<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 5, 1997
REGISTRATION NO. 333-25031
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
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 5999 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. [_]
----------------
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>
[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 the
Underwriters' over-allotment option has not been exercised. All share and per
share data have been retroactively adjusted to give effect to a five-for-one
stock split effective April 18, 1997. 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 May 31, 1997, the Company operated 49 permanent stores and 65 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 2,000 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 49 permanent
World of Science stores. The Company expects to open a total of approximately
12 permanent stores in fiscal 1997, of which five have been opened since the
beginning of the fiscal year, 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 65 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>
<C> <S>
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,
reduce indebtedness and for
working capital and other
general corporate purposes. See
"Use of Proceeds."
Proposed Nasdaq National Market symbol....... WOSI
</TABLE>
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(1) Based on the number of shares of Common Stock outstanding at May 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>
THREE MONTHS
FISCAL YEAR ENDED ENDED
--------------------------------------------------------------- ----------------------
JANUARY 31, JANUARY 30, JANUARY 29, JANUARY 28, FEBRUARY 1, MAY 4, MAY 3,
1993 1994 1995 1996 1997(1) 1996(1) 1997
----------- ----------- ----------- ----------- ----------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AND STORE OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales.............. $ 11,794 $ 23,153 $ 31,335 $ 37,265 $ 44,563 $ 5,562 $ 7,287
Cost of sales and
occupancy expenses.... 7,365 14,861 20,788 23,957 28,630 4,299 5,730
----------- ----------- ----------- ----------- ----------- ---------- ----------
Gross profit........... 4,429 8,292 10,547 13,308 15,933 1,263 1,557
Selling, general and
administrative
expenses.............. 2,978 6,785 9,048 10,680 12,593 2,214 3,001
----------- ----------- ----------- ----------- ----------- ---------- ----------
Operating income
(loss)................ 1,451 1,507 1,499 2,628 3,340 (951) (1,444)
Interest expense, net.. 44 68 320 418 394 23 25
----------- ----------- ----------- ----------- ----------- ---------- ----------
Income (loss) before
income taxes.......... 1,407 1,439 1,179 2,210 2,946 (974) (1,469)
Income tax expense
(benefit)............. 580 600 460 906 1,210 (399) (602)
----------- ----------- ----------- ----------- ----------- ---------- ----------
Net income (loss)...... $ 827 $ 839 $ 719 $ 1,304 $ 1,736 $ (575) $ (867)
=========== =========== =========== =========== =========== ========== ==========
Net income (loss) per
share(2).............. $ .32 $ .23 $ .20 $ .35 $ .49 $ (.16) $ (.24)
=========== =========== =========== =========== =========== ========== ==========
Weighted average number
of shares............. 2,607 3,641 3,683 3,755 3,545 3,554 3,542
STORE OPERATING DATA:
Selected Permanent
Store Data
Number of stores at
beginning of period... 17 23 27 33 37 37 44
Number of stores at end
of period............. 23 27 33 37 44 39 48
Total net sales........ $10,217,000 $12,720,000 $16,178,000 $20,241,000 $23,998,000 $3,479,000 $4,259,000
Percentage increase in
comparable store
net sales(3)(4)....... 4.2% 1.7% 2.9% 3.1% 3.5% 10.4% 4.9%
Total square footage at
end of period(5)...... 40,074 50,843 65,048 75,182 94,348 79,706 104,686
Average net sales per
square foot(3)(5)..... $ 307 $ 280 $ 274 $ 272 $ 275 $ 43 $ 42
Average net sales per
store(3)(5)........... $ 434,000 $ 495,000 $ 532,000 $ 544,000 $ 575,000 $ 89,000 $ 91,000
Selected Seasonal Store
Data
Number of stores at
beginning of period... 0 0 26 40 37 37 62
Peak number of stores
during period(6)...... 8 79 89 71 85 38 65
Total net sales........ $ 1,325,000 $10,323,000 $15,113,000 $17,019,000 $20,565,000 $2,083,000 $3,028,000
</TABLE>
<TABLE>
<CAPTION>
MAY 3, 1997
----------------------
ACTUAL AS ADJUSTED(7)
------- --------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................... $ 63 $ 9,720
Working capital......................................... 5,326 17,760
Total assets............................................ 16,892 26,549
Total debt, including capital lease obligations......... 3,657 322
Stockholders' equity.................................... 9,613 22,605
</TABLE>
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(1) The fiscal year ended February 1, 1997 consisted of 53 weeks as compared
with 52 weeks in all prior years presented. The three months ended May 4,
1996 reflects a fourteen-week period as compared with the thirteen-week
period ended May 3, 1997.
(2) 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.
(3) 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 and a thirteen-week fiscal quarter.
(4) 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.
(5) Average net sales per square foot and average net sales per store include
only stores open for the entire fiscal period. Total square footage at end
of period reflects the gross leased space of permanent stores open at the
end of the period.
(6) Reflects the greatest number of seasonal stores open at any one time during
the period, which is historically during the fourth quarter of a fiscal
year.
(7) Adjusted to give effect to the Offering (assuming an initial public
offering price of $9.00 per share) 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 the first fiscal quarter were, and for the second and third fiscal
quarters are likely to be, greater 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."
INABILITY 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 May 31, 1997, the Company
had 49 permanent stores and 65 seasonal stores in operation, primarily in the
eastern half of the United States. The Company currently plans to open a total
of 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
6
<PAGE>
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 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."
INABILITY TO MANAGE 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.
RECENT DISTRIBUTION CENTER RELOCATION
Because of the Company's store expansion plans, the Company recently
relocated to a larger distribution center located near the Company's corporate
headquarters. Although the relocation has to date occurred without any
material disruption to the Company's business, the Company has just commenced
operations from that facility and there can be no assurance that the Company
will not encounter delays or increased costs as a result of its recent
relocation. See "Business--Purchasing and Distribution."
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 33.7% 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
2,133,360 shares, including shares held by all Executive Officers and
Directors and certain stockholders, to 180-day lock-up agreements with the
representatives of the Underwriters. 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 $4.50 per share, assuming an initial public offering
price of $9.00 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 $13.0 million ($16.3 million if the over-allotment option
granted to the Underwriters is exercised in full) assuming an initial public
offering price of $9.00 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 Company also expects to use approximately $3.3
million to pay down the balances on its existing credit facilities, consisting
of a revolving line of credit in the amount of $2.7 million which bears
interest annually at the prime rate and matures on February 28, 1998, and a
revolving term credit facility in the amount of $670,000, which bears interest
annually at the prime rate plus .25% and matures on July 1, 1999. The proceeds
from these loans were used by the Company in the first fiscal quarter of 1997
to finance inventory and new store construction. The remaining net proceeds
will be used for working capital and for general corporate purposes, including
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 May 3,
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
$9.00 per share of Common Stock, less estimated underwriting discounts and
estimated offering expenses.
<TABLE>
<CAPTION>
MAY 3, 1997
-------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Line of credit, current installments of capital lease
obligations and current installments of long-term debt.... $ 2,950 $ 173
------- -------
Capital lease obligations and long-term debt, less current
installments.............................................. $ 707 $ 149
------- -------
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 50
Additional paid in capital................................. 2,703 15,679
Retained earnings.......................................... 6,876 6,876
------- -------
Total stockholders' equity............................... $ 9,613 $22,605
------- -------
Total capitalization..................................... $13,270 $22,927
======= =======
</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 May 3, 1997, was approximately $9.6 million, or $2.81 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 May 3, 1997, would have been approximately $22.6 million, or
$4.50 per share. This represents an immediate increase in net tangible book
value of $1.69 per share to existing stockholders and an immediate dilution in
net tangible book value of $4.50 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......................................................... $9.00
Net tangible book value per share of Common Stock at May 3,
1997........................................................ $2.81
Increase per share attributable to new investors............. 1.69
-----
Net tangible book value per share of Common Stock adjusted
for the Offering............................................ 4.50
-----
Immediate dilution per share of Common Stock to new investors.. $4.50
=====
</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 16.0% $ .80
New investors(1)........... 1,600,000 31.9 14,400,000 84.0 9.00
--------- ----- ----------- -----
Total...................... 5,022,955 100.0% $17,137,250 100.0%
========= ===== =========== =====
</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
for the three months ended May 3, 1997 and May 4, 1996 have been derived from
the Company's unaudited financial statements. In the opinion of management,
the unaudited financial statements have been prepared on the same basis as the
audited financial statements and include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the
financial position and the results of operations as of and for these periods.
Operating results for the three months ended May 3, 1997 are not necessarily
indicative of the results that may be expected for the full year or for any
other period. The store operating data set forth below are unaudited. 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 THREE MONTHS ENDED
--------------------------------------------------------------- ----------------------
JANUARY 31, JANUARY 30, JANUARY 29, JANUARY 28, FEBRUARY 1, MAY 4, MAY 3,
1993 1994 1995 1996 1997(1) 1996(1) 1997
----------- ----------- ----------- ----------- ----------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AND STORE OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales.............. $ 11,794 $ 23,153 $ 31,335 $ 37,265 $ 44,563 $ 5,562 $ 7,287
Cost of sales and
occupancy expenses.... 7,365 14,861 20,788 23,957 28,630 4,299 5,730
----------- ----------- ----------- ----------- ----------- ---------- ----------
Gross profit........... 4,429 8,292 10,547 13,308 15,933 1,263 1,557
Selling, general and
administrative
expenses.............. 2,978 6,785 9,048 10,680 12,593 2,214 3,001
----------- ----------- ----------- ----------- ----------- ---------- ----------
Operating income
(loss)................ 1,451 1,507 1,499 2,628 3,340 (951) (1,444)
Interest expense, net.. 44 68 320 418 394 23 25
----------- ----------- ----------- ----------- ----------- ---------- ----------
Income (loss) before
income taxes.......... 1,407 1,439 1,179 2,210 2,946 (974) (1,469)
Income tax expense
(benefit)............. 580 600 460 906 1,210 (399) (602)
----------- ----------- ----------- ----------- ----------- ---------- ----------
Net income (loss)...... $ 827 $ 839 $ 719 $ 1,304 $ 1,736 $ (575) $ (867)
=========== =========== =========== =========== =========== ========== ==========
Net income (loss) per
share(2).............. $ .32 $ .23 $ .20 $ .35 $ .49 $ (.16) $ (.24)
=========== =========== =========== =========== =========== ========== ==========
Weighted average number
of shares............. 2,607 3,641 3,683 3,755 3,545 3,554 3,542
STORE OPERATING DATA:
Selected Permanent
Store Data
Number of stores at
beginning of period... 17 23 27 33 37 37 44
Number of stores at end
of period............. 23 27 33 37 44 39 48
Total net sales........ $10,217,000 $12,720,000 $16,178,000 $20,241,000 $23,998,000 $3,479,000 $4,259,000
Percentage increase in
comparable store net
sales(3)(4)........... 4.2% 1.7% 2.9% 3.1% 3.5% 10.4% 4.9%
Total square footage at
end of period(5)...... 40,074 50,843 65,048 75,182 94,348 79,706 104,686
Average net sales per
square foot(3)(5)..... $ 307 $ 280 $ 274 $ 272 $ 275 $ 43 $ 42
Average net sales per
store(3)(5)........... $ 434,000 $ 495,000 $ 532,000 $ 544,000 $ 575,000 $ 89,000 $ 91,000
Selected Seasonal Store
Data
Number of stores at
beginning of period... 0 0 26 40 37 37 62
Peak number of stores
during period(6)...... 8 79 89 71 85 38 65
Total net sales........ $ 1,325,000 $10,323,000 $15,113,000 $17,019,000 $20,565,000 $2,083,000 $3,028,000
<CAPTION>
JANUARY 31, JANUARY 30, JANUARY 29, JANUARY 28, FEBRUARY 1, MAY 4, MAY 3,
1993 1994 1995 1996 1997 1996 1997
----------- ----------- ----------- ----------- ----------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents........... $ 2,196 $ 727 $ 655 $ 1,620 $ 2,014 $ 49 $ 63
Working capital........ 4,495 4,579 4,479 4,972 5,818 4,527 5,326
Total assets........... 6,650 8,879 10,615 12,855 15,274 13,476 16,892
Total debt, including
capital lease
obligations........... 66 369 563 437 370 2,764 3,657
Stockholders' equity... 5,800 6,640 7,441 8,745 10,480 8,170 9,613
</TABLE>
- --------
(1) The fiscal year ended February 1, 1997 consisted of 53 weeks as compared
with 52 weeks in all prior years presented. The three months ended May 4,
1996 reflects a fourteen-week period as compared with the thirteen-week
period ended May 3, 1997.
(2) 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.
(3) 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 and a thirteen-week fiscal quarter.
(4) 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.
(5) Average net sales per square foot and average net sales per store include
only stores open for the entire fiscal period. Total square footage at end
of period reflects the gross leased space of permanent stores open at the
end of the period.
(6) Reflects the greatest number of seasonal stores open at any one time
during the period, which is historically during the fourth quarter of a
fiscal year.
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 2,000 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 49 permanent World of Science stores as of May 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, five of which have already opened, 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. Comparable store net sales in the first quarter of
fiscal 1997 increased 4.9% and the number of comparable stores was 37.
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 OF
PERCENTAGE OF NET SALES NET SALES FOR
FOR FISCAL YEAR ENDED THREE MONTHS ENDED
----------------------------------- ----------------------
JANUARY 29, JANUARY 28, FEBRUARY 1, MAY 4, MAY 3,
1995 1996 1997(1) 1996(1) 1997
----------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales............... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales and
occupancy expenses..... 66.3 64.3 64.2 77.3 78.6
----- ----- ----- --------- ---------
Gross profit............ 33.7 35.7 35.8 22.7 21.4
Selling, general and ad-
ministrative expenses.. 28.9 28.7 28.3 39.8 41.2
----- ----- ----- --------- ---------
Operating income
(loss)................. 4.8 7.0 7.5 (17.1) (19.8)
Interest expense, net... 1.0 1.1 0.9 0.4 0.3
----- ----- ----- --------- ---------
Income (loss) before
income taxes........... 3.8 5.9 6.6 (17.5) (20.1)
Income tax expense (ben-
efit).................. 1.5 2.4 2.7 (7.2) (8.2)
----- ----- ----- --------- ---------
Net income (loss)....... 2.3% 3.5% 3.9% (10.3)% (11.9)%
===== ===== ===== ========= =========
</TABLE>
- --------
(1) The fiscal year ended February 1, 1997 consisted of 53 weeks as compared
with 52 weeks in all prior years presented. The three months ended May 4,
1996 reflects a fourteen-week period as compared with the thirteen-week
period ended May 3, 1997.
Comparison of Three Months Ended May 3, 1997 to Three Months Ended May 4,
1996
Net Sales. Net sales increased to $7.3 million from $5.6 million, an
increase of $1.7 million, or 30.4%. The first quarter of fiscal 1997
represented a thirteen-week period, as compared to a fourteen-week period in
fiscal 1996. Of the $1.7 million increase in net sales: $778,000 was
attributable to four new permanent stores opened during the first quarter of
fiscal 1997 and seven new permanent stores not in operation the full quarter
of the prior year; $2,000 was attributable to increased comparable store net
sales; and $945,000 was attributable to net sales derived from an increased
number of seasonal stores operated during the first quarter of fiscal 1997.
Comparable store net sales for the Company's permanent stores increased 4.9%
for the thirteen-week period ended May 3, 1997.
Cost of Sales and Occupancy Expenses. Cost of sales and occupancy expenses
increased to $5.7 million from $4.3 million, an increase of 32.6%. As a
percentage of net sales, it increased to 78.6% from 77.3%. The dollar increase
was due to increased store occupancy costs from more stores in operation in
the first quarter of fiscal 1997, and increased costs of sales due to higher
net sales. The increase as a percentage of net sales of 1.3% was attributable
to a 0.3% decrease in margins for products sold and a 1.0% increase in
occupancy expenses caused by the comparison of a thirteen-week period in the
first quarter of fiscal 1997 to a fourteen-week period in the first quarter of
fiscal 1996.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $3.0 million from $2.2 million, an
increase of 36.4%. Selling, general and administrative expenses increased to
support higher net sales levels and an increased number of permanent and
seasonal stores. As a percentage of net sales it increased to 41.2% from
39.8%, primarily as a result of a severance payment to a former executive
officer.
Interest Expense, Net. Net interest expense increased to $25,000 in the
first quarter of fiscal 1997 from $23,000 in the first quarter of fiscal 1996,
primarily as a result of increased new permanent store construction borrowing.
15
<PAGE>
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.
Cost 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 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.
Cost 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.
16
<PAGE>
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 and the first quarter of fiscal 1997. 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
FISCAL 1995 FISCAL 1996 1997
---------------------------------- ---------------------------------- -------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH FIRST
QUARTER 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> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $ 4,192 $5,485 $ 5,718 $21,870 $5,562 $6,370 $ 6,925 $25,706 $ 7,287
Gross profit............ 849 1,364 1,311 9,784 1,263 1,558 1,469 11,643 1,557
Operating income
(loss)................. (1,236) (724) (1,222) 5,810 (951) (825) (1,655) 6,771 (1,444)
Net income (loss)....... (751) (502) (810) 3,367 (575) (545) (1,069) 3,925 (867)
Net income (loss) per
share(1)............... $ (.20) $ (.13) $ (.22) $ .90 $ (.16) $ (.15) $ (.30) $ 1.10 $ (.24)
STORE OPERATING DATA:
New permanent stores
opened during period... 3 0 1 0 2 1 3 1 4
Permanent stores
operated at end of
period................. 36 36 37 37 39 40 43 44 48
Peak number of seasonal
stores during period... 40 40 66 71 38 46 75 85 65
</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.
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. Cash flow utilized by operations increased to $4.8 million in the first
quarter of fiscal 1997 from $3.5 million in the first quarter of fiscal 1996
due to a greater first quarter net loss, increased levels of inventories and
other working capital items in the first quarter of fiscal 1997.
17
<PAGE>
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
Company's maximum borrowing capacity under this line was $10.7 million in
fiscal 1996, $10.1 million in fiscal 1995 and $9.4 million in fiscal 1994. 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, and, as of May 3, 1997,
there was a principal balance of $2.7 million under the revolving line of
credit and a principal balance of $670,000 under the revolving term credit
facility. 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 $115,000 at May 3, 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 May 3, 1997, outstanding capital lease obligations and total
debt amounted to $3.7 million, of which $207,000 represented capital lease
obligations. The capital lease obligations have terms expiring in fiscal 1999.
The increased borrowings in the first quarter of fiscal 1997 were used to
purchase inventory after the holiday selling season and to finance new store
construction.
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. In addition, 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 has invested 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.
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<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 May 31, 1997, the Company operated 49 permanent stores and 65
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 2,000 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.
. 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
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<PAGE>
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 49 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, five
stores were opened in February through May, three 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 65 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 the second quarter of fiscal 1997, the Company relocated
its distribution facility to a larger facility. The Company also plans to
enhance its point-of-sale system in fiscal 1997. 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-
21
<PAGE>
downs to a lesser degree than other retailers. The price range of products
carried by World of Science stores 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. 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 recently relocated to a 110,000 square foot distribution center
in Rochester, New York, less than one mile from the Company's corporate
offices, from which it conducts all of its inventory management, receiving and
shipping. The Company had previously used a 55,000 square foot distribution
center and had 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. Management
believes that its new distribution facility will eliminate the need to lease
additional inventory storage space in anticipation of holiday selling seasons
through fiscal 1999. 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.
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.
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
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<PAGE>
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 2,000 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.
23
<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 MAY 31, 1997 AT MAY 31, 1997 HOLIDAY SELLING SEASON
----- ---------------- --------------- ----------------------
<S> <C> <C> <C>
Alabama............. 1 - 2
Arkansas............ - 1 1
Connecticut......... 3 1 2
Delaware............ 1 - -
Florida............. 6 6 6
Georgia............. - 2 3
Illinois............ - 2 2
Indiana............. 1 - 1
Iowa................ - 1 1
Kentucky............ - 1 2
Louisiana........... - 2 1
Maryland............ 2 3 3
Massachusetts....... 4 3 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 11 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 1
West Virginia....... 1 2 2
Wisconsin........... - 1 1
--- --- ---
Total............... 49 65 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 May 31, 1997, the Company's 49 permanent stores occupied 106,848 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 store leases generally
provide for percentage rent based upon sales. See Note 4 of the Notes to the
Company's Financial Statements.
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<PAGE>
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 May 3, 1997, the Company employed 215 regular full-time employees, of
which 169 were salaried staff and 46 were hourly workers. The Company also
employed 632 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
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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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.............. 55 Secretary, Director
Thomas A. James................ 55 Director
Thomas J. Scanlon.............. 50 Director
Other Key Employees
Kathryn A. Bull................ 40 Regional Manager
Alden B. Chevlen............... 46 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
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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 Controller 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 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.
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.
The Board of Directors of the Company has an Audit Committee consisting of
three members (Messrs. Klaucke, Scanlon and James). 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
27
<PAGE>
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 $100,000 from the Company in fiscal 1996 (the "Named
Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION(1) COMPENSATION AWARDS
--------------------------------------------
NAME AND PRINCIPAL SALARY BONUS SECURITIES UNDERLYING
POSITION FISCAL YEAR ($) ($)(2) OPTIONS/SARS
- ------------------ ----------- ----------- --------------------------------
<S> <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 $ 99,600
Christine M. Luchi...... 25,000 22.7% $2.50 August 5, 2006 $ 39,300 $ 99,600
</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 $105,300 $ 0
Charles A. Callahan......... 15,000 20,000 $104,500 $130,000
Christine M. Luchi.......... 15,000 20,000 $104,500 $130,000
</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 $9.00 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. Under applicable law, a sale of all or substantially all of
the assets would generally involve a sale made outside the usual or regular
course of business and involving disposition of the assets essential to the
business actually conducted by 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. The agreement pursuant to which the foregoing
rights were granted terminates as of the closing of the Offering. 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." This voting agreement terminates upon the closing of
the Offering.
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, and will in any event terminate as of the closing of the Offering.
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. This voting agreement terminates
upon the closing of the Offering.
The Company believes that the related party transactions described above are
on terms no less favorable than if the transactions were entered into with
unrelated parties.
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. Except as indicated in the
footnotes to the table, none of the Selling Stockholders has held any position
or office or had any other material relationship with the Company within the
past three years.
<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)........... 38,335 1.1% 10,000 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)... 1,838,720 52.7% 123,890 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 * 2,555 12,445 *
Todd Callen............. 1,665 * 1,665 -- --
Franklin Crowder & Susan
Allport................ 27,500 * 10,000 17,500 *
Gaston V. DiBello....... 5,000 * 1,275 3,725 *
Robert DiRomualdo....... 25,000 * 25,000 -- --
Robert G. Fisher........ 30,000 * 12,745 17,255 *
Frank Fleischer......... 3,750 * 960 2,790 *
John & Iva Ann Francis.. 18,750 * 4,465 14,285 *
James Froehler(11)...... 11,900 * 11,900 -- --
Andrew Glanz............ 5,000 * 5,000 -- --
Elliot Glanz............ 15,000 * 5,000 10,000 *
Benjamin A. Goldman
Trust.................. 10,000 * 5,000 5,000 *
Margot A. Green......... 13,890 * 2,780 11,110 *
Harbus Investors,
Inc. .................. 13,890 * 13,890 -- --
Jefferson Harkins....... 10,000 * 10,000 -- --
Larry & Molly Harris.... 5,000 * 5,000 -- --
Donna Hodak............. 2,500 * 1,275 1,225 *
Pamela K. Hodak......... 2,500 * 1,275 1,225 *
Tony Hodak.............. 2,500 * 1,275 1,225 *
Jeffrey Huenink......... 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>
R.K. Johnson............ 18,500 * 4,250 14,250 *
Allan Katz.............. 10,000 * 10,000 -- --
Lincoln Kinnicutt....... 18,500 * 9,435 9,065 *
Harley Kushel........... 2,500 * 255 2,245 *
L. Wayne LeRoux......... 10,000 * 10,000 -- --
Dorothy Livadas......... 6,000 * 3,060 2,940 *
Joseph E. Lundy......... 10,000 * 2,000 8,000 *
David A. Metzger........ 20,000 * 6,600 13,400 *
Frederick W. Metzger.... 153,000 4.5% 20,000 133,000 2.6%
Henry N. Metzger........ 40,700 1.2% 16,200 24,500 *
Gabriel S. Miller
Trust.................. 18,750 * 10,000 8,750 *
Marc H. Miller Trust.... 18,750 * 10,000 8,750 *
Ronald L. Miller, as
Settler under Declara-
tion of Trust.......... 71,250 2.1% 18,165 53,085 1.1%
Sheila L. Miller........ 10,000 * 10,000 -- --
Michael & Junia
Milvain................ 10,000 * 7,000 3,000 *
Alton R. Neal........... 8,500 * 4,330 4,170 *
Marvin A. Posner........ 5,000 * 5,000 -- --
William J. Schifino..... 8,750 * 3,315 5,435 *
1770-1780 East Ridge
Road, Inc. ............ 37,930 1.1% 6,445 31,485 *
Edith Sherdlower........ 10,000 * 10,000 -- --
Sheila Szewczuk......... 2,500 * 1,275 1,225 *
John P. Uphoff, Trust-
ee..................... 11,000 * 2,555 8,445 *
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. Of
the shares being sold by Mr. Klaucke, 98,890 are owned jointly with his
spouse, and of the shares beneficially owned after the Offering by Mr.
Klaucke, 138,250 are owned jointly with his spouse.
(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. M&T Capital is a
party to certain agreements with the Company. See "Certain Relationships
and Related Transactions".
(11) Mr. Froehler served as President of the Company from September 1990 until
January 1996 and as a director of the Company from September 1990 to
April 1996.
33
<PAGE>
DESCRIPTION OF CAPITAL STOCK
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 82 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 American Stock Transfer & Trust Company.
Listing. The Company's Common Stock has been approved for listing 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.
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.
34
<PAGE>
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 "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."
35
<PAGE>
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 54,130 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.
The holders of 2,133,360 Previously Issued Shares, including all Executive
Officers and Directors, 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 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.
36
<PAGE>
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 (including options to acquire 65,000 shares
that are subject to the Lock-up Agreements). 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 the underwriters listed below (the
"Underwriters"), for whom A.G. Edwards & Sons, Inc. and Raymond James &
Associates, Inc. are acting as representatives (the "Representatives"), 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 and holders of 2,133,360 Previously Issued Shares, including all
Executive Officers and Directors, have entered into Lock-up Agreements
pursuant to which they have agreed 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.
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.
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
39
<PAGE>
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. The summaries
contained in this Prospectus concerning information included in the
Registration Statement, or in any exhibits thereto, are qualified in their
entirety by reference to such information or exhibit. 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, February 1, 1997 and May 3, 1997
(unaudited).............................................................. F-3
Statements of Operations for the years ended January 29, 1995, January 28,
1996 and February 1, 1997 and for the three months ended May 4, 1996 (un-
audited) and May 3, 1997 (unaudited)..................................... F-4
Statements of Stockholders' Equity for the years ended January 29, 1995,
January 28, 1996 and February 1, 1997 and for the three months ended May
3, 1997 (unaudited)...................................................... F-5
Statements of Cash Flows for the years ended January 29, 1995, January 28,
1996 and February 1, 1997 and for the three months ended May 4, 1996 (un-
audited) and May 3, 1997 (unaudited)..................................... F-6
Notes to Financial Statements............................................. F-7
</TABLE>
F-1
<PAGE>
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
operations, 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.
KPMG Peat Marwick LLP
Rochester, New York May 30, 1997
F-2
<PAGE>
WORLD OF SCIENCE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 28, FEBRUARY 1, MAY 3,
1996 1997 1997
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS (UNAUDITED)
Current assets:
Cash and cash equivalents................ $ 1,620,043 $ 2,014,253 $ 63,139
Accounts receivable...................... 65,494 54,339 228,385
Inventories.............................. 5,971,841 6,927,037 9,310,429
Prepaid expenses and other current as-
sets.................................... 249,701 386,181 635,706
Taxes receivable......................... -- -- 602,000
Deferred income taxes.................... 335,000 368,000 368,000
----------- ----------- -----------
Total current assets................... 8,242,079 9,749,810 11,207,659
Property, equipment and leasehold improve-
ments, net................................ 4,331,785 4,983,718 5,144,021
Deferred income taxes...................... 281,000 540,000 540,000
----------- ----------- -----------
$12,854,864 $15,273,528 16,891,680
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit........................... $ -- $ -- $ 2,665,000
Current installments of long-term debt... 64,243 69,161 182,114
Current installments of obligations under
capital leases.......................... 87,239 101,620 102,801
Accounts payable......................... 1,353,873 1,569,226 2,262,770
Accrued expenses......................... 672,656 636,304 460,556
Accrued sales taxes...................... 84,517 91,670 119,279
Income taxes payable..................... 1,007,099 1,463,427 89,146
----------- ----------- -----------
Total current liabilities.............. 3,269,627 3,931,408 5,881,666
Long-term debt, excluding current install-
ments..................................... 137,292 68,456 603,059
Obligations under capital leases, excluding
current installments...................... 148,314 130,399 104,250
Accrued occupancy expense.................. 555,102 662,890 689,628
----------- ----------- -----------
Total liabilities...................... 4,110,335 4,793,153 7,278,603
----------- ----------- -----------
Commitments and contingencies (notes 4, 6
and 8)
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 outstand-
ing 3,422,955 shares.................... 34,230 34,230 34,230
Additional paid-in capital............... 2,703,020 2,703,020 2,703,020
Retained earnings........................ 6,007,279 7,743,125 6,875,827
----------- ----------- -----------
Total stockholders' equity............. 8,744,529 10,480,375 9,613,077
----------- ----------- -----------
$12,854,864 $15,273,528 $16,891,680
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
WORLD OF SCIENCE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
----------------------------------- ----------------------
JANUARY 29, JANUARY 28, FEBRUARY 1, MAY 4, MAY 3,
1995 1996 1997 1996 1997
----------- ----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............... $31,334,716 $37,265,071 $44,562,851 $5,561,532 $7,286,582
Cost of sales and occu-
pancy expenses......... 20,788,259 23,956,946 28,629,721 4,298,765 5,729,742
----------- ----------- ----------- ---------- ----------
Gross profit.......... 10,546,457 13,308,125 15,933,130 1,262,767 1,556,840
Selling, general and ad-
ministrative
expenses............... 9,047,698 10,680,612 12,592,779 2,214,267 3,001,438
----------- ----------- ----------- ---------- ----------
Operating income
(loss)............... 1,498,759 2,627,513 3,340,351 (951,500) (1,444,598)
Interest expense, net... 319,927 417,846 394,505 23,072 24,700
----------- ----------- ----------- ---------- ----------
Income (loss) before
income
taxes................ 1,178,832 2,209,667 2,945,846 (974,572) (1,469,298)
Income tax expense (ben-
efit).................. 460,000 906,000 1,210,000 (399,575) (602,000)
----------- ----------- ----------- ---------- ----------
Net income (loss)..... $ 718,832 $ 1,303,667 $ 1,735,846 $ (574,997) $ (867,298)
=========== =========== =========== ========== ==========
Net income (loss) per
share................ $ 0.20 $ 0.35 $ 0.49 $ (0.16) $ (0.24)
=========== =========== =========== ========== ==========
</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
Net loss (unaudited).... -- -- -- (867,298) (867,298)
--------- ------- ---------- ---------- -----------
Balance at May 3, 1997
(unaudited)............ 3,422,955 $34,230 $2,703,020 $6,875,827 $ 9,613,077
========= ======= ========== ========== ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
WORLD OF SCIENCE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
------------------------------------- ------------------------
JANUARY 29, JANUARY 28, FEBRUARY 1, MAY 4, MAY 3,
1995 1996 1997 1996 1997
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Cash flows from operating (UNAUDITED)
activities:
Net income (loss)....... $ 718,832 $ 1,303,667 $ 1,735,846 $ (574,997) $ (867,298)
Adjustments to reconcile
net income (loss) to
net cash provided by
(used in) operating
activities:
Depreciation and amor-
tization.............. 674,295 948,952 1,280,266 235,836 295,485
Change in assets and
liabilities:
(Increase) decrease
in:
Accounts receivable.. 255,605 79,628 11,155 (202,161) (174,046)
Inventories.......... (503,814) (613,027) (955,196) (1,293,424) (2,383,392)
Prepaid expenses and
other current
assets.............. (100,376) 48,398 (136,480) (132,339) (249,525)
Taxes receivable..... -- -- -- (399,575) (602,000)
Deferred income tax-
es.................. (225,000) (134,000) (292,000) -- --
(Decrease) increase
in:
Accounts payable..... 391,260 437,005 215,353 120,856 693,544
Accrued expenses..... 148,473 189,561 (36,352) (412,612) (175,748)
Accrued sales taxes.. 93,354 (63,303) 7,153 1,511 27,609
Income taxes pay-
able................ (52,731) 374,122 456,328 (939,642) (1,374,281)
Accrued occupancy ex-
pense............... 160,038 124,828 107,788 73,077 26,738
----------- ----------- ----------- ----------- -----------
Net cash provided by
(used in)
operating activi-
ties............... 1,559,936 2,695,831 2,393,861 (3,523,470) (4,782,914)
----------- ----------- ----------- ----------- -----------
Cash flows from investing
activities-- capital
expenditures, net of mi-
nor disposals........... (1,614,615) (1,579,030) (1,691,854) (374,450) (455,788)
----------- ----------- ----------- ----------- -----------
Cash flows from financing
activities:
Proceeds from issuance
of common stock........ 82,500 -- -- -- --
Proceeds from issuance
of line of credit...... -- -- -- 2,000,000 2,665,000
Proceeds from issuance
of long-term debt...... 725,000 -- -- 370,000 670,000
Principal payments on
long-term debt......... (783,749) (59,349) (63,918) (20,815) (22,444)
Principal payments on
capital leases......... (40,587) (92,545) (243,879) (22,754) (24,968)
----------- ----------- ----------- ----------- -----------
Net cash provided by
(used in) financing ac-
tivities................ (16,836) (151,894) (307,797) 2,326,431 3,287,588
----------- ----------- ----------- ----------- -----------
Net increase (decrease)
in cash and cash
equivalents............. (71,515) 964,907 394,210 (1,571,489) (1,951,114)
Cash and cash equivalents
at beginning of period.. 726,651 655,136 1,620,043 1,620,043 2,014,253
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents
at end of period........ $ 655,136 $ 1,620,043 $ 2,014,253 $ 48,554 $ 63,139
=========== =========== =========== =========== ===========
Supplemental disclosures
of cash flow informa-
tion:
Cash paid during the pe-
riod for:
Interest............... $ 321,987 $ 430,873 $ 405,624 $ 26,261 $ 29,514
Income taxes........... $ 737,731 $ 665,878 $ 1,045,671 $ 939,642 $ 1,374,281
=========== =========== =========== =========== ===========
Noncash investing and
financing activity:
Acquisition of equip-
ment under a capital
lease................. $ 293,117 $ 26,350 $ 240,345 $ 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. There were 14 weeks in the three months
ended May 4, 1996 and 13 weeks in the three months ended May 3, 1997.
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 (loss) per share is calculated using the weighted average number
of shares outstanding during the period 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 9. 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 18, 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 and 3,554,099 and
3,542,099 for the three months ended May 4, 1996 and May 3, 1997,
respectively. Primary and fully diluted earnings per share are the same for
fiscal years 1994, 1995 and 1996 and the interim periods ended May 4, 1996 and
May 3, 1997.
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.
Unaudited Interim Financial Information
The interim financial data included in these financial statements is
unaudited; however, in the opinion of management, such financial data includes
all adjustments of a normal recurring nature necessary for a fair presentation
of the Company's financial condition and results of operations.
(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 which was filed
and became effective on April 18, 1997.
The Company expects that the net proceeds from the initial public offering
will be approximately $13.0 million at a per share price of $9 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 May 30, 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 $ 5,920,766
1998................................................ 115,614 4,167,798
1999................................................ 12,495 3,976,295
2000................................................ -- 3,610,658
2001................................................ -- 3,442,934
After 2001.......................................... -- 11,109,150
-------- -----------
Total minimum lease payments........................ 244,527 $32,227,601
===========
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
640,000 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 400,000 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.
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 in both fiscal 1994
and 1995.
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 OF-
FERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICI-
TATION OF ANY OFFER TO BUY THE SHARES OF COMMON STOCK BY ANYONE IN ANY JURIS-
DICTION 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, UNDER 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.................................................................. 19
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................................................................... 39
Available Information..................................................... 39
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 ADDITION
TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRIT-
ERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2,600,000 SHARES
LOGO
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............................... 29,058
Legal Fees and Expenses.......................................... 130,000
Accountants Fees and Expenses.................................... 100,000
Printing and Engraving Fees...................................... 100,000
Blue Sky Fees and Expenses....................................... 1,000
Transfer Agent and Registrar Fee and Expenses.................... 3,000
Miscellaneous.................................................... 24,392
--------
Total.......................................................... $400,000
========
</TABLE>
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 Lease Agreement dated as of September 11, 1968 between the Company and
Genesee Valley Regional Market Authority, together with all amendments
thereto.
10.6 Lease Agreement dated as of March 29, 1994 between the Company and BF
Realty Investors Rochester II Limited Partnership.
10.7 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>
- --------
* Previously Filed.
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
AMENDMENT TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF ROCHESTER, STATE OF NEW
YORK ON JUNE 5, 1997.
World of Science, Inc.
/s/ Fred H. Klaucke
By: _________________________________
President and Chief Executive
Officer
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
- ------------------------------------- Executive Officer, June 5, 1997
FRED H. KLAUCKE Chairman of the
Board
/s/ Charles A. Callahan Vice President of June 5, 1997
- ------------------------------------- Finance, Chief
CHARLES A. CALLAHAN Financial Officer
and Assistant
Secretary
(Principal
Accounting Officer)
*
- ------------------------------------- Director
THOMAS A. JAMES
*
- ------------------------------------- Director
RICHARD B. CALLEN
*
- ------------------------------------- Director
THOMAS J. SCANLON
* By
/s/ Fred H. Klaucke June 5, 1997
---------------------------------
FRED H. KLAUCKE, AS ATTORNEY-IN-FACT
II-4
<PAGE>
EXHIBIT INDEX
<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 Lease Agreement dated as of September 11, 1968 between the Company and
Genesee Valley Regional Market Authority, together with all amendments
thereto.
10.6 Lease Agreement dated as of March 29, 1994 between the Company and BF
Realty Investors Rochester II Limited Partnership.
10.7 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>
- --------
* Previously Filed.
<PAGE>
EXHIBIT 4
NUMBER SHARES
- --------------- ---------------
W
- --------------- ---------------
World of Science, Inc.
INCORPORATED UNDER THE LAWS OF COMMON STOCK
THE STATE OF NEW YORK $.01 PAR VALUE
CUSIP 981500 10 1
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, $.01 PAR VALUE, OF
World of Science, Inc. transferable upon the books of the Corporation by the
holder hereof in person or by duly authorized attorney upon surrender of this
certificate properly endorsed. This certificate and the shares represented
hereby are subject to the laws of the State of New York and to the Certificate
of Incorporation and the By-laws of the Corporation as from time to time
amended.
This certificate is not valid until countersigned and registered by the
Transfer Agent and Registrar.
IN WITNESS WHEREOF, World of Science, Inc. has caused its facsimile
corporate seal and the facsimile signatures of its duly authorized officers to
be hereunto affixed.
CERTIFICATE OF STOCK
[WORLD OF SCIENCE SEAL APPEARS HERE]
Dated:
/s/ [SIGNATURE APPEARS HERE] /s/ [SIGNATURE APPEARS HERE]
SECRETARY PRESIDENT
AUTHORIZED SIGNATURE
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT AND REGISTRAR
BY
<PAGE>
The Corporation is authorized to issue more than one class or series of stock.
Upon written request the Corporation will furnish without charge to each
stockholder a copy of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
The following abbreviations, when used in the Inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT-- Custodian
-------------------
TEN ENT - as tenants by the entireties (Cust) (Minor)
under Uniform Gifts to Minors
JT TEN - as Joint tenants with right of
survivorship and not as tenants Act
in common -------------------------
(State)
Additional abbreviations may also be used though not in the above
list.
For value received _______ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------- Shares
of the capital stock represented by the within Certificate and do hereby
irrevocably constitute and appoint ____________________________________________,
Attorney to transfer the said stock on the books of the within named Corporation
with full power of substitution in the premises.
Dated
----------------------------------------
NOTICE. THE SIGNATURE TO THE ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
- ----------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY
AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN
ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM). PURSUANT TO
S.E.C. RULE 17Ad-15
<PAGE>
EXHIBIT 5
June 5, 1997
World of Science, Inc.
900 Jefferson Road
Building Four
Rochester, New York 14623
Re: Registration Statement on Form S-1
Ladies and Gentlemen:
You have requested our opinion in connection with the Registration Statement
on Form S-1 (the "Registration Statement") filed by World of Science, Inc.
(the "Company") with the Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "Act"), in connection with the
Company's shares of common stock, par value $.01 per share (the "Common
Stock"), 1,600,000 shares of which are being offered and sold by the Company
and 1,000,000 shares of which are being offered and sold by certain
stockholders of the Company (the "Selling Stockholders"). The shares of Common
Stock to be sold by the Selling Stockholders, together with the shares of
Common Stock to be sold by the Company are herein called the "Shares."
Capitalized terms, unless otherwise defined herein, shall have the meanings
set forth in the Registration Statement.
In connection with this opinion, we have examined the Registration
Statement, the Certificate of Incorporation of the Company, the Bylaws of the
Company, certificates of public officials and officers of the Company and such
other documents and records as we have deemed necessary or appropriate for
purposes of our opinion.
Based on the foregoing, and subject to the qualifications and assumptions
referred to herein, we are of the opinion that:
1. The Company is a corporation validly existing and in good standing
under the laws of the State of New York.
2. The Shares, when sold, will be legally issued, fully paid and
nonassessable.
We have assumed the authenticity of all documents submitted to us as
originals, the conformity to the original documents of all documents submitted
to us as copies, and the truth of all facts recited in all relevant documents.
The opinions set forth above are limited to the laws of the State of New
York and the federal laws of the United States.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the heading
"Legal Matters" in the Prospectus included in the Registration Statement.
Very truly yours,
HARRIS BEACH & WILCOX LLP
/s/ Thomas E. Willett
By ______________________________
Thomas E. Willett, Member of the
Firm
<PAGE>
EXHIBIT 10.3
WORLD OF SCIENCE, INC.
1993 EMPLOYEE STOCK OPTION PLAN
World of Science, Inc. (the "Company") hereby establishes the 1993 Stock
Option Plan (the "Plan"). The purpose of the Plan is to advance the interest of
the Company and its stockholders by providing a means by which the Company shall
be able to attract and retain competent key employees and nonemployee
directors, consultants and advisors and to provide such persons with an
opportunity to participate in the increased value of the Company which their
effort, initiative, and skill have helped produce.
1. Authority to grant options. The Board of Directors of the Company
--------------------------
(the "Board") may from time to time in its discretion grant to eligible persons
options to purchase shares of the Common Stock of the Corporation on the terms
and subject to the conditions hereinafter provided. The aggregate number of
shares which may hereafter be issued pursuant to the exercise of options granted
hereunder shall not exceed 515,000 shares of Common Stock. The shares shall be
made available from authorized and unissued Common Stock or from Common Stock
issued and held in the treasury of the Corporation, as shall be determined by
the Board.
2. Administration. Subject to the specific provisions hereinafter set
--------------
forth, this Plan shall be administered by the Board. The Board shall have full
power and authority to construe, interpret and administer the Plan and to make
determinations which shall be final, conclusive and binding upon all persons.
The Board shall determine whether the option granted shall be an "incentive
stock option" within the meaning of Section 422 of the Internal Revenue Code or
an option which is not an incentive stock option ("nonqualified option"), to fix
the terms upon which, the time or times at or within which, and the price or
prices at which any such shares may be purchased from the Company upon the
exercise of such option, which terms, time or times and price or prices shall,
in every case, be set forth or incorporated by reference in the instrument or
instruments evidencing such option.
1
<PAGE>
3. Eligibility. Key employees of the Corporation and its
-----------
subsidiaries, if any, and non-employee directors, consultants or advisors shall
be eligible to participate in the Plan.
4. Allotment of shares. Options may be allotted to such eligible
-------------------
persons, and in such amounts, as the Board, in its discretion, may from time to
time determine.
5. Term of Plan. No option shall be granted or amended pursuant to
------------
this Plan after 10 years from the date of the adoption of the Plan.
6. Terms and conditions of options. Subject to the following
-------------------------------
provisions, all options granted under the Plan shall be in such form and upon
such terms and conditions as the Board, in its discretion, may from time to tine
determine:
(a) Option price. The option price per share with respect to each option
shall not be less than the fair market value of the Common Stock on the date the
option is granted, except that 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 thereof.
(b) Period of option. The period of any stock option granted pursuant to
the Plan shall not exceed ten years from the date of grant, except that 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 option period shall not exceed five
years from the date of grant.
(c) Offset provisions. If the Board so determines and the applicable
instrument or instruments evidencing the option so provide, the exercise of all
or any part of an option granted under the Plan may result in the reduction or
termination of another option granted under the Plan to the extent so determined
and provided.
(d) Payment. The payment for shares purchased upon exercise of option
shall be made either in full or installments, as shall be determined by the
Board and provided in the applicable
2
<PAGE>
instrument evidencing such option.
(e) Exercise of option. The shares covered by an option may be exercised
by the optionee by providing written notice of such exercise to the Company.
(f) Nontransferability of options. During an option holder's lifetime, an
option shall be exercisable only by him and shall not be transferable except for
an exercise as provided in paragraph (h) hereof.
(g) Termination of employment. Upon the termination of an option holder's
employment for any reason other than death, termination for cause, or retirement
pursuant to the terms of a retirement program of the Company or one of its
subsidiaries, his or her option privileges shall be limited to the shares which
were immediately purchasable by him at the date of such termination, and such
option privileges shall expire unless exercised within three months after the
date of such termination, but not later than the date of expiration of the
option. If an option holder's employment is terminated for cause, all rights
under his or her option shall expire immediately upon the giving to the option
holder of the notice of such termination. Upon the termination of an option
holder's employment by reason of retirement pursuant to the terms of a
retirement program of the Company or one of its subsidiaries, his or her option
privileges shall be limited to the shares which were immediately purchasable at
the date of such retirement, and such option privileges shall expire unless
exercised within the period not to exceed two years specified by the Board in
the applicable instrument or instruments evidencing the option, but not later
than the date of expiration of the option.
(h) Death of option holder. Upon the death of an option holder, his or her
option privileges shall apply to those shares which were immediately purchasable
at the time of death, and such privileges shall expire unless exercised by the
executor or administrator of the option holder's estate or by a person who
acquired the right to exercise such option by bequest or inheritance or by
reason of the option holder's death within (1) 12
3
<PAGE>
months after the date of death, or (2) in the event of death following
termination of employment by reason of retirement pursuant to the terms of a
retirement program of the Corporation or one of its subsidiaries, the period in
which the option privileges may be exercised upon termination by reason of such
retirement as provided by the Board in the applicable instrument or instruments
evidencing the option, whichever period terminates last, or such longer period
as may be permitted by the Board in a special case, but in no event later than
the date of expiration of the option.
(i) Limitation. No employee eligible to participate herein shall be
granted incentive options to purchase shares, which said incentive options are
exercisable during any one calendar year, to the extent that the fair market
value of such shares (determined at the time that the options are granted)
exceeds $100,000. No employee shall be given the opportunity to exercise
incentive stock options granted hereunder with respect to shares valued in
excess of $100,000 in any calendar year, except and to the extent that the
options shall have accumulated over a period in excess of one year.
7. Adjustment in event of recapitalization. In the event of a
---------------------------------------
reorganization, recapitalization, stock split, stock dividend, combination of
shares, merger, consolidation, rights offering, or any other change in the
corporate structure or shares of the Corporation, the Board shall make such
equitable adjustment, if any, as it may deem appropriate, in the number and
kind of shares authorized by this Plan, or in the number, option price and kind
of shares covered by the options granted.
8. Reallocation of options. Shares covered by options which expire
-----------------------
or are terminated for any reason prior to being exercised in full may be
reallocated by the Board.
9. Stock appreciation rights.
-------------------------
(a) Grant. Stock appreciation rights may be granted by the Company
under this Plan upon such terms and conditions as the Board may prescribe. A
stock appreciation right may be granted only in connection with a nonqualified
option previously granted or to be granted under this Plan. Each stock
appreciation right shall
4
<PAGE>
contain a provision that it shall become nonexercisable and be forfeited if the
related option right is exercised. "Stock appreciation right" as used in this
Plan means a right to receive the excess of the fair market value of a share of
the Company's Common Stock on the date on which an appreciation right is
exercised over the option price provided for in the related option right. Such
excess is hereafter called "the differential." "Option right" means the right to
purchase shares of the Company's Common Stock under a nonqualified option
granted under the stock option plan.
(b) Exercise of stock appreciation rights. Stock appreciation rights
shall be exercisable and be payable in the following manner:
(1) A stock appreciation right shall be exercisable by the optionee at
any time the option to which it relates could be exercised. An optionee wishing
to exercise a stock appreciation right shall give written notice of such
exercise to the Company. Upon receipt of such notice, the Board shall determine
whether the optionee's stock appreciation rights shall be paid in cash or Common
Stock or any combination of cash and shares. Upon receipt of such notice the
company shall deliver to the person exercising such right a certificate or
certificates for shares of the Company's Common Stock which are issuable upon
exercise of the stock appreciation right or cash or a combination thereof as the
case may be.
(2) The exercise of a stock appreciation right shall automatically
result in the surrender of the related stock option right by the grantee on a
share for share basis to the extent shares under such related stock option are
used to calculate the shares or cash or combination thereof to be received by
such grantee upon the exercise of such stock appreciation right. Shares covered
by such surrendered option rights shall not be available for granting further
options under this Plan.
(3) The Board may impose any other conditions it prescribes upon the
exercise of a stock appreciation right, which
5
<PAGE>
conditions may include a condition that the stock appreciation right may only
be exercised in accordance with rules and regulations adopted by the Board
from time to time.
(4) Upon the exercise of a stock appreciation right and surrender of
the related option right, the Company shall give to the person surrendering the
related option right an amount equivalent to the differential, in cash or shares
of the Company's Common Stock or any combination thereof as determined in
accordance with subdivision (b)(1) of this Section 9. The shares to be issued
upon the exercise of a stock appreciation right may consist either in whole or
in part of shares of the Company's authorized but unissued Common Stock or
shares of the Company's authorized and issued Common Stock reacquired by the
Company and held in treasury. No fractional share of Common Stock shall be
issued and the Board shall determine whether cash shall be given in lieu of such
fractional share or whether such fractional share shall be eliminated.
10. Discontinuance or amendment of the plan (and amendment of options).
------------------------------------------------------------------
The Board of Directors may discontinue this Plan at any time, and may amend it
from time to time, but no amendment may, without further stockholder approval,
(a) increase the total number of shares which may be purchased under the Plan
other than as provided in paragraph 7, or (b) extend the period during which
options may be granted or (c) change the class of persons to whom options may be
granted, and no outstanding option may be revoked, or altered in any manner
unfavorable to the holder, without the consent of the holder.
Date of Adoption of plan November 2, 1993
Amended April 16, 1997
6
<PAGE>
Exhibit 10.5
THIS INDENTURE made the 11th day of September, 1968, between GENESEE
VALLEY REGIONAL MARKET AUTHORITY, a non-profit public benefit corporation,
authorized and created by Title 4 of Article 4 of the Public Authorities Law of
the State of New York, with its office and principal place of business at 900
Jefferson Road in the Town of Henrietta, Monroe County, New York (herein called
the "lessor"), party of the first part, and ANDERSON-BERENS, LTD., A corporation
duly licensed and authorized to do business in the State of New York, and having
an office and place of business at 22 Countryside Road, Fairport, New York 14450
(herein called the "lessee"), party of the second part,
WITNESSETH:
That the lessor does hereby demise and lease to the lessee the following
described property, situate in the Town of Henrietta, County of Monroe and State
of New York, to wit: An area 45 x 103 feet in the east end of Farmer's Shed No.
4, located on lessor's property at 900 Jefferson Road, Henrietta, Monroe County,
New York, being the premises more particularly described in and hatched in red
on Schedule "A" annexed hereto and made a part hereof.
TO HAVE AND TO HOLD the said premises with the buildings and
improvements thereon, or such portion as may be hereby demised, and the
appurtenances, for the term of eight (8) years and two (2) months, beginning
November 1, 1968 and ending December 31, 1976, rental payments, however, to
commence only upon completion of construction of the improvements mentioned in
Schedule "B", evidenced by lessor's architect's certificate of completion.
The lessee covenants and agrees to pay rent for said premises at the
rate of Six Thousand Dollars ($6,000.00) per annum, payable in equal monthly
installments of Five Hundred Dollars ($500.00) each, on the first day of each
month.
1. It is covenanted and agreed by and between the parties hereto that
if during the continuance of this lease the demised premises, or any part
thereof, shall by reason of: fire; damage by the elements, act of God or other.
<PAGE>
-2-
calamity; accident not caused by the negligence of lessee; act of omission or
commission of the lessor, or of those deriving right or title from or under
lessor; building operations upon adjacent premises or other factors beyond the
control of lessee; or through defect, weakness or decay, be destroyed or
damaged, or become wholly or in part untenantable or unsafe, then, and in that
case the rent reserved, or a just and proportionate part thereof, according to
the nature and extent of the injury, shall cease until the premises shall have
been put by the lessor in proper condition for the lessee's use; and in case
said premises are not wholly put in proper condition for the lessee's use within
ninety (90) days after such accident or notice of such condition, or if said
premises, or any part thereof, are condemned under the power of eminent domain
(reserving to the lessee the right to recover from the condemnor for trade
fixtures and moving and relocation expenses), this lease may be terminated at
the option of the lessee or lessor. The lessor shall give lessee written notice
of intention to restore and reconstruct the premises with twenty (20) days after
such accident, and must restore and reconstruct the premises within ninety (90)
days after the expiration of said notice period or this lease will be null and
void at the option of either lessor or lessee.
2. The lessee covenants and agrees that at the expiration of the
initial or extended term of this lease, or upon the earlier termination thereof,
it will yield up the said premises to the lessor in as good condition as when
the same were entered upon, injury or destruction resulting from: fire; damage
by the elements, act of God or other calamity; accident not caused by the
negligence of lessee; act of omission or commission of the lessor, or by those
deriving right or title from or under lessor; building operations upon adjacent
premises or other factors beyond the control of lessee; defect, weakness or
decay; and usual wear and tear, excepted.
3. Except in the case of non-payment of rent, no proceeding at law or
equity for the recovery of the demised premises, or termination or forfeiture of
this lease, shall be commenced by the lessor, unless and until
<PAGE>
-3-
lessor shall serve upon the lessee, at its principal office in Fairport, New
York, or at such other address as lessee may notify lessor in writing, at least
twenty (20) days' written notice of the proposed proceeding.
4. The lessor covenants and agrees during the continuance of this lease
to make and do: all exterior repairs and all repairs of a structural character;
all repairs, alterations, replacements, reconstructions or additions to the
building and its equipment and appurtenances made necessary by: fire; damage by
the elements, act of God or other calamity; accident not caused by the
negligence of lessee; act of omission or commission of the lessor or those
deriving right or title from or under lessor; building operations upon adjacent
premises and other factors beyond the control of the lessee; and defect,
weakness or decay, except, however, that lessor shall pay for such repairs as
are covered in its fire and extended coverage insurance policy, which lessor
agrees to maintain in force and effect during the term of this lease. Lessor and
lessee agree to comply with all requirements of Fire Underwriters, Public
Utility Companies and Municipal and State Authorities. Lessor may enter the
premises at any and all reasonable times to inspect same and to make such
repairs. The lessee covenants and agrees during the continuance of this lease to
make all non-structural interior repairs. Except as otherwise provided herein,
lessee agrees to make all repairs whatsoever on the demised premises made
necessary by the negligence, carelessness, misconduct, or fault of the lessee or
its agents, licensees or invitees, and to permit surrender of the premises to
lessor at the end of the term as provided in paragraph 2 hereof.
5. The parties hereby covenant and agree that should the lessor fail to
perform any of lessor's covenants or agreements under this lease, the lessee may
in its sole discretion, in addition to any other remedies available to it, after
such notice to lessor as may be reasonable under the circumstances, perform such
covenant or agreement in lessor's behalf as lessor's agent. The expense of such
performance by lessee shall immediately be due from lessor to lessee; and lessee
shall have the right to deduct the amount thereof from rentals due or thereafter
becoming due to lessor hereunder,
<PAGE>
-4-
and such deduction shall not constitute a default in the payment of rent. The
performance by lessee of lessor's covenants shall not release the lessor from
its continuing obligation to perform same and shall not constitute a waiver by
lessee of any other remedies it may have in law or equity by reason of said
default by lessor. Lessor shall have the same rights relative to default by the
lessee and may bill the lessee for payment.
6. It is covenanted and agreed by and between the parties hereto that
all trade and office fixtures, machinery and equipment heretofore built or
placed in or upon said premises by the lessee or its predecessors while
occupying said premises, or any part thereof, or otherwise acquired by it or
them, or which may at any time during said term, or any prolongation, extension
or renewal thereof, be built or placed in or upon said premises by the lessee,
shall be and remain the property of the lessee, and at or before the final
expiration of said term, or any prolongation, extension or renewal thereof, may
be removed by the lessee.
7. The lessor agrees that during the continuance of this lease the
remainder of said building not hereby leased to lessee, shall not be used in any
manner or for any purpose that might prove harmful or deleterious to the goods
or business of the lessee.
8. It is covenanted and agreed by and between the parties hereto that
the use of a railroad sidetrack is not included in this lease.
9. In the event that the premises include a space or room where
automobiles are placed for loading and unloading, such space or room may be used
at all times for the storage of automobiles.
10. If the lessee or any subtenant of the lessee shall hold over after
the expiration of the original term or any extension thereof, such holding over
unless expressly so agreed shall not be construed as an implied renewal but as a
month to month tenancy.
11. Intentionally omitted
<PAGE>
-5-
12. Within 1 1/2 (1 1/2) months from the date hereof, the lessor
shall at its own cost and expense perform the alterations on the premises more
particularly described in the plans and specifications to be initialed by the
parties hereto and to be annexed hereto as Schedule "B" and made a part hereof,
and such period to be extended by any and all delays beyond the control of the
lessor, including without limitation strikes, acts of God or national emergency.
13. Notwithstanding the initialing of the plans and specifications,
this lease shall be contingent upon receipt of firm bids for the construction
mentioned in paragraph 12 hereof (including engineering, architect's and all
other expenses and costs of such construction) not in excess of Thirty-Nine
Thousand Dollars ($39,000.00). If the expenses and costs of such construction as
aforesaid shall exceed $39,000.00 then the lessor may declare this lease null,
void and of no further force or effect.
14. This lease shall also be contingent upon the lessor securing
financing for the construction mentioned in the amount of Thirty-Nine Thousand
Dollars ($39,000.00) and upon terms, provisions and conditions satisfactory to
it in its sole and absolute discretion.
15. This lease shall be contingent upon its approval by the
appropriate governmental authorities of the State of New York, including
<PAGE>
-6-
without limitation the Comptroller of the State of New York, the Commissioner of
Agriculture and Markets, Bond Holder, and the Director of the Budget, and in the
event that such approvals are not procured within thirty (30) days of execution
of this lease by the parties hereto, this lease shall be null, void and of no
force and effect.
16. The tenant shall pay all charges which may,during the term of the
lease, be assessed or imposed for gas or oil or other fuel required to heat the
demised premises, and for any and all other utilities including without
limitation electricity and water, together with any and all taxes that may be
assessed against the property leased and actually occupied by the lessee which
shall be paid by the lessee when due, against which there are presently no taxes
assessed. Utilities shall be separately metered.
17. That the lessee, successors, heirs, executors or administrators
shall not assign this agreement, or underlet or underlease the premises, or any
part thereof, or make any alterations on the premises without the lessor's
consent in writing, which consent, however, shall not be unreasonably withheld
except as provided in paragraph 35 hereof; or occupy, or permit or suffer the
same to be occupied for any business or purpose deemed disreputable or
extrahazardous on account of fire, and in the event of a breach thereof,the term
herein shall immediately cease and terminate at the option of the lessor, as if
it were the expiration of the original term.
18. The said lessee agrees that the said lessor and the lessor's agents
and other representatives shall have the right to enter into and upon said
premises, or any part thereof, at all reasonable hours for the purpose of
examining the same, or making such repairs or alterations therein as may be
necessary for the safety and preservation thereof.
19. The lessee also agrees, in the event of a failure to renew, to
permit the lessor or the lessor's agents to show the premises to any persons
during reasonable business hours; and the lessee further agrees that on and
after the first day of the month next preceding the expiration of the term
<PAGE>
-7-
hereby granted, the lessor or the lessor's agents shall have the right to place
notices on the front of said premises, or any part thereof, offering the
premises "To Let", and the lessee hereby agrees to permit the same to remain
thereon without hinderance or molestation.
20. That if the said premises, or any part thereof shall be deserted
during said term, or if any default be made in the payment of the said rent or
any part thereof, or if any default be made in the performance of any of the
covenants herein contained, the lessor or representatives may re-enter the said
premises by force, summary proceedings or otherwise, and remove all persons
therefrom, without being liable to prosecution therefor, and the lessee hereby
expressly waives the service of any notice in writing of intention to re-enter
except such notice as is required by paragraph 3 hereof, and the lessee shall
pay at the same time as the rent becomes payable under the terms hereof a sum
equivalent to the rent reserved herein, and the lessor may rent the premises on
behalf of the lessee reserving the right to rent the premises for a longer
period of time than fixed in the original lease without releasing the original
lessee from any liability, applying any moneys collected, first to the expense
of resuming or obtaining possession, second to restoring the premises to a
rentable condition, and then to the payment of the rent and all other charges
due and to grow due to the lessor, any surplus to be paid to the lessee, who
shall remain liable for any deficiency.
21. The lessee shall neither place, or cause, or allow to be placed, any
sign or signs of any kind whatsoever at, in or about the entrance to said
premises or any other part of same except in or at such place or places as may
be indicated by the lessor and consented to by the lessor in writing. And in
case the lessor or the lessor's representatives shall deem it necessary to
remove any such sign or signs in order to paint the said premises or the
building wherein same is situated or make any other repairs, alterations or
improvements in or upon said premises or buildings or any part thereof, the
lessor shall have the right to do so, providing the same be removed and
replaced
<PAGE>
-8-
at the lessor's expense, whenever the said repairs, alterations or improvements
shall be completed. Signs as set forth in the plans and specifications are
satisfactory.
22. That the lessor is exempt from any and all liability for any
damage or injury to person or property caused by or resulting from steam,
electricity, gas, water, rain, ice or snow, or any leak or flow from or into
any part of said building or from any damage or injury resulting or arising from
any other cause or happening whatsoever.
23. That if default be made in any of the covenants herein contained,
then it shall be lawful for the said lessor to re-enter the said premises and
the same to have again, repossess and enjoy. The said lessee hereby expressly
waives the service of any notice in writing of intention to re-enter, as
provided for in any law of the State of New York, except as provided in
paragraph 3 hereof.
24. It is expressly understood and agreed that in case the demised
premises shall be deserted or vacated, or if default be made in the payment of
the rent or any part thereof as herein specified, or if, without the consent of
the lessor, the lessee shall sell, assign, or mortgage this lease or if default
be made in the performance of any of the covenants and agreements in this lease
contained on the part of the lessee to be kept performed, or if the lessee shall
fail to comply with any of the statutes, ordinances, rules, orders, regulations
and requirements of the Federal, State and Town Government or of any and all
their Departments and Bureaus, applicable to said premises, or hereafter
established as herein provided, or if the lessee shall file a petition in
bankruptcy or arrangement, or be adjudicated a bankrupt, or make an assignment
for the benefit of creditors or take advantage of any insolvency act, the lessor
may, if the lessor so elects, at any time thereafter terminate this lease and
the term hereof, on giving to the lessee twenty (20) days notice in writing of
the lessor's intention so to do, and this lease and the term hereof shall expire
and come to an end on the date fixed in such notice as if the said date were the
date originally fixed in this lease for the expiration
<PAGE>
-9-
hereof, except in the case of any default other than non-payment of rent,
no proceeding shall be commenced as provided in paragraph 3 hereof if
the lessee proceeds within said twenty (20) day period after receipt of
such notice of default to diligently cure the default. Such notice may
be given by mail to the lessee addressed as provided in paragraph 3.
25. That the lessee will not nor will the lessee permit under-
tenants or other persons to do anything in said premises, or bring
anything into said premises, or permit anything to be brought into said
premises or to be kept therein, which will in any way increase the rate
of fire insurance on said demised premises, nor use the demised premises
or any part thereof, nor suffer or permit their use for any business or
purpose which would cause an increase in the rate of fire insurance on
said building, and the lessee agrees to pay on demand any such increase.
26. The failure of the lessor or lessee to insist upon a strict
performance of any of the terms, conditions and covenants herein, shall
not be deemed a waiver of any rights or remedies that the lessor may
have, and shall not be deemed a waiver of any subsequent breach or
default in the terms, conditions and covenants herein contained. This
instrument may not be changed, modified or discharged orally.
27. If after default in payment of rent or violation of any other
provision of this lease, or upon the expiration of this lease, the lessee
moves out or is dispossessed and fails to remove any trade fixtures or
other property within twenty (20) days after notice of the said default,
removal, expiration of lease, or prior to the issuance of the final order
or execution of the warrant, then and in that event, the said fixtures and
property shall be deemed abandoned by the said lessee and shall become the
property of the lessor.
28. In the event that the relation of the lessor and lessee may
cease or terminate by reason of the re-entry of the lessor under the terms
and covenants contained in this lease or by the ejectment of the lessee by
<PAGE>
-10-
summary proceedings or otherwise, or after the abandonment of the premises
by the lessee, it is hereby agreed that the lessee shall remain liable and
shall pay in monthly payments the rent which accrues subsequent to the
reentry by the lessor, and the lessee expressly agrees to pay as damages
for the breach of the covenants herein contained, the difference between
the rent reserved and the rent collected and received, if any, by the
lessor during the remainder of the unexpired term, such difference or
deficiency between the rent herein reserved and the rent collected if any,
shall become due and payable in monthly payments during the remainder of
the unexpired term, as the amounts of such difference or deficiency shall
from time to time be ascertained; and it is mutually agreed between
lessor and lessee that the respective parties hereto shall and hereby do
waive trial by jury in any action, proceeding or counterclaim brought by
either of the parties against the other on any matters whatsoever arising
out of or in any way connected with this lease, the lessee's use or
occupancy of said premises, and/or any claim of injury or damage.
29. The lessee waives all rights to redeem under Sec. 761 of the
Real Property Actions and Proceedings Law.
30. This lease and the obligation of lessee to pay rent hereunder
and perform all of the other covenants and agreements hereunder on part of
lessee to be performed shall in no wise be affected, impaired or excused
because lessor is unable to supply or is delayed in supplying any service
expressly or impliedly to be supplied or is unable to make, or is delayed
in making any repairs, additions, alterations or decorations or is unable to
supply or is delayed in supplying any equipment of fixtures if lessor is
prevented or delayed from so doing by reason of governmental pre-emption
in connection with the National Emergency declared by the President of the
United States or in connection with any rule, order or regulation of any
department or subdivision thereof of any governmental agency or by reason
of the condition of supply and demand which have been or are affected by
the war.
<PAGE>
-11-
31. No diminution or abatement of rent, or other compensation,
shall be claimed or allowed for inconvenience or discomfort arising
from the making of repairs or improvements to the building or to its
appliances. In respect to the various "services", if any, herein
expressly or impliedly agreed to be furnished by the lessor to the
lessee, it is agreed that there shall be no diminution or abatement
of the rent, or any other compensation, for interruption or curtailment
of such "service" when such interruption or curtailment shall be due to
accident, alterations or repairs desirable or necessary to be made or to
inability or difficulty in securing supplies or labor for the maintenance
of such "service" or to some other cause, not gross negligence on the part
of the lessor. No such interruption or curtailment of any such "service"
shall be deemed a constructive eviction. The lessor shall not be required
to furnish, and the lessee shall not be entitled to receive any of such
"services" during any period wherein the lessee shall be in default in
respect to the payment of rent.
32. The premises are to be used and occupied by the lessee as a
warehouse for their Fanny Farmer and Hickory Farms franchise operations in
upstate New York and will also include a Hickory Farms retail store.
33. The lessee shall maintain public liability insurance with
minimum limits of Five Hundred Thousand Dollars ($500,000.00) per
accident.
34. The lessee shall observe and comply with all reasonable rules
and regulations now in effect or which may be adopted after thirty (30)
days' notice to the lessee during the continuance of this lease by the
lessor for the correction, prevention, abatement of nuisances, disorderly
conduct, or other grievances in, upon or near said premises during said
term and the lessee shall indemnify the lessor for any damage caused by the
violation thereof; and the lessee shall not permit or suffer any noise,
disturbance, or nuisances whatsoever on or about said premises that may be
detrimental to same or annoying to the public or to the other lessees of
the Market. Nothing herein shall prevent lessee from operating the business
specified in paragraph "32" in a normal manner.
<PAGE>
-12-
35. The lessee hereby further covenants and agrees during said term not
to permit the premises to be used or occupied by any person other than the
lessee for business or other purpose nor sublet the same or any part thereof, or
receive any benefit, money, or other consideration for the granting, the use or
occupancy of said premises by any person other than the lessee, except, however,
such a sublease to tenants engaged in the food industry, whether wholesale
and/or retail, shall be permitted, the landlord herein remaining as primary
obligor, and at the expiration of said term the lessee will yield and deliver up
possession of the same to the lessor in as good condition as now, necessary wear
and tear by the elements and reasonable wear and tear excepted.
36. The lessee will keep the premises in a clean and sanitary
condition at all times. All garbage or refuse shall be kept in containers
located near the premises and containers will be collected daily by the lessor.
37. It is covenanted and agreed by and between the parties hereto that
the lessee and lessor shall relieve the lessor and lessee, respectively, of all
liability for loss or damage to each others property, whether real or
personal, caused by fire and/or the perils covered in a standard form fire
insurance policy with extended coverage, or for loss of life or injury to person
covered by liability insurance required hereunder, due to any acts of commission
or omission of lessor or lessee.
The lessor covenants and agrees that the lessee, paying the rents herein
reserved and observing, keeping and performing the covenants and agreements
herein contained, shall and may peaceably and quietly have, hold, occupy,
possess and enjoy the demised premises for and during the full term of this
<PAGE>
-13-
lease and any prolongation or extension thereof.
It is covenanted and agreed by and between the parties hereto that the
covenants, agreements, conditions, terms and stipulations herein contained shall
be binding upon the heirs, executors, administrators, successors and assigns of
the respective parties.
IN WITNESS WHEREOF, the parties have duly executed this lease the day
and year first above written.
This Agreement is contingent upon Lessee's approval of Schedules "A" and
"B" which were not attached at the time of execution.
ANDERSON-BERENS, LTD.
By /s/ Donald P. Berens V.P.
--------------------------------------
GENESEE VALLEY REGIONAL MARKET AUTHORITY
By Joseph P. King
--------------------------------------
STATE OF NEW YORK )
COUNTY OF MONROE ) SS:
CITY OF ROCHESTER )
On the 11th day of September, 1968, before me personally came Ronald P.
Berens to me known, who being by me duly sworn, did depose and say: That he
resides in Fairport, New York that he is the Vice President of ANDERSON-BERENS,
LTD., the corporation mentioned in and which executed the foregoing instrument;
that he knows the seal of said corporation; that the seal affixed to said
instrument is such corporate seal; that it was so affixed by order of the Board
of Directors of said corporation; and that he signed his name thereto by like
order.
/s/ Peter G. Nash
------------------------------------------------
Peter G. Nash
NOTARY PUBLIC, State of N.Y., Monroe County
My Commission Expires March 30, 1969
STATE OF NEW YORK )
COUNTY OF MONROE ) SS:
CITY OF ROCHESTER )
On the 12th day of September, 1968, before me personally came Joseph P.
King, to me known, who being by me duly sworn, did depose and say: That he
resides in Pittsford, New York, that he is Administrator to the GENESEE VALLEY
REGIONAL MARKET AUTHORITY, the corporation mentioned in and which executed the
foregoing instrument; that he knows the seal of said corporation; that the seal
affixed to said instrument is such corporate seal; that it was so affixed by
order of the Board of Directors of said corporation and that he signed his name
thereto by like order.
/s/ Louis D. Agosto
------------------------------------------------
LOUIS D. AGOSTO
NOTARY PUBLIC, State of N.Y., Monroe County
My Commission Expires March 30, 1969
<PAGE>
SCHEDULE "A"
Space leased to Anderson-Berens, Ltd.
[MOHAWK VALLEY DRY WALL CORP.'S DEPICTION OF SHED NO. 4 APPEARS HERE]
[PICTURE OF NORTHERN POINTING
COMPASS APPEARS HERE]
PLAN OF SHED NO. 4
------------------
GENESEE VALLEY REGIONAL MARKET
------------------------------
SCALE: 1" = 40'
--------------
<PAGE>
ADDENDUM TO LEASE
-----------------
AGREEMENT made this 12th day of Oct., 1970, between GENESEE VALLEY REGIONAL
MARKET AUTHORITY, a non-profit public benefit corporation, authorized and
created by Title 4 of Article 4 of the Public Authorities Law of the State of
New York, with its office and principal place of business at 900 Jefferson Road,
in the Town of Henrietta, Monroe County, New York, hereinafter called
"Landlord", and ANDERSON-BERENS, LTD., a corporation duly licensed and
authorized to do business at 22 Countryside Road, Fairport, Monroe County, New
York, hereinafter called "Tenant".
WITNESSETH THAT:
WHEREAS, Landlord and Tenant have heretofore entered into a lease dated
September 11, 1968 relating to certain real property in the Town of Henrietta,
Monroe County, New York; and
WHEREAS, said lease is valid, binding and subsisting agreement between the
parties hereto; and
WHEREAS, the parties hereto desire to improve and add further real property
to the property presently leased and provide for additional rent on account
thereof, namely 30 feet of Farmer Shed No. 4, an area of 1350 sq. ft.
The parties hereto, in consideration of the premises and the covenants and
agreements hereinafter set forth, do hereby agree as follows:
1. Landlord does hereby demise and let unto Tenant and Tenant does hereby
lease from Landlord, for the term and upon the terms and conditions hereinafter
set forth in this lease, the premises situate in the Town of Henrietta, Monroe
County, New York, more particularly described in "Schedule A" annexed hereto and
made a part hereof, together with the easements, rights and appurtenances in
connection therewith or thereunto belonging, to have and to hold the same for a
term commencing on the 1st day of September, 1970 and ending on the 31st day of
December, 1976, unless sooner terminated as hereinafter provided.
2. The tenant covenants and agrees to pay rent for said premises at the
rate of $1582.20 per annum, payable in equal monthly installments of $131.85
each on the first day of each month during the term of this lease. However,
during the term of this lease, the Landlord's rental shall be reduced by $75.60
per month, such $75.60 reduction to be applied to the $5,746.00 cost
<PAGE>
-2-
and expenses of the improvement until payment of such sum without interest has
been completed. This rental is to be added to the original rental of $6,000.00,
for a total rental of $7,582.20 per annum. Said rental to be paid at 900
Jefferson Road, Henrietta, New York, or to such other place as shall be
designated by Landlord in writing at least 10 days prior to the next ensuing
rent payment. All improvements shall become the property of the Landlord
immediately upon installation and may not be removed at the end of the term or
upon termination of this lease for any reason whatsoever.
3. The premises are to be used and occupied by the Tenant as a warehouse
for their Fanny Farmer and Hickory Farms franchise operations in upstate New
York and will also include a Hickory Farms retail store.
4. The Tenant is to obtain special approval from Landlord in advance for
any electrical or heating installations for the additional 30 feet of Farmer
Shed No. 4.
5. Said premises shall be held pursuant to and subject to all the terms,
conditions and provisions of said lease between the parties hereto relating
to premises adjoining the premises hereby demised, namely, a certain lease made
the 11th day of September, 1968, as though the same were incorporated herein, to
all of which terms, conditions and provisions the parties hereto agree and which
they will perform to the extent required to be performed by them as in said
lease set forth, so that the premises hereby demised shall be held and treated
as though the same were demised as a part of the premises demised by said lease
dated the 11th day of September, 1968, commencing the 1st day of September,
1970, at an additional annual rental for said premises of $1582.20 to be added
to the original rental of $6,000.00, for a total rental of $7,582.20 per annum.
IN WITNESS WHEREOF, the parties hereto have executed this lease the day and
year first above written.
GENESEE VALLEY REGIONAL MARKET AUTHORITY
By /s/ Joseph P. King
----------------------------------------
Administrator
ANDERSON-BERENS, LTD.
By /s/ Donald P. Berens
----------------------------------------
V.P.
<PAGE>
-3-
STATE OF NEW YORK )
COUNTY OF MONROE ) SS:
On this 19th day of Oct., 1970, before me personally came Joseph P. King,
to me known, who being by me duly sworn, did depose and say: That he resides in
Pittsford, New York, that he is the Administrator of the Genesee Valley Regional
Market Authority, the corporation mentioned in and which executed the foregoing
instrument; that he knows the seal of said corporation; that the seal affixed to
said instrument is such corporate seal; that it was so affixed by order of the
Board of Directors of said corporation and that he signed his name thereto by
like order.
/s/ Louis P. Agosto
--------------------------------
Louis P. Agosto
NOTARY PUBLIC, State of N.Y.,
Monroe County
My Commission Expires March 30, 1971
STATE OF NEW YORK )
COUNTY OF MONROE ) SS:
On this 19th day of Oct., 1970, before me personally came Donald P. Berens
to me known, who being by me duly sworn, did depose and say: That he resides in
Fairport, N.Y., that he is the Vice Pres. of ANDERSON-BERENS, LTD., the
corporation mentioned in and which executed the foregoing instrument; that he
knows the seal of said corporation; that the seal affixed to said instrument is
such corporate seal; that it was so affixed by order of the Board of Directors
of said corporation and that he signed his name thereto by like order.
/s/ Thomas H. Dilberg
--------------------------------
Thomas H. Dilberg
NOTARY PUBLIC, State of New York
MONROE COUNTY
Commission Expires March 30, 1971
<PAGE>
[LETTERHEAD OF HICKORY FARMS APPEARS HERE]
June 12, 1972
Genesee Valley Regional Market Authority
900 Jefferson Road
Rochester, New York 14623
Gentlemen:
Reference is made to our lease with you dated 9-11-68, amended 10-12-70
covering our Hickory Farms Cheese Store office and warehouse space located at
the Genesee Valley Regional Market. In addition to your tenant Anderson-Berens,
Ltd., we have four other corporations which when combined with Anderson-Berens,
Ltd. presently operate a total of 21 Hickory Farms Cheese Stores in 4 states. To
simplify our administrative and record keeping burdens and in order to
consolidate our financial strength, we have decided to merge all five of our
operating corporations into a new corporation formed for this purpose to be
known as Hickory Farms Sales Corp. We have scheduled this proposed merger to be
- ---------------------------------
effective as of the close of our fiscal year which will be July 1, 1972.
Inasmuch as the proposed merger simply involves the consolidation of existing
corporations, it will not effect a change in overall ownership or control of
these entities. Based upon the combined balance sheets of the five corporations,
it is anticipated that after giving effect to the proposed merger, Hickory Farms
Sales Corp. will have a net worth in excess of $500,000.00. As a landlord, this
will significantly enhance the financial responsibility of your Tenant.
The proposed merger will effect, by operation of law, an assignment of our
rights under the above lease to Hickory Farms Sales Corp. We are furnishing you
this information and writing this letter to you concerning the transaction to
get whatever consent, if any, which our lease may require to the transactions
outlined in this letter. Please sign the enclosed copy of this letter and return
it to us as evidence of your approval. Inasmuch as we are scheduling an
effective date for the transaction of July 1, 1972, your prompt attention to
this matter will be most sincerely appreciated.
<PAGE>
[LETTERHEAD OF HICKORY FARMS OF OHIO APPEARS HERE]
900 Jefferson Road
Rochester, New York 14623
June 12, 1972
page two
If you wish any further information or wish to discuss this transaction
with me, please feel free to call me at 716-461-1330.
Very truly yours,
Anderson-Berens, Ltd.
/s/ Donald P. Berens
Donald P. Berens
Vice President
DPB:mb
enc.
We hereby consent to the assignment of the lease referred to in the
above letter on the basis described therein.
June 6, 1972 Genesee Valley Regional
Market Authority
By: /s/ Joseph P. King
-------------------------
Administrator
<PAGE>
ADDENDUM TO LEASE
AGREEMENT made this 28th day of June __, 1973, between GENESEE VALLEY
REGIONAL MARKET AUTHORITY, a non-profit public benefit corporation, authorized
and created by Title 4 of Article 4 of the Public Authorities Law of the State
of New York, with its office and principal place of business at 900 Jefferson
Road, in the Town of Henrieta, Monroe County, New York, hereafter called
"Landlord", and HICKORY FARMS SALES CORPORATION, a corporation duly licensed and
authorized to do business at 900 Jefferson Road, Rochester, New York 14623,
hereinafter called "Tenant".
WITNESSETH THAT:
WHEREAS, landlord and Anderson-Berens, Ltd. entered into a lease dated
September 11, 1968 relating to certain real property in the Town of Henrietta,
County of Monroe, New York, for the lease of certain premises described
therein, and
WHEREAS, landlord and Anderson-Berens, Ltd. entered into an Addendum to
Lease dated October 12, 1970 adding further real property to property previously
leased and to provide for additional rent; and
WHEREAS, by letter agreement executed by landlord on June 16, 1972,
landlord consented to the assignment of the Lease dated September 11, 1968 and
the Addendum to Lease dated October 12, 1970, which are hereby incorporated by
reference with the same force and effect as if fully set forth herein, covering
premises therein described; and
WHEREAS, the parties hereto desire to improve and add further real property
to the property presently leased and provide for additional rent on account
thereof, namely an area of 4500 sq. ft.; and
WHEREAS, the parties hereto have agreed that improvements are to be made in
accordance with plans which tenant arranged to have prepared by the architects,
Northrup, Kaelber and Kopf; and
WHEREAS, the parties hereto desire to extend the term of the original lease
and first addendum to lease to terminate on March 31, 1978, the same date as
provided in this addendum; and
<PAGE>
-2-
WHEREAS, said lease dated September 11, 1966 and addendum dated October
12, 1970 is a valid, binding and subsisting agreement between the parties
hereto;
NOW, THEREFORE, the parties hereto in consideration of the premises and
the covenants and agreements hereinafter set forth do hereby agree as follows:
1. Landlord does hereby demise and let unto tenant and tenant does hereby
lease from landlord, for the term and upon the terms and conditions hereinafter
set forth in this addendum, the premises situate in the Town of Henrietta,
Monroe County, New York, more particularly described in "Schedule A" annexed
hereto and made a part hereof, together with the easements, rights and
appurtenances in connection therewith or thereunto belonging, to have and to
hold the same for a term of 57 months, commencing on the 1st day of July, 1973
and ending on the 31st day of March, 1978, unless sooner terminated as
hereinafter provided.
2. The tenant covenants and agrees to pay additional rent for the said
premises at the rate of $8,895.60 per annum, to be added to the present rent of
$7,582.20 per annum for a total of $16,477.80 per annum. However, the monthly
rental shall be reduced by the total cost of approved improvements in the
existing and proposed space in the amount of $28,360.00, divided by the 57
month term of the lease, resulting in a reduction of $ 497.55 per month.
Therefore, equal monthly installments of $ 243.75 will commence on July 1, 1973
and thereafter on the first day of each month during the term of the lease. Said
rental to be paid at 900 Jefferson Road, Henrietta, New York, or to such other
place as shall be designated by landlord in writing at least 10 days prior to
the next ensuing rent payment. All improvements shall become the property of the
landlord immediately upon installation and may not be removed at the end of the
term, or upon termination of this lease for any reason whatsoever.
3. The landlord and tenant agree to extend the term of the original lease
and first addendum to lease to terminate on March 31, 1978, the same date as
provided in this addendum.
<PAGE>
4. The premises, are to be used and occupied by the tenant as a
warehouse for their Fanny Farmer and Hickory Farms franchise operations in
upstate New York and will also include a Hickory Farms retail store.
5. The Tenant is to obtain special approval from landlord in advance
for any electrical or heating installations for the additional 4500 sq. ft.
6. Said promises shall be held pursuant to and subject to all the
terms, conditions and provisions of said lease between the parties hereto
relating to premises adjoining the premises hereby demised, namely, a certain
lease dated September 11, 1968 and addendum to lease dated October 12, 1970, as
though the same were incorporated herein, to all of which terms, conditions and
provisions the parties hereto agree and which they will perform to the extent
required to be performed by them as in said lease and addendum to lease set
forth, so that the premises hereby demised shall be held and treated as though
the same were demised as a part of the premises demised by said lease dated
September 11, 1968 and addendum to lease dated October 12, 1970, commencing the
1st day of July, 1973, at an additional annual rental for said premises of
$3,895.60 per annum to be added to the present rental of $7,582.20, for a total
rental of $16,477.80 per annum, calculated as aforesaid.
IN WITNESS WHEREOF, the parties hereto have executed this addendum to
lease the day and year first above written.
GENESEE VALLEY REGIONAL MARKET AUTHORITY
By /s/ Joseph P. King
--------------------------------------
Administrator
HICKORY FARMS SALES CORPORATION
By /s/ Donald P. Berens, Pres.
--------------------------------------
<PAGE>
-4-
STATE OF NEW YORK )
COUNTY OF MONROE ) SS:
On this 6th day of August, 1973, before me personally came Joseph P. King,
to me known, who, being by me duly sworn, did depose and say: That he resides in
Pittsford, New York, that he is the Administrator of the Genssee Valley Regional
Market Authority, the corporation mentioned in and which executed the foregoing
instrument; that he knows the seal of said corporation; that the seal affixed to
said instrument is such corporate seal; that it was so affixed by order of the
Board of Directors of said corporation and that he signed his name thereto by
like order.
/s/ Eugene M. Liwa
--------------------------
EUGENE M. LIWA
Notary Public in the State of New York
MONROE COUNTY, N.Y.
My Commission Expires March 30, 1974
STATE OF NEW YORK )
COUNTY OF MONROE ) SS:
On this 23rd day of July, 1973, before me personally came D.P. Berens to me
known, who, being by me duly sworn, did depose and say: That he resides in
Fairport, N.Y.; that he is the President of HICKORY FARMS SALES CORPORATION,
the corporation mentioned in and which executed the foregoing instrument; that
he knows the seal of said corporation; that the seal affixed to said instrument
is such corporate seal; that it was so affixed by order of the Board of
Directors of said corporation and that he signed his name thereto by like order.
/s/ William H. Helferich, III
-------------------------------
WILLIAM H. HELFERICH, III.
NOTARY PUBLIC, State of N.Y.
Monroe County
My Commission Expires March 30, 1975
<PAGE>
ADDENDUM TO LEASE
-----------------
AGREEMENT made this 15th day of August, 1973, between GENESEE VALLEY
REGIONAL MARKET AUTHORITY, a non-profit public benefit corporation, authorized
and created by Title 4 of Article 4 of the Public Authorities Law of the State
of New York, with its offices and principal place of business at 900 Jefferson
Road, in the Town of Henrietta, Monroe County, New York, hereinafter called
"Landlord", and HICKORY FARM SALES CORPORATION, a corporation duly licensed and
authorized to do business at 900 Jefferson Road, Rochester, New York 14623,
hereinafter called "Tenant",
WITNESSETH THAT:
WHEREAS, landlord and Anderson-Berens, Ltd. entered into a lease dated
September 11, 1968, relating to certain real property in the Town of Henrietta,
County of Monroe, New York, for the lease of certain premises descried therein;
and
WHEREAS, landlord and Anderson-Berens, Ltd. entered into an Addendum to
Lease dated October 12, 1970 adding further real property to property previously
leased, and to provide for additional rent; and
WHEREAS, by letter agreement executed by landlord on June 16, 1972,
landlord consented to the assignment of the Lease dated September 11, 1968 and
the Addendum to Lease dated October 12, 1970, which are hereby incorporated by
reference with the same force and effect as if fully set forth herein, covering
premises therein described; and
WHEREAS, landlord and HICKORY FARM SALES CORPORATION, assignee of the
lease, entered into an Addendum to Lease dated June 28, 1973, adding further
real property to the property previously leased, providing for additional rent
and improvements, and extending the term of the original lease and the first
Addendum to Lease to terminate on March 31, 1978, the same date as provided in
the addendum dated June 28, 1973, which is hereby incorporated by reference; and
<PAGE>
-2-
WHEREAS, the parties hereto desire to provide for a renewal option
permitting tenant to extend the term of the original lease, the addendum to
lease of October 12, 1970, and the addendum to lease of June 28, 1973 for an
additional five (5) year period, and
WHEREAS, said lease dated September 11, 1968, said addendum to lease
dated October 12, 1970, and said addendum to lease dated June 28, 1973, are
valid, subsisting and binding agreements between the parties hereto:
NOW, THEREFORE, the parties hereto in consideration of the premises and
the covenants and agreements hereinafter set forth do hereby agree as follows:
1. Landlord covenants and agrees that tenant shall have the right to
extend or prolong the term of the original lease dated September 11, 1968, the
addendum to lease dated October 12, 1970, and the addendum to lease dated June
28, 1973, all to terminate on March 31, 1978, for one (1) additional period of
five (5) years, commencing April 1, 1978 and expiring March 31, 1983. Said
renewal shall be upon the same terms and conditions as the original terms, with
rental to be $16,477.80 per year to be paid in equal monthly installments
commencing April 1, 1978 and continuing throughout the five (5) year renewal
period provided, however, that the lessee shall give to the lessor or such agent
as he may have designated to receive rent hereunder, written notice of its
intention to avail itself of such right at least six (6) months before the
expiration of said initial term, and such notice when given shall operate to
extend or prolong the term of the lease and the addenda of September 11, 1968
and October 12, 1970 for such additional period, and all the covenants,
agreements, terms, conditions and stipulations contained in the original lease
of September 11, 1968, the addendum to lease dated October 12, 1970, and the
addendum to lease dated June 28, 1973, shall apply to such further period of
time the same as if it had been made a part of and included in the original term
of the respective agreements.
<PAGE>
-3-
IN WITNESS WHEREOF, the parties hereto have executed this addendum to
lease the day and year first above written.
GENESEE VALLEY REGIONAL MARKET AUTHORITY
By /s/ Joseph P. King
----------------------------------
Administrator
HICKORY FARM SALES CORPORATION
By /s/ Donald P. Berens, Pres.
----------------------------------
<PAGE>
-4-
STATE OF NEW YORK )
COUNTY OF MONROE ) SS:
CITY OF ROCHESTER )
On this 20th day of August, 1973, before me personally came Joseph P. King,
to me known, who, being by me duly sworn, did depose and say: That he resides in
Pittsford, New York, that he is the Administrator of the Genesee Valley Regional
Market Authority, the corporation mentioned in and which executed the foregoing
instrument; that he knows the seal of said corporation; that the seal affixed to
said instrument is such corporate seal; that it was so affixed by order of the
Board of Directors of said corporation and that he signed his name thereto by
like order.
/s/Louis P. Agosto
---------------------------------------
Louis P. Agosto
NOTARY PUBLIC, State of N.Y. Monroe
County
My Commission Expires March 30, 1975
STATE OF NEW YORK )
COUNTY OF MONROE ) SS:
CITY OF ROCHESTER )
On this 15th day of August, 1973, before me personally came D. P. Berens to
me known, who, being by me duly sworn, did depose and say: That he resides in
Fairport, New York; that he is the President of HICKORY FARM SALES CORPORATION,
the corporation mentioned in and which executed the foregoing instrument; that
he knows the seal of said corporation; that the seal affixed to said instrument
is such corporate seal; that it was so affixed by order of the Board of
Directors of said corporation and that he signed his name thereto by like order.
/s/ Julia H. Varlan
---------------------------------------
Julia H. Varlan 4509157
Notary Public State of N.Y.
Livingston Co.
My Commission expires 3/30/75
Certificate Filed Monroe Co.
<PAGE>
ADDENDUM TO LEASE
-----------------
AGREEMENT made this 24th day of July, 1974, between GENESEE VALLEY
REGIONAL MARKET AUTHORITY, a non-profit public benefit corporation, authorized
and created by Title 4 of Article 4 of the Public Authorities Law of the State
of New York, with its offices and principal place of business at 900 Jefferson
Road, in the Town of Henrietta, Monroe County, New York, hereinafter called
"Landlord", and HICKORY FARMS SALES CORPORATION, a corporation duly licensed and
authorized to do business at 900 Jefferson Road, Rochester, New York 14623,
hereinafter called "Tenant",
WITNESSETH THAT:
WHEREAS, Landlord and Anderson-Berens, Ltd. entered into a Lease dated
September 11, 1968, relating to certain real property in the Town of Henrietta,
County of Monroe, New York, for the lease of certain premises described therein;
and
WHEREAS, Landlord and Andersen-Berens, Ltd. entered into an Addendum to
Lease dated October 12, 1970 adding further real property to property previously
leased, and to provide for additional rent; and
WHEREAS, by Letter Agreement executed by Landlord on June 16, 1972,
Landlord consented to the assignment of the Lease dated September 11, 1968, and
the Addendum to Lease dated October 12, 1970, which are hereby incorporated by
reference with the same force and effect as if fully set forth herein, covering
premises therein described; and
WHEREAS, Landlord and Hickory Farm Sales Corporation, assignee of the
Lease, entered into an Addendum to Lease dated June 28, 1973, adding further
real property to the property previously leased, providing for additional rent
and improvements, and extending the term of the original Lease and the first
Addendum to Lease to terminate on March 31, 1978, the same date as provided in
the Addendum dated June 28, 1973, which is hereby incorporated by reference; and
WHEREAS, Landlord and Hickory Farm Sales Corporation, assignee of the
Lease, entered into an Addendum to Lease dated August 15, 1973,
<PAGE>
-2-
providing for a renewal option permitting Tenant to extend the term of the
original Lease, the Addendum to Lease of October 12, 1970, and the Addendum to
Lease of June 28, 1973, for an additional five (5) year period; and
WHEREAS, the parties hereto desire to improve and add further real
property to the property presently leased and provide for additional rent on
account thereof, namely an area of 4500 sq. ft.; and
WHEREAS, the parties hereto desire that Tenant shall have the right to
exercise the option to extend the term of the Lease and Addenda thereto set out
in the Addendum of August 15, 1973, upon the further real property to be added
to the real property previously leased; and
WHEREAS, said Lease dated September 11, 1968 and Addenda dated October
12, 1970, June 28, 1973 and August 15, 1973, and the Letter Agreement executed
by Landlord on June 16, 1972, constitute a valid, binding and subsisting
agreement between the parties hereto.
NOW, THEREFORE, the parties hereto in consideration of the premises and
the covenants and agreements hereinafter set forth do hereby agree as follows:
1. Landlord does hereby demise and let unto Tenant and Tenant does
hereby lease from Landlord, for the term and upon the terms and conditions
hereinafter set forth in this Addendum, the premises situate in the Town of
Henrietta, Monroe County, New York, more particularly described in "Schedule A"
annexed hereto and made a part hereof, together with the easements, rights and
appurtenances in connection therewith or thereunto belonging, to have and to
hold the same for a term of 45 months, commencing on the 1st day or July, 1974
and ending on the 31st day of March, 1978, unless sooner terminated as
hereinafter provided.
2. The Tenant covenants and agrees to pay additional rent for the said
premises at the rate of $8,335.00 per annum, to be added to the present rent of
$16,477.80 per annum, for a total of $24,812.80 per annum.
<PAGE>
-3-
However, the additional monthly rental for the said additional premises shall
be reduced by the total cost of the proposed and approved improvements in the
additional space in the amount of $18,600.00, divided by the 45 month term
remaining in the Lease, resulting in a reduction from $694.58 to $281.25 per
month. The monthly rental for the existing space, when reduced by the cost of
improvements divided by the remaining term of the Lease is $800.00. Therefore,
equal monthly installments of $1,081.25 will commence on July 1, 1974, and
thereafter on the first day of each month during the term of the Lease. Said
rental to be paid at 900 Jefferson Road, Henrietta, New York, or to such other
place as shall be designated by Landlord in writing at least 10 days prior to
the next ensuing rent payment. All improvements shall become the property of the
Landlord immediately upon installation and may not be removed at the end of the
term or upon termination of this Lease for any reason whatsoever.
3. Landlord and Tenant agree that this Addendum to Lease shall be
subject to and included in the Addendum to Lease of August 15, 1973, and Tenant
shall have the right to exercise, upon the property leased pursuant to this
Addendum, the option to lease for one additional five year period upon the terms
and conditions therein and herein set forth, except that the rental payable
shall be $24,812.80 per year, payable pursuant to the terms of the Addendum to
Lease of August 15, 1973.
4. The premises are to be used and occupied by the Tenant as a warehouse
for its Hickory Farms franchise operations.
5. The tenant is to obtain special approval from Landlord in advance for
any electrical or heating installations for the additional 4500 sq. ft.
6. Said premises shall be held pursuant to and subject to all the terms,
conditions and provisions of said Lease between the parties
<PAGE>
-4-
hereto relating to premises adjoining the premises hereby demised, namely, a
certain Lease dated September 11, 1968 and Addenda to Lease dated October 12,
1970, June 28, 1973 and August 15, 1973 as though the same were incorporated
herein, to all of which terms, conditions and provisions the parties hereto
agree and which they will perform to the extent required to be performed by them
as in said Lease and Addenda to Lease set forth, except as modified herein, so
that the premises hereby demised shall be held and treated as though the same
were demised as a part of the premises demised by said Lease dated September 11,
1968 and Addenda to Lease dated October 12, 1970, June 28, 1973, August 15,
1973, commencing the 1st day of July, 1974, at an additional annual rental for
said premises of $8,335.00 per annum to be added to the present rental of
$16,477.80, for a total rental of $24,812.80 per annum, calculated as aforesaid.
IN WITNESS WHEREOF, the parties hereto have executed this Addendum to
Lease the day and year first above written.
GENESEE VALLEY REGIONAL MARKET AUTHORITY
By /s/ Joseph C. King
----------------------------------------------
Administrator
HICKORY FARMS SALES CORPORATION
By /s/ Donald P. Berens
----------------------------------------------
<PAGE>
-5-
STATE OF NEW YORK )
COUNTY OF MONROE ) SS:
On this 5th day of August, 1974, before me personally came Joseph P.
King, to me known, who, being by me duly sworn, did depose and say: That he
resides in Pittsford, New York, that he is the Administrator of the Genesee
Valley Regional Market Authority, the corporation mentioned in and which
executed the foregoing instrument; that he knows the seal of said corporation;
that the seal affixed to said instrument is such corporate seal; that it was so
affixed by order of the Board of Directors of said corporation, and that he
signed his name thereto by like order.
/s/ Louis P. Agosto
------------------------------------------------
LOUIS P. AGOSTO
NOTARY PUBLIC, State of N.Y., Monroe County
My Commission Expires March 30, 1975
STATE OF NEW YORK )
COUNTY OF MONROE ) SS:
On this 24th day of July, 1974, before me personally came Donald P.
Berens to me known, who, being by me duly sworn, did depose and say: That he
resides in Fairport, N.Y.; that he is the President of Hickory Farms Sales
Corporation, the corporation mentioned in and which executed the foregoing
instrument; that he knows the seal of said corporation; that the seal affixed
to said instrument is such corporate seal; that it was so affixed by order of
the Board of Directors of said corporation and that he signed his name thereto
by like order.
/s/ CARL W. THORMAN
------------------------------------------------
CARL W. THORMAN
Notary Public in the State of New York
MONROE COUNTY, N.Y.
My Commission Expires March 30, 1975
<PAGE>
ADDENDUM TO LEASE
-----------------
AGREEMENT made this 21st day of July, 1975, between GENESEE VALLEY
REGIONAL MARKET AUTHORITY, a non-profit public benefit corporation, authorized
and created by Title 4 of Article 4 of the Public Authorities Law of the State
of New York, with its offices and principal place of business at 900 Jefferson
Road, in the Town of Henrietta, Monroe County, New York, hereinafter called
"Landlord", and HICKORY FARMS SALES CORPORATION, a corporation duly licensed and
authorized to do business at 900 Jefferson Road, Rochester, New York 14623,
hereinafter called "Tenant",
WITNESSETH THAT:
WHEREAS, Landlord and Anderson-Berens, Ltd. entered into a lease dated
September 11, 1968, relating to certain real property in the Town of Henrietta,
County of Monroe, New York, for the lease of certain premises described therein;
and
WHEREAS, Landlord and Anderson-Berens, Ltd. entered into an Addendum to
Lease date October 12, 1970 adding further real property previously leased, and
to provide for additional rent; and
WHEREAS, by Letter Agreement executed by Landlord on June 16, 1972,
Landlord consented to the assignment of the lease dated September 11, 1968, and
the Addendum to Lease dated October 12, 1970, which are hereby incorporated by
reference with the same force and effect as if fully set forth herein,
covering premises therein described; and
WHEREAS, Landlord and Hickory Farm Sales Corporation, assignee of the
lease, entered into an Addendum to Lease dated June 28, 1973, adding further
real property to the property previously leased, providing for additional rent
and improvements, and extending the term of the original lease and the first
Addendum to Lease to terminate on March 31, 1978, the same date as provided in
the Addendum dated June 28, 1973, which is hereby incorporated by reference; and
<PAGE>
-2-
WHEREAS, Landlord and Hickory Farm Sales Corporation, assignee of the
lease, entered into an Addendum to Lease dated August 15, 1973, providing for a
renewal option permitting Tenant to extend the term of the original lease, the
Addendum to Lease of October 12, 1970, and the Addendum to Lease of June 28,
1973, for an additional five (5) year period; and
WHEREAS, Landlord and Hickory Farm Sales Corporation entered into an
Addendum to Lease dated July 24, 1974, adding further real property to the
property previously leased, providing for additional rent and improvements, and
providing for a renewal option permitting Tenant to extend the term of the lease
and Addenda thereto set out in the Addendum to Lease dated August 15, 1973, upon
the further real property to be added to the real property previously leased;
and
WHEREAS, the parties hereto desire to improve and add further real
property to the property presently leased and provide for additional rent on
account thereof, namely, the remaining portion of Farmer Shed No. 4, an area of
3285 sq.ft.; and
WHEREAS, the parties hereto desire that Tenant shall have the right to
exercise the option to extend the term of the lease and Addenda thereto set out
in the Addendum of August 15, 1973, upon the further real property to be added
to the real property previously leased; and
WHEREAS, said lease dated September 11, 1968, and Addenda dated
October 12, 1970, June 28, 1973, August 15, 1973, July 24, 1974, and the Letter
Agreement executed by Landlord on June 16, 1972, constitute a valid, binding and
subsisting agreement between the parties hereto.
NOW, THEREFORE, the parties hereto in consideration of the premises and
the covenants and agreements hereinafter set forth do hereby agree as follows:
<PAGE>
-3-
1. Landlord does hereby demise and let unto Tenant and Tenant does
hereby lease from Landlord, for the term and upon the terms and conditions
hereinafter set forth in this Addendum, the premises situate in the Town of
Henrietta, Monroe County, New York, more particularly described in "Schedule A"
annexed hereto and made a part hereof, together with the easements, rights and
appurtenances in connection therewith or thereunto belonging, to have and to
hold the same for a term of 32 months, commencing on the 1st day of August,
1975 and ending on the 31st day of March, 1978, unless sooner terminated as
hereinafter provided.
2. The Tenant covenants and agrees to pay additional rent for the said
premises at the rate of $6,396.00 per annum, to be added to the present rent of
$24,812.80 per annum, for a total of $31,208.80 per annum. However, the
additional monthly rental for the said additional premises shall be reduced by
the total cost of the proposed and approved improvements in the additional space
in the amount of $10,484.00, divided by the 32 month term remaining in the
lease, resulting in a reduction from $533.00 to $205.00 per month. The monthly
rental for the existing space, when reduced by the cost of improvements divided
by the remaining term of the lease is $1,081.25. Therefore, equal monthly
installments of $1,286.25 will commence on August 1, 1975, and thereafter on the
first day of each month during the term of the lease. Said rental to be paid at
900 Jefferson Road, Henrietta, New York, or to such other place as shall be
designated by Landlord in writing at least 10 days prior to the next ensuing
rent payment. All improvements shall become the property of the Landlord
immediately upon installation and may not be removed at the end of the term or
upon termination of this lease for any reason whatsoever.
3. Landlord and Tenant agree that this Addendum to Lease shall be
subject to and included in the Addendum to
<PAGE>
-4-
Lease of August 15, 1973, and Tenant shall have the right to exercise, upon the
property leased pursuant to this Addendum, the option to lease for one
additional five year period upon the terms and conditions therein and herein
set forth, except that the rental payable shall be $31,208.80 per year, payable
pursuant to the terms of the Addendum to Lease of August 15, 1973.
4. The premises are to be used and occupied by the Tenant as a warehouse
for its Hickory Farms franchise operations.
5. The Tenant is to obtain special approval from Landlord in advance for
any electrical or heating installations for the additional 3285 sq. ft.
6. Said premises shall be held pursuant to and subject to all the terms,
conditions and provisions of said lease between the parties hereto relating to
premises adjoining the premises hereby demised, namely, a certain lease dated
September 11, 1968, and Addenda to Lease dated October 12, 1970, June 28, 1973,
August 15, 1973 and July 24, 1974 as though the same were incorporated herein,
to all of which terms, conditions and provisions the parties hereto agree and
which they will perform to the extent required to be performed by them as in
said lease and Addenda to Lease set forth, except as modified herein, so that
the premises hereby demised shall be held and treated as though the same were
demised as a part of the premises demised by said lease dated September 11, 1968
and Addenda to Lease dated October 12, 1970, June 28, 1973, August 15, 1973 and
July 24, 1974, commencing the 1st day of August, 1975, at an additional annual
rental for said premises of $6,396.00 per annum to be added to the present
rental of $24,812.80, for a total rental of $31,208.80 per annum, calculated as
aforesaid.
IN WITNESS WHEREOF, the parties hereto have executed this Addendum to
Lease the day and year first above written.
GENESEE VALLEY REGINAL MARKET AUTHORITY
By /s/ Joseph P. King
--------------------------------
Administrator
HICKORY FARMS SALES CORPORATION
BY /s/ Donald P. Berens, Pres.
--------------------------------
<PAGE>
-5-
STATE OF NEW YORK )
COUNTY OF MONROE ) SS:
On this 21st day of July, 1975, before me personally came Joseph P.
King, to me known, who, being by me duly sworn, did depose and say: That he
resides in Pittsford, New York, that he is the Administrator of the Genesee
Valley Regional Market Authority, the corporation mentioned in and which
executed the foregoing instrument; that he knows the seal of said corporation;
that the seal affixed to said instrument is such corporate seal; that it was so
affixed by order of the Board of Directors of said corporation, and that he
signed his name thereto by like order.
/s/ Louis P. Agosto
-----------------------------------------
STATE OF NEW YORK )
COUNTY OF MONROE ) SS:
On this 19th day of July, 1975, before me personally came D.P. Berens to
me known, who, being by me duly sworn, did depose and say: That he resides in
22 Countryside Rd. Fairport NY that he is the President of HICKORY FARMS SALES
CORPORATION, the corporation mentioned in and which executed the foregoing
instrument; that he knows the seal of said corporation, that the seal affixed to
said instrument is such corporate seal; that it was so affixed by order of the
Board of Directors of said corporation, and that he signed his name thereto by
like order.
/s/Julia H. Varlan
-----------------------------------------
JULIA H. VARLAN, 4507157
NOTARY PUBLIC, State of N.Y.
Livingston Co.
My Commission Expires March 30, 1977
Certificate filed in Monroe County
<PAGE>
ADDENDUM TO LEASE
-----------------
AGREEMENT made this 20th day of May 1977, between GENESEE VALLEY
REGIONAL MARKET AUTHORITY, a non-profit public benefit corporation, authorized
and created by Title 4 of Article 4 of the Public Authorities Law of the State
of New York, with its offices and principal place of business at 900 Jefferson
Road, in the Town of Henrietta, Monroe County, New York, hereinafter called
"Landlord", and HICKORY FARMS SALES CORPORATION, a domestic corporation duly
licensed and authorized to do business with offices and its principal place of
business at 900 Jefferson Road, Rochester, New York 14623, hereinafter called
"Tenant";
WITNESSETH THAT:
WHEREAS, Landlord and Anderson-Berens, Ltd. entered into a lease
dated September 11, 1968, relating to certain real property in the Town of
Henrietta, County of Monroe, New York, for the lease of certain premises
described therein, which lease was assigned, with the consent of the Landlord,
to the Tenant, and modified by Addenda dated October 12, 1970; June 16, 1972;
June 28, 1973; August 15, 1973; July 24, 1974; and July 21, 1975, which
lease, assignment and addenda are all incorporated herein by reference and
referred to hereinafter as the Lease; and
WHEREAS, the Landlord and Tenant desire to add further real property
to the property presently leased, to provide for the improvement of said real
property by Tenant, such improvements to be the property of Landlord, and
provide for additional rent and otherwise modify the terms of the Lease;
NOW, THEREFORE, the parties hereto in consideration of the premises
and the covenants and agreements hereinafter set forth do hereby agree as
follows:
1. Landlord does hereby demise and let unto Tenant and Tenant does
hereby lease from Landlord, upon the terms and conditions hereinafter set
forth in this Addendum and in the Lease incorporated herein, as modified by
this Addendum, the premises situate in the Town of Henrietta, Monroe County,
New York, more
<PAGE>
-2-
particularly described in "Schedule A" annexed hereto and made a part hereof,
hereinafter sometimes referred to as "the addition to Shed 4", together with
the easements, rights and appurtenances in connection therewith or thereunto
belonging, to have and to hold the same for a term of 129 months, commencing on
the 1st day of July, 1977 and ending on the 31st day of March, 1988, unless
sooner terminated as hereinafter provided.
2. Landlord shall erect upon said premises described in "Schedule
A" a structure having floorspace of between 16,000 square feet and 18,000
square feet, at an approximate cost of $154,155. All improvements are the
property of Landlord immediately upon installation or erection on the premises
and may not be removed at the end of the term or upon termination of the
Lease for any reason whatsoever. Annexed to this Addendum to Lease as
"Schedule C" and made a part hereof is a copy of the construction contract
(with the exception of the plans and drawings referred to therein at Article
6, #3, which have already been approved by Tenant) for the construction of the
aforesaid structure. Tenant hereby approves the form and content of said
Contract. It is the intention of the Landlord and Tenant that the structure
to be erected shall be erected at Tenant's sole cost and expense. Tenant
agrees that it shall pay Landlord, upon Landlord's demand, such sums as may be
demanded of Landlord by Contractor, Joseph Martini, Inc., and acknowledged as
owed by Landlord to Contractor. Payments to Contractor shall be made as set
forth in the Contract, and Tenant shall pay said sums to Landlord as
requested by Landlord. Such sums shall be owed as Rental hereunder for
premises described on both "Schedules A and B", and in the event of non-
payment by Tenant, Landlord shall have such rights and remedies as it has in
the event of non-payment of rent.
<PAGE>
-3-
3. The Tenant covenants and agrees to pay rent for the said
premises described on "Schedule A" at the rate of $16,740.00 per annum.
However, the additional monthly rental for the said additional premises
shall be reduced by the total cost of the proposed and approved improvements
in the addition to Shed 4 in the amount of $14,340.00, divided by the 129
month term set out in this Addendum, resulting in a reduction from $1395.00
to $200.00 per month. Therefore, equal monthly rental installments for
the premises described on "Schedule A" of $200.00 will commence on July 1,
1977, and thereafter on the first day of each month during the term of the
Lease. Said rental to be paid at 900 Jefferson Road, Henrietta, New York, or
to such other place as shall be designated by Landlord in writing at least 10
days prior to the next ensuing rent payment.
4. Tenant, by execution of this Addendum, exercises its option
to renew the term of the Lease of the Premises described in "Schedule B"
annexed hereto, sometimes referred to as "Shed 4," upon the terms set forth
in the Lease through March 31, 1983. In addition, Tenant and Landlord
hereby extend the term of the Lease through March 31, 1988, to coincide with
the term of this Addendum and Lease of the premises described on "Schedule A,"
with annual rental for said five year period to be increased by an amount
related to the increase in the Department of Labor Cost of Living Index for
the United States as a whole from the commencement of the prior five year
option period (April 1, 1978) to the end of said period (March 31, 1983). The
amount of increase in the annual rental shall be computed as follows, but
shall in no event exceed twenty percent (20%) of the annual rental paid during
any one year of the prior five (5) year option period:
Annual Rental During Cost of Living Index at March 31, 1983
5 Year Option Period x Minus Cost of Living Index at April 1, 1978
-------------------------------------------
Cost of Living Index at April 1, 1978
Rental paid pursuant to the provisions of this Paragraph is to be paid in
addition to the rental set out in Paragraph 3 hereof for
<PAGE>
-4-
the premises described on "Schedule A," and shall be paid in equal monthly
installments in the manner set forth in the Lease.
5. Tenant shall have the option to extend the Lease of the premises
described on "Schedules A and B" upon the terms of the Lease and this Addendum,
from April 1, 1988 through March 31, 1993. During said renewal period annual
rental for the premises described on "Schedule A" shall be $16,740.00, with
the addition of an adjustment, not to exceed twenty percent (20%) of
$16,740.00, the aforesaid annual rental figure, based on the increase
in the Bureau of Labor Statistics Cost of Living Index between April 1, 1977
and March 31, 1988, and annual rental for the premises described on "Schedule
B" shall be the annual rental for the prior five (5) year option period,
adjusted by an amount, not to exceed twenty percent (20%) of the annual rental
reserved for any one year of the prior five year option period, based on the
increase in the Bureau of Labor Statistics Cost of Living Index between
April 1, 1983 and March 31, 1988. Both increases shall be calculated using the
formula set forth in Paragraph 4 hereof, with relevant dates and base rental
amounts substituted as proper. In the event this option is exercised, rental
shall be payable in equal monthly installments in the manner set forth in the
Lease.
6. The premises described on "Schedule A" are to be used and
occupied by Tenant as a warehouse for its Hickory Farms franchise operations,
or for a similar business dealing in identical items.
7. Tenant and Landlord agree that during the term of the Lease and
any extensions, Tenant will need expanded parking area during September,
October, November and December of each calendar year. During the aforesaid
months, Landlord agrees to make fifty (50) parking spaces available in its
parking lot and Tenant agrees to pay at the commencement of any such month
the sum of $300.00. Tenant agrees that it shall occupy such space and make
such payments during at least the aforesaid 4 months of each calendar year
during the term or extensions.
<PAGE>
-5-
8. Said premises described on "Schedules A and B" shall be held
pursuant to and subject to all the terms, conditions and provisions of the
Lease as though the same were incorporated herein, to all of which terms,
conditions and provisions the parties hereto agree and which they will perform
to the extent required to be performed by them as the Lease set forth, except
as modified herein, so that the premises hereby demised shall be held and
treated as though the same were demised as a part of the premises demised by
the Lease with commencement date and rental as set forth herein.
9. Landlord shall pay insurance premiums for fire and extended
risk, vandalism and malicious mischief insurance coverage for the period
July 1, 1977 to June 30, 1978, and said insurance shall cover premises described
on "Schedule A". The insurance premium so paid shall be considered the base
amount payable by Landlord. Tenant agrees to pay any increase in insurance
premium attributable to the premises described on "Schedule A", and
improvements thereon, over the base amount during any other year of the term
in which such an increase might occur. Said amount payable by Tenant shall
be deemed to be rental, and shall be payable upon demand. For the purposes
of this provision, since Landlord's insurance policy may insure areas in excess
of premises described on "Schedule A", Landlord and Tenant shall accept such
attribution of premium expense as may be made by any agent of Landlord's
insurer.
IN WITNESS WHEREOF, the parties hereto have executed this Addendum
to Lease the day and first above written.
GENESEE VALLEY REGIONAL MARKET
AUTHORITY
By /s/ Joseph King P.
---------------------
Administrator
HICKORY FARMS SALES CORPORATION
By /s/ Donald P. Berens, Pres.
-----------------------------
<PAGE>
-6-
STATE OF NEW YORK )
COUNTY OF MONROE ) SS:
On this 20th day of May 1977, before me personally came Joseph P. King,
to me known, who, being by me duly sworn, did depose and say: That he resides
in Pittsford, New York, that he is the Administrator of the Genesee Valley
Regional Market Authority, the corporation mentioned in and which executed the
foregoing instrument; that he knows the seal of said corporation; that the seal
affixed to said instrument is such corporate seal; that it was so affixed by
order of the Board of Directors of said corporation, and that he signed his name
thereto by like order.
/s/ Louis P. Agosto
----------------------
Louis P. Agosto
NOTARY PUBLIC, State of N.Y., Monroe County
My Commission Expires March 30, 1979
STATE OF NEW YORK )
COUNTY OF MONROE ) SS:
On this 20th day of May 1977, before me personally came Donald P. Berens
to me known, who, being by me duly sworn, did depose and say: That he resides
in Fairport N.Y. that he is the President of HICKORY FARMS SALES CORPORATION,
the corporation mentioned in and which executed the foregoing instrument; that
he knows the seal of said corporation, that the seal affixed to said instrument
is such corporate seal; that it was so affixed by order of the Board of
Directors of said corporation, and that he signed his name thereto by like
order.
/s/ Louis P. Agosto
----------------------
Louis P. Agosto
NOTARY PUBLIC, State of N.Y., Monroe County
My Commission Expires March 30, 1979
<PAGE>
[PLOT PLAN GRAPHIC APPEARS HERE]
[ART]
<PAGE>
ADDENDUM TO LEASE
-----------------
AGREEMENT, made this 3rd day of December, 1984, between GENESEE VALLEY
REGIONAL MARKET AUTHORITY, a non-profit public benefit corporation authorized
and created by Title IV of Article IV of the Public Authority Law of the State
of New York with its offices and principal place of business at 900 Jefferson
Road, Town of Henrietta, County of Monroe and State of New York, hereinafter
called "Landlord" and GENERAL HOST CORPORATION, doing business as Hickory Farms
of Ohio and successor, by merger, to Hickory Farms Sales Corporation, a domestic
corporation duly authorized to do business with offices at 900 Jefferson Road,
Rochester, New York, hereinafter called "Tenant".
WITNESSETH:
WHEREAS, Landlord and Anderson-Berens, Ltd. entered into a lease dated
September 11, 1968, relating to certain real property in the Town of Henrietta,
County of Monroe and State of New York for the lease of certain premises
described therein which lease was assigned by the consent of the Landlord to the
Tenant and modified by addenda dated October 12, 1970, June 16, 1972, June
28, 1973, August 15, 1973, July 24, 1974, July 21, 1975 and May 20, 1977, which
lease assignment and addenda are still incorporated herein by reference and
referred to hereinafter as the "Lease", and
WHEREAS, the Landlord and Tenant desire to further modify the Lease by
granting to the Tenant an additional option to renew the Lease for a five (5)
year period beginning April 1, 1993, and expiring on the 31st day of March,
1998.
NOW, THEREFORE, the parties hereto in consideration of the premises and
covenants and agreements hereinafter set forth do hereby agree as follows:
<PAGE>
-2-
1. Provided this Lease is in full force and effect on April 1, 1993,
Landlord hereby grants to Tenant an additional five (5) year option to renew the
Lease for the term beginning April 1, 1993, and expiring on March 31, 1998.
During said renewal term, the annual rental shall be that sum reserved and paid
during the prior (5) year period with the addition of an adjustment based on the
formula:
Cost of Living Index at March 31,
1993 - Cost of Living Index at
Annual rental reserved during the April 1, 1988
five (5) year option period ---------------------------------
x Cost of Living Index at April 1,
1988
In no event, however, shall the rental to be paid during this five (5) year
option period exceed One Hundred Twenty percent (120%) of the annual rental paid
in the prior five (5) year option period.
2. All the terms, covenants and conditions of the Lease as above described
shall remain in full force and effect except as modified herein.
IN WITNESS WHEREOF, the parties hereto have executed this Addendum to Lease
the day and year first above written.
GENESEE VALLEY REGIONAL
MARKET AUTHORITY
By: /s/ William J. Mulligan
-----------------------------------
William J. Mulligan
Administrator
GENERAL HOST CORPORATION
By: /s/ E. H. Hoornstra
-----------------------------------
E. H. Hoornstra
Vice Chairman
<PAGE>
-3-
STATE OF NEW YORK:
: SS
COUNTY OF MONROE :
On this 3rd day of December, 1984, before me personally came William J.
Mulligan, to me known, who, by me duly sworn, did depose and say: That he
resides in Rochester, New York, that he is the Administrator of the Genesee
Valley Regional Market Authority, the corporation mentioned in and which
executed the foregoing instrument; that he knows the seal of said corporation;
that the seal affixed to said instrument is such corporate seal; that it was so
affixed by order of the Board of Directors of said corporation, and that he
signed his name thereto by like order.
/s/ Shirley J. Lloyd
-----------------------------------------
Notary Public
SHIRLEY J. LLOYD, Notary Public
State of New York, Monroe County
Commission Expires March 30, 1986
STATE OF FLORIDA :
: SS
COUNTY OF HILLSBOROUGH :
On this 5th day of November, 1984, before me personally came E. H.
Hoornstra, to me known who, by me duly sworn, did depose and say: That he
resides in Clearwater, Florida, that he is the Vice Chairman of General Host
Corporation, the corporation mentioned in and which executed the foregoing
instrument; that he knows the seal of said corporation; that the seal affixed to
said instrument is such corporate seal; that it was so affixed by order of the
Board of Directors of said corporation, and that he signed his name thereto by
like order.
/s/ Mary Beth Miller
-----------------------------------------
Notary Public
Notary Public, State of Florida At Large
My Commission Expires Nov. 21, 1986
Provided By SAILCO Insurance Company of
America
<PAGE>
ASSIGNMENT AND ASSUMPTION OF LEASE
THIS ASSIGNMENT made the 3rd day of April, 1992, by and between Hickory
Farms, Inc., a Delaware corporation, with offices at 1505 Holland Road, Maumee,
Ohio ("Assignor") and Educational Modules, Inc., ("Assignee") a New York
corporation, with an office at 1665 Buffalo Road, Rochester, New York.
WITNESSETH:
FOR VALUABLE CONSIDERATION, Assignor hereby assigns to Assignee all of
its right, title and interest in and to that certain lease, affecting all or any
part of the real property described therein, together with all amendments,
riders and exhibits thereto and guaranties, if any, thereof, as set forth on
Schedule A attached hereto and made a part hereof ("Lease").
TO HAVE AND TO HOLD the same unto said Assignee, its successors and
permitted assigns from April 15, 1992 for the remainder of the term thereof
subject to the terms, covenants, conditions, rents and provisions therein
contained.
Assignee hereby accepts the foregoing assignment of the Lease and agrees
to assume and perform all of the obligations of Assignor arising thereunder from
and after the date hereof.
Assignor hereby agrees to indemnify and hold Assignee harmless from any
and all claims, costs or expenses arising under the Lease, or with respect to
the Lease, prior to the date hereof, including, without limitation, reasonable
legal fees relative thereto.
<PAGE>
- 2 -
Assignee hereby agrees to indemnify and hold harmless Assignor from any and
all claims, costs or expenses arising under the Lease, or with respect to the
Lease, from and after the date hereof, including, without limitation, reasonable
legal fees relative thereto.
IN WITNESS WHEREOF, the Assignor and Assignee have duly executed this
Assignment and Assumption of Lease on the date first above written.
HICKORY FARMS, INC. EDUCATIONAL MODULES, INC.
By:/s/ James E. Edwards By: /s/ J. Froehler
---------------------------------- -------------------------------------
its Vice President, Leasing its President
---------------------------------- -------------------------------------
<PAGE>
SCHEDULE A
Lease by and between Genesee Valley Regional Market Authority and
Anderson-Berens Ltd. dated September 11, 1968, as assigned to Hickory Farms
Sales Corporation, now Hickory Farms, Inc., (succeeded by merger by General
Host Corporation) and modified by addenda dated October 12, 1970, June 16, 1972,
June 28, 1973, August 13, 1973, July 24, 1974, July 21, 1975, May 20, 1977, and
December 3, 1984.
<PAGE>
ADDENDUM TO LEASE
Provided this Lease is in full force and effect on April 1, 1993, Landlord
hereby grants to Tenant an additional five (5) year option to renew the Lease
for the term beginning April 1, 1998 ("Term Commencement Date"), and expiring on
March 31, 2003. During said renewal term, the annual rental ("Annual Rent")
shall be that sum reserved and paid during the prior five (5) year period ("Base
Rent"), together with the consumer price index adjustment as set forth below:
I. CONSUMER PRICE INDEX ADJUSTMENT
-------------------------------
(a) Definitions: For purposes of calculating cost of living adjustments,
-----------
the following definitions shall apply:
(i) "Price Index" shall mean the "Consumer Price Index for all
Urban Consumers", Philadelphia-Wilmington-Trenton, PA-DE-NJ-MD, All items (1967
= 100), published by the Bureau of Labor Statistics of the United States
Department of Labor.
(ii) "Price Index One" shall mean the monthly Price Index for
March, 1993.
(iii) "Price Index Two" shall mean the monthly Price Index for
April, 1980.
(iv) "Price Index Three" shall mean the monthly Price Index for
April, 1988.
(b) Adjustment of Rent. Effective as of the Term Commencement Date, there
------------------
shall be a cost of living adjustment of the rentals payable under the Lease. The
adjustment shall be based on a percentage being equal to a fraction, the
numerator of which
<PAGE>
-2-
is the difference between Price Index One and Price Index Two, and the
denominator of which is Price Index Three and as set forth in the following
formula:
Price Index One - Price Index Two
---------------------------------
Price Index Three
The annual Base Rent to be paid in monthly installments commencing on the Term
Commencement Date, shall be multiplied by the percentage arrived at by the above
formula, and the resulting sum shall be added to such fixed annual Base Rent
effective as of the Term Commencement Date, said adjusted annual Base Rent shall
thereafter be payable hereunder in equal monthly installments (or adjusted for
fractional months as provided above) as provided in the Lease.
The following illustrates the intentions of the parties hereto as to the
computation of the forementioned cost of living adjustment in the annual Base
Rent payable hereunder: Assuming that said fixed annual Base Rent is
$10,000.00, that Price Index One is 120, that Price Index Two is 110, and that
Price Index Three is 115, then the percentage increase thus affected, i.e.,
8.695% (120-110), would be multiplied by $10,000.00 and said fixed annual
-------
115
Base Rent would be increased by $869.50 effective as of the Term Commencement
Date.
(c) Changes in Price Index. In the event that a substantial change is
----------------------
made in the method by which the Price Index is determined, then for purposes of
this Section, the Price Index shall be adjusted to the figure that would have
resulted had no
<PAGE>
-3-
change occurred in the manner of determining the Price Index. In the event that
the Price Index (or a successor or substitute index) is not available, a
reliable governmental or other nonpartisan publication evaluating the
information theretofore used in determining the Price Index shall be used in
lieu of the Price Index. Provided hereto that the parties hereby stipulate and
agree that the Price Index (1967-100) shall be used in calculating all
percentages under this paragraph.
In no event, however, shall the Annual Rent to be paid during this five (5)
year option period (i) exceed One Hundred Twenty percent (120%) of the Base
Rent, or (ii) be less than the Base Rent.
2. All the term, covenants and conditions of the Lease as above described
shall remain in full force and effect except as modified herein.
IN WITNESS WHEREOF, the parties hereto have executed this Addendum to Lease
the day and year first above written.
GENESEE VALLEY REGIONAL
MARKET AUTHORITY
By: /s/ William J. Mulligan, Jr.
---------------------------------------
William J. Mulligan, Jr.
Administrator
EDUCATIONAL MODULES, INC.
By: /s/J. Froehler
---------------------------------------
President
<PAGE>
WAREHOUSE & OFFICE
------------------
Tenant Anderson-Berens, Ltd. Landlord Genesee Valley Regional
- ------ -------- --------------------------
Market Authority
Assignment only with consent 900 Jefferson Rd.
- ---------- --------------------------
Term 8 years, 2 mo. Rochester, NY 14623
- ---- --------------------------
Begins 11-1-68
------ ----------------------- --------------------------
Ends 12-31-76 Rent Checks To - Above
---- ----------------------- -------------- -------------------
--------------------------
Renewal 5 yrs
- ------- --------------------------
Rent $6000.00 year, $500.00 mo. Size 45 x 103, 4635 sq. ft. 4635
- ---- ---- ------------------------------
plus 30 x 45 addition 1350
Percentage None 100 x 45 4500
- ---------- 100 x 45 4500
------
Common Area None 14,985
- ----------- 1975 71'8" x 45 3,225
------
Merchants' Assoc. None 18,210
- -----------------
Taxes Tenant
- -----
Statements None
- ----------
Overages None
- --------
HVAC Tenant
- ----
Utilities Tenant
- ---------
Exclusive None
- ---------
Non-Compete None
- -------------
Insurance 500/liability
- ---------
Construction Allowance None
- ----------------------
Corporate Ownership -- no restriction
- -------------------
Guarenteed By None
- -------------
<PAGE>
2/14/77
900 JEFFERSON ROAD
ROCHESTER, N. Y.
--------------------
<TABLE>
<CAPTION>
Thru 4/1/88-
3/31/78 4/1/78 4/1/83 3/31/93
------- ------ ------ -------
<S> <C> <C> <C> <C>
Office & original )
Addition #1 )
Addition #2 )
Addition #3 )
Addition #4 ) ?$15,435.00 $31,208.00 $37,449.60 $44,939.52
16,342.20
1977 Addition 2,400.00) 2,400.00) 2,400.00) 24,697.20
1,200.00) 1,200.00) 1,200.00)
</TABLE>
<PAGE>
10TH ADDENDUM TO LEASE DATED SEPTEMBER 11, 1968
-----------------------------------------------
AGREEMENT, made this 1st day of October, 1993, by and between the GENESEE
VALLEY REGIONAL MARKET AUTHORITY, a public benefit corporation created and
existing under and by virtue of Title IV of Article IV of the Public Authorities
Law of the State of New York with its offices and principal place of business at
900 Jefferson Road, Town of Henrietta, County of Monroe, State of New York,
hereinafter "Landlord" and WORLD OF SCIENCE, INC. (formerly Educational Modules,
Inc.) a New York Corporation with its office and principal place of business at
900 Jefferson Road, Rochester, New York, hereinafter "Tenant".
W I T N E S S E T H:
WHEREAS, Landlord and Anderson-Berens, Ltd. entered into a lease dated
September 11, 1968 for the lease of certain real property in the Town of
Henrietta, County of Monroe and State of New York more fully described in said
lease, which lease was there after assigned to Hickory Farms Inc., formerly
Hickory Farms Sales Corporation, and which was succeeded by merger by the
General Host Corporation, which assignment was dated December 3, 1984 and
further assigned to Educational Modules, Inc., now World of Science, Inc., by
assignment and assumption dated April 3, 1992, and
WHEREAS, the original lease was modified by addenda dated October 12, 1970,
June 16, 1972, June 28, 1973, August 13, 1973, July 24, 1974, July 21, 1975,
May 20, 1977, December 3, 1984 and
<PAGE>
April 3, 1992, and
WHEREAS, the tenant has exercised a renewal option so as to extend this
lease until March 31, 1998, and
WHEREAS, the tenant has an additional option to renew for the period
beginning April 1, 1998 and ending March 31, 2003, and
WHEREAS, the Landlord and Tenant desire to further modify the Lease by
granting to the Tenant additional options to renew the Lease for two five (5)
year periods beginning April 1, 2003, which would expire on March 31, 2008, and
April 1, 2008, expiring on March 31, 2013.
NOW, THEREFORE, the parties hereto in consideration of the covenants and
agreements hereinafter set forth do hereby agree as follows:
1. Provided this Lease is in full force and effect on April 1, 2003,
the Landlord hereby grants to Tenant two additional five (5) year options to
renew the Lease: the first for a term beginning April 1, 2003 ("Term
Commencement Date") and expiring on March 31, 2008 and the second term beginning
April 1, 2008 ("Term Commencement Date") and expiring on March 31, 2013. During
each renewal term the annual rental ("Annual Rental") shall be that sum reserved
and paid during the prior five (5) year period ("Base Rent"), together with the
consumer price index adjustment as set forth below:
I. CONSUMER PRICE INDEX ADJUSTMENT
-------------------------------
(a) Definitions: For purposes of calculating cost of living
-----------
adjustments, following definitions shall apply:
2
<PAGE>
(i) "Price Index" shall mean the "Consumer Price Index for all
Urban Consumers", Philadelphia-Wilmington-Trenton, PA-DE-NJ-MD, All items (1967
- - 100), published by the Bureau of Labor Statistics of the United States
Department of Labor.
(ii) "Price Index One" shall mean the monthly Price Index for
March, 1993.
(iii) "Price Index Two" shall mean the monthly Price Index for
April, 1980.
(iv) "Price Index Three" shall mean the monthly Price Index for
April, 1988.
(b) Adjustment of Rent. Effective as of the Term Commencement Date,
------------------
there shall be a cost of living adjustment of the rentals payable under the
Lease. The adjustment shall be based on a percentage being equal to a fraction,
the numerator of which is the difference between Price Index One and Price Index
Two, and the denominator of which is Price Index Three and as set forth in the
following formula:
Price Index One - Price Index Two
---------------------------------
Price Index Three
The annual Base Rent to be paid in monthly installments commencing on the Term
Commencement Date, shall be multiplied by the percentage arrived at by the above
formula, and the resulting sum shall be added to such fixed annual Base Rent
effective as of the Term Commencement Date, said adjusted annual Base Rent shall
thereafter by payable hereunder in equal monthly installments (or adjusted for
fractional months as provided above) as provided in the Lease.
3
<PAGE>
The following illustrates the intentions of the parties hereto as to the
computation of the aforementioned cost of living adjustment in the annual Base
Rent payable hereunder: Assuming that said fixed annual Base Rent is
$10,000.00, that Price Index One is 120, that Price Index Two is 110, and that
Price Index Three is 115, then the percentage increase thus affected, i.e.,
8.695% (120-110), would be multiplied by $10,000.00 and said fixed annual Base
-------
115
Rent would be increased by $869.50 effective as of the Term Commencement Date.
(c) Changes in Price Index. In the event that a substantial change is
----------------------
made in the method by which the Price Index is determined, then for purposes of
this Section, the Price Index shall be adjusted to the figure that would have
resulted had no change occurred in the manner of determining the Price Index. In
the event that the Price Index (or a successor or substitute index) is not
available, a reliable governmental or other nonpartisan publication evaluating
the information theretofore used in determining the Price Index shall be used in
lieu of the Price Index. Provided hereto that the parties hereby stipulate and
agree that the Price Index (1967-100) shall be used in calculating all
percentages under this paragraph.
In no event, however, shall the Annual Rent to be paid during this five (5)
year option period (i) exceed One Hundred Twenty percent (120%) of the Base
Rent, or (ii) be less than the Base Rent.
4
<PAGE>
2. The option may not be exercised if Tenant is in default under any of
the terms of the Lease.
3. Notice of intent to exercise an option shall be served upon the
Authority addressed to the Administrator at 900 Jefferson Road, no later than
three (3) months prior to the expiration of the term of said lease.
4. All the term, covenants and conditions of the Lease as above described
shall remain in full force and effect except as herein modified.
IN WITNESS WHEREOF, the parties hereto have executed this Addendum to Lease
the day and year first above written.
GENESEE VALLEY REGIONAL
MARKET AUTHORITY
By: /s/ William J. Mulligan, Jr.
--------------------------------------
William J. Mulligan, Jr.
Administrator
WORLD OF SCIENCE, INC.
By: /s/ James Froehler
--------------------------------------
James Froehler
President
5
<PAGE>
1 of 2
--------------
Fully executed
EXHIBIT 10.6
LANDLORD: BF REALTY INVENTORS ROCHESTER II LIMITED
PARTNERSHIP
TENANT: WORLD OF SCIENCE, INC.
PREMISES: 275 COMMERCE DRIVE, ROCHESTER, NEW YORK
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
NO. TITLE NO.
<S> <C> <C>
(S)1. The Leased Premises..................................... 1
(S)2. Term.................................................... 1
(S)3. Rent.................................................... 1
(S)4. Additional Rent......................................... 2
(S)5. Option To Renew......................................... 2
(S)6. Use Of Premises And Signs............................... 3
(S)7. Compliance With Laws.................................... 3
(S)8. Alterations, Maintenance and Repairs.................... 4
(S)9. Security Deposit........................................ 6
(S)10. Mechanic's Liens........................................ 6
(S)11. Indemnity And Insurance................................. 6
(S)12. Waiver Of Subrogation................................... 9
(S)13. Personal Property....................................... 9
(S)14. Destruction Of Premises................................. 9
(S)15. Condemnation............................................ 10
(S)16. Utilities............................................... 11
(S)17. Protection of Landlord's Mortgage....................... 11
(S)18. Limitation of Liability................................. 12
(S)19. Transfer Of Landlord's Interest......................... 12
(S)20. Severability of Provision............................... 12
(S)21. Non-Waiver.............................................. 13
(S)22. Enjoyment Without Molestation........................... 13
(S)23. Successors In Interest Assignment....................... 13
(S)24. Entry By Landlord....................................... 13
(S)25. Default................................................. 14
(S)26. Surrender Of Premises................................... 15
(S)27. Holding Over Tenant..................................... 16
(S)28. Real Estate Brokers..................................... 16
(S)29. Time Of The Essence..................................... 16
(S)30. Notice.................................................. 16
(S)31. Amendments.............................................. 17
(S)32. Short Form Lease........................................ 17
(S)33. Governing Law........................................... 17
(S)34. Successors And Assigns.................................. 17
(S)35. Captions and Table of Contents.......................... 17
(S)36. Authority............................................... 17
(S)37. Hazardous Materials..................................... 17
(S)38. Attorney's Fees......................................... 18
(S)39. Cumulative Rights and Remedies.......................... 19
(S)40. Entire Agreement........................................ 19
(S)41. Bank Waiver............................................. 19
</TABLE>
<PAGE>
LEASE AGREEMENT
---------------
This lease entered into on the 29th day of March, 1994, by and between
BF REALTY INVESTORS ROCHESTER II LIMITED PARTNERSHIP, an Ohio limited
partnership with an office at 1241 Dublin Road, Columbus, Ohio 43215,
hereinafter called "Landlord," and WORLD OF SCIENCE, INC., a New York
corporation with an office at 900 Jefferson Road, Building 4, Rochester, New
York 14625, hereinafter called "Tenant."
Upon the terms and subject to the conditions hereinafter set forth,
Landlord leases to Tenant, and Tenant leases from Landlord, the property
hereafter described.
(S)1. THE LEASED PREMISES. The property hereby leased to Tenant, upon and
-------------------
subject to the terms, covenants, conditions and provisions hereof, is commonly
known as 275 Commerce Drive, Rochester, New York and being more particularly
described in Schedule A attached hereto and made a part hereof, together with
all improvements now or hereafter located thereon (the "leased premises").
The lease is subject to applicable zoning and building ordinances and
regulations, conditions, restrictions, rights-of-way, and easements of record
and the condition and state of repair of the leased premises.
(S)2. TERM. The term of this lease shall be a period of sixteen (16) months,
----
commencing on the 1st day of April, 1994, and ending on the 31st day of July,
1995. Notwithstanding the commencement date set forth in the immediately
preceding sentence, Landlord shall make the leased premises available to Tenant
after the date hereof and prior to such commencement date for the purposes of
remodeling, decorating, furnishing and equipping the leased premises. The use of
the leased premises prior to the commencement date for such work shall not
create a landlord-tenant relationship between the parties, nor constitute
occupancy of the lease premises for the commencement of base rent, but the
provisions of (S)(S)6, 8, 10, 11, 12, 16 and 37 of this lease shall apply.
(S)3. RENT. Tenant does hereby agree to pay as base rent for the Premises the
----
sum of One Hundred Fifty Thousand Dollars ($150,000.00) payable in advance in
monthly installments of Ten Thousand Dollars ($10,000.00) on the first day of
each and every month during the term of this lease without demand, deduction or
set-off; provided, however, that the
<PAGE>
obligation to pay base rent shall commence on May 1, 1994. Rent checks shall be
made payable to Landlord and shall be mailed to 1241 Dublin Road, Columbus, Ohio
43215.
(S)4. ADDITIONAL RENT. In addition to the base rent, Tenant shall pay as
---------------
additional rent during the term of this lease: all taxes, assessments and other
governmental charges (including taxes, assessments and other governmental
charges paid prior to the commencement date of the term of this lease to the
extent they relate to any period of time after such commencement date), all
public and private utility charges, all premiums on insurance policies required
by the terms hereof and except as otherwise set forth in this lease, all other
expenses and charges, which during the continuance of this lease, shall arise,
be levied, assessed, charged or imposed upon or with respect to, or be incurred
in connection with, the ownership, possession, rent, use, occupation, operation,
maintenance, repair and alteration of the leased premises; provided, however,
that nothing herein shall be construed to require Tenant to pay any income or
franchise taxes imposed on Landlord. If permitted by the applicable governmental
authority, Tenant may pay assessments in installments in which event Tenant
shall only be liable for installments due and payable during the term of this
lease. All taxes, assessments, and governmental charges shall be pro-rated so
that tenant shall pay only those costs which are attributable to its period of
occupancy.
(S)5. OPTION TO RENEW. If, and only if, Tenant shall have fully done, performed
---------------
and observed all of the terms, covenants and conditions required hereunder to be
done, performed or observed by it, then Tenant shall have the right to renew
this lease for a renewal term of one (1) year.
If, after having renewed the lease for the first renewal term Tenant has
continued to observe and perform all of its obligations under this lease, Tenant
shall have the right to renew this lease for a second renewal term of one (1)
year. If, after having renewed the lease for the second renewal term Tenant has
continued to observe and perform all of its obligations under this lease, Tenant
shall have the right to renew this lease for a third renewal term of one (1)
year.
All renewal terms shall be upon all of the same terms, covenants and
conditions as the initial term of this lease, except that the rent shall be as
hereinafter provided. Such options to renew shall be exercised by notice in
writing to Landlord on or before one hundred five (105) days prior to the
expiration of the original or then renewal term, as the case may be.
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<PAGE>
The base rent for the first renewal term shall be One Hundred Seventy
Thousand Dollars ($170,000) payable in advance in monthly installments of
Fourteen Thousand One Hundred Sixty-Six and 67/100 Dollars ($14,166.67) on the
first day of each and every month during the first renewal term without demand,
deduction or setoff. The base rent for the second renewal term shall be One
Hundred Eighty Thousand Dollars ($180,000) payable in advance in monthly
installments of Fifteen Thousand Dollars ($15,000) on the first day of each and
every month during the second renewal term without demand, deduction or setoff.
The base rent for the third renewal term shall be One Hundred Ninety Thousand
Dollars ($190,000) payable in advance in monthly installments of Fifteen
Thousand Eight Hundred Thirty-Three and 33/100 Dollars ($15,833.33) on the first
day of each and every month during the third renewal term without demand,
deduction or setoff.
Except where the context otherwise requires or otherwise is indicated,
the phrase "the term of this lease" whenever used in this lease shall be
construed to include any renewal terms for which Tenant has exercised its option
or options set forth in this section.
(S)6. USE OF PREMISES AND SIGNS. A. Tenant shall be permitted to use the leased
-------------------------
premises for a warehouse, distribution center and offices and for no other
purposes, without the prior written consent of Landlord, which consent shall not
be unreasonably withheld.
B. The use by Tenant of the leased premises shall be in a careful, safe,
legal, and proper manner, and Tenant shall not permit the leased premises to be
used for any unlawful purposes, nor commit or suffer any waste.
C. Tenant shall not place any sign on the exterior of the building
comprising part of the leased premises without first obtaining the approval of
the Landlord. Approval by Landlord for any sign shall not be unreasonably
withheld and each sign must comply with all applicable governmental laws,
ordinances and regulations. During the term of this Lease, Tenant shall maintain
said signs in a good state of repair and shall save Landlord harmless from any
loss, cost or damage that may occur as a result of the maintenance of said signs
or the lack thereof. At the end of the term, Tenant shall remove said signs at
its sole cost and expense, and shall repair any material damage resulting from
such removal.
(S)7. COMPLIANCE WITH LAWS. A. Except as stated herein, Tenant shall,
--------------------
throughout the term of this lease at no cost or expense whatsoever to Landlord,
promptly comply, or
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<PAGE>
cause compliance, with all laws, ordinances, orders, rules, regulations and
requirements of all federal (including the Americans with Disabilities Act),
state, county and municipal governments and all departments, commissions, boards
and officers thereof, whether present or future, foreseen or unforeseen,
ordinary or extraordinary, and whether or not the same shall be presently within
the contemplation of Landlord and Tenant which may be applicable to Tenant's use
of the leased premises.
B. Except as expressly provided in this lease, no abatement, diminution
or reduction in rent, or any other charges required to be paid by Tenant
pursuant hereto, shall be claimed by or allowed to Tenant for an inconvenience
or interruption, cessation, or loss of business caused, directly or indirectly
by any present or future laws, ordinances, rules, regulations, requirements or
orders to the federal, state, county, township or municipal governments or any
other lawful authority whatsoever, or by priorities, rationing or curtailment of
labor or materials, or by war, civil commotion, strikes, or riots, or any matter
or thing resulting therefrom, or by any other cause or causes beyond the control
of Landlord, nor shall this lease be affected by any such causes.
(S)8. ALTERATIONS, MAINTENANCE AND REPAIRS. Tenant takes the leased premises
------------------------------------
in an "as is" condition. Tenant will comply with all building code requirements
and government regulations, including the Americans with Disabilities Act, in
the performance of any alterations. Tenant may, at its own cost and expense,
make all alterations, improvements and installations in or to the leased
premises as it may require in connection with its use and occupancy thereof;
provided, however, that Tenant shall not remove any existing improvements or
installations nor make any structural alterations in or to the walls, roof,
floor or foundation of the leased premises or additions thereto without
Landlord's prior written consent.
All such alterations, improvements, installations and additions shall
immediately become the property of Landlord subject to the rights of Tenant
hereunder. The cost of any such change, alterations or constructions shall be
paid in cash or its equivalent, so that the leased premises shall at all times
be free of liens for labor, materials supplied or claimed to have been supplied
to the leased premises. Tenant shall have the right to contest the validity of
any lien filed as a result of its occupancy at its sole expense.
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<PAGE>
All business equipment, machinery and trade fixtures installed by Tenant
shall remain the personal property of Tenant and may be removed by it upon
termination or cancellation of this lease, or any extension thereof, or at any
time prior thereto; provided, however, that any material damage caused by such
removal shall be repaired, and the leased premises restored to substantially the
same condition as before installation of the items removed, normal wear and tear
excepted, by Tenant at its expense.
Tenant shall, throughout the term of this lease, and, except as
specifically herein otherwise provided, at Tenant's sole cost and expense, take
good care of and maintain in good order and repair the leased premises. Tenant
shall not commit or suffer to be committed any waste upon or about the same, and
shall promptly, as its own cost and expense except as set forth herein, make all
necessary repairs to the leased premises and appurtenances thereto, whether
interior or exterior, ordinary or extraordinary, and foreseen or unforeseen.
Tenant shall, at its own cost and expense, keep the leased premises free and
clear from all rubbish, dirt, ice, snow, goods or other obstacles. Landlord's
repair and maintenance obligations hereunder shall be limited to the following:
(a) Landlord shall take good care of and maintain the roof and
the exterior walls and foundation of the building comprising part of the
leased premises; provided, however, Tenant shall be responsible for repairs
to the roof and the exterior walls and foundation to the extent such
repairs are necessary due to the fault or negligence of anyone other than
Landlord; and
(b) After the two air rotation furnaces (located in the existing
pit area at the northeast area of the building) have been moved and
properly reinstalled in good working order by Tenant, Landlord shall then
reimburse Tenant for any costs in excess of $2,000 for each individual
repair required to be made to each such furnace, such reimbursement to be
made promptly after Tenant sends Landlord a paid invoice for each such
repair from a third party repair service. If Tenant determines that either
or both of such furnaces need to be replaced during the lease term then
Tenant shall, at its sole cost and expense, replace such furnace or
furnaces with a furnace or furnaces whose type and size are mutually agreed
upon by Landlord and Tenant. Landlord agrees to reimburse Tenant for the
unamortized cost of such new furnace or furnaces
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<PAGE>
within thirty (30) days after the normal expiration of the lease term
or any renewal thereof. Landlord shall have no such reimbursement
obligation if this lease or Tenant's possession of the leased premises
is terminated due to a default by Tenant under the terms of this lease
or if Tenant purchases the leased premises from Landlord. For purposes
of determining such unamortized cost, the cost of such new furnace or
furnaces shall be amortized over a twenty year period with no interest.
For example, if Tenant installs one such new furnace at a cost of
$10,000 at the end of the fourth month of the initial term of the lease
and the lease term expires at the end of the initial term (i.e., one
---
year after installation of the new furnace) without Tenant having
elected to renew the term, then Landlord shall reimburse Tenant for
$9,500 of the cost of such new furnace ($10,000 cost divided by 20
years equals $500 per year amortization multiplied by 1 year,
subtracted from the original $10,000 cost).
(S)9. INTENTIONALLY OMITTED.
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(S)10. MECHANIC'S LIENS. Landlord shall not be liable for any labor or materials
----------------
furnished to Tenant. Tenant shall not permit any mechanic's or other liens for
such labor and materials to attach to or affect Landlord's interest in the
Premises. Tenant hereby agrees to pay, discharge by bond or deposit or to
successfully defend against any such liens, and failing to do so, Landlord may,
upon giving ten (10) days written notice to Tenant, pay or discharge the same
and the amount so paid or deposited, together with interest at the rate of ten
percent (10%) per annum, shall be deemed additional rent due hereunder and
payable with the next month's base rent.
(S)11. INDEMNITY AND INSURANCE. A. Tenant shall indemnify Landlord for, defend
-----------------------
Landlord against, and save Landlord harmless from any liability, loss, cost,
injury, damage, or other expense that may occur or be claimed by or with respect
to any person or property on or about the leased premises resulting from the
use, misuse, occupancy, possession, or unoccupancy of the leased premises by
Tenant, its agents, employees, licensees, invitees or guests, or from the
condition of same. Tenant shall, at its own cost and expense, defend against any
and all such accidents, claims and demands and shall indemnify Landlord for all
costs and expenses it may incur in connection therewith, Landlord shall not have
any
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<PAGE>
liability for any loss, cost, injury or damage to the leased premises, to Tenant
or Tenant's employees, agents, licensees, invitees, or guests or to any property
of such persons and Landlord shall not be responsible or liable for loss or
damage to the contents of the leased premises, regardless of who owns the
contents and regardless of how or by whom the loss or damage is caused, unless
same was due to the gross negligence of Landlord.
B. Tenant agrees to maintain in full force and effect at its sole cost
and expense throughout the term of this lease (and any renewals), policies of
fire insurance, including broad forms perils coverage, on the leased premises.
Such insurance shall name Landlord and any mortgagee as loss payees and shall at
all times be in an amount equal to the replacement value of the leased premises,
which value may be redetermined by Landlord from time to time but no more often
than every three (3) years. It shall be the responsibility of Landlord to give
Tenant written notice of such redetermined value, the obligations of Tenant
hereunder being limited to the amount stated in the written notice last received
by Tenant. A certificate of the insurance (or copy of the policy if requested by
Landlord or its mortgagee) required under this section shall be delivered to
Landlord at least fifteen (15) days prior to the time such insurance is required
to be carried by Tenant, and thereafter at least fifteen (15) days prior to the
expiration of any such policies. Such insurance shall be written by a company or
companies rated A or A+ by Best's Insurance Guide, with a ten (10) or better
financial rating, authorized to engage in the business of fire and extended
coverage insurance in the State of New York and reasonably acceptable to
Landlord and any mortgagee. Such policies of insurance obtained pursuant to the
provisions hereof shall contain a provision that no act or omission of Tenant
shall affect or limit the obligation of the insurance company to pay to Landlord
or its mortgagee the amount of any loss sustained and shall bear an endorsement
stating that the insuer agrees to notify Landlord in writing by certified mail
not less than twenty (20) days in advance of any modification, cancellation, or
termination thereof.
The insurance required hereunder may, at the option of Tenant, be
effected by blanket and/or umbrella policy or policies issued to Tenant covering
the building and other properties owned or leased by Tenant and/or its
affiliated entities, and, in the event that the insurance required by this lease
shall be effected by any such blanket or umbrella policy or policies, Tenant
shall furnish to Landlord a certificate or certificates of such policy or
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<PAGE>
policies with a statement of value thereto attached showing the amount of
insurance afforded by such policy or policies directly applicable to the
building leased by Landlord under this lease.
If Tenant fails to comply with the requirements of this subsection,
Landlord may (but shall not be obligated to) obtain such insurance and keep the
same in effect and Tenant shall pay Landlord the premium cost thereof, as
additional rent, upon demand with interest at ten percent (10%) per annum until
paid. The parties agree that the replacement value as of April 1, 1994 for
purposes of this section shall be equal to $1,800,000.
C. Tenant, at its own cost and expense, shall procure and maintain in
full force and effect general liability insurance against any and all claims for
personal and bodily injury to persons or damage to property occurring in, on or
about the leased premises during the term of this lease and any renewals
thereof, if exercised. Such insurance shall be written on the occurrence basis
and shall name Landlord and any mortgagee as additional insureds and shall at
all times be in an amount not less than One Million Dollars ($1,000,000) in
respect to personal or bodily injury to or death of one (1) person as a result
of any one (1) occurrence, Three Million Dollars ($3,000,000) in respect to
personal or bodily injuries to or death of more than one (1) person as a result
of any one (1) occurrence, and Five Hundred Thousand Dollars ($500,000) for
property damage as a result any one (1) occurrence. Such insurance shall be
written by a company or companies rated A or A+ by Best's Insurance Guide with a
ten (10) or better financial rating, authorized to engage in the business of
general liability insurance in the State of New York and reasonably acceptable
to Landlord and any mortgagee. A certificate of all such policies (or a copy of
the policies themselves, if requested by Landlord or its mortgagee) procured by
Tenant in compliance herewith shall be delivered to Landlord at least fifteen
(15) days prior to the time such insurance is required to be carried by Tenant
and thereafter at least fifteen (15) days prior to the expiration of any such
policy. Such policy shall bear an endorsement stating that the insurer agrees to
notify Landlord by certified mail not less than twenty (20) days in advance of
any modification, cancellation, or termination thereof.
If Tenant fails to comply with the requirements of this subsection,
Landlord may (but shall not be obligated to) obtain such insurance and keep the
same in effect and
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<PAGE>
Tenant shall pay Landlord the premium cost thereof, as additional rent, upon
demand with interest at ten (10%) per annum until paid.
D. Tenant shall carry workers' compensation and employer's liability
insurance in amounts of not less than that required by applicable law.
(S)12. WAIVER OF SUBROGATION. Tenant hereby releases Landlord from any and all
---------------------
liability or responsibility to Tenant or anyone claiming through or under Tenant
by way of subrogation or otherwise for any loss or damage specifically insured
against, or required by the terms of this lease to be insured against, by
Tenant, even if such loss or damage shall have been caused by the fault or
negligence of Landlord or anyone for whom Landlord may be responsible, and
Tenant agrees to cause its insurance policies to contain a clause pursuant to
which the insurance company or companies (a) waive the right of subrogation
against Landlord for losses covered by such policies and (b) agree that such
policies shall not be invalidated because Tenant has hereby waived any right of
recovery for losses covered by such policies.
(S)13. PERSONAL PROPERTY. Landlord shall not be liable for any loss or damage
-----------------
to any personal property of Tenant or of anyone claiming by or through Tenant
including any loss or damage resulting from burst, stopped or leaking water or
sewer pipes, or from electrical wiring, equipment and fixtures, unless same was
due to the gross negligence of Landlord.
(S)14. DESTRUCTION OF PREMISES. In the event of any damage or destruction to
-----------------------
improvements on the leased premises, Tenant shall forthwith repair, restore or
replace the damaged or destroyed improvements, and complete the same as soon as
reasonably possible to the condition they were in prior to such damage or
destruction, except for such changes in design or materials as may then be
required by law. Landlord, in such event, shall, to the extent and at the times
the insurer and Landlord's mortgagee make the proceeds of the insurance
available for such purposes, reimburse Tenant for the costs of making such
repairs, restoration, rebuilding and replacements; provided, further, that said
reimbursements need be made only under such conditions that Landlord and its
mortgagee are assured that at all times the leased premises shall be free of
liens or claims of liens by reason of such work; and, provided, further, that
the portion of the proceeds paid out at any time shall not exceed the value of
the actual work and materials incorporated in the repaired, restored, rebuilt or
replaced premises. To the extent, if any, that the proceeds of insurance made
available for
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<PAGE>
such purposes are insufficient to pay the entire costs of making such repairs,
restoration, rebuilding and replacements, Tenant shall bear such costs. The
obligation to pay the rent provided in this lease shall continue unabated by
reason of any such damage or destruction, that is, there shall be no abatement
or diminution of rent by reason of such damage or destruction regardless of the
period of time, if any, during which the leased premises or any part thereof
remain untenantable.
In the event of any loss or destruction on the leased premises, Tenant
shall promptly notify Landlord and its mortgagee and shall make prompt proof of
loss to the relevant insurance company or companies involved.
(S)15. CONDEMNATION. A. In the event that at any time during the continuance
------------
of this lease, title shall be taken to over five percent (5%) of the square
footage of the building or five (5%) of the parking lot of the leased premises,
by the exercise of the right of condemnation or eminent domain or by agreement
between Landlord and those authorized to exercise such right this lease shall
terminate and expire on the date of such taking and the rent provided to be paid
by Tenant shall be apportioned and paid to the date of such taking. In the event
of any such taking Landlord shall be entitled to all damages, consequential
damages, and compensation for such taking and Tenant shall not be entitled to
share in any such award nor have any claim against Landlord for any part
thereof; provided, however, if the laws then in effect permit a separate award
to Tenant for any or all of its losses, nothing contained herein shall prevent
or prohibit Tenant from seeking and obtaining such separate award.
B. In the event of any taking other than as provided in subparagraph A,
above, this lease shall continue unaffected, and, except as hereinafter
specifically otherwise provided, Landlord shall be entitled to all damages,
consequential damages and compensation for such taking and Tenant shall not be
entitled to share in any such award or have any claim against Landlord for any
part thereof, except as provided in subparagraph A. above; provided, however,
that Landlord shall, to the extent the net proceeds of such award are made
available to it and to the extent Landlord's mortgagee, if any, does not require
the same to be applied upon the mortgage indebtedness, reimburse Tenant for its
costs of demolition, repair and restoration to return the leased premises to a
tenantable condition. Tenant shall promptly upon any such partial taking make
such demolitions, repairs and
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<PAGE>
restorations as are necessary to return the leased premises to a tenantable
condition and, in the event that the cost of such demolition, repairs and
restoration shall exceed the then amount collected by Landlord, Tenant
shall pay the deficiency.
(S)16. UTILITIES. Tenant shall furnish, at its own expense, trash removal,
---------
all utilities of every type and nature required by it in its use of the leased
premises and shall pay or cause to be paid, when due, all bills for water,
sewage, gas and electricity used on, in connection with, or chargeable
against the leased premises until the termination of this lease; and Tenant
shall indemnify and save harmless Landlord from and against any loss, cost
and expense in connection therewith.
(S)17. PROTECTION OF LANDLORD'S MORTGAGE. A. This lease shall be subject and
---------------------------------
subordinate to any mortgages that may have been placed or may be hereafter
placed upon the leased premises by Landlord, and to any advances to be made
thereunder, and to all renewals, replacements, and extensions thereof;
provided, however, that any mortgagee may elect by written notification to
Tenant to give the rights and interest of Tenant under this lease priority
over the lien of its mortgage. However, Tenant's obligations to so
subordinate to any such mortgagee shall be conditioned upon Tenant's receipt
of an acceptable non-disturbance agreement from such mortgagee.
B. Although this (S)17 is self-executing, Tenant shall execute and
deliver whatever instruments may be required by Landlord's mortgagee, within
ten (10) days of written notice by such mortgagee, for the purposes of
evidencing the subordination of this lease or making this lease superior.
Failure by Tenant to execute such instruments shall constitute an irrevocable
appointment by Tenant of Landlord as its attorney-in-fact for the purpose
of executing such instruments.
C. At Landlord's written request, Tenant shall furnish to Landlord
within one hundred twenty (120) days following the end of each fiscal year
during the term of this lease, beginning in 1994, and at such other times
as Landlord may request, but not more often than semi-annually, a copy of
Tenant's current financial statements, including balance sheets and income
statements, such statements to be prepared in accordance with generally
accepted accounting principles consistently applied. Such statements shall
be certified by an independent certified public accountant or by Tenant's
chief financial officer. Such financial statements shall be received and
held by Landlord on a strictly confidential basis; provided,
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<PAGE>
however, that Landlord may disclose such financial statements to
prospective mortgagees or purchasers of the Premises.
D. At any time and from time to time, Tenant agrees, upon request
in writing from Landlord, to promptly execute, acknowledge and deliver to
Landlord or to the holder of any mortgage on the leased premises a
statement, in form and substance satisfactory to Landlord, certifying, if
true, (i) that this lease is unmodified and in full force and effect (or if
there have been modifications, that the same is in force and effect as
modified and stating the modifications), (ii) that there are no defaults
of Landlord hereunder (or if same exists, a statement indicating same), (iii)
the dates to which the base rent, additional rent and other charges have been
paid and (iv) that Tenant has accepted possession of the leased premises and
the term of the lease has commenced, giving the date of such commencement.
If Tenant fails to provide such a statement within ten (10) days after
written request therefore, Tenant does hereby make, constitute and irrevocably
appoint Landlord or any such mortgagee as its attorney-in-fact and in its
name, place and stead so to do.
(S)18. LIMITATION OF LIABILITY. Tenant specifically agrees to look solely
------------------------
to Landlord's interest in the premises for the recovery of any judgment
Tenant may obtain against Landlord, it being agreed that neither Landlord
nor any of its partners shall ever be personally liable for any such
judgment. Landlord will, however, carry at all times during the lease term
at least $3,000,000.00 of liability insurance and give Tenant, upon request,
proof of payment thereof.
(S)19. TRANSFER OF LANDLORD'S INTEREST. If Landlord should sell or otherwise
--------------------------------
transfer its interest in the leased premises upon an undertaking by the
purchaser or transferee to be responsible for all of the covenants and
undertakings of Landlord, Tenant agrees that Landlord shall thereafter have
no liability to Tenant under this lease or any modifications or amendments
thereof, or extensions thereof, except for such liabilities which might have
accrued prior to the date of such sale or transfer of its interest by Landlord.
(S)20. SEVERABILITY OF PROVISIONS. The invalidity or unenforceability of any
---------------------------
particular provision of this lease shall not affect the other provisions
hereof and this lease shall be construed in all respects as if such invalid
or unenforceable provision were omitted; provided that, in lieu of such
invalid or unenforceable provisions, there shall be added
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<PAGE>
automatically as part of this lease a provision as similar in terms to such
illegal, invalid or unenforceable provisions as may be possible and
as may be legal, valid or enforceable.
(S)21. NON-WAIVER. Neither a failure by Landlord to exercise any of its
----------
options hereunder, nor failure to enforce its right or seek its remedies
upon any default, nor the acceptance by Landlord of any rent accruing before
or after any default, shall effect or constitute a waiver of Landlord's right
to exercise such option, to enforce such rights, or to seek such remedy with
respect to that default or to any prior or subsequent default. The remedies
provided in this lease shall be cumulative and shall not in any way abridge,
modify or preclude any other rights or remedies to which Landlord is entitled
either by law or in equity.
(S)22. ENJOYMENT WITHOUT MOLESTATION. If Tenant pays the rent it is obligated
------------------------------
hereunder to pay, and observes all other terms, covenants and conditions hereof,
it shall occupy and enjoy the use of the leased premises during the continuance
hereof, without any hindrance, molestation, or ejection by Landlord, its
successors or assigns.
(S)23. SUCCESSORS IN INTEREST ASSIGNMENT. Tenant shall not assign or sublet;
----------------------------------
the leased premises except to affiliates or subsidiaries or except through
the transfer of a majority interest in the stock of Tenant or a merger of
Tenant, without the prior written consent of Landlord, which consent will
not be unreasonably withheld. No assignment of this lease, whether by act
of Tenant or by operation of law, and no sublease by or from Tenant, shall
relieve or release Tenant from any of its obligations hereunder. Landlord
shall have the right to cancel this lease upon any assignment made or
attempted to be made to an unaffiliated assignee of Tenant or any assignment
not approved by Landlord, for any reason. In the event of such cancellation
Tenant will be released from any further obligations hereunder.
(S)24. ENTRY BY LANDLORD. Landlord and its duly authorized representatives
-----------------
shall have the right to enter the leased premises at all reasonable times
with forty-eight (48) hours prior notice (except in emergencies and as set
forth below) for the purposes of (a) inspecting the condition of same and
making such repairs, alterations, additions or improvements thereto as may
be necessary or desirable (but Landlord shall have no duty to make any such
repairs, alterations, additions or improvements), and (b) exhibiting the same
to persons who may wish to purchase or lease the same, and during the last
three (3) months of the term of this
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<PAGE>
lease and any renewal term, placing any notice of reasonable size on the leased
premises offering the same or any part thereof for sale or rent; provided,
however, in no event shall Landlord unreasonably interfere with Tenant's use of
the leased premises. In addition, Landlord, the previous tenant of the leased
premises, the New York Department of Environmental Conservation and their
authorized representatives shall have access to the former exterior sites of the
underground fuel oil tanks at all reasonable times without prior notice in order
to complete the remediation of the soils around such sites; provided, however,
in no event shall any of such parties unreasonably interfere with Tenant's use
of the leased premises.
(S)25. DEFAULT. If Tenant fails to pay any installments of base rent or make
-------
any payment of additional rent or fails to supply evidence of any insurance
required by the terms hereof, within ten (10) days after it becomes due
hereunder and after written demand has been made therefor, or if Tenant fails to
observe and perform any other provision, covenant or condition of this lease
required under this lease to be observed and performed by Tenant, within thirty
(30) days after Landlord shall have given written notice to Tenant of the
failure of Tenant to observe and perform the same, and if Tenant fails to
proceed timely and promptly with all due diligence and in good faith to the
curing of such default, or if Tenant abandons the leased premises, or any part
thereof, during the continuance of this lease, or if Tenant makes any assignment
for the benefit of creditors or enters into a composition agreement with its
creditors, or if the interest of Tenant in the leased premises is attached,
levied upon, or seized by legal process, or if a bankruptcy or insolvency
proceeding is filed by or against Tenant, or if a court of competent
jurisdiction or other governmental authority approves a petition seeking
reorganization, arrangement, composition or similar relief with respect to
Tenant, or appoints a trustee, receiver or liquidator of Tenant of all, or
substantially all of its property or affairs, or assumes custody or control of
all, or substantially all, of the property or affairs of Tenant, or if this
lease is assigned in violation of the terms hereof, or is terminated by
operation of law, then and in any such event, immediately or at any time
thereafter, at the option of Landlord, Landlord shall have the right to
immediately re-enter and take possession of the leased premises, and, as it
elects, either (a) declare this lease to be terminated, in which event this
lease, all rights of Tenant, and all duties of Landlord shall immediately cease
and terminate, and Landlord may possess and enjoy the leased premises as
-14-
<PAGE>
though this lease had never been made, without prejudice, however, to any and
all rights of action against Tenant which Landlord may have for rent, damages or
breach of covenant, in respect to which Tenant shall remain and continue liable
notwithstanding such termination, or (b) relet the leased premises, or any part
thereof, for such term or terms and on such conditions, as Landlord determines
for and on behalf of Tenant for the highest rental reasonably obtainable in the
judgment of Landlord, which reletting shall not be considered as a surrender or
acceptance back of the leased premises or a termination of this lease and,
recover from Tenant any deficiency between the amount of rent, additional rent
and all other charges payable under this lease, plus any expenses incurred by
Landlord in connection with such reletting, including, without limitation, the
reasonable expenses of any redecorating or repairs Landlord deems necessary or
appropriate to make in connection with such re-letting and sums expended for
brokerage commissions and reasonable attorney's fees; but the Landlord shall be
under no duty to relet the leased premises.
In the event that Tenant fails to pay by its respective due dates all
charges and other obligations to be paid by it pursuant to the terms hereof, or
fails to make necessary repairs to the leased premises as required by this
lease, or fails to restore to its former state any damaged or destroyed portion
hereof, or fails to carry insurance as provided herein, then Landlord, at its
option, may do so and the amount of such expenditure, plus accrued interest at
the rate of ten percent (10%) per annum from the time each such expenditure is
made until reimbursed, shall immediately become due and payable to Landlord and
be considered additional rent hereunder, but no such payment or compliance by
Landlord shall constitute a waiver of any such failure by Tenant or affect any
right or remedy of Landlord with respect thereto. In addition, a late charge
shall be assessed as additional rent in the amount of three percent (3%) of the
amount due for any rental payment received after the tenth of any lease month.
(S)26. SURRENDER OF PREMISES. Upon termination of this lease, whether by lapse
---------------------
of time or otherwise, or upon the exercise by Landlord of the power to re-enter
and repossess the leased premises without terminating this lease, as
hereinbefore provided, Tenant shall at once surrender the possession of the same
to Landlord in good order and repair, ordinary wear and tear excepted, and at
once remove all of Tenant's property therefrom. If, upon such an event, Tenant
does not at once surrender possession of the same and remove all its
-15-
<PAGE>
property therefrom, Landlord may forthwith re-enter and repossess the same and
remove all of Tenant's property therefrom and store the same without being
guilty of trespass or of forcible entry or detainer without incurring liability
to Tenant for loss or damage to the Tenant's property, and thereafter, Landlord
may recover from Tenant all reasonable costs and expenses incurred by Landlord
in removing Tenant's property and storing the same, together with interest as
aforesaid.
(S)27. HOLDING OVER BY TENANT. If Tenant shall continue in possession of the
----------------------
leased premises beyond the termination of the term hereof, such holding over
shall be considered an extension of this lease for a one month period, and so on
from month to month, until terminated by either party giving not less than
thirty (30) days' written notice of termination. Such month-to-month extension
shall be on the same terms and conditions set forth herein except that the base
rent payable hereunder shall be equal to twice the amount of the base rent for
the immediately preceding term, unless Landlord and Tenant are in active
discussions for a new lease agreement or Tenant has contracted to purchase the
leased premises.
(S)28. REAL ESTATE BROKERS. Tenant represents and warrants that the only
-------------------
brokers, agents or other persons it has dealt with in connection with this
transaction are Moore & Bowles, Inc. and Remax, and Tenant agrees to indemnify,
defend and hold Landlord harmless from and against any claims by any other
brokers, agents or other persons claiming a commission or other form of
compensation by virtue of having dealt with Tenant with regard to this leasing
transaction. Landlord shall be responsible for all brokerage commissions payable
to Moore & Bowles, Inc. and to Remax as the cooperating broker for Moore &
Bowles, Inc., in connection with this transaction.
(S)29. TIME OF THE ESSENCE. Time is of the essence in the doing, performance and
-------------------
observation of each and every term, covenant and condition of this lease by both
Landlord and Tenant.
(S)30. NOTICE. Any notice, exercise of option or election, communication,
------
request or other document or demand required or desired to be given to Landlord
or Tenant shall be in writing and shall be deemed given: (a) to Landlord when
deposited in the United States mail, certified or registered, postage prepaid,
addressed to Landlord at its address set forth at the beginning hereof, and (b)
to Tenant when deposited in the United States mail, certified or
-16-
<PAGE>
registered, postage prepaid, addressed to Tenant at its address set forth at the
beginning hereof. Either party may, from time to time, change the address at
which such written notices, exercises of options or elections, communications,
requests, or other documents or demands are to be mailed, by giving the other
party written notice of such changed address.
(S)31. AMENDMENTS. No amendment of this lease shall be valid or binding unless
----------
such amendment is in writing and executed by both Landlord and Tenant.
(S)32. SHORT FORM LEASE. The parties shall upon request of Landlord or Tenant
----------------
execute a short form of lease for recording purposes only, in form satisfactory
to Landlord's counsel. Such short form lease may be recorded by either Landlord
or Tenant in lieu of recording this lease. This lease shall not be recorded in
the public records.
(S)33. GOVERNING LAW. This lease shall be subject to and governed by the laws
-------------
of the State of New York.
(S)34. SUCCESSORS AND ASSIGNS. This lease and the respective rights and
----------------------
obligations of the parties hereto shall inure to the benefit of and be binding
upon the parties hereto and their respective successors and assigns.
(S)35. CAPTIONS AND TABLE OF CONTENTS. The captions of the several sections
------------------------------
and the Table of Contents of this lease are not a part of the context hereof and
shall be ignored in construing this lease. They are intended only as aids in
locating and reading the various provisions hereof.
(S)36. AUTHORITY. Each party represents and warrants to the other that it has
---------
the full capacity and authority to enter into, execute, deliver and perform its
obligations under this lease.
(S)37. HAZARDOUS MATERIALS. Tenant covenants and agrees that it shall not
-------------------
receive, transport, store, process, manufacture, package, assemble, distribute,
generate, produce, release, emit or discharge at or from the leased premises any
hazardous material or substances, as defined under the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. Sections 9601,
et seq., or any hazardous waste as defined under the Solid Waste Disposal Act,
42 U.S.C. Sections 7401, et seq., or any toxic pollutants as defined under the
Clean Water Act, 33 U.S.C. Sections 1251, et seq or as defined under any other
applicable federal, state or local law, rule, ordinance or regulation
("Hazardous Materials or Substances"), or cause any contamination to the leased
premises arising out of
-17-
<PAGE>
the presence of any Hazardous Material or Substances. However, the term
"Hazardous Materials or Substances" shall not apply to items that are used in
the normal course of Tenant's business, provided that such items are used,
handled, transported and stored in strict compliance with any and all applicable
federal, state and local laws, rules, regulations, codes, ordinances and
requirements. Tenant agrees to indemnify and hold Landlord harmless for any
damages, losses, fines, penalties, costs and expenses, including reasonable
attorney's fees and expenses (including court and administrative costs),
incurred by or arising out of any claim for bodily injury (including death),
property damage, contamination of or adverse effects on the environment as a
reasonable result of Tenant's breach of any of the covenants contained in this
paragraph, and further agrees that the provisions of this paragraph shall
survive the termination of this lease or any extension thereof. Landlord agrees
to remove or encapsulate the asbestos, if any, now existing at the leased
premises if Landlord is specifically ordered to do so by any governmental agency
having jurisdiction thereover.
If, after the Commencement Date, there is any spill, contamination,
discharge, leakage, the release or escape of any Hazardous Material or Substance
upon or affecting the leased premises, whether sudden or gradual, accidental or
anticipated, or of any other nature (hereinafter "Spill"), Tenant shall
immediately give Landlord written notice thereof and shall take all steps
necessary to clean up such Spill and any contamination related to the Spill and
to restore the leased premises to substantially the same condition and utility
that existed prior to the Spill, all in accordance with the requirements, rules
and regulations of any state or federal environmental department or agency
having jurisdiction over the Spill and Tenant shall allow Landlord or its agents
or any state or federal environmental department or agency having jurisdiction
thereof to monitor and inspect all clean-up and restoration related to such
Spill at the sole cost and expense of Tenant.
(S)38. ATTORNEY'S FEES. In the event Tenant defaults in the performance of any
---------------
of the material terms, covenants, agreements or conditions contained in this
lease and Landlord places the enforcement of this lease, or any part thereof, or
the collection of any rent due or to become due hereunder, or recovery of
possession of the leased premises in the hands of outside legal counsel, or
files suit upon the same, Tenant agrees to pay Landlord reasonable attorneys'
fees and costs whether or not suit is instituted. If suit is instituted and
Landlord substantially prevails in such action, Tenant agrees to pay Landlord's
reasonable attorneys
-18-
<PAGE>
fees and costs incurred at the trial level and at all levels of appeal. If
Tenant substantially prevails in such action, Landlord agrees to pay Tenant the
reasonable cost of its outside legal counsel and costs incurred at the trial
level and at all levels of appeal.
(S)39. CUMULATIVE RIGHTS AND REMEDIES. All rights and remedies of Landlord or
------------------------------
Tenant under this Lease shall be cumulative and none shall exclude any other
rights or remedies allowed by law.
(S)40. ENTIRE AGREEMENT. Landlord and Tenant acknowledge and agree that all
----------------
promises, warranties and agreements with respect to this lease, the leased
premises and the relationship between Landlord and Tenant are in writing. This
Lease may be executed in any number of counterparts, each of which shall be an
original, but all of which shall constitute one instrument.
(S)41. BANK WAIVER. Landlord shall execute simultaneously with the execution
-----------
of this lease, a bank waiver as herein attached acknowledging Tenant's financial
institution's interest and right with respect to Tenant's inventory kept at the
leased premises.
IN WITNESS WHEREOF, Landlord and Tenant have caused this lease to
be duly executed and delivered on the day and year aforesaid.
Signed and acknowledged LANDLORD - BF REALTY INVESTORS
in the presence of: ROCHESTER II LIMITED PARTNERSHIP
/s/ Ann B. Largeo By: Capital Equity, Ltd.
- ---------------------------- Its General Partner
as to Landlord
/s/ Susan E. Brown By: THWIRS, Inc.
- ---------------------------- Its General Partner
as to Landlord
By: /s/ Ned K. Barthelmas
------------------------------
President
---------------------------------
Title
Signed and acknowledged TENANT - WORLD OF SCIENCE, INC.
in the presence of:
/s/ Fred H. Klaucke By: /s/ James J. Froehler
- ------------------------------ ------------------------------
as to Tenant
/s/ Rosalie Myers President
- --------------------------- ---------------------------------
as to Tenant Title
-19-
<PAGE>
STATE OF OHIO
COUNTY OF FRANKLIN, ss:
BEFORE ME, a Notary Public, in and for the State and County aforesaid,
on this day personally appeared Ned K. Barthelmas as President of THWIRS, Inc.,
-----------------
General Partner of Capital Equity, Ltd,. an Ohio limited partnership and General
Partner of BF Realty Investors Rochester II Limited Partnership, an Ohio limited
partnership, who acknowledged before me that he executed the foregoing
instrument as such officer, and that the signing of the same was his free act
and deed and the free act and deed of said Partnership.
IN TESTIMONY WHEREOF, I have hereunto subscribed my name and affixed my
official seal, this 29th day of March, 1994.
/s/ Susan E. Brown
-------------------------------------
Notary Public
SUSAN E. BROWN
NOTARY PUBLIC, STATE OF OHIO
MY COMMISSION EXPIRES 12-8-97
STATE OF NY
COUNTY OF MONROE, ss:
BEFORE ME, a Notary Public, in and for the State and County aforesaid,
on this day personally appeared James J. Froehler as President of World
-----------------
of Science, Inc., a New York corporation, who acknowledged before me that he
executed the foregoing instrument as such officer, and that the signing of the
same was his free act and deed and the free act and deed of said corporation.
IN TESTIMONY WHEREOF, I have hereunto subscribed my name and affixed my
official seal, this 28 day of March, 1994.
/s/ Maureen T. Miller
---------------------------------------
Notary Public
State of NY - County of Genesee
#4996994 exp date 5/26/94
-20-
<PAGE>
LANDLORD/MORTGAGE WAIVER
To: Marine Midland Bank, N.A.
Rochester, New York
The undersigned is the owner, mortgagee or holder of an interest in
certain real property, described briefly as follows (the "Premises"):
Warehouse and Distribution facility at 275 Commerce Drive, Rochester, NY
The undersigned has been informed that Marine Midland Bank, N.A. (the
"Bank" is willing to extend credit to WORLD OF SCIENCE, INC. (the "Borrower") if
the undersigned will consent to the Bank's taking a security interest, chattel
mortgage or other lien on certain personal property now or hereafter to be
located on or affixed to the Premises and if the undersigned will disclaim any
interest in or lien on such personal property, described as follows:
all inventory now owned or hereafter acquired
(hereinafter referred to as the "Collateral")
The undersigned, intending to be legally bound hereby, consents to the
Bank's taking a security interest, chattel mortgage or other lien on the
Collateral and disclaims any interest therein or lien thereon as fixtures or
otherwise. The Bank may at any time enter upon such real property and remove the
Collateral (or any part thereof) provided that the Bank shall have liability for
damage to the real property resulting from such removal. The undersigned will
not seek to levy execution on or to foreclose any lien or other security
interest on the Collateral or otherwise apply any of the Collateral to satisfy
any claim of the undersigned against the Borrower, and will notify any successor
in interest of all or any part of the Premises of this consent and disclaimer,
which shall be binding on the executors, administrators, successors and assigns
of the undersigned.
After Bank shall have received notice in writing from the undersigned that
the undersigned has taken possession of the Premises by reason of the
abandonment thereof by Borrower, or the default by Borrower under the terms of
any agreement permitting occupancy or possession thereof by Borrower, Bank shall
have not less than forty-five (45) days to exercise any and all rights granted
hereunder, and during such period of time the undersigned shall without
limitation be bound by all limitations of its rights contained herein, and the
Bank shall (i) have the exclusive right to the use and occupancy of the
Premises, (ii) to examine, appraise, bid on, buy, remove or otherwise deal with
the Collateral, and (iii) have the right to hold a public sale or auction of the
Collateral in the Premises. During and throughout any such period the Bank shall
not be deemed to have assumed any obligations of Borrower to the undersigned,
and shall have no obligation to pay rent or be liable for any charge of any
kind, except and to the extent otherwise agreed to in a writing signed by the
Bank and the undersigned.
Executed this 29th day of March, 1994, at Columbus, Ohio,
By: BF Realty Investors II
-------------------------------
Its Limited Partnership
By: Capital Equity Ltd.
(An Ohio Limited Partnership)
-------------------------------
Its General Partner
By: Thwirs, Inc.
-------------------------------
Capital Equity, LTD's General Partner
(Mortgagee)
By Ned K. Barthelmas
-------------------------
Title President
----------------------
By:
-------------------------------
Its
<PAGE>
STATE OF
COUNTY OF SS.
On this ______ day of _____________, 1994, before me, the subscriber,
personally appeared ________________________ to me known and known to me to be
the same person described in and who executed the foregoing instrument, and the
above-named person acknowledged to me that said person executed the same.
---------------------------------------
Notary Public
STATE OF
COUNTY OF SS.
On this ______ day of ______________, 1994, before me, the subscriber,
personally appeared _________________________ to me known to be a member of the
firm of ______________________________, and known to me to be the same person
described in and who executed the foregoing instrument in the name of said firm
and the above-named person acknowledged to me that said person executed the same
for and in behalf of the said firm.
----------------------------------------
Notary Public
STATE OF OHIO
COUNTY OF FRANKLIN SS.
On this 29TH day of MARCH, 1994, before me, the subscriber, personally
came NED K. BARTHELMAS, to me known who, being by me duly sworn did dispose and
say that the above-named person resides in COLUMBUS, OHIO, that said person is
PRESIDENT of THWIRS, INC., the corporation described in and which executed the
foregoing instrument; and that the above-named person signed thereto by order of
the Board of Directors of said corporation.
/s/ Susan E. Brown
---------------------------------------
Notary Public
SUSAN E. BROWN
NOTARY PUBLIC, STATE OF OHIO
MY COMMISSION EXPIRES 12-8-97
<PAGE>
SCHEDULE "A"
ALL THAT TRACT OR PARCEL OF LAND situate in the Town of Henrietta, County of
Monroe and State of New York, being part of Town Lots 7 and 8, Range 5, Township
12, Range 7 and more particularly described as follows:
COMMENCING at a point which is described by beginning at a point in the
southerly line of Commerce Drive where it is intersected by the westerly line
of premises conveyed by Kheel Development Company to D.H. Overmyer Company, Inc.
by deed recorded in the Monroe County Clerk's Office in Liber 3732 of Deeds,
page 443; thence running south 89 degrees 33' 30" west along the southerly line
of Commerce Drive a distance of 50 feet to a point; thence running westerly
along the southerly line of Commerce Drive on the arc of a curve to the right
having a radius of 378.60 feet a distance of 148.08 feet to a point; thence
running 68 degrees 01' 55" west along the southerly line of Commerce Drive a
distance of 28.77 feet to a point; thence running westerly along the southerly
line of Commerce Drive on the arc of a curve to the left having a radius of
406.40 feet a distance of 167.58 feet to a point; thence running south 88
degrees 20' 29" west along the southerly line of Commerce Drive a distance of
136.07 feet to the point of beginning of the parcel to be described; thence (1)
running south 88 degrees 20' 29" west along the southerly line of Commerce Drive
a distance of 335 feet to a point; thence (2) running south 00 degrees 56' 01"
east a distance of 460.04 feet to a point; thence (3) running north 88 degrees
20' 29" east a distance of 335 feet to a point; thence (4) running north 00
degrees 56' 01" west a distance of 460.04 feet to a point in the southerly line
of Commerce Drive and the point of beginning, containing 3.54 acres, more or
less.
There is further reserved from the above described premises the following
easements:
(a) An easement 20 feet in width for installation and maintenance of a railroad
spur or siding which easement is described in beginning at a point in the
westerly line
SEE SCHEDULE "A" (Cont'd)
<PAGE>
SCHEDULE "A" (Cont'd)
of the premises above conveyed 48 feet northerly from the southwest corner
thereof; thence running easterly and parallel to the southerly line of the
premises above conveyed, 48 feet northerly from, measured at right angles, to
said southerly line a distance of 235 feet to a point of curve; thence running
easterly on the arc of a curve to the right having a radius of 146.21 feet, a
distance of 100 feet more or less to a point in the easterly line of the
premises above conveyed, which point is 48 feet northerly from the southeast
corner, of said premises; thence northerly along the easterly line of the
premises above conveyed a distance of 20 feet to a point; thence running
westerly on the arc of a curve to the left having a radius of 1066.21 feet, a
distance of 100 feet to a point of curve; thence running westerly, parallel to
the southerly line of the easement and 20 feet northerly therefrom, a distance
of 235 feet to a point in the westerly line of the premises above conveyed;
thence southerly along the westerly line of the premises above conveyed a
distance of 20 feet to the place of beginning; in connection with the aforesaid
easement the right is reserved to enter upon said easement and re-enter from
time to time with men, materials and equipment for the installation and
maintenance of a railroad spur or siding together with appurtenances and the
grantee shall not erect any structures in said easement of otherwise disturb any
railroad spur line now or hereinafter constructed in said easement.
(b) Additional easements are reserved over the premises above conveyed as
follows:
(1) an easement 15 feet in width all along the northerly line of the aforesaid
premises; (2) an easement 10 feet in width all along the easterly line of the
aforesaid premises; (3) an easement 10 feet in width along the westerly line of
the aforesaid premises; and (4) an easement 50 feet in width along the southerly
line of the aforesaid premises.
Said easements are reserved for the purpose of installation and maintenance of
sanitary sewer lines, water lines, drainage facilities, storm sewers, utility
lines and appurtenances.
SEE SCHEDULE "A" (Cont'd)
<PAGE>
SCHEDULE "A" (Cont'd)
The right is reserved to enter upon said easements and re-enter from time to
time with men, materials and equipment for such purposes. Grantee shall not
erect any buildings or structures within said easements but may use same for
parking or other purposes provided such use does not interfere with the use of
said easements for the purpose granted. Except for any open drainage
installations and replacement of trees or shrubs, after any entry upon or use of
said easement the surface of same shall be restored to the condition existing
prior to such entry.
(c) A further easement reserved for the installation and maintenance of a
railroad spur siding described as follows:
COMMENCING at the easterly line of the premises above conveyed where it is
intersected by the northerly line of the 20 foot railroad easement described in
sub paragraph (a) above; thence northerly along the easterly line of the
aforesaid premises a distance of 30 feet to a point; thence southwesterly a
distance of 180 feet to a point in the northerly line of the above referred to
railroad easement; thence easterly along the northerly line of said railroad
easement to the point and place of beginning. In connection with said easement,
the right is reserved to enter upon same and re-enter from time to time with
men, materials and equipment for the purpose of installation and maintenance of
a railroad spur siding and appurtenance. The grantee shall not erect any
structures in said easement or otherwise interfere with the use of said easement
for said railroad spur or siding.
In addition to the premises first above conveyed, there is conveyed to the
grantee by the grantor an easement for the installation of a railroad spur or
siding identical to that reserved in sub paragraph (c) above to the grantor,
which easement is described as follows:
COMMENCING at a point in the westerly line of the premises first above conveyed
where it is intersected by the northerly line of the railroad easement referred
to in sub paragraph (a) above; thence northerly along the westerly line
SEE SCHEDULE "A" (Cont'd)
<PAGE>
SCHEDULE "A" (Cont'd)
of the premises first above conveyed a distance of 30 feet to a point; thence
westerly a distance of 180 feet to a point in the northerly line of the 20 foot
railroad easement described in said paragraph (a) extended westerly; thence
easterly along the northerly line of said 20 foot railroad easement extended
westerly to the point and place of beginning.
The above premises are further conveyed subject to easement heretofore granted
to Rochester Gas & Electric Corporation, Rochester Telephone Corporation for the
privilege to run and maintain poles, wires, conduits and appurtenances, which
easement is 5 feet in width, and is located north of the northerly side of the
20 foot rail easement referred to in Paragraph (a) above.
There is further reserved from the above described premises the following
easements;
(A) An easement 20 feet in width for installation and maintenance of a railroad
spur or siding which easement is described by beginning at a point in the
westerly line of the premises above conveyed 48 feet northerly from the
southwest corner thereof; thence running easterly and parallel to the southerly
line of the premises above conveyed, 48 feet northerly from, measured at right
angles to said southerly line a distance of 235 feet to a point of curve; thence
running easterly on the arc of a curve to the right having a radius of 146.21
feet, a distance of 101 feet more or less to a point in the easterly line of the
premises above conveyed, which point is 43 feet more or less northerly from the
southeast corner of said premises; thence northerly along the easterly line of
the premises above conveyed a distance of 20 feet to a point; thence running
westerly on the arc of a curve to the left having a radius of 1066.21 feet, a
distance of 101.5 feet more or less to a point of curve; thence running
westerly, parallel to the southerly line of the easement and 20 feet northerly
therefrom a distance
.... SEE SCHEDULE "A" (Cont'd)
<PAGE>
SCHEDULE "A" (Cont'd)
of 235 feet to a point in the westerly line of the premises above conveyed;
thence southerly along the westerly line of the premises above conveyed a
distance of 20 feet to the place of beginning. In connection with the aforesaid
easement the right is reserved to enter upon said easement and re-enter from
time to time with men, materials and equipment for the installation and
maintenance of a railroad spur or siding together with appurtenances and the
grantee shall not erect any structures in said easement or otherwise disturb any
railroad spur line now or hereafter constructed in said easement.
(B) Additional easements are reserved over the premises above conveyed as
follows: Same as set forth in description above except (4) reads as follows: (4)
an easement 48 feet in width along the westerly line of the aforesaid premises
and 40 feet in width along the easterly line of said premises. Said easement
being along the southerly line of said premises.
Said easements are reserved for the purpose of installation and maintenance of
sanitary sewer lines, water lines, drainage facilities, storm water sewers,
utility lines and appurtenances. The right is reserved to enter upon said
easements and re-enter from time to time with men, materials and equipment for
such purposes. Grantees shall not erect any buildings or structures within
said easements but may use same for parking or other purposes provided such use
does not interfere with the use of said easements for the purpose granted.
Except for any open drainage installations and replacement of trees or shrubs,
after any entry upon or use of said easement the surface of same shall be
restored to the condition existing prior to such entry.
(C) A further easement reserved for the installation and maintenance of a
railroad spur siding described as follows: Same as set forth in description
above.
In connection with said easement, the right is reserved to enter upon same and
re-enter from time to time with men, materials and equipment for the purpose of
installation and maintenance of a railroad spur siding and appurtenance.
SEE SCHEDULE "A" (Cont'd)
<PAGE>
SCHEDULE "A" (Cont'd)
The grantees shall not erect any structures in said easement or otherwise
interfere with the use of said easement for said railroad spur or siding.
In addition to the premises first above conveyed to the grantees by the grantor
an easement for the installation of a railroad spur or siding identical to that
reserved in sub paragraph (C) above to the grantor, which easement is described
as follows: Same as set forth in description above.
The above premises are further conveyed subject to easement heretofore granted
to Rochester Gas and Electric Corporation, Rochester Telephone Corporation for
the privilege to run and maintain poles, wires, conduits and appurtenances,
which easement is 5 feet in width and is located along the northerly side of the
20 foot rail easement referred to in paragraph A above.
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EXHIBIT 10.7
SUB-LEASE
THIS SUB-LEASE, made as of this 31st day of March, 1997
between TERTRAC ASSOCIATES, a New York Limited Partnership,
having its office and principal place of business at 2477 E.
Commercial Boulevard, in the City of Fort Lauderdale, County of
Broward and State of Florida, Party of the First Part,
hereinafter designated as "Sublessor", and WORLD OF SCIENCE,
INC., having its office at 900 Jefferson Road, BLDG. 4
Rochester, New York 14623, Party of the Second Part, hereafter
designated as "Sublessee".
W I T N E S S E T H
Premises FIRST: 1.1 The Sublessor has agreed to and does
hereby lease and demise unto the Sublessee and the Sublessee has
agreed to and does hereby take from Sublessor at the rental
specified in Paragraph FOURTH of this instrument, the premises
consisting of approximately four and three quarters (4 3/4)
acres, with the building thereon, containing approximately One
Hundred and Ten Thousand Seven Hundred Eighty-eight (110,788)
square feet and located at 200 Mushroom Boulevard, in the Town
of Henrietta, County of Monroe and State of New York, as more
fully defined on a map and floor plan of the building annexed
hereto as EXHIBIT "A" (herein, the "Premises").
Use of Premises SECOND: 2.1 The Sublessee may use the Premises for any
lawful purpose, including but not limited to a warehouse.
Term of Lease THIRD: 3.1 The term of the sub-lease is thirty-seven
(37) months beginning the first (1st) day of April, 1997 and
ending on the thirtieth (30th) day of April, 2000.
3.2 If this lease shall be in force and effect
on the expiration date of the original term, and Sublessee has
fully complied with all conditions contained herein, the
Sublessee may elect to renew this sub-lease for two (2) one year
periods at the same rent specified in Paragraph 4.1 hereof. To
exercise the election the Sublessee shall give the Sublessor
notice in writing of the election at lease ninety (90) days
prior to the expiration of each term.
FOURTH: 4.1 The Sublessee shall pay the Sublessor the
annual base rental of THREE
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Base rental HUNDRED FORTY-FIVE THOUSAND DOLLARS ($345,000.00) in equal
1st year monthly installments of TWENTY-EIGHT THOUSAND SEVEN HUNDRED
FIFTY DOLLARS ($28,750.00) commencing on the First day of July,
1997, and an equal monthly base rental on the first day of each
successive month thereafter during the term of the Sub-Lease and
any renewal thereof. Sublessee agrees to pay as additional rent
a sum equal to 2% of each total rent payment per month (total
rent payment includes rent, land rent and real estate tax
escrows), if the rent is not paid before the 15th day of the
month.
Reimbursement 4.2 In addition to the rent set forth herein, the
of ground Sublessee shall also reimbursethe Sublessor commencing with the
rental rental date of April 1, 1997 and continuing thereafter through
the term of the Sub-Lease and any renewals thereof monthly
rental to Genessee Valley Regional Authority in the sum of Two
Thousand Seven Hundred Seventy-Six Dollars ($2,776.00) per
month, but subject to adjustment by the Genesee Valley Regional
Authority after December 1, 1998, as provided in the lease with
Genesee Valley Regional Authority at Paragraph 19 of said Lease.
Throughout the term of the Sub-Lease, Sublessee shall pay
monthly to Sublessor as additional rent hereunder, all real
estate taxes, levied, assessed, imposed on or attributable to
the Premises. An interest bearing escrow account shall be
established for the real estate tax portion of this additional
rent, with an annual payment (or credit) given to Sublessee for
interest earned on such account. The monthly escrow for the
initial term of this Sub-Lease shall be SIX THOUSAND ONE HUNDRED
DOLLARS ($6,100.00).
INSURANCE 4.3 The Sublessee shall pay all fire insurance and
Payment by casualty insurance attributable to the leased premises effective
Sublessee April 1, 1997, as more fully provided for in this lease at
Paragraph EIGHTH AND Paragraph TWENTY-EIGHTH.
Force Majeure FIFTH: 5.1 Sublessor shall not be in default under this
Sub-Lease or liable to Sublessee in any manner or for any
damages by reason of delays caused by Sublessee or its agents or
employees, the contractors, present or future governmental
regulations, restrictions or controls, strikes, lockouts or
other labor disputes, shortages or unavailability of materials
or labor, acts of God, civil commotion or other causes or
conditions, whether similar or not to the foregoing, which are
beyond the reasonable control of Sublessor.
Repairs SIXTH: 6.1 Throughout the term of the Sub-Lease, Sublessee
shall keep and maintain the interior of the Premises and all
alterations, additions and improvements thereto in as good
condition as at the
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commencement of the term, ordinary wear and tear and damages by
insurable casualty excepted, and also excepting structural
damages not caused by the Sublessee. Sublessee shall make all
repairs in and about the interior, including window glass,
necessary to preserve them in good order and condition, which
repairs shall be, in quality and class, equal to the original
work; properly pay the expense of such repairs; suffer no waste
or injury; give prompt notice to the Sublessor of any fire that
may occur, permit at reasonable times during usual business
Entry hours, but always subject to the then prevailing security
regulations of Sublessee, the Sublessor and the representatives
of the Sublessor to enter the Premises for the purpose of
inspection, and to exhibit them for the purpose of transferring
its interest, subject to the approval of the Genesee Valley
Regional Authority; permit at reasonable times during usual
business hours, the Sublessor and representatives of the
Sublessor, to enter the Premises for the period of NINETY (90)
days prior to the expiration of the term to exhibit them for the
purpose of rental or sale, and to comply with all orders and
requirements of governmental authority applicable to the
Sublessee's use or occupation of the Premises. The Sublessee
shall repair at or before the end of the term, all injury done
Removal of by the installation or removal of furniture and trade fixtures;
trade fixtures and at the end of the term, subject to reasonable wear and tear
at end of term damage by insurable casualty, to quit and surrender the Premises
with all alterations, additions and improvements in good order
and condition, but Sublessor shall make at his own expense all
structural repairs during the term of the Sublease, including
roof repairs, as may be reasonably required to maintain the roof
and to preserve the structural integrity of the building.
Notice for 6.2 Except in case of emergency the
entry Sublessor shall not enter upon the Premises without forty-eight
(48) hours prior notice to the Sublessee.
Moving injury SEVENTH: 7.1 The Sublessee will not disfigure
or deface any part of the building, or suffer the same to be
Negative done, except so far as may be necessary to affix such trade
Covenants fixtures and signs. Exterior signs shall be consented to by the
Sublessor. The Sublessee will not obstruct or permit the
obstruction of the street or the sidewalk adjacent thereto; will
not do anything, or suffer anything to be done upon the Premises
which will unreasonably increase the rate of fire insurance upon
No transfer, the building or any of its contents, or be liable to cause
assignment, or structural injury to Premises; will not permit the accumulation
subletting of waste or refuse matter, and will not, without the written
without consent consent of the Sublessor first obtained in each case, which
consent will not be reasonably withheld, either sell, assign,
mortgage or transfer this Sub-Lease, or underlet the Premises
or any part thereof; make any structural
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Extra alterations in the Premises, use the Premises or part thereof
hazardous use for any purpose other than the one first stipulated, or for
any purpose deemed extra hazardous on account of fire risk,
No violation of nor in violation of any law or ordinance. Sublessee will not
ordinances erect any sign or signals at the demised premises unless and
Signs until the style and location thereof have been approved by
Sublessor and the Genesee Valley Regional Authority, which
approvals shall not be unreasonably withheld, and if any be
erected without such approvals, the Sublessor may remove the
same. Any merger or other consolidation by the Sublessee with
any other company or companies shall not be deemed to be in
violation of the covenants contained in this lease.
Comprehensive EIGHTH: 8.1 Sublessee shall at Sublessee's
General Liability expense, obtain and maintain during the term of this
Policy Single Sub-Lease, a Comprehensive General Liability Policy, and
Limit during the entire term of this lease maintain such policy as
a Single Limit Policy in a sum of not less than Five Million
Dollars ($5,000,000.00)(in the event of injury to one or
more persons in the same accident or occurrence) and
including in said policy property damage insurance in the
same Single Limit Policy, and the Sublessor and Genesee
Valley Regional Authority shall be named as an additional
insureds under such policy.
Sublessor named 8.2 All such insurance policies
in policy as shall be issued in the names of Sublessor and Sublessee, as
insured and notice their interests may appear; and if requested by the
of cancellation Sublessor, either a copy of all such policies or a bona fide
certificate of insurance, evidencing the coverage provided
in the policies, shall be delivered by Sublessee or
Sublessor, and all such policies shall require THIRTY (30)
days written notice to Sublessor of change or cancellation by
the insurance carrier.
Sublessor can 8.3 If Sublessee fails to obtain or
maintain maintain any insurance as required by this Paragraph
insurance in the "EIGHTH", the Sublessor may effect and maintain the same at
event of competitive rates and any amount properly paid by Sublessor
cancellation for such purpose from the date of payment thereof by
Sublessor, shall be deemed additional rent and shall be
payable with the net rental next due under the terms of this
Sub-Lease.
Glass Breakage NINTH: 9.1 The Sublessee will at no cost
to the Sublessor replace all broken glass with glass of equal
quality and thickness, except only that the Sublessee shall
not be responsible for the replacement of glass as may be
broken by the acts of the Sublessor, its agents or servants,
or by causes covered by Sublessor's standard fire and
extended coverage insurance policies, if any.
SUTTON,
DELEELW, CLARK 4
& DARCY, LLP
ATTORNEYS AT LAW
40 GROVE STREET
PITTSFORD, N.Y. 14534
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Snow Removal TENTH: 10.1 The Sublessee shall be responsible
for all snow removal reasonably necessary on the Premises, and
further agrees to maintain the landscaped areas of the Premises,
Ground including but not limited to, cutting grass, maintaining
Maintenance shrubbery and keeping the Premises free of debris. In the event
that the Sublessee fails to maintain the Premises in a
reasonably neat condition, as provided herein, the Sublessor may
10-Day Notice upon ten (10) days written notice, restore the Premises as
aforesaid and charge the expense thereof to the Sublessee. Such
notice shall be addressed to the Sublessee by registered or
certified mail at 900 Jefferson Road, Building Four, Rochester,
New York 14623.
Painting ELEVENTH: 11.1 The Sublessee will not paint the
exterior of any building located on the Premises without prior
approval of the Sublessor. Such approval will not be
unreasonably withheld, provided such proposed painting meets the
standards of the Sublessor with respect to the quality and color
of the paint to be used and is also approved by the Genesee
Valley Regional Authority.
Taxes and TWELFTH: 12.1 In addition to the rent set forth
other herein, the Sublessee shall pay for all charges for gas,
impositions to electricity, light, heat, water, power, telephone or other
be paid by communication service, and assessments used, rendered or
sublessee supplied upon or in connection with the leased property. Such
charges shall be deemed "additional rent". Sublessee shall
indemnify the Sublessor against any liability or damages on
account of such charges. In the event the Sublessee fails or
neglects to pay any additional rent as set forth herein, the
Sublessor may, but shall not be required to, pay for such items
of additional rent and add the cost of such additional rent to
the next installment of the base rent next due. Any payment
required to be made by the Sublessee under the provisions of
this Lease not made by Sublessee when as due shall thereupon be
deemed to be and shall become additional rent hereunder.
Apportionment 12.2 Impositions, whether or not a lien
of taxes upon the Premises, shall be apportioned between Sublessor and
Sublessee at the beginning and end of the term of this Sub-
Lease; it being intended that Sublessee shall pay only that
portion of the Impositions as is allocable to the term,
provided, however, that Sublessee shall not be entitled to
receive any apportionment from the Sublessor if Sublessee shall
then be in default of any term, covenant or condition of the
Sub-Lease unless such default is cured.
Contest of 12.3 Sublessee, at its own expense, may
impositions by contest any such Impositions in any
sublessee
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manner permitted by law, in Sublessee's name, and whenever
necessary, in Sublessor's name. Sublessor will cooperate with
Sublessee and execute any documents or pleadings required for
such purposes. Such contest shall include, but shall not be
limited to appeals from any judgement, decrees, assessments or
orders until a final determination is made by a court or
governmental department or authority having final jurisdiction
in the matter, however, notwithstanding such contest, Sublessee
shall pay the contested impositions in the manner and on the
dates provided for in this Article. Any tax refund with respect
to Impositions paid by Sublessee shall be the property of
Sublessee and such repayment obligation shall survive the
termination of this Lease.
Sublessee not 12.4 Except for the payment of taxes
required to pay as provided in Paragraph 12.1 hereof, Sublessee shall not be
certain taxes obligated or required hereunder to pay any franchise, excise,
corporate, estate, inheritance, succession, capital levy or
transfer tax of Sublessor, or any income profit or revenue tax
upon the income or receipts of Sublessor, or any other tax,
assessment, charge or levy upon the rent reserved under this
Sub-Lease, or any tax or other Imposition, charge or levy (i)
not commonly deemed to be real estate tax, and (ii) not arising
solely from the ownership, occupation or operation of the
Premises, although the same may become a lien upon the real
property or improvements thereon, or shall Sublessee be
obligated or required hereunder to pay interest, amortization,
or principal on any mortgage covering or affecting the fee of
the Premises, or building mortgage of Sublessor.
Fire Damage THIRTEENTH: 13.1 If the Premises and any building or
improvements thereto shall during the term hereof, be damaged or
destroyed by fire or other casualty or other insured casualty,
either in whole or in part, Sublessor shall forthwith remove any
resulting debris and repair and/or rebuild the damaged or
destroyed structures and other improvements made by Sublessor,
which repair or rebuilding shall be of the quality of the
original construction and in accordance with current codes.
Until such time as the Premises are repaired, rebuilt and put in
good tenantable order in accordance with such plans and
specifications, the rents hereby reserved, or a fair and just
proportion thereof, according to the nature and extent of the
damage sustained, shall be abated, and if Sublessee shall have
paid rent in advance, Sublessor shall immediately repay the
Sublessee a proportionate amount of prepaid rent, if any. In the
event of the total destruction of the premises, the rent and
other charges will be totally abated until such time that
Sublessee has resumed its use of the premises. Sublessee may at
its option
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terminate this Lease in the event of total destruction,
which for purposes of this Lease will be defined as
greater than FIFTY PERCENT (50%) of the premises being
destroyed. In the event of partial destruction, rent and
other charges will be abated in the same percentage as
the unusable square footage compares to the total
building square footage. If Sublessor fails to commence
such restoration work within ninety (90) days from the
date when such damage or destruction occurred, or fails
thereafter to use its best efforts to complete such
repair work and/or rebuilding as rapidly as possible
under the circumstances, Sublessee and/or Sublessor, in
addition to such other rights and remedies as may be
accorded each party by law, shall have the right and
option to terminate the term of this Sub-Lease by giving
Sublessor or Sublessee as the case may be written notice
of either party's election to do so at any time prior to
the completion of such repairs or rebuilding, provided
Sublessor shall not then be actively and diligently
undertaking such restoration work, and upon such notice
being given, the term of the Sub-Lease shall
automatically terminate and end without prejudice to
Sublessee's right to damages on account of Sublessor's
failure without just cause, to repair or rebuild as
required herein. If in the opinion of an architect
selected by the Sublessor, which opinion shall be
rendered within sixty (60) days after the casualty, that
the rebuilding or repairing of the Premises cannot be
completed within the period of one hundred twenty (120)
days after the start of such repairing or rebuilding,
then Sublessee or Sublessor shall have the right and
option to terminate the term of this Sub-Lease by giving
of either party written notice of election so to do
within sixty (60) days from the date of the architect's
aforesaid opinion after such damage or destruction
occurred and upon such notice being given, the term of
the Sub-Lease shall automatically terminate effective as
of the day following the date on which the delivery of
notice of condition, and Sublessor shall thereupon
forthwith reimburse Sublessee for any rent paid in
advance for the period following the date of
cancellation.
Termination of FOURTEENTH: 14.1 If a Receiver or Trustee
Lease by is appointed for the Sublessee's property, or if the
Sublessor upon Sublessee shall default in the performance of any
default agreement herein contained beyond any applicable cure
period, this Sub-Lease shall thereby at the option of
the Sublessor, be terminated in the manner and on the
notice set forth below, and in that case, neither the
Sublessee nor anyone claiming under the Sublessee, shall
be entitled to keep possession of the Premises. If,
after the commencement of the term, any of the events
mentioned above in this sub-division shall occur, or if
the Sublessee shall default in fulfilling any of the
covenants of this Sub-Lease,
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the Sublessor shall give the Sublessee thirty (30) days written
notice of intention to end the term of this Sub-Lease, and
thereupon at the expiration of such thirty (30) days (if the
condition which was the basis of said notice shall continue to
exist) the term under this Sub-Lease shall expire as fully and
completely as if that day were the date herein definitely fixed
for the expiration of the term, and the Sublessee will then quit
and surrender the Premises to the Sublessor. Notwithstanding the
foregoing, however, in the event such condition could not
reasonably have been corrected within thirty (30) day period,
but Sublessee commenced to correct such condition within such
period and continues to do so with due diligence, then Sublessee
shall be granted such additional time as is deemed reasonably
necessary by the Sublessor to complete the correction of such
condition.
Repossession by 14.2 If the Sublessee shall default in
Sublessor the payment of the rent reserved hereunder, or any item of
"additional rent" herein mentioned, or any portion thereof, of
making any other payment herein provided for, and if the
Sublessor shall have given to the Sublessee thirty (30) days
prior written notice thereof, and if the condition which was the
basis of said notice shall exist at the expiration of such (30)
day period, the Sublessor may immediately, or at any time
thereafter, re-enter the Premises in a lawful manner and remove
all persons and all or any property therefrom, either by summary
dispossess proceedings, or by any other suitable legal or
equitable proceeding in a court of law, and repossess and enjoy
the Premises, together with all additions, alterations and
improvements, in any such case. Sublessor may rent the Premises
for a term extending beyond the term granted, and in such
event, Sublessee's liability hereunder shall cease. In the event
that the term of this Sub-Lease shall expire as above provided,
or terminate by summary proceedings or otherwise, and if the
Sublessor cannot with due diligence relet the Premises, the
Sublessee shall remain liable for so long as the Premises shall
remain unrented, and the Sublessee shall pay the Sublessor until
the time when this Sub-Lease would have expired but for such
Reletting termination or expiration, or until the Premises are relet,
whichever shall sooner occur, the equivalent of the amount of
all of the rent and "additional rent" reserved herein, less the
proceeds of reletting or the value of the use by the Sublessor,
and the same shall be due and payable by the Sublessee to the
Sublessor on the several rent days above specified, that is upon
each of such rent days the Sublessee shall pay to the Sublessor
the amount of deficiency then existing. The words "re-enter" and
"re-entry" as used in this Sub-Lease are not restricted in their
technical legal meaning.
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Remedies are 14.3 In the event of a breach by the
cumulative Sublessee of any of the covenants or provisions hereof, the
Sublessor shall have the right to invoke any remedy allowed by
law or in equity, as if re-entry, summary proceedings and other
remedies were not herein provided for.
Sublessor may FIFTEENTH: 15.1 If the Sublessee shall make
perform default in the performance of any covenant herein contained, the
Sublessor may at any time thereafter, after thirty (30) days
written notice by registered mail, perform the same for the
account of the Sublessee. If a notice of Mechanic's Lien be
filed against the Premises for, or purporting to be for, labor
or materials alleged to have been furnished, or to be furnished
to or for the thirty (30) days after the filing of such notice,
the Sublessor may pay the amount of such lien or discharge the
same by deposit or by bonding proceedings and in the event of
such lien or discharge of the same by deposit or bonding
proceedings, the Sublessor may require the lienor to prosecute
an appropriate action to enforce the lienor's claim. In such
Additional case, the Sublessor may pay any judgment recovered on such
rent claim. Any amount paid or expense incurred by the Sublessor as
in this subdivision of this Sub-Lease provided, and any amount
as to which Sublessee shall at any time be in default for or
respect to the use of water, electric current or natural gas,
and any expense incurred or sum of money paid by the Sublessor
by reason of the sublessee's failure to comply with the
provisions hereof, or in defending any such action, shall be
deemed to be "additional rent" for the Premises and shall be due
and payable by the Sublessee to the Sublessor on the first day
of any succeeding month. The receipt of the Sublessor of any
installments of the regular stipulated rent hereunder or of any
of said "additional rent" shall not be a waiver of any other
"additional rent" then due.
Waivers SIXTEENTH: 16.1 The failure of the Sublessor to
insist, in any one or more instances upon a strict performance
of any of the covenants of this Sub-Lease, or to exercise any
option herein contained, shall not be construed as a waiver or a
relinquishment for the future of such covenant or option, but
the same shall continue and remain in full force and effect. The
receipt by the Sublessor of rent, with knowledge of the breach
shall not be deemed to be a waiver by the Sublessor of any
provision hereof, unless such waiver is expressed in writing and
signed by the Sublessor. No notice or consent shall be necessary
in the event of a merger, consolidation, transfer or sale of all
assets by the Sublessee, so long as the Sublessee shall continue
to remain responsible for all payments and covenants contained
in this Sub-Lease.
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SEVENTEENTH: 17.1 This Sub-Lease is and shall be
subordinate at all times to the lien of a first mortgage
hereafter placed upon the Sublessor's interest in the Premises
or buildings located thereof, or any buildings thereafter placed
upon the Premises. Sublessee shall execute and deliver upon the
demand of the Sublessor, its successors or assigns, further
instruments subordinating this Sub-Lease to the lien of any such
Mortgages first mortgage, provided however, that any such mortgage shall
contain a covenant or the Sublessor shall procure from any
present or future mortgagee a separate agreement in writing, in
recordable form, provided in substance that so long as the
Sublessee shall faithfully discharge each and every obligation
on its part to be kept and performed under the terms of this
Sub-Lease or any renewal thereof, its tenancy will not be
disturbed nor this Sub-Lease or any renewal thereof affected by
any default under any such first mortgage; the rights of the
Sublessee hereunder shall expressly survive and shall not be cut
off; and this Sub-Lease and any renewal thereof shall in all
respects continue in full force and effect, so long as the
Sublessee fully performs all of its obligations hereunder.
Indemnity EIGHTEENTH: 18.1 The Sublessee agrees to indemnify
and save harmless the Sublessor against and from any and all
claims by or on behalf of any person or persons, firm or firms,
corporation or corporations, arising from the Sublessee's use of
the leased property or the conduct of their business or from any
activity, work, or thing done, permitted or suffered by the
Sublessee, in or about the premises, and will further indemnify
and save the Sublessor harmless against and from any and all
claims arising from any breach or default on the Sublessee's
part in the performance of any covenant or agreement on the
Sublessee's part to be performed, pursuant to the terms of this
Sub-Lease, or arising from any act or negligence of the
Sublessee, or any of its agents, contractors, servants,
employees or licensees, and from and against all costs, counsel
fees, expenses and liabilities incurred in connection with any
such claim or action or proceeding brought against the Sublessor
by reason of any such claim, the Sublessee, upon notice from the
Sublessor, covenants to resist or defend at the Sublessee's
expense such action or proceeding. The Sublessee, as a material
part of the consideration to the Sublessor, hereby assumes all
risk of damage to property in, upon or about the property from
any source and to whomever belonging, except for damages
resulting directly from the gross negligence or wilful
misconduct of the Sublessor its agents, contractors, servants,
employees or licensees, and the Sublessee hereby waives all
claims in respect thereof against the Sublessor and agrees to
defend and save the Sublessor harmless from and against any such
claims by others.
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Sublessor hereby waives all claims against the Sublessee for
damage to property in, upon, or about the property resulting from
the gross negligence or wilful misconduct of the Sublessor its
agents, contractors, servants, employees or licensees and agrees
to defend and save the Sublessee harmless from and against any
such claims by others.
Improvements NINETEENTH: 19.1 All improvements made by the
Sublessee to or upon the Premises, except trade fixtures,
equipment and any other improvements which can be removed without
material damage to the freehold, shall become and shall remain
the property of the Sublessor, and at the end or other expiration
of the term shall be surrendered to the Sublessor in as good
order and condition as they were when installed, reasonable wear
and damage excepted. Sublessee shall remove trade fixtures at the
end of the Sub-Lease and surrender the premises in good order and
condition.
19.2 Sublessor agrees to indemnify
Sublessee for any environmental violations which are not the
result of activities of the Sublessee and its use of the
Premises.
Notices TWENTIETH: 20.1 Any notice by the Sublessor to the
Sublessee shall be deemed to be duly given if mailed by certified
mail, addressed to Sublessee, at 200 Mushroom Boulevard,
Rochester, New York 14623 with a duplicate copy by registered or
certified mail to Sublessee at 900 Jefferson Road, Rochester, New
York 14623.
20.2 Any notice by the Sublessee shall be
duly given if mailed by certified mail addressed to the Sublessor
at 2477 East Commercial Boulevard, Fort Lauderdale, Florida
33308.
No Liability TWENTY-FIRST: 21.1 The Sublessor shall not be liable
for failure of water supply, electrical current, or natural gas,
not caused by Sublessor's negligence nor for injury or damage to
person or property caused by the elements or by persons in said
building, or resulting from steam, gas, electricity, water, rain
or snow, not caused by Sublessor's negligence, which may leak or
flow from any part of the building upon the Premises, or from the
pipes, appliances or plumbing works of the same, or from the
street or sub-surface, or from any other place, nor for
interference with light or other incorporeal hereditaments by
anyone other than the Sublessor, or caused by operations by or
for any municipality in construction of any public or quasi-
public work.
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TWENTY-SECOND: 22.1 If the demised premises shall be
taken or condemned by any competent authority under power of
eminent domain for a public or quasi-public use or purpose,
then, at the Sublessor's option to be exercised by written
notice to be given by the Sublessor to the Sublessee, the term
hereby granted shall cease from the time when possession of the
part so taken shall be required for such public or quasi-public
use or purpose, and without an apportionment of the award, the
Sublessee hereby assigning to the Sublessor all right and claim
to the award. The current rent, however, in such case shall be
apportioned in the same manner as Section 13. Nothing in this
Section shall prevent Sublessee from pursuing an award for its
personal property taken or loss of income.
Shoring of TWENTY-THIRD: 23.1 In the event that an excavation
walls shall be made for building or other purposes upon land adjacent
to the Premises or shall be contemplated to be made the
Sublessee shall afford to the person or persons causing or to
cause such excavation, license to enter upon the Premises for
the purposes of doing such work as such person or persons shall
deem to be necessary to preserve the wall or walls, structure or
structures upon the Premises free from injury and to supply the
same proper foundations, provided such entry does not unduly
interfere with the Sublessee's use and enjoyment of the
Premises.
The Sublessor shall not unduly hamper the use of the
Premises by the Sublessee in effecting such improvements.
Validity TWENTY-FOURTH: 24.1 The invalidity or unenforceability
of any provision of this Sub-Lease shall in no way affect the
validity or enforceability of any other provision thereof.
TWENTY-FIFTH: 25.1 In order to avoid delay, this
Sub-Lease has been prepared and submitted to the Sublessee for
signature with the understanding that it shall not bind the
Sublessor unless and until it is executed and delivered by the
Sublessor.
Laws of TWENTY-SIXTH: 26.1 This Sub-Lease shall be construed
New York by the laws of the State of New York.
State
TWENTY-SEVENTH: 27.1 So long as the Sublessee pays the
rent and additional rent reserved hereby and performs and
observes the covenants and provisions hereof, the Sublessee
shall peacefully and quietly have, hold and enjoy the Premises.
Fire Insurance TWENTY-EIGHTH: 28.1 During the term hereof,
and Increases Sublessee shall at its own cost and expense, provide and keep in
force insurance covering the Premises against loss or damage by
fire and lightning and such
[LETTERHEAD OF SUTTON, DELEEUW, CLARK, & DARCY, LLP APPEARS HERE]
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risks as are customarily included in extended coverage
endorsements attached to fire insurance policies covering
property similar to such Premises (including windstorm, hail,
explosion, riot, riot attending a strike and civil
commotion, damage from aircraft and vehicle, vandalism, and
malicious mischief, sprinkler leakage, sonic boom and smoke
damage) in an amount not less than Three Million Dollars
($3,000,000.00) for such Fire Insurance and Extended Coverage,
or such higher amount as may be required by the holder of any
first mortgage covering the premises. The Fire and Extended
Coverage shall be reviewed and adjusted annually on or about
each renewal date, and the additional premium shall be paid by
the Sublessee and coverage shall be increased in accordance with
the same formula as is provided for inflation as is set forth in
Paragraph 19 of the Genessee Valley Regional Authority Ground
Lease.
Sublessor as 28.2 All insurance to be provided and kept in
additional force by Sublessee under the provision hereof shall name as the
assured insured Sublessor and Sublessee as their respective interests
may appear, and the holder of any fee mortgage on the premises
and the standard mortgagee clause shall be attached to the
appropriate policies. The policies including such insurance
shall provide that the loss, if any, shall be adjusted with and
payable to the party who will perform the work of restoration
pursuant to paragraph THIRTEENTH of the Sublessee's current
lease with the Genesee Valley Regional Authority and such
mortgagee as their interest may appear.
Delivery of 28.3 All policies shall be obtained by
policies Sublessee and certificates thereof, shall be delivered to
Sublessor at or before the commencement of the term hereof and
shall be taken in responsible companies satisfactory to
Sublessor and authorized to do business in the State of New
York. All policies shall be for periods of not less than ONE (1)
year and shall contain a provision whereby the same cannot be
cancelled unless Sublessor is given at least THIRTY (30) days
Notice of prior written notice of such cancellation. Sublessee shall
cancellation procure and pay for renewals of such insurance from time to time
and Sublessee shall promptly deliver to Sublessor certificates
thereof at least THIRTY (30) days before the expiration thereof.
Place of TWENTY-NINTH: 29.1 All rental payments, additional
payment of rental, reimbursement for ground rental, taxes, impositions and
rent the like, and all other payments, if any, shall be made payable
to the Sublessor and forwarded to 2477 E. Commercial Boulevard,
Fort Lauderdale, Florida 33308, and at such other address that
may
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be hereinafter be designated by the Sublessor upon fifteen (15)
days prior written notice directed to the Sublessee.
Other THIRTIETH: 30.1 Subject to Section 6.2, Sublessee
Provisions agrees that ninety (90) days prior to the expiration of this
Sub-Lease, Sublessor or its agents may show at any reasonable
hour the premises to persons wishing to lease them. In addition,
Sublessee agrees that Sublessor or its agents may show the
premises at any time, at any reasonable hour, to prospective
purchasers, upon prior notice by the Sublessor that property is
for sale. Sublessor may display "for sale" signs on the
premises.
30.2 Sublessee shall vacate the demised
premises and remove all Sublessee's property therefrom at the
expiration of this Sub-Lease, and leave the demised premises in
good repair, in a clean and orderly condition, subject to normal
wear and tear.
30.3 In the event the Sublessee
continues to occupy the premises after the expiration of this
Sub-Lease or any renewal thereof and parties are not negotiating
a new term, then at the option of the Sublessor, such a tenancy
shall be from month to month, commencing the first day after the
expiration of the Sub-Lease, at ONE HUNDRED TEN PERCENT (110%)
the monthly rental set forth above, payable in advance on the
first day of each and every month. All other terms and
conditions of this Sub-Lease shall be applicable to such a
tenancy.
30.4 This Sub-Lease shall be subject to
consent of Genesee Valley Regional Authority which consent will
be obtained within a reasonable time frame after signing of this
Sub-Lease by such Sublessee. If said consent is not obtained,
Sublessee shall notify Sublessor in writing and this Sub-Lease
shall be null and void at the option of Sublessor.
30.5 The signatories to this Sub-Lease
represent that they are duly authorized to execute the
instrument on behalf of their principals.
30.6 Sublessor represents that there
are no liens or encumbrances which will interfere with
Sublessee's use of the Premises and that the Premises are fit
for use as a warehouse.
30.7 Sublessor represents that there
are not defaults under the Lease with Genessee Valley Regional
Authority.
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IN WITNESS WHEREOF, the Sublessor and Sublessee have
caused these presents to be signed by their duly authorized
officers and their corporate seals to be hereunto fixed, the day
and year first above written.
TERTRAC ASSOCIATES
BY: /s/ Stephen G. Mehallis,
------------------------------------
Stephen G. Mehallis,
Co-Trustee For General Partners
WORLD OF SCIENCE, INC.
BY: /s/ Charles A. Callahan
------------------------------------
Charles A. Callahan,
Vice President-Finance
STATE OF FLORIDA)
COUNTY OF BROWARD) SS.
On this 1 day of April, 1997, before me personally came
--- ----- --
Stephen G. Mehallis to me know, who, being by me duly sworn, did
-------------------
depose and say that he resides in Broward County, Florida, that
-----------------------
he is the ___________________________ of TERTRAC ASSOCIATES, a
New York Limited Partnership.
NORA GILLARY
Notary Public, State of Florida /s/ Nora Gillary
My Comm. expires Oct. 13, 1999 ---------------------------------------
No. CC 498197 Notary Public
Bonded Thru Official Notary Serivces
1-(800) 723-0121
STATE OF NEW YORK)
COUNTY OF MONROE ) SS.
On this 31st day of March, 1997, before me personally
---- ----- --
came Charles A. Callahan to me know, who being by me duly sworn,
-------------------
did depose and say that he resides in Rochester, New York; that
he is the Vice President-Finance of World of Science, Inc., the
----------------------
corporation described in and which executed the within
Instrument.
/s/ Pamela J. Bucci
---------------------------------------
Notary Public
PAMELA J. BUCCI
Notary Public in the State of New York
Monroe County
Commission Expires Aug. 4, 1998
--
[LETTERHEAD OF SUTTON, DELEEUW, CLARK & DARCY, LLP APPEARS HERE]
<PAGE>
NIAGARA - MOHAWK POWER CO.
[ARTWORK APPEARS HERE]
EXHIBIT "A" MUSHROOM BOULEVARD (Private Drive)
<PAGE>
EXHIBIT 11
SCHEDULE OF COMPUTATION OF EARNINGS (LOSS) PER SHARE
<TABLE>
<CAPTION>
THREE THREE
YEAR YEAR YEAR YEAR YEAR MONTHS MONTHS
ENDED ENDED ENDED ENDED ENDED ENDED ENDED
JANUARY 31, JANUARY 30, JANUARY 29, JANUARY 28, FEBRUARY 1, MAY 4, MAY 3,
1993 1994 1995 1996 1997 1996 1997
----------- ----------- ----------- ----------- ----------- --------- ---------
<S> <C> <C> <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 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 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 55,033 43,033
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 options
and warrants.............. 232,551 293,512 284,567 332,351 122,144 131,144 119,144
--------- --------- --------- ---------- ---------- --------- ---------
Weighted average common and
common equivalent shares
outstanding............... 2,607,090 3,641,467 3,682,522 3,755,306 3,545,099 3,554,099 3,542,099
========= ========= ========= ========== ========== ========= =========
Computation of earnings per
share Net income / Average
common and common
equivalent shares
outstanding
Net income (loss).......... $827,000 $839,000 $719,000 $1,304,000 $1,736,000 (575,000) (867,000)
Earnings (loss) per share.. $ 0.32 $ 0.23 $ 0.20 $ 0.35 $ 0.49 (0.16) (0.24)
</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)
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.
KPMG Peat Marwick LLP
Rochester, New York
June 2, 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 three months ended May 3, 1997 and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> MAY-03-1997
<CASH> 63,139
<SECURITIES> 0
<RECEIVABLES> 228,385
<ALLOWANCES> 0
<INVENTORY> 9,310,429
<CURRENT-ASSETS> 11,207,659
<PP&E> 8,967,021
<DEPRECIATION> 3,823,000
<TOTAL-ASSETS> 16,891,680
<CURRENT-LIABILITIES> 5,881,666
<BONDS> 0
0
0
<COMMON> 34,230
<OTHER-SE> 9,578,847
<TOTAL-LIABILITY-AND-EQUITY> 16,891,680
<SALES> 7,286,582
<TOTAL-REVENUES> 7,286,582
<CGS> 5,729,742
<TOTAL-COSTS> 5,729,742
<OTHER-EXPENSES> 3,001,438
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28,626
<INCOME-PRETAX> (1,469,298)
<INCOME-TAX> (602,000)
<INCOME-CONTINUING> (867,298)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (867,298)
<EPS-PRIMARY> (.24)
<EPS-DILUTED> 0
</TABLE>
