those set
forth in the Offer. Upon the closing, which shall include full payment to
the Company of the sale to such other person or persons of all the Refused
Securities, the Purchasers did purchase from the Company, and the Company
shall sell to the Purchasers the Offered Securities in respect of which
Notices of
9
<PAGE>
Acceptance were delivered to the Company by the Purchasers, at the terms
specified in the Offer.
4. Excluded Securities. The rights of to Purchasers shall not
-------------------
apply to the following securities (the "Excluded Securities"):
(i) Common stock issued as a stock dividend or
upon any stock split or other subdivision or combination of shares of
Common Stock;
(ii) Common Stock issued to the public pursuant
to an effective registration statement filed with the Securities and
Exchange Commission; and
(iii) Securities issued pursuant to the acquisition of another
corporation by the Company by merger, stock acquisition, purchase of
substantially all of the assets or otherwise whereby the Company owns
at least 51% of the voting power of such other corporation after such
transaction.
(iv) Stock Option or similar plan.
5. Proportionate Percentage. "Proportionate Percentage" shall
------------------------
mean, as to a Purchaser, that percentage figure which expresses the ratio
which (x) the number of shares of outstanding Common Stock then owned by
such Purchaser bears to (y) the aggregate number of shares of all
outstanding Common Stock then outstanding.
Right of First Refusal (Raymond James & Associates, Inc.)
As consideration for Raymond James & Associates, Inc. performing consulting
services to the Company, the Company hereby grants to Raymond James &
Associates, Inc. for a period ending May 31, 1996 the right of first refusal in
managing and/or underwriting any securities offerings, mergers, acquisitions,
tender offers, recapitalizations and reorganizations providing such offering is
on the same bona fide terms and conditions as the Company could obtain
elsewhere.
Co-Sale Rights
Mr. Klaucke hereby covenants and agrees that he (a "Co-Selling
Shareholders") will give ten (10) days written notice to each Purchaser in the
event that he proposes to sell in other than (i) a registered offering or other
than (ii) a sale pursuant to Rule 144 or other than (iii) an employee or officer
of the Company, an amount of Common Stock which together with all prior or
contemporaneous sales of Common Stock by such Co-Selling Shareholder and
affiliates (as defined in the Securities Act) of such person in the aggregate
10
<PAGE>
exceeds 10% of the number of shares of Common Stock held collectively by such
Co-Selling Shareholder and affiliates on the date hereof or 20% taking into
consideration shares sold to officers and employees of the Company. Upon
written notice of such Co-Selling Shareholder given within ten (10) days
after receipt of such notice, each Purchaser (individually and not as a class)
shall be permitted, but not required, to participate with such Co-Selling
Shareholder in any such sale. This provision shall terminate as to a Purchase
on any date on which it or any Affiliate ceases to own any of the Company's
Securities.
James Froehler shall also be deemed a "Co-Selling Shareholder" for
purposes of this paragraph in the event that Mr. Froehler shall acquire more
than 10% of the outstanding Common Stock of the Company, in which event he shall
be bound by the same terms and conditions of co-sale as Mr. Klaucke. For
purposes of determining whether Mr. Froehler owns 10% of the outstanding stock
of the company, all shares sold by Mr. Froehler during a period of twelve months
preceeding the date of the calculation shall be included.
The Company covenants and represents that it will not register a
transfer of Common Stock on the registration books of the Company which has been
sold in contravention of this Section. If Mr. Klaucke makes a sale of Common
Stock in contravention of this Section, he shall be deemed to hold the proceeds
of such sale on a resulting trust in favor of the Purchasers in an amount equal
to that which the Purchasers would have been entitled to receive on such sale
pursuant to the provisions of this Section and shall immediately pay over to the
Purchasers such amount in exchange for transfer of Common Stock at the highest
price per share received by such Original Shareholder. Any costs associated with
such sale will be prorated among the selling shareholders.
Miscellaneous
-------------
1. Information Rights: Purchasers will receive quarterly unaudited
------------------
financial statements, annual audited financial statements, budgets, and interim
information of any events or happenings which the Company deems to be material
as long as they continue to be shareholders in the Company. This provision will
terminate upon consummation of a public offering.
2. Non-Disclosure, Non-Competition Agreements. Mr. Klaucke and
-------------------------------------------
Mr. Froehler will sign non-disclosure and non-competition agreements effective
during, and for a period of one year after termination of their employment with
the Company. This provision will terminate upon the sale of the Company.
3. Notices. Any notice required hereunder shall be given in
-------
writing and shall be sent by registered or certified mail, return receipt
requested to the parties hereto at their addresses as set forth in the books and
records of the Company.
4. Binding Effect. This Agreement shall be binding upon the
--------------
parties, their heirs, legal representatives, successors and assigns. Any rights
of a Stockholder under this
11
<PAGE>
Agreement shall be assigned by such Stockholder to any transferee of the
Stockholder's Stock.
5. Governing Law. This Agreement shall be interpreted under the
-------------
laws of the State of New York and the venue of any litigation shall be in a
court of competent jurisdiction in Monroe County of New York.
6. Amendment. This Agreement may be amended, altered or revoked at
---------
any time upon the mutual agreement of the Company and all of the Purchasers.
7. Counterpart Execution. This Agreement may be executed in two or
--------------------
more identical counterparts, each of which need be signed by only one of the
parties hereto, and all of such counterparts together shall constitute an
Agreement.
8. Purchaser's Legal Action. In the event of legal action brought
------------------------
against the Company on the Agreement by a Purchaser, such recovery will be
limited to the Purchaser's costs for their shares plus New York State statutory
interest on judgments. In addition, if the Company is successful in the defense
of any such litigation, the Purchaser shall bear the Company's legal expenses.
9. The Purchaser Representation and Warranty attached hereto is
incorporated herein and made a part hereof.
--------------------------------------
, Purchaser
Agreed to and
accepted by
EDUCATIONAL MODULES, INC.
BY:
---------------------------
Fred H. Klaucke, CEO
12
<PAGE>
EXHIBIT 10.6
EDUCATIONAL MODULES, INC.
STOCK PURCHASE AGREEMENT
Board of Directors December , 1992
--
Educational Modules, Inc.
Gentlemen:
The undersigned (the
-------------------------------------------------
"Purchaser") hereby purchases shares of the Common Stock of
---------
Educational Modules, Inc., a New York corporation (the "Company") at a purchase
price of $9.00 per share for an aggregate purchase price of $ .
----------
Summary
-------
The Company was organized in March, 1969, as a New York corporation.
Pursuant to its Articles of Incorporation, as amended, (the "Articles of
Incorporation"), the Company is authorized to issue 2,000,000 shares of Common
Stock, $.05 par value, of which 585,313 shares are currently outstanding. The
Company is offering for sale up to 84,278 shares of its Common Stock. Upon
completion of this Offering, assuming all 84,278 shares are sold, there will be
outstanding 669,541 shares of Common Stock.
The Offering
------------
The Company is raising from the sale of the shares $758,502. The shares
will not be registered under the Securities Act of 1933, as amended (the
"Securities Act"), or any other state or federal securities laws, on the grounds
that the transaction in which the shares are to be issued qualifies for
applicable exemptions from the securities registration requirements of such
statutes. The exemptions being claimed include, but are not necessarily limited
to, those available under Sections 3(b) and 4(2) of the Securities Act and, the
reliance by the Company upon the exemptions from the securities registration
requirements of federal and state securities laws is predicated in part on the
representations, understandings and covenants set forth in this Stock Purchase
Agreement.
Company Representations and Warranties
--------------------------------------
The Company hereby represents and warrants to each Purchaser as
follows:
1. To the best of its knowledge, there is no action, suit, customer
claim, proceeding or investigation at law or in equity or by or before any
court, governmental instrumentality or other agency now pending or threatened
against or affecting the Company, nor does the Company know of any valid basis
therefor which, if proven, would be reasonably expected to materially and
adversely affect the Company's business, properties, assets, prospects or
condition (financial or otherwise).
1
<PAGE>
2. To the best of its knowledge, the Company is not in default (a)
under its Articles of Incorporation or Bylaws, or any indenture, mortgage,
lease, purchase or sales order, or any other contract, agreement or instrument
to which the Company is a party or by which it or any of its property is bound
or affected or (b) with respect to any order, writ, injunction or decree of any
court or any federal, state, municipal or other domestic or foreign governmental
department, commission, board, bureau, agency or instrumentality. The Company
does not know of any condition, event or act which constitutes, or which after
notice, lapse of time, or both, would constitute, a default under any of the
foregoing.
3. To the best of its knowledge, the Company has complied in all
material respects with all federal, state, local and foreign laws, ordinances,
regulations and orders applicable to it, its business or the ownership of its
assets.
4. The execution, delivery and performance by the Company of this
Agreement, have been duly authorized by all requisite corporate action by the
Company; and, this Agreement constitutes the valid and binding obligation of the
Company, enforceable in accordance with its terms, except to the extent that
enforcement hereof is limited by or contrary to (i) bankruptcy, insolvency or
other similar laws affecting the enforcement of creditors' rights generally, or
(ii) general equitable principles. The execution, delivery and performance of
this Agreement, will not (a) violate any provision of present law, statute, rule
or regulation, or any present ruling, writ, injunction, order, judgment or
decree of any court, administrative agency or other governmental body applicable
to the Company or any of its properties or assets or (b) to the best of its
knowledge, conflict with or result in any breach of any of the terms, conditions
or provisions of, or constitute (with due notice or lapse of time, or both) a
default (or give rise to any right of termination, cancellation or acceleration)
under or result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of the Company under the
Articles of Incorporation or Bylaws, or any note, indenture, mortgage, lease
agreement or other contract, agreement or instrument to which the Company is
presently a party or by which it or any of its property is presently bound or
affected.
5. The issuance, sale and delivery of the Shares have been duly
authorized by all requisite corporate action of the Company, and when issued,
sold and delivered in accordance with this Agreement, the shares of Common Stock
will be validly issued and outstanding, fully paid and nonassessable, and not
subject to preemptive or any other similar rights of the stockholders of the
Company or others except as provided herein or in a document referred to herein.
6. No brokers or finders are being utilized by the Company in
connection with this Offering, and no commissions or fees of any kind will be
paid by the Company to any person in connection with this Offering.
7. The Company has maintained, and the Company will continue to
maintain at all times, insurance coverage for the Company and its properties to
the extent that the Company reasonably determines to be appropriate under the
circumstances and in accordance with practices in the industry.
2
<PAGE>
CONDITIONS TO CLOSING OF PURCHASER
As a condition to closing the Company hereby agrees to the following:
Registration Rights
1. Incidental Registration. If the Company at any time
-----------------------
proposes for any reason to register any of its securities under the
Securities Act (other than pursuant to a registration statement on Form
S-8, S-4 or similar or successor form (collectively, "Excluded Forms")),
it shall at such time promptly give written notice to all Purchasers of
its intention so to do, and, upon the written request, given within 30
days after receipt of any such notice, of any such Purchaser to register
any shares of Common Stock (which request shall specify the shares
intended to be sold or disposed of and shall state the intended method of
disposition of such shares), the Company shall use its best efforts to
cause all such shares of Common Stock to be registered under the
Securities Act promptly upon receipt of the written request of such
holders for such registration, all to the extent requisite to permit the
sale or other disposition (in accordance with the intended methods
thereof, as aforesaid) by the prospective seller or sellers of the Common
Stock so registered. In the event that the proposed registration by the
Company is, in whole or in part, an underwritten public offering of
securities of the Company, any request pursuant to this Section 1 to
register Common Stock may specify that such shares are to be included in
the underwriting (a) on the same terms and conditions as those on which
any Common Stock is otherwise being sold through underwriters under such
registration or (b) on terms and conditions comparable to those normally
applicable to offerings of common stock in reasonably similar
circumstances in the event that no shares of Common Stock are being sold
through underwriters under such registration; provided, however, that
------------------
if the managing underwriter determines and advises in writing that the
inclusion of all Common Stock proposed to be included in the underwritten
public offering and other issued and outstanding shares of Common Stock
proposed to be included therein by persons other than those owned by
Purchasers (the "Other Shares") would interfere with the successful
marketing of such securities, then the number of shares of Common Stock
and Other Shares to be included in such underwritten public offering
shall be reduced, pro rata; provided, however, that in no event may
-------- -----------------
such reduction have the effect of not permitting at least 33-1/3% of the
shares of Common Stock subject to this Agreement to be included in the
underwritten public offering.
2. Preparation and Filing. If and whenever the
----------------------
Company is under an obligation pursuant to the provisions of Section 1
to use its best efforts to effect the registration of any
3
<PAGE>
Common Stock, the Company shall, as expeditiously as practicable:
(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 in accordance with Section 2(b);
(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 until the earlier
of the date on which (i) all Common Stock registered pursuant thereto shall have
been sold, (ii) the holders of said Purchaser's Common Stock being so registered
agree to terminate said registration, (iii) the registration rights hereunder
terminate and (iv) 90 days from the date such registration statement shall have
become effective, and to comply with the provisions of the Securities Act with
respect to the sale or other disposition of all Common Stock covered by such
registration statement;
(c) furnish to each selling stockholder such number of copies of a summary
prospectus or other prospectus, including a preliminary prospectus, in
conformity with the requirements of the Securities Act, and such other documents
to facilitate the public sale or other disposition of such Common Stock;
(d) use its best efforts to register or qualify the Common Stock covered by
such registration statement under the securities or "blue sky" laws of such
jurisdictions as each such seller reasonably request (provided, however, that
-----------------
the Company shall not be required to consent to general service of process for
all purposes in any jurisdiction where it is not then qualified) and do any and
all other acts or things which may be necessary or advisable to enable such
seller to consummate the public sale or other disposition in such jurisdictions
of such securities;
(e) notify each seller of Common Stock covered by such registration
statement, at any time when a prospectus relating thereto covered by such
registration statement is required to be delivered under the Securities Act
within the appropriate period mentioned in Section 2(b), of the happening of any
event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be
4
<PAGE>
stated therein or necessary to make the statements therein not misleading in the
light of the circumstances then existing, and, at the request of such seller,
prepare and furnish to such seller a reasonable number of copies of a supplement
to or an amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such shares, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading in
the light of the circumstances then existing; and
(f) furnish, at the request of any holder or holders requesting registration
of Common Stock pursuant to Section 1, on the date that such Common Stock is
delivered to the underwriters for sale in connection with such registration, if
such securities are being sold through underwriters, or, if such securities are
not being sold through underwriters, on the date that the registration statement
with respect to such securities become effective, (i) an opinion, dated such
date, of the counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given to underwriters in
an underwritten public offering, addressed to the underwriters, if any, and to
the Company; and (ii) a letter dated such date, from the independent certified
public accountants of the Company, in form and substance as is customarily given
by independent certified public accountants to underwriters in an underwritten
public offering, addressed to the underwriters, if any, and to the holder or
holders making such request.
3. Expenses. All expenses incurred by the Company in complying with
--------
Section 2, including, without limitation, all registration and filing fees
(including all expenses incident to filing with the National Association of
Securities Dealers, Inc.), fees and expenses of complying with securities and
"blue sky" laws, printing expenses and fees and disbursements of counsel,
including with respect to each registration effected pursuant to Section 1, and
the Company's independent certified public accounts (but excluding the
compensation of regular employees of the Company which shall be paid in any
event by the Company) shall be paid by the Company. In the case of a
registration under Section 1, the selling stockholders will bear all incremental
costs that would not be incurred except for the exercise by the Purchaser of
their rights under Section 1.
4. Indemnification. In the event of any registration of any Common Stock
---------------
under the Securities Act pursuant to Section 1, the Company shall indemnify and
hold harmless the seller of
5
<PAGE>
such shares, each broker or any other person acting on behalf of such seller and
each other person, if any, who controls any of the foregoing persons, within the
meaning of the Securities Act, against any losses, claims, damages or
liabilities, joint or several, to which any of the foregoing persons may become
subject under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in any registration statement under which such Common Stock was
registered under the Securities Act, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereto, or any
document prepared and/or furnished by the Company incident to the registration
or qualification of any Common Stock, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading or,
with respect to any prospectus, necessary to make the statements therein in
light of the circumstances under which they were made not misleading, or any
violation by the Company of the Securities Act or state securities or "blue
sky" laws applicable to the Company and relating to action or inaction
required of the Company in connection with such registration or qualification
under such state securities blue sky laws; and shall reimburse such seller, such
underwriter, broker or other person acting on behalf of such seller and each
such controlling person for any legal or any other expenses reasonably incurred
by any of them in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the Company shall
-----------------
not be liable in any such case to the extent that any such loss, claim, damage
or liability arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in said registration
statement, said preliminary prospectus or said prospectus or said amendment or
supplement or any document incident to the registration or qualification of any
Common Stock in reliance upon and in conformity with written information
furnished to the Company through an instrument duly executed by such seller or
such underwriter specifically for use in the preparation thereof.
Before Common Stock held by any prospective seller shall be included in any
registration pursuant to this Agreement, such prospective seller and any
underwriter acting on its behalf shall have agreed to indemnify and hold
harmless (in the same manner and to the same extent as set forth in the
preceding paragraph) the Company, each director of the Company, each officer of
the Company who shall sign such registration statement and any person who
controls the Company within the meaning of the Securities Act, with respect to
any untrue statements or omission from such registration statement, any
preliminary prospectus or final prospectus contained therein, or any amendment
or supplement thereto, if such untrue statement or omission was
6
<PAGE>
made in reliance upon and in conformity with written information furnished to
the Company through an instrument duly executed by such seller or such
underwriter specifically for use in the preparation of such registration
statement, preliminary prospectus, final prospectus or amendment or supplement;
provided that the maximum amount of liability in respect of such
- --------
indemnification shall be limited, in the case of each prospective seller of
Common Stock, to an amount equal to the net proceeds actually received by such
prospective seller from the sale of Common Stock effected pursuant to such
registration.
Promptly after receipt by an indemnified party of notice of the commencement
of any action involving a claim referred to in the preceding paragraphs of this
Section 4, such indemnified party will, if a claim in respect thereof is made
against an indemnifying party, give written notice to the latter of such claim
and/or the commencement of such action. In case any such action is brought
against an indemnified party, the indemnifying party will be entitled to
participate in and to assume the defense thereof, jointly with any other
indemnifying party similarly notified to the extent that it may wish, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party shall be responsible for any legal
or other expenses subsequently incurred by the latter in connection with the
defense thereof; provided that if any indemnified party shall have reasonably
--------
concluded that there may be one or more legal defenses available to the
indemnifying party, or that such claim or litigation involves or could have an
effect upon matters beyond the scope of the indemnity agreement provided in this
Section 4, the indemnifying party shall not have the right to assume the defense
of such action on behalf of such indemnified party and such indemnifying party
shall reimburse such indemnified party and any person controlling such
indemnified party for that portion of the fees and expenses of any counsel
retained by the indemnified party which are reasonably related to the matters
covered by the indemnity agreement provided in this Section 4.
The indemnifying party shall not make any settlement of any claims
indemnified against hereunder without the written consent of the indemnified
party or parties, which consent shall not be unreasonably withheld.
Notwithstanding the foregoing provisions of this Section 4, if pursuant to
an underwritten public offering the Company, the selling shareholders and the
underwriters enter into an underwriting or purchase agreement relating to such
offering which contains provisions of indemnification, this Section 4 shall be
deemed inoperative for purposes of such offering.
7
<PAGE>
5. Securities Act Registration Statements. Except for securities of the
--------------------------------------
Company registered on Excluded Forms, the Company shall not file any
registration statement under the Securities Act covering any securities unless
it shall first have given each Purchaser written notice thereof. The Company
further covenants that each Purchaser shall have the right, at any time when it
may be deemed by the Company to be a controlling person of the Company, to
participate in the preparation of such registration statement and to request the
insertion therein of material furnished to the Company in writing which in each
Purchaser's judgment should be included. In connection with any registration
statement referred to in this Section 5, the Company will indemnify, to the
extent permitted by law, the Purchaser, their partners, officers and directors
and each person, if any, who controls such Purchaser within the meaning of
Section 15 of the Securities Act, against all losses, claims, damages,
liabilities and expenses caused by any untrue statement or alleged untrue
statement of a material fact contained in any registration statement or
prospectus or any preliminary prospectus or any amendment thereto or supplement
thereto or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims, damages,
liabilities or expenses are caused by any untrue statement or alleged untrue
statement or omission contained in written information furnished to the Company
by such Purchaser expressly for use in such registration statement. If, in
connection with any such registration statement, such Purchaser shall furnish
written information to the Company expressly for use in the registration
statement, such Purchaser will indemnify to the extent permitted by law the
Company, the directors, each of its officers who sign such registration
statement and each person, if any, who controls the Company within the meaning
of the Securities Act against all losses, claims, damages, liabilities and
expenses caused by any untrue statement or alleged untrue statement of a
material fact or any omission or alleged omission of a material fact required to
be stated in the registration statement or prospectus or any preliminary
prospectus or any amendment thereof or supplement thereto or necessary to make
the statement therein not misleading, buy only to the extent that such untrue
statement or alleged untrue statement or such omission or alleged omission is
contained in information so furnished in writing by such Purchaser for use
therein. In the event that any Purchaser selling Common Stock pursuant to a
registration statement filed by the Company shall furnish to the Company and
such other parties as the Company may designate such information and execute
such documents regarding the Common Stock held by and to be sold or otherwise
disposed of by such Purchaser as the Company shall request.
8
<PAGE>
Miscellaneous
-------------
1. Notices. Any notice required hereunder shall be given in writing and
-------
shall be sent by registered or certified mail, return receipt requested to the
parties hereto at their addresses as set forth in the books and records of the
Company.
2. Binding Effect. This Agreement shall be binding upon the parties,
--------------
their heirs, legal representatives, successors and assigns.
3. Governing Law. This Agreement shall be interpreted under the laws of
-------------
the State of New York and the venue of any litigation shall be in a court of
competent jurisdiction in Monroe County, State of New York.
4. Amendment. This Agreement may not be amended, altered or revoked at
---------
any time unless in writing signed by all parties hereto.
5. Counterpart Execution. This Agreement may be executed in two or more
---------------------
identical counterparts, each of which need be signed by only one of the parties
hereto, and all of such counterparts together shall constitute an Agreement.
6. Purchaser's Legal Action. In the event of any legal action brought
------------------------
against the Company by the Purchaser for breach of this agreement or for any
matter related to the sale of stock herein, any recovery will be limited to the
original purchase price of the Purchaser's shares of Common Stock. In addition,
if the Company is successful in the defense of any such litigation, the
Purchaser shall bear the Company's legal expenses and other cost of litigation.
7. The Purchaser Representation and Warranty attached hereto is incorporated
herein and made a part hereof.
BY:________________________________
Signature of Purchaser
Agreed to and accepted this ___
day of _________, 199_, by
EDUCATIONAL MODULES, INC.
By:____________________________
Authorized Officer
9
<PAGE>
EXHIBIT 10.7
EDUCATIONAL MODULES, INC.
STOCK PURCHASE AGREEMENT
Board of Directors December 17, 1992
Educational Modules, Inc.
Gentlemen:
The undersigned M & T Capital Corporation, New York corporation, (the
"Purchaser") hereby purchases 111,111 shares of the Common Stock of Educational
Modules, Inc., a New York corporation (the "Company") at a purchase price of
$9.00 per share for an aggregate purchase price of $999,999.00.
Summary
-------
The Company was organized in March, 1969, as a New York corporation.
Pursuant to its Articles of Incorporation, as amended, (the "Articles of
Incorporation"), the Company is authorized to issue 2,000,000 shares of Common
Stock, $.O5 par value, of which 474,202 shares are currently outstanding. The
Company is offering for sale up to 111,111 shares of its common stock. Upon
--------------
completion of this Offering, assuming all 111,111 shares are sold, there will be
outstanding 585,313 shares of Common Stock.
The Offering
------------
The Company is raising from the sale of the shares $999,999. The shares
will not be registered under the Securities Act of 1933, as amended (the
"Securities Act"), or any other state or federal securities laws, on the grounds
that the transaction in which the shares are to be issued qualifies for
applicable exemptions from the securities registration requirements of such
statutes. The exemptions being claimed include, but are not necessarily limited
to, those available under Sections 3(b) and 4(2) of the Securities Act and, the
reliance by the Company upon the exemptions from the securities registration
requirements of federal and state securities laws is predicated in part on the
representations, understandings and covenants set forth in this Stock Purchase
Agreement.
Company Representations and Warranties
--------------------------------------
The Company hereby represents and warrants to the Purchaser as follows:
1. To the best of its knowledge, there is no action, suit, customer
claim, proceeding or investigation at law or in equity or by or before any
court, governmental instrumentality or other agency now pending or threatened
against or affecting the Company, nor does the Company know of any valid basis
therefor which, if proven, would be reasonably expected to materially and
adversely affect the Company's business, properties, assets, prospects or
condition (financial or otherwise).
1
<PAGE>
2. To the best of its knowledge, the Company is not in default (a)
under its Articles of Incorporation or Bylaws, or any indenture, mortgage,
lease, purchase or sales order, or any other contract, agreement or instrument
to which the Company is a party or by which it or any of its property is bound
or affected or (b) with respect to any order, writ, injunction or decree of any
court or any federal, state, municipal or other domestic or foreign governmental
department, commission, board, bureau, agency or instrumentality. The Company
does not know of any condition, event or act which constitutes, or which after
notice, lapse of time, or both, would constitute, a default under any of the
foregoing.
3. To the best of its knowledge, the Company has complied in all
material respects with all federal, state, local and foreign laws, ordinances,
regulations and orders applicable to it, its business or the ownership of its
assets.
4. The execution, delivery and performance by the Company of this
Agreement, have been duly authorized by all requisite corporate action by the
Company; and, this Agreement constitutes the valid and binding obligation of the
Company, enforceable in accordance with its terms, except to the extent that
enforcement hereof is limited by or contrary to (i) bankruptcy, insolvency or
other similar laws affecting the enforcement of creditors' rights generally, or
(ii) general equitable principles. The execution, delivery and performance of
this Agreement, will not (a) violate any provision of present law, statute, rule
or regulation, or any present ruling, writ, injunction, order, judgment or
decree of any court, administrative agency or other governmental body applicable
to the Company or any of its properties or assets or (b) to the best of its
knowledge, conflict with or result in any breach of any of the terms, conditions
or provisions of, or constitute (with due notice or lapse of time, or both) a
default (or give rise to any right of termination, cancellation or acceleration)
under or result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of the Company under the
Articles of Incorporation or Bylaws, or any note, indenture, mortgage, lease
agreement or other contract, agreement or instrument to which the Company is
presently a party or by which it or any of its property is presently bound or
affected.
5. The issuance, sale and delivery of the Shares have been duly
authorized by all requisite corporate action of the Company, and when issued,
sold and delivered in accordance with this Agreement, the shares of Common Stock
will be validly issued and outstanding, fully paid and nonassessable, and not
subject to preemptive or any other similar rights of the stockholders of the
Company or others except as provided herein or in a document referred to herein.
6. No brokers or finders are being utilized by the Company in
connection with this Offering, and no commissions or fees of any kind will be
paid by the Company to any person in connection with this Offering.
7. The Company has maintained, and the Company will continue to
maintain at all times, insurance coverage for the Company and its properties to
the extent that the Company reasonably determines to be appropriate under the
circumstances and in accordance with practices in the industry.
8. The Company has delivered to the Purchaser copies of the Company's
audited financial statements for the year ending January 31, 1992 and unaudited
2
<PAGE>
financial statements for the nine month period ending October 31, 1992
(collectively the "Financial Statements"). The Financial Statements have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis and are complete and correct to the best of the Company's
knowledge and fairly present the financial condition and results of operations
of the Company. Since October 31, 1992, there has been no material change in the
Company's assets, liabilities business or prospects. The Company does not know
or have reasonable grounds to know of any basis for the assertion against the
Company of any material liability of any nature not fully reflected or reserved
against in the Financial Statements.
CONDITIONS TO CLOSING OF PURCHASER
The Purchaser's obligation to purchase the shares of Common Stock set forth
in this Stock Purchase Agreement is conditioned upon the Company providing the
Registration Rights and satisfying the other conditions set forth in Sections 1
through 8 below.
Registration Rights
1. Incidental Registration. If the Company at any time proposes
-----------------------
for any reason to register any of its securities under the Securities Act
(other than pursuant to a registration statement on Form S-8, S-4 or
similar or successor form (collectively, "Excluded Forms")), it shall at
such time promptly give written notice to the Purchasers of its intention
so to do, and, upon the written request, given within 30 days after
receipt of any such notice, or the Purchaser to register any shares of
Common Stock (which request shall specify the shares intended to be sold
or disposed of and shall state the intended method of disposition of such
shares), the Company shall use its best efforts to cause all such shares
of Common Stock to be registered under the Securities Act promptly upon
receipt of the written request of such holders for such registration, all
to the extent requisite to permit the sale or other disposition (in
accordance with the intended methods thereof, as aforesaid) by the
Purchaser. In the event that the proposed registration by the Company is,
in whole or in part, an underwritten public offering of securities of the
Company, any request pursuant to this Section 1 to register Common Stock
may specify that such shares are to be included in the underwriting (a)
on the same terms and conditions as those on which any Common Stock is
otherwise being sold through underwriters under such registration or (b)
on terms and conditions comparable to those normally applicable to
offerings of common stock in reasonably similar circumstances in the
event that no shares of Common Stock are being sold through underwriters
under such registration; provided, however, that if the managing
-----------------
underwriter determines and advises in writing that the inclusion of all
Common Stock proposed to be included in the underwritten public offering
and other issued and outstanding shares of Common Stock proposed
3
<PAGE>
to be included therein by persons other than those owned by the Purchaser (the
"Other Shares") would interfere with the successful marketing of such
securities, then the number of shares of Common Stock and Other Shares to be
included in such underwritten public offering shall be reduced, pro rata;
--------
provided, however, that in no event may such reduction have the effect of not
- -----------------
permitting at least 33-1/3% of the shares of Common Stock subject to this
Agreement to be included in the underwritten public offering.
2. Preparation and Filing. If and whenever the Company is under an
----------------------
obligation pursuant to the provisions of Section 1 to use its best efforts to
effect the registration of any Common Stock, the Company shall, as expeditiously
as practicable:
(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 in accordance with Section 2(b);
(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 until the earlier
of the date on which (i) all Common Stock registered pursuant thereto shall have
been sold, (ii) the holders of the Purchaser's Common Stock being so registered
agree to terminate said registration, (iii) the registration rights hereunder
terminate and (iv) 90 days from the date such registration statement shall have
become effective, and to comply with the provisions of the Securities Act with
respect to the sale or other disposition of all Common Stock covered by such
registration statement;
(c) furnish to each selling stockholder such number of copies of a summary
prospectus or other prospectus, including a preliminary prospectus, in
conformity with the requirements of the Securities Act, and such other documents
to facilitate the public sale or other disposition of such Common Stock;
(d) use its best efforts to register or qualify the Common Stock covered by
such registration statement under the securities or "blue sky" laws of such
jurisdictions as each such seller reasonably request (provided, however, that
-----------------
the Company shall not be required to consent to general service of process for
all purposes in any jurisdiction where it is not then qualified) and do any and
all other acts or things which may be
4
<PAGE>
necessary or advisable to enable such seller to consummate the public sale or
other disposition in such jurisdictions of such securities;
(e) notify each seller of Common Stock covered by such registration
statement, at any time when a prospectus relating thereto covered by such
registration statement is required to be delivered under the Securities Act
within the appropriate period mentioned in Section 2(b), of the happening of any
event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing, and, at the request of such seller, prepare and furnish to
such seller a reasonable number of copies of a supplement to or an amendment of
such prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such shares, such prospectus shall not include an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in the light
of the circumstances then existing; and
(f) furnish, at the request of any holder or holders requesting registration
of Common Stock pursuant to Section 1, on the date that such Common Stock is
delivered to the underwriters for sale in connection with such registration, if
such securities are being sold through underwriters, or, if such securities are
not being sold through underwriters, on the date that the registration statement
with respect to such securities become effective, (i) an opinion, dated such
date, of the counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given to underwriters in
an underwritten public offering, addressed to the underwriters, if any, and to
the Company; and (ii) a letter dated such date, from the independent certified
public accountants of the Company, in form and substance as is customarily given
by independent certified public accountants to underwriters in an underwritten
public offering, addressed to the underwriters, if any, and to the holder or
holders making such request.
3. Expenses. All expenses incurred by the Company in complying with
--------
Section 2, including, without limitation, all registration and filing fees
(including all expenses incident to filing with the National Association of
Securities Dealers, Inc.), fees and expenses of complying with securities and
"blue sky" laws, printing expenses and fees and disbursements of counsel,
5
<PAGE>
including with respect to each registration effected pursuant to Section 1, and
the Company's independent certified public accounts (but excluding the
compensation of regular employees of the Company which shall be paid in any
event by the Company) shall be paid by the Company. In the case of a
registration under Section 1, the selling stockholders will bear all incremental
costs that would not be incurred except for the exercise by the Purchaser of its
rights under Section 1.
4. Indemnification. In the event of any registration of any Common Stock
---------------
under the Securities Act pursuant to Section 1, the Company shall indemnify and
hold harmless the seller of such shares, each broker or any other person acting
on behalf of such seller and each other person, if any, who controls any of the
foregoing persons, within the meaning of the Securities Act, against any losses,
claims, damages or liabilities, joint or several, to which any of the foregoing
persons may become subject under the Securities Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon an untrue statement or alleged untrue statement
of a material fact contained in any registration statement under which such
Common Stock was registered under the Securities Act, any preliminary prospectus
or final prospectus contained therein, or any amendment or supplement thereto,
or any document prepared and or furnished by the Company incident to the
registration or qualification of any Common Stock, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading
or, with respect to any prospectus, necessary to make the statements therein in
light of the circumstances under which they were made not misleading, or any
violation by the Company of the Securities Act or state securities or "blue
sky" laws applicable to the Company and relating to action or inaction required
of the Company in connection with such registration or qualification under such
state securities blue sky laws; and shall reimburse such seller, such
underwriter, broker or other person acting on behalf of such seller and each
such controlling person for any legal or any other expenses reasonably incurred
by any of them in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the Company shall
-----------------
not be liable in any such case to the extent that any such loss, claim, damage
or liability arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in said registration
statement, said preliminary prospectus or said prospectus or said amendment or
supplement or any document incident to the registration or qualification of any
Common Stock in reliance upon and in conformity with written information
furnished to the Company through an instrument duly executed by such seller or
such underwriter specifically for use in the preparation thereof.
6
<PAGE>
Before Common Stock held by any prospective seller shall be included in any
registration pursuant to this Agreement, such prospective seller and any
underwriter acting on its behalf shall have agreed to indemnify and hold
harmless (in the same manner and to the same extent as set forth in the
preceding paragraph) the Company, each director of the Company, each officer of
the Company who shall sign such registration statement and any person who
controls the Company within the meaning of the Securities Act, with respect to
any untrue statements or omission from such registration statement, any
preliminary prospectus or final prospectus contained therein, or any amendment
or supplement thereto, if such untrue statement or omission was made in reliance
upon and in conformity with written information furnished to the Company through
an instrument duly executed by such seller or such underwriter specifically for
use in the preparation of such registration statement, preliminary prospectus,
final prospectus or amendment or supplement; provided that the maximum amount of
--------
liability in respect of such indemnification shall be limited, in the case of
each prospective seller of Common Stock, to an amount equal to the net proceeds
actually received by such prospective seller from the sale of Common Stock
effected pursuant to such registration.
Promptly after receipt by an indemnified party of notice of the
commencement of any action involving a claim referred to in the preceding
paragraphs of this Section 4, such indemnified party will, if a claim in respect
thereof is made against an indemnifying party, give written notice to the latter
of such claim and/or the commencement of such action. In case any such action is
brought against an indemnified party, the indemnifying party will be entitled to
participate in and to assume the defense thereof, jointly with any other
indemnifying party similarly notified to the extent that it may wish, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party shall be responsible for any legal
or other expenses subsequently incurred by the latter in connection with the
defense thereof; provided that if any indemnified party shall have reasonably
--------
concluded that there may be one or more legal defenses available to the
indemnifying party, or that such claim or litigation involves or could have an
effect upon matters beyond the scope of the indemnity agreement provided in this
Section 4, the indemnifying party shall not have the right to assume the defense
of such action on behalf of such indemnified party and such indemnifying party
shall reimburse such indemnified party and any person controlling such
indemnified party for that portion of the fees and expenses of any counsel
retained by the indemnified party which are reasonably related to the matters
covered by the indemnity agreement provided in this Section 4.
7
<PAGE>
The indemnifying party shall not make any settlement of any claims
indemnified against hereunder without the written consent of the indemnified
party or parties, which consent shall not be unreasonably withheld.
Notwithstanding the foregoing provisions of this Section 4, if pursuant to
an underwritten public offering the Company, the selling shareholders and the
underwriters enter into an underwriting or purchase agreement relating to such
offering which contains provisions of indemnification, this Section 4 shall be
deemed inoperative for purposes of such offering.
5. Securities Act Registration Statements. Except for securities of the
--------------------------------------
Company registered on Excluded Forms, the Company shall not file any
registration statement under the Securities Act covering any securities unless
it shall first have given the Purchaser written notice thereof. The Company
further covenants that the Purchaser shall have the right, at any time when it
may be deemed by the Company to be a controlling person of the Company, to
participate in the preparation of such registration statement and to request the
insertion therein of material furnished to the Company in writing which in the
Purchaser's judgment should be included. In connection with any registration
statement referred to in this Section 5, the Company will indemnify, to the
extent permitted by law, the Purchaser, their partners, officers and directors
and each person, if any, who controls the Purchaser within the meaning of
Section 15 of the Securities Act, against all losses, claims, damages,
liabilities and expenses caused by any untrue statement or alleged untrue
statement of a material fact contained in any registration statement or
prospectus or any preliminary prospectus or any amendment thereto or supplement
thereto or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims, damages,
liabilities or expenses are caused by any untrue statement or alleged untrue
statement or omission contained in written information furnished to the Company
by the Purchaser expressly for use in such registration statement. If, in
connection with any such registration statement, the Purchaser shall furnish
written information to the Company expressly for use in the registration
statement, the Purchaser will indemnify to the extent permitted by law the
Company, the directors, each of its officers who sign such registration
statement and each person, if any, who controls the Company within the meaning
of the Securities Act against all losses, claims, damages, liabilities and
expenses caused by any untrue statement or alleged untrue statement of a
material fact or any omission or alleged omission of a material fact required to
be stated in the registration statement or prospectus or any preliminary
prospectus or any amendment thereof or supplement thereto or necessary to make
the statement therein not
8
<PAGE>
misleading, buy only to the extent that such untrue statement or alleged
untrue statement or such omission or alleged omission is contained in
information so furnished in writing by the Purchaser for use therein. In
the event that the Purchaser sells Common Stock pursuant to a registration
statement filed by the Company the Purchaser shall furnish to the Company
and such other parties as the Company may designate such information and
execute such documents regarding the Common Stock held by and to be sold or
otherwise disposed of by such Purchaser as the Company shall request.
6. The Company, the Purchaser, Fred Klaucke, James Froehler,
Richard Callen and Thomas James shall have entered into a Voting Agreement
in form and substance acceptable to the Purchaser and the Company, which
shall provide for the voting of the shares of Common Stock held by the
parties thereto.
7. The Company shall have property completed all Small Business
Administration forms presented to the Company prior to closing by the
Purchaser and which are required to be submitted to Small Business
Administration in connection with investment in the Company.
8. The Purchaser shall have received from Darweesh, Callen & Lewis,
counsel for the Company, an opinion dated the Closing Date, based upon
reasonable investigation and in form and substance satisfactory to the
Purchaser and its counsel.
Right of First Refusal (Purchasers)
1. Generally. The Company shall not issue, sell or
---------
exchange, agree to issue, sell or exchange, or reserve or set aside for
issuance, sale or exchange, any (i) shares of Common Stock, Preferred Stock
or any other equity security of the Company, (ii) any debt security or
capitalized lease with an equity feature of the Company or (iii) any
option, warrant or other right to subscribe for, purchase or otherwise
acquire any equity security or any such debt security or capitalized lease
of the Company (except as may be issued to banks or leasing companies in
order to obtain financing or secure leases of equipment), unless in each
case the Company shall have first offered to sell to the Purchaser its
Proportionate Percentage of such securities (the "Offered Securities"), at
a price and on such other terms as shall have been specified by the Company
in writing delivered to the Purchaser (the "Offer"), which Offer by its
terms shall remain open and irrevocable for a period of 20 days from the
date it is delivered by the Company to the Purchaser.
2. Notice of Acceptance. Notice of the Purchaser's intention to
--------------------
accept, in whole or in part, an Offer shall be
9
<PAGE>
evidenced by a writing signed by a representative of the Purchaser and delivered
to the Company prior to the end of the 20-day period of such Offer, setting
forth such portion of the Offered Securities the Purchaser elects to purchase
(the "Notice of Acceptance").
3. Refused Securities. In the event that Notices of Acceptance are not
------------------
given by the Purchaser in respect of its entire proportionate percentage of the
Offered Securities, the Company shall have 90 days from the expiration of the
foregoing 20-day period, to sell all or any part of such Offered Securities as
to which a Notice of Acceptance has not been given by the Purchaser (the
"Refused Securities") to any other person or persons, but only upon terms and
conditions in all respects, including without limitation, unit price and
interest rates, which are no more favorable, in the aggregate, to such other
person or persons or less favorable to the Company that those set forth in the
Offer. Upon the closing, which shall include full payment to the Company, of the
sale to such other person or persons of all the Refused Securities, the
Purchaser shall purchase from the Company, and the Company shall sell to the
Purchaser the Offered Securities in respect of which Notices of Acceptance were
delivered to the Company by the Purchaser, at the terms specified in the Offer.
4. Excluded Securities. The rights of the Purchaser shall not apply to
-------------------
the following securities (the "Excluded Securities"):
(i) Common stock issued as a stock dividend or upon any stock split or
other subdivision or combination of shares of Common Stock;
(ii) Common Stock issued to the public pursuant to an effective
registration statement filed with the Securities and Exchange Commission; and
(iii) Securities issued pursuant to the acquisition of another corporation
by the Company by merger, stock acquisition, purchase of substantially all of
the assets or otherwise whereby the Company owns at least 51% of the voting
power of such other corporation after such transaction.
(iv) Stock Option or similar plan.
(v) Up to 100,000 shares of Common Stock to be issued at an offering
price of $9.00 per share within 6 months of the date of this Agreement pursuant
to a private sale exemption under the Securities Act of 1933.
10
<PAGE>
5. Proportionate Percentage. "Proportionate Percentage" shall
-------------------------
mean, as to the Purchaser, that percentage figure which expresses the ratio
which (x) the number of shares of outstanding Common Stock then owned by
the Purchaser bears to (y) the aggregate number of shares of all
outstanding Common Stock then outstanding.
Co-Sale Rights
Mr. Klaucke hereby covenants and agrees that he (a "Co-Selling
Shareholder") will give ten (10) days written notice to the Purchaser in the
event that he proposes to sell in other than (i) a registered offering or other
than (ii) a sale pursuant to Rule 144 or other than (iii) to an employee or
officer of the Company, an amount of Common Stock which together with all prior
or contemporaneous sales of Common Stock by such Co-Selling Shareholder and
affiliates (as defined in the Securities Act) of such person in the aggregate
exceeds 10% of the number of shares of Common Stock held collectively by such
Co-Selling Shareholder and affiliates on the date hereof or 20% taking into
consideration shares sold to officers and employees of the Company. Upon
written notice of such Co-Selling Shareholder given within ten (10) days after
receipt of such notice, the Purchaser shall be permitted, but not required, to
participate with such Co-Selling Shareholder in any such sale. This provision
shall terminate as to a Purchase on any date on which it or any Affiliate ceases
to own any of the Company's Securities.
James Froehler shall also be deemed a "Co-Selling Shareholder" for purposes
of this paragraph in the event that Mr. Froehler shall acquire more than 10% of
the outstanding Common Stock of the Company, in which event he shall be bound by
the same terms and conditions of co-sale as Mr. Klaucke. For purposes of
determining whether Mr. Froehler owns 10% of the outstanding stock of the
company, all shares sold by Mr. Froehler during a period of twelve months
preceding the date of the calculation shall be included.
The Company covenants and represents that it will not register a transfer of
Common Stock on the registration books of the Company which has been sold in
contravention of this Section. If Mr. Klaucke makes a sale of Common Stock in
contravention of this Section, he shall be deemed to hold the proceeds of such
sale on a resulting trust in favor of the Purchasers in an amount equal to that
to which the Purchasers would have been entitled to receive on such sale
pursuant to the provisions of this Section and shall immediately pay over to the
Purchasers such amount in exchange for transfer of Common Stock at the highest
price per share received by such Original Shareholder. Any costs associated with
such sale will be prorated among the selling shareholders.
11
<PAGE>
Miscellaneous
-------------
1. Information Rights: Provided that the furnishing of such information
------------------
shall not violate any rule, regulation or law, purchaser will receive monthly
and quarterly unaudited financial statements within 45 days after the end of
each month and each quarter; annual audited financial statements, within 90 days
after the end of each fiscal year; budgets, and interim information of any
events or happenings which the Company deems to be material as long as they
continue to be shareholders in the Company. This provision will terminate upon
consummation of a public offering.
2. The Company shall maintain a Board of Directors consisting of at least
five directors. M & T Capital shall have the right to nominate one of those
directors and to have that director put on the Company's slate of directors to
be elected by the Company's shareholders. This right granted to M & T Capital
shall terminated at such time as M & T Capital shall reduce its stock holdings
by an amount equal to 80% or more.
3. Non-Disclosure, Non-Competition Agreements. Mr. Klaucke and Mr.
------------------------------------------
Froehler will sign non-disclosure and non-competition agreements effective
during, and for a period of one year after termination of their employment with
the Company. This provision will terminate upon the sale of the Company.
4. Notices. Any notice required hereunder shall be given in writing and
-------
shall be sent by registered or certified mail, return receipt requested to the
parties hereto at their addresses as set forth in the books and records of the
Company.
5. Binding Effect. This Agreement shall be binding upon the parties,
--------------
their heirs, legal representatives, successors and assigns. Any rights of a
Stockholder under this Agreement shall be assigned by such Stockholder to any
transferee of the Stockholder's Stock.
6. Governing Law. This Agreement shall be interpreted under the laws of
-------------
the State of New York and the venue of any litigation shall be in a court of
competent jurisdiction in Monroe County of New York.
7. Amendment. This Agreement may be amended, altered or revoked at any
---------
time upon the mutual agreement of the Company and all of the Purchasers.
8. Counterpart Execution. This Agreement may be executed in two or more
---------------------
identical counterparts, each of which need be signed by only one of the parties
hereto, and all of such counterparts together shall constitute an Agreement.
9. Purchaser's Legal Action. In the event of legal action brought against
------------------------
the Company on the Agreement by a Purchaser, such recovery will be limited to
the Purchaser's costs for their shares plus New York State statutory interest on
judgments. In addition, if the
12
<PAGE>
Company is successful in the defense of any such litigation, the Purchaser shall
bear the Company's legal expenses.
10. The Purchaser Representation and Warranty attached hereto is
incorporated herein and made a part hereof.
M & T CAPITAL CORPORATION
By: /s/ Philip A. McNeill
----------------------------
Philip A. McNeill, Vice President
Agreed to and accepted this 16th
day of December, 1992, by
EDUCATIONAL MODULES, INC.
By: /s/ Fred H. Klaucke, CEO
-----------------------------
Fred H. Klaucke, CEO
Agreed to and accepted this 16th
day of December, 1992, by the
undersigned with respect only
to the Article entitled
"Co-Sale Rights"
/s/ Fred H. Klaucke, CEO
- ----------------------------
Fred H. Klaucke
/s/ James Froehler
- -----------------------------
James Froehler
13
<PAGE>
EXHIBIT 11
SCHEDULE OF COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
JANUARY 31, JANUARY 30, JANUARY 29, JANUARY 28, FEBRUARY 1,
1993 1994 1995 1996 1997
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Weighted average common
shares outstanding..... 2,374,539 3,347,955 3,397,955 3,422,955 3,422,955
Dilutive effect of stock
options granted in
fiscal 1996 computed by
use of the treasury
stock method........... 76,111 76,111 76,111 76,111 76,111
Dilutive effect of stock
options and warrants
issued prior to fiscal
1996, computed by use
of the treasury stock
method................. 29,166 37,400 5,857 14,341 46,033
Dilutive effect of
option granted by
Company's Chairman,
computed by use of the
treasury stock method
(1).................... 127,274 180,001 202,599 241,899 --
--------- --------- --------- ---------- ----------
Dilutive effect of op-
tions and warrants..... 232,551 293,512 284,567 332,351 122,144
--------- --------- --------- ---------- ----------
Weighted average common
and common equivalent
shares outstanding..... 2,607,090 3,641,467 3,682,522 3,755,306 3,545,099
========= ========= ========= ========== ==========
Computation of earnings
per share
Net income /
Average common and
common equivalent
shares outstanding
Net income.............. $827,000 $839,000 $719,000 $1,304,000 $1,736,000
Earnings per share...... $ 0.32 $ 0.23 $ 0.20 $ 0.35 $ 0.49
</TABLE>
- --------
(1) Represents the dilutive effect of an option to purchase shares owned by
the Company's Chairman, granted by the Chairman to the Company's former
President.
<PAGE>
EXHIBIT 23(b)
WHEN THE COMPANY FILES ITS RESTATED CERTIFICATE OF INCORPORATION AND COMPLETES
A FIVE-FOR-ONE STOCK SPLIT AS DESCRIBED IN NOTE 2, WE WILL BE IN A POSITION
TO ISSUE THE FOLLOWING ACCOUNTANT'S CONSENT.
KPMG PEAT MARWICK LLP
APRIL 11, 1997
ACCOUNTANTS' CONSENT
The Board of Directors
World of Science, Inc.
We consent to the use of our report included herein and to the references to
our firm under the headings "Selected Financial Data" and "Experts" in the
Prospectus.
Rochester, New York
April , 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from World of
Science, Inc.'s financial statements for the year ended February 1, 1997 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-END> FEB-01-1997
<CASH> 2,014,253
<SECURITIES> 0
<RECEIVABLES> 54,339
<ALLOWANCES> 0
<INVENTORY> 6,927,037
<CURRENT-ASSETS> 9,749,810
<PP&E> 8,510,917
<DEPRECIATION> 3,527,199
<TOTAL-ASSETS> 15,273,528
<CURRENT-LIABILITIES> 3,931,408
<BONDS> 0
0
0
<COMMON> 34,230
<OTHER-SE> 10,446,145
<TOTAL-LIABILITY-AND-EQUITY> 15,273,528
<SALES> 44,562,851
<TOTAL-REVENUES> 44,562,851
<CGS> 28,629,721
<TOTAL-COSTS> 28,629,721
<OTHER-EXPENSES> 12,592,779
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 394,505
<INCOME-PRETAX> 2,945,846
<INCOME-TAX> 1,210,000
<INCOME-CONTINUING> 1,735,846
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,735,846
<EPS-PRIMARY> .49
<EPS-DILUTED> 0
</TABLE>
