<PAGE>
SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c) of the Securities
Exchange Act of 1934
(Amendment No. 3)
Check the appropriate box:
/X/ Preliminary Information Statement
/ / Definitive Information Statement
PLAYORENA INC.
(Name of Registrant As Specified In Charter)
PLAYORENA INC.
(Name of Person(s) Filing the Information Statement)
Payment of Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14c-5(g).
/X/ Fee computed on table below per Exchange Act Rules 14c-5(g)
and 0-11.
1) Title of each class of securities to which transaction applies:
Common Stock, $.001 par value
Common Stock Purchase Warrants
2) Aggregate number of securities to which transaction applies:
12,762,910 shares of Common Stock
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
The transaction that is the subject of this Information Statement
contemplates the sale of substantially all of the assets of Playorena Inc. in
exchange for the transfer to Playorena Inc. of 1,041,800 shares of its common
stock (valued at $.04 per share based on the average high and low bid and asked
prices on November 30, 1995) and the assumption of liabilities totalling
approximately $446,360. The transaction is therefore valued at $488,032 and the
filing fee equals $97.61.
4) Proposed maximum aggregate value of transaction:
$488,032
/ X / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid: $97.61
2) Form, Schedule or Registration Statement No.: Schedule 14C
3) Filing Party: Playorena Inc.
4) Date Filed: December 15, 1995
<PAGE>
PLAYORENA INC.
Notice of Special Meeting of Shareholders
February 7, 1997
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of Playorena
Inc., a New York corporation (the "Company"), will be held at 10:00 A.M. on
February 7, 1997 at the offices of Kreinik Aaron & Gersh, LLP, 780 Third Avenue,
New York, NY 10017, to consider and act upon the following matters:
1. Adopt and approve as a single transaction a proposal providing for
(a) the sale by the Company of substantially all of its assets to an entity
to be formed by Michael and Susan Astor, the only current executive
officers and directors of the Company, in exchange for the transfer to the
Company of 1,041,800 shares of Common Stock of Playorena representing all
of the capital stock of the Company owned by Mr. and Mrs. Astor, and the
assumption by the entity to be formed by Mr. and Mrs. Astor of certain
liabilities of the Company; (b) a twenty to one reverse split of the
outstanding shares of the Company's Common Stock; and (c) the election of
certain designated persons to serve as directors of the Company upon the
closing of the asset sale and the simultaneous resignation of Mr. and Mrs.
Astor as officers and directors of the Company.
2. Ratify the selection of Feldman Radin & Co., P.C. as the Company's
independent auditors.
3. Such other business as may properly come before the meeting or any
adjournment thereof.
Shareholders of record as of the close of business on January 10, 1997
will be entitled to notice of, and to vote at, the Special Meeting of
Shareholders. Each shareholder will be entitled to one vote for each share of
Playorena Common Stock held by him or her on that date.
Attached hereto for your review is an Information Statement relating to the
above-described proposal, audited financial statements for the fiscal year ended
November 30, 1995 and the Company's Quarterly Report on Form 10-QSB for the
fiscal quarter ended May 31, 1996.
By Order of the Board of Directors,
Michael Astor,
Secretary
January 15, 1997
Port Washington, New York
<PAGE>
CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY - PRELIMINARY COPY
PLAYORENA INC.
INFORMATION STATEMENT
This Information Statement, which is being mailed to shareholders on or
about January 15, 1997, is furnished in accordance with the requirements of
Regulation 14C promulgated under the Securities Exchange Act of 1934, as
amended, by the management of Playorena Inc., a New York corporation (the
"Company" or "Playorena"), for use in connection with a Special Meeting of
Shareholders to be held on February 7, 1997.
We Are Not Asking You for a Proxy and You are Requested Not To Send Us a Proxy.
The Special Meeting of Shareholders has been called for the purpose of
considering and voting upon as a single transaction a proposal (the "Proposal")
providing for (a) the sale by the Company of substantially all of its assets to
an entity to be formed by Michael and Susan Astor, the only current executive
officers and directors of the Company, in exchange for the transfer to the
Company of 1,041,800 shares of Common Stock of Playorena representing all of the
capital stock of the Company owned by Mr. and Mrs. Astor, and the assumption by
the entity to be formed by Mr. and Mrs. Astor of certain liabilities of the
Company (the "Asset Sale"); (b) a twenty to one reverse split of the outstanding
shares of common stock; and (c) the election of certain designated persons to
serve as directors of the Company upon the closing of the asset sale and the
simultaneous resignation of Mr. and Mrs. Astor as officers and directors of the
Company.
As noted, the Proposal is being presented to shareholders as a single
proposal and, consequently, none of its aspects will be approved unless the
entire Proposal is approved at the Special Meeting. The affirmative vote of
holders of sixty-six and two-thirds percent (66.66%) of all of the shares of
Playorena Common Stock outstanding on January 10, 1997 (the "Record Date")
entitled to vote at the Special Meeting is required for approval of the
Proposal. As discussed herein, the holders of 9,370,186 shares of Common Stock
representing 73.4% of the outstanding shares of Common Stock have indicated
their intention to vote their shares in favor of the Proposal, thereby assuring
its approval. Shareholders will not have any appraisal or similar rights with
respect to the Asset Sale contemplated by the Proposal.
At the Special Meeting the shareholders will also be asked to ratify the
selection of Feldman Radin & Co., P.C. as the Company's independent auditors.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The Board of Directors has fixed the close of business on the Record Date
as the record date for the determination of shareholders entitled to notice of
and to one vote for each share of Playorena Common Stock outstanding and held of
record at that date. On the Record Date, there were 12,762,910 shares of
Playorena Common Stock issued and outstanding, including 4,500,000 shares
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of Common Stock issued on September 6, 1996 pursuant to the terms of a letter
agreement dated November 18, 1994 between the Company and certain investors, as
amended by letter dated April 10, 1995. Persons indicated in the following table
controlling the right to vote an aggregate of 9,370,186 shares of Playorena
Common Stock have indicated their intention to vote all such shares (73.4% of
the class) in favor of the Proposal, thereby assuring its approval.
The following table sets forth, as of September 30, 1996, the beneficial
ownership of Common Stock by (i) each of the Company's current directors and
officers, (ii) all person who have committed to vote their shares in favor of
the Proposal; and (iii) the three persons nominated to become directors of the
Company upon the closing of the Asset Sale. For all purposes of the calculations
set forth in the following table, the 4,500,000 shares of Common Stock issued on
September 6, 1996 pursuant to the terms of a letter agreement dated November 18,
1994 between the Company and certain investors, as amended by letter dated April
10, 1995 (see "Description of Business - Recent Events - Termination of Plan of
Reorganization, Issuance of Shares and Line of Credit") to Messrs. Jerry Feldman
(100,000), Stanley Kaplan (1,083,333), Lawrence E. Kaplan (1,083,333), Robert M.
Rubin (1,483,334) and Bernard Tessler (750,000), have been included as issued
and outstanding.
Amount and Nature
of Beneficial Percentage of Common
Name and Address Ownership(1) Stock Outstanding
- ---------------- ------------ -----------------
Fred Jaroslow 1,178,888 9.2%
22 Manhasset Avenue
Port Washington, NY 11050
Michael Astor 498,400 3.9%
22 Manhasset Avenue
Port Washington, NY 11050
Susan Astor 543,400 4.3%
22 Manhasset Avenue
Port Washington, NY 11050
Lawrence E. Kaplan (4) 1,094,444 8.6%
150 Motor Parkway
Suite 311
Hauppauge, NY 11788
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Amount and Nature
of Beneficial Percentage of Common
Name and Address Ownership(1) Stock Outstanding
- ---------------- ------------ -----------------
Robert M. Rubin (4) 2,923,334(2)(3) 22.9%
6060 Kings Gate Circle
Delray Beach, FL 33484
Alan Goldberg 643,638 5.0%
170 Fifth Avenue, 6th Flr.
New York, New York 10010
Stanley Kaplan 1,083,333 8.6%
150 Motor Parkway
Suite 311
Hauppauge, NY 11788
Mark Levine 643,638 5.0%
170 Fifth Avenue, 6th Flr.
New York, New York 10010
Bernard Tessler 750,000 5.9%
22 Manhasset Avenue
Port Washington, NY 11050
Alfred Romano (4) 11,111 .09%
4 Wagon Wheel Lane
Dix Hills, NY 11746
- ----------
(1) Except as otherwise indicated, the beneficial owners listed here have sole
voting and investment power, subject to community property laws where
applicable, as to all of the shares listed as beneficially owned by them.
As of the date of this Information Statement, there were 12,762,910 shares
of Common Stock outstanding. The numbers set forth in the table do not give
effect to the grant in March 1991 of options to purchase shares of the
Company's Common Stock pursuant to the Company's 1989 Incentive Stock
Option Plan. At such time, Mr. Jaroslow, Mr. Astor and Ms. Astor were
granted 100,000, 50,000 and 50,000 shares, respectively, of such options.
All such options became exercisable in December 1993 at $.8938 per share.
The number also does not give effect to the grant in January 1994 of
options, exercisable beginning in 1996, to purchase an aggregate of 362,500
shares to Messrs. Jaroslow and Astor, and Ms. Astor was granted options to
purchase 100,000 shares of Common Stock
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at $.344 per share and Mr. Astor and Ms. Astor were each granted options to
purchase 131,250 shares of Common Stock as $.3125 per share. All of such
options granted shall terminate upon the closing at the Asset Sale.
(2) Includes 200,000 shares of Common Stock issued by the Company to Mr. Rubin
in consideration of a Loan Facility Agreement dated November 16, 1988, as
amended, under which Mr. Rubin agreed to loan the Company up to $500,000
until May 31, 1990, and 200,000 shares of Common Stock issued to Palmer &
Moore Ltd., a corporation controlled by Mr. Rubin, in consideration for
services to be performed by Palmer & Moore Ltd. under a Consulting
Agreement dated December 16, 1991.
(3) Includes 200,000 shares of Common Stock issued by the Company to Mr. Rubin
in consideration of his purchase of a Revolving 10% Promissory Note dated
January 19, 1994, under which (i) Mr. Rubin agreed to loan the Company
$100,000 and (ii) Mr. Rubin and the Company established a revolving line of
credit enabling the Company to borrow up to an additional $100,000 upon the
occurrence of certain events.
(4) Nominee to serve as a director upon the closing of the Asset Sale.
THE PROPOSAL
Despite the best efforts of management to reduce costs by significantly
decreasing the number of locations in operation, during the fiscal year ended
November 30, 1995, the Company sustained losses from operations of $584,110 and
such losses continued for the first three fiscal quarters of 1996 in the
aggregate amount of $89,746. As the Company has been unable to raise the
required capital to continue its business in its present form, the Company has
decided to divest all of its operations and has agreed to sell all of its
assets. As a result, the Company is accounting for the historical results of the
business as discontinued operations.
BACKGROUND
On April 14, 1995, the Company entered into an Asset Purchase Agreement
(the "Agreement") with Michael Astor (who, along with his wife, Susan Astor,
comprise all of the current officers and members of the Board of Directors of
the Company), pursuant to which an entity to be formed by Mr. and Mrs. Astor
agreed to acquire all of the assets and properties of the Company, including,
without limitation, all copyrights, trademarks, trade names (including the name
"Playorena"), accounts receivable, equipment, inventory, cash and cash
equivalents, in exchange for the assumption of certain liabilities of the
Company and the transfer to the Company of 1,041,800 shares of Common Stock of
the Company, representing all of the Common Stock of the Company owned by Mr.
and Mrs. Astor. Upon the closing of the Asset Sale, all of the shares of Common
Stock to be received from Mr. & Mrs. Astor will be reissued to Messrs. Rubin,
Kaplan, Kaplan and Jaroslow in partial repayment for loans made to the Company.
The assets to be transferred and the liabilities to be assumed had an
approximate value of $276,992 and $584,805, respectively, at November 30,
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1995 and $202,018 and $543,492 respectively at August 31, 1996. The Asset
Purchase Agreement is included as a part of this Information Statement as
Exhibit 1 hereto. Obtaining the approval of the holders of not less than 66 2/3%
of the issued and outstanding shares of capital stock of the Company is a
condition precedent to the closing of the Asset Sale contemplated by the
Agreement.
The terms of the Agreement were negotiated on behalf of the Company by
Robert M. Rubin commencing in April, 1995. Mr. Rubin owns 2,923,332 shares of
Common Stock of the Company, representing 22.9% of the issued and outstanding
shares of Common Stock. In addition, in consideration for a loan made to the
Company by Mr. Rubin in January 1994 and due in September 1995, Mr. Rubin was
granted a first priority security interest in all of the assets of the Company.
As the Company does not presently have the resources to repay the $200,000
principal amount of the secured loan to Mr. Rubin, since September 30, 1995 Mr.
Rubin has had the right to foreclose on his security interest in all of the
assets of the Company. (See "Description of Business - Recent Events - Loan to
the Company.") Pursuant to the terms of the Agreement, Mr. Rubin will be
required, as the Company's only secured creditor, to release his security
interest so that Mr. Astor, or his designee, will obtain title to the Company's
assets free and clear of any liens or encumbrances.
The Agreement specifically provides that the Company shall retain "all
claims for tax refunds, tax loss carry forwards or carrybacks or tax credits of
any kind" applicable to the Company's business prior to the closing of the Asset
Sale. As of November 30, 1995, the Company had net operating loss carry forwards
of approximately $4,900,000 that expire between 1998 and 2009, and investment
tax credit carry forwards of approximately $16,000, which expire in 1998.
Without future profits by the Company, such tax losses are of limited or no
value. The Agreement further specifies that the following liabilities will not
be assumed by the acquiring entity:
(i) liabilities owed to certain affiliates of the Company, including Mr.
Rubin, estimated to be $878,333 in the aggregate (including $143,333 loaned to
the Company since January 1995);
(ii) liabilities owed to Solomon & Moskowitz, P.C. and certain other
professionals who have provided services to the Company, estimated to be $40,000
aggregate;
(iii) amounts owed to the Company's transfer agent and to Standard and
Poors, estimated to be $6,600 in the aggregate;
(iv) claims made against the Company by shareholders of the Company, none
of which are presently pending or threatened;
(v) certain fees incurred in connection with compliance with applicable
securities laws, presently estimated to be approximately $20,000; and
(vi) all liabilities and obligations of the Company arising after the
closing of the Asset Sale.
5
<PAGE>
The financial statements included in this Information Statement for the
fiscal quarter ended as of August 31, 1996 indicate that the Company had
negative working capital of $1,480,462 as of such date and cash flow from
operations of $37,269 for such nine month period. Based upon the proposed
structure of the transaction set forth in the Agreement, immediately following
the closing of the Asset Sale the Company will have no assets or business but
will retain liabilities estimated to be $875,333, plus possible liabilities with
respect to certain heretofore unasserted claims against the Company. In light of
the fact that subsequent to the closing the Company will not have any business
or assets with which to generate revenue, the Company will not have any means to
satisfy such liabilities or obligations unless and until the Company is able to
raise additional capital or acquire a profitable business. The Company does not
presently have any such plans and there can be no assurance that raising such
capital or acquiring a new business will be possible. If such capital should
become available or such a business should be offered to the Company, the
acquisition is likely to result in immediate and substantial dilution to the
shareholders of the Company.
Although the Agreement provides for the assumption by the acquiring entity
and, indirectly, by Mr. Astor personally, of significant liabilities of the
Company, the Company will remain contingently responsible for the satisfaction
of such liabilities and there can be no assurance that such liabilities will be
satisfied. The acquiring entity will be formed by Mr. and Mrs. Astor for the
purpose of acquiring the Playorena assets and continuing the business on a
significantly smaller scale. Neither the acquiring entity nor Mr. Astor will
have sufficient resources to satisfy all of the liabilities to be assumed.
In order to afford the Company the flexibility to attempt to raise
additional capital and/or acquire another business subsequent to the Asset Sale,
management believes that it would be in the Company's best interest to reverse
split the 15,000,000 shares of Common Stock to be outstanding immediately
subsequent to the Asset Sale (including 3,278,890 pre-split shares to be issued
to Messrs. Rubin, Kaplan, Kaplan and Jaroslow simultaneous with the closing, of
which 1,041,800 will be the shares to be received from Mr. and Mrs. Astor) on a
20 shares for one share basis so that the number of shares of Common Stock
outstanding immediately subsequent to the reverse stock split will be 750,000.
Increasing the number of authorized shares will insure that authorized but
unissued shares will be available for stock dividends or stock splits, possible
acquisitions, financings, stock option or purchase plans and other corporate
purposes in the future, without the necessity of further shareholder action at
the time. The Board of Directors will be authorized to issue the additional
shares of Common Stock without the further approval of the shareholders and upon
such terms and at such times as it may determine. Holders of the Common Stock
have no preemptive rights to subscribe to such shares. The Company has no
present understandings, agreements, plans or commitments that would involve the
issuance of additional shares of Common Stock.
The Board of Directors of the Company is presently comprised of Mr. Michael
Astor and Mrs. Susan Astor, husband and wife. As the Agreement contemplates the
resignation of Mr. and Mrs. Astor as officers and directors of the Company
effective upon the closing of the Asset Sale, the Board of Directors, in
consultation with Mr. Rubin, has nominated Messrs. Rubin, Lawrence E.
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Kaplan and Alfred Romano as directors of the Company to serve from the date of
the closing of the Asset Sale until their successors shall be duly elected and
qualified. Messrs. Kaplan and Rubin were originally elected to the Board of
Directors on October 26, 1994 pursuant to the terms of a letter agreement
concerning a proposed merger of the Company. (See "Description of Business -
Recent Events - Termination of Plan of Reorganization, Issuance of Shares and
Line of Credit.") When the contemplated merger was subsequently abandoned,
Messrs. Kaplan and Rubin resigned as directors on March 27, 1995. Additional
information about the persons nominated to serve as directors of the Company is
set forth under "Management."
In light of its decision to divest all of its operations, the Company is
accounting for the historical results of the business as discontinued
operations.
In light of the fact that the Agreement concerns the sale of assets to an
entity controlled by the current directors of the Company, the Board of
Directors had originally relied upon Mr. Rubin, a controlling shareholder of the
Company, to negotiate the transaction on behalf of the Company and the
shareholders. The Board of Directors subsequently adopted a resolution ratifying
the actions of Mr. Rubin and authorizing the execution of the Agreement by Mr.
Astor, as Vice President, and the recommendation of the sale to the
shareholders. The Board of Directors has not retained an independent financial
advisor to pass upon the fairness of the Agreement. Consummation of the Asset
Sale does not require satisfaction of any Federal or state regulatory
requirements or for the Company to obtain any government approvals.
MARKET FOR COMMON EQUITY AND
RELATED SHAREHOLDER MATTERS
The Company's Common Stock is traded in the over-the-counter market. Price
quotations are available through the OTC Bulletin Board, an electronic
screen-based service of the National Association of Securities Dealers, Inc.
("NASD"). The quotation of the Common Stock on the OTC Bulletin Board does not
assure that a meaningful, consistent and liquid trading market for such
securities currently exists and, in fact, management believes that at the
present time such a market does not exist. The Asset Sale will not affect the
Company's inclusion on the OTC Bulletin Board.
The Company's Common Stock and Warrants were originally quoted on the
NASDAQ system (known as the "NASDAQ Stock Market") upon the closing of the
Initial Public Offering on March 30, 1990. However, beginning in December 1992,
such securities were no longer eligible for quotation on the NASDAQ Stock Market
due to the Company's inability to meet certain then newly established criteria
imposed by the NASD for continued inclusion in the NASDAQ Stock Market.
Specifically, the Company did not meet the requirement of shareholders' equity
of $1,000,000.
Upon the NASD's determination of the Company's ineligibility, the Company's
securities began quotation on the OTC Bulletin Board. Quotation on the OTC
Bulletin Board has had a substantial negative effect on the liquidity of the
market for the Company's securities and, consequently, the
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price at which such securities are quoted. The Company's Warrants expired on
January 16, 1996 and, consequently, were delisted from the OTC Bulletin Board on
February 20, 1996.
On September 24, 1996, the quoted bid price of the Company's Common Stock
was $.001 and the asked price was $.05 per share. On the day immediately
preceding the Company's public announcement of its intention to proceed with the
Asset Sale, the quoted bid price of the Company's Common Stock was $.001 and the
asked price was $.05 per share.
The following tables set forth the high and low closing bid and ask
quotations for the first two fiscal quarters of 1996 and for each fiscal quarter
of 1995, 1994 and 1993, with respect to the Common Stock and Warrants as
reported by NASD and quoted on the NASDAQ Stock Market. The prices shown in the
tables reflect inter-dealer prices, and do not include retail mark-up, mark-down
or commissions, and may not represent actual transactions. The Company has not
paid cash dividends on its Common Stock.
As of November 30, 1995, there were approximately 56 holders of record and
the Company believes that there are in excess of 700 beneficial holders of the
Common Stock.
Common Stock,
.001 par value
Bid Ask
------------ -----------
Period High Low High Low
- ------ ---- --- ---- ---
1996
- ----
First Quarter $.001 $.001 $.05 $.05
(December 1995
through February)
Second Quarter $.001 $.001 $.05 $.05
(March through May)
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1995
- ----
First Quarter .125 .01 .5 .06
(December 1994
through February)
Second Quarter .02 .01 .10 .06
(March through May)
Third Quarter .02 .01 .10 .05
(June through August)
Fourth Quarter
(September through
November)
1994
- ----
First Quarter .25 .01 .625 .25
(December 1993
though February)
Second Quarter .3125 .0625 .625 .375
(March through May)
Third Quarter .125 .0625 .625 .375
(June through August)
Fourth Quarter .125 .0625 .5 .25
(September
through November)
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1993
- ----
First Quarter* .625 .0625 1.5 .1875
(December 1992
through February)
Second Quarter .3125 .125 .625 .4375
(March through May)
Third Quarter .25 .0625 .625 .3125
(June through August)
Fourth Quarter .25 .0625 .625 .25
(September
through November)
Warrants
Closing Bid Closing Ask
----------- -----------
Period High Low High Low
- ------ ---- --- ---- ---
1996
- ----
First Quarter $.01 $.001 $.20 $.02
(December 1995
through
February 20, 1996)
- ----------
* Reflects quotations on the NASDAQ Stock Market, for which the Company's
securities are no longer eligible for quotation. The Company's Common Stock is
currently quoted on the OTC Bulletin Board, resulting in a substantial negative
effect on the price at which such securities are quoted.
10
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1995
- ----
First Quarter
(December 1994
through February) .01 .001 .20 .02
Second Quarter .001 .001 .05 .02
(March through May)
Third Quarter .001 .001 .05 .02
(June through August)
1994
- ----
First Quarter
(December 1993
through February) .3125 .02 .21875 .10
Second Quarter .0625 .01 .52 .10
(March through May)
Third Quarter .03125 .005 .20 .10
(June through August)
Fourth Quarter .01 .005 .20 .05
(September through
November)
1993
- ----
First Quarter* .0625 .01 .25 .10
(December 1992
through February)
Second Quarter .03125 .02 .21875 .10
(March through May)
- --------
* Reflects quotations on the NASDAQ Stock Market, for which the Company's
securities are no longer eligible for quotation. The Company's securities are
currently quoted on the OTC Bulletin Board, resulting in a substantial negative
effect on the price at which such securities are quoted.
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Third Quarter .03125 .02 .21875 .10
(June through August)
Fourth Quarter .03125 .02 .21875 .10
(September
through November)
CAPITALIZATION
The following table sets forth as of August 31, 1996, the capitalization of
the Company on a historical basis and as adjusted to reflect the sale of the
Company's assets and the recapitalization, all as if the closing of the Asset
Sale had taken place on August 31, 1996.
PLAYORENA INC.
PRO FORMA CAPITALIZATION
August 31, 1996 (unaudited)
ACTUAL PRO FORMA
------ ---------
SHAREHOLDERS' DEFICIENCY
Common Stock, $.001 par value; 15,000,000
Shares Authorized, 8,262,910 Shares
Outstanding (actual) and 750,000 Shares
Outstanding (pro forma)
(1) (2) (4) (5) $ 8,263 $ 750
Additional Paid-in Capital (2) (3) (4) $ 4,089,783 $ 4,285,629
Accumulated Deficit (2) ($5,578,508) ($ 5,282,034)
Total Shareholders' Deficiency (6) ($1,480,462) ($ 995,655)
(1) 8,262,910 shares of common stock were outstanding as of May 31, 1996 and
750,000 shares of common stock will be outstanding after consummation of
the transactions referred to above giving effect to a reverse split
immediately subsequent to the asset sale of one share for every 20 shares
held.
(2) The "pro forma" amount gives effect to a $45,000 valuation of the 4,500,000
shares of common stock issued on September 6, 1996 pursuant to the Letter
Agreement dated November 18, 1994.
(3) The "pro forma" amount reflects the recognition of a gain of $163,620,
which represents the amount the liabilities to be assumed exceed the assets
to be disposed of in the Asset Sale.
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(4) The "pro forma" amount is adjusted to reflect, as part of the closing, all
shares of common stock owned by Michael and Susan Astor.
(5) The "pro forma" amount is adjusted to reflect the issuance of 3,278,890
pre-split shares to be issued at the closing of the Asset Sale to those
individuals who infused capital into the Company from January 1995 to March
1995.
(6) Assumes that all of the liabilities to be assumed by the acquiring entity
will be satisfied, of which there can be no assurance. If such liabilities
are not satisfied, the Company will remain contingently responsible for
such liabilities and the Total Shareholders' Deficiency would be
$1,539,144.
PRO FORMA BALANCE SHEET
The following Pro Forma Balance Sheet and explanatory notes are presented
to show the pro forma effect of the Asset Sale on the Company's historical
balance sheet as if the sale had taken place on August 31, 1996. It assumes that
all of the liabilities to be assumed by the acquiring entity will be satisfied,
of which there can be no assurance. If such liabilities are not satisfied, the
Company will remain contingently responsible for such liabilities and the
Current Liabilities would be $1,571,745 and the Total Shareholders' Deficiency
would be $1,539,144.
Current Assets:
Cash $ 32,598
----------
Total Assets $32,598
==========
Current Liabilities:
Current portion of loans payable $ 732,000
Accrued expenses 296,253
----------
Total Current Liabilities 1,028,253
Shareholders' Deficiency:
Common Stock, $.001 par value;
15,000,000 Shares Authorized, 750,000 Shares
Issued and Outstanding 750
Additional Paid-in Capital 4,285,629
Accumulated Deficit (5,282,034)
----------
Total Shareholders' Deficiency (995,655)
----------
Total Liabilities and Shareholders' Deficiency $ 32,598
==========
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF PLAN OF OPERATION
In light of the fact that the Company has decided to divest all of its
operations and has agreed to sell all of its assets pursuant to the Agreement,
the Company is accounting for the historical results of the business as
discontinued operations. In this regard, the following discussion and analysis
presents a general, overall financial summary of the discontinued operations,
rather than a detailed discussion of the results of operations to be disposed of
in the near future. As presented in the Company's recast financial statements,
certain expenses, consisting of minimal general and administrative expenses and
debt service costs have been evaluated to be expenses attributable to the
continuing entity after consideration of the divestiture of operations.
The following discussion and analysis should be read in conjunction with
the Financial Statements and Notes thereto appearing elsewhere in this
Information Statement.
Results of Operations -
Comparison of Fiscal 1995 and Fiscal 1994
During the fiscal year ended November 30, 1995, revenues of the
discontinued business decreased to $453,458 from $1,006,060 in fiscal 1994. This
represents a 55% decrease in revenues, and reflects the Company's closing of 42
centers between November 30, 1994 to November 30, 1995. Losses from discontinued
operations decreased from $728,000 to $474,000, reflecting the reduced cost
demands of the decreased level of the Company's activity.
The Company significantly decreased the number of locations for the Spring,
Summer and Fall 1995 sessions while actively seeking alternative outlets for its
programs. The Company operated only six locations in the Spring 1995 session and
nine locations in the Fall 1995 session and as result, registration fee income
decreased to $36,792 for the Spring 1995 session as compared to $237,990 for
Spring 1994.
Results of Operations -
Comparison of Fiscal 1994 and Fiscal 1993
During the fiscal year ended November 30, 1994, participant registration
fees decreased $435,226 or 32.1% to $919,170 from $1,354,396 in fiscal 1993.
Revenues for fiscal 1994 decreased $423,854 or 29.6% to $1,006,060 from
$1,429,914 for fiscal 1993. In fiscal 1994 the Company again attempted to reduce
its overhead costs while fees charged were increased. Notwithstanding this
effort, the Company's results of operations continued to be affected through
1993 and 1994 by the downturn in consumer confidence and attitude toward
spending generally which began to affect the Company's revenues in the fourth
quarter of fiscal 1991. During fiscal 1994 the Company
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continued its efforts to control losses by reducing the number of Company-owned
locations, marketing expenses, personnel, and general and administrative
overhead costs ("G&A").
While direct center operating costs declined from $868,447 in 1993 to
$684,842 in 1994, the percentage of direct operating costs to revenue increased
from 60.7% in 1993 to 68.1% in 1994. This increase was largely a result of a
significant decline in enrollment in the Winter 1994 session due to repeated
snowfall. While management attempted additional cut backs and closed three
management areas for the Fall 1994 session, it was unable to compensate for the
unprecedented weather and consequent enrollment decline.
Although marketing costs were reduced by $39,225 from $336,887 in 1993 to
$297,662 in 1994, the percentage of marketing expense to revenue increased from
23.6% in 1993 to 29.6% in 1994. A large part of the marketing expense in 1994
was in direct mail for the Winter 1994 session. Due to the inclement weather
conditions, results were considerably weaker than projected.
During fiscal 1994, among other actions taken, management undertook to
improve profitability by additional closing of marginal centers and management
areas. Notwithstanding these efforts, however, the effects of the economic
recession (especially in the New York metropolitan area), unprecedented snowfall
and increased competition, had an overriding effect on the Company's result of
operations.
The Company significantly decreased the number of locations for the Spring,
Summer and Fall 1995 sessions while actively seeking alternative outlets for its
programs. The Company operated only six locations in the Spring 1995 session and
is now operating nine locations for the Fall 1995 session and as a result,
registration fee income decreased to $36,792 for the Spring 1995 session as
compared to $237,990 for Spring 1994. Management believes that the Playorena
program would function more profitably as part of a retail, day-care or other
environment that works with the same population, however, the Company has been
unable to secure a foothold in any such environment.
Results of Operations -
Comparison of Fiscal 1993 and Fiscal 1992
During the fiscal year ended November 30, 1993, participant registration
fees decreased $468,647 or 25.7% to $1,354,396 from $1,823,043 in fiscal 1992.
Revenues for fiscal 1993 decreased $564,171 or 28.3% to $1,429,914 from
$1,994,085 for fiscal 1992. In fiscal 1993 the Company attempted to reduce its
overhead costs while fees charged were increased. Notwithstanding this effort,
the Company's results of operations continued to be affected through 1992 and
1993 by the downturn in consumer confidence and attitude toward spending
generally which began to affect the Company's revenues in the fourth quarter of
fiscal 1991. During fiscal 1993 the Company continued its efforts to control
losses by reducing G&A.
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During fiscal 1993, the total number of registrations was lower than fiscal
1992. Average enrollment per center continued to decline significantly. This
trend was evidenced during the Fall 1993 session during which average enrollment
per center was down to 53 from 65 during the Fall 1992 session. Direct center
operating costs represented approximately 64.1% of participant registration fees
in fiscal 1993 compared to 67.6% in fiscal 1992. This decrease was the result of
eliminating weaker locations in addition to other cost cutting measures.
In fiscals 1993 and 1992, the Company spent approximately 24.9% and 31.7%,
respectively, of participant registration fees on marketing, continuing a trend
of cost control begun in 1992.
G&A in fiscal 1993 decreased $204,919 or 20.5% to $793,683 from $998,602 in
fiscal 1992. Notwithstanding this significant decrease, G&A as a percentage of
total revenues increased from 50.1% in fiscal 1992 to 55.5% in fiscal 1993 due
to the decrease in total revenues.
During fiscal 1993, among other actions taken, management undertook to
improve profitability by closing additional marginal centers and by moving its
central offices to decrease rent and storage expense. Notwithstanding these
efforts, however, the effects of the economic recession (especially in the New
York metropolitan area) and increased competition, had an overriding negative
effect on the Company's result of operations.
Liquidity and Capital Resources
At November 30, 1995, the Company had a working capital deficit of
$1,390,716 compared to $1,177,911 at November 30, 1994. In its operation of the
discontinued operations, management has attempted to reverse this downward trend
by significantly decreasing the number of Company owned centers in operation,
implementing staff reductions and seeking additional capital for the placement
of Playorena programs in alternative outlets. The Company has not been
successful in obtaining any additional capital.
Management's Plan of Operation
Current management, which has executed the Agreement to acquire the
Company's discontinued operations, continues to believe that the Playorena
program would operate more profitably within a different environment than it has
operated in the past. Specifically, management feels that operating the program
as part of an existing childrens retail outlet or day-care center would enable
the program to interface promotionally as well as providing mutually beneficial
services. With fixed and established locations providing a more conducive
environment and greater visibility, management believes that enrollments in the
Playorena program could be expanded with reduced operating and marketing costs.
Although management has actively sought such outlets, the program has not yet
been tested in any such environment and there can be no assurance that the
program would work as contemplated or that any such outlets would be interested
in participating.
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DESCRIPTION OF BUSINESS
Playorena Inc. was incorporated in the State of New York in 1981 and owns
and operates centers that offer recreational play and exercise programs for
children between three months and four years of age. The Company was founded by
Susan Astor based upon a similar program developed, in substantial part, by Ms.
Astor at a community center in Marin County, California in 1974. The programs
bring together children and their parents in recreational activities organized
according to developmental stages providing children an opportunity to practice
age-appropriate skills through play and providing an opportunity for a positive
social experience for parents.
Recent Events
Loan to the Company
On January 19, 1994, the Company executed and delivered to Robert M. Rubin
a Revolving 10% Promissory Note in the principal amount of $200,000 (the "Note")
pursuant to which the Company had borrowed as of February 18, 1994 the maximum
aggregate principal amount of $200,000. The loan is secured by a continuing
security interest in all of the assets of Playorena.
Advances made pursuant to the Note were due on September 30, 1995 and were
not paid . The Company does not at the present time have the resources to repay
the Note and Mr. Rubin has the right to foreclose on his security interest in
all of the assets of the Company. In consideration of the loan and credit
facility provided by Mr. Rubin, the Company issued 200,000 shares of the
Company's Common Stock to Mr. Rubin.
Private Placement of Equity and Debt
In May 1994, the Company commenced and completed a private placement of
five units, each unit consisting of 22,222 shares of the Company's Common Stock
and a promissory note in the principal amount of $50,000, bearing interest at
the rate of ten percent per annum, with principal and interest due on September
30, 1995. As each of the units were sold by the Company for $50,000, the Company
derived an aggregate of $250,000 from the private placement. With the exception
of one-half of one unit acquired by Lawrence E. Kaplan, a nominee to be elected
as director of the Company, all of the units were acquired by unaffiliated
persons. The promissory notes were not repaid and the Company does not at the
present time have the resources to repay the promissory notes.
Termination of Plan of Reorganization, Issuance of Shares and Line of
Credit
As a condition to Mr. Rubin's agreement to make the above described loan to
the Company, on April 13, 1994 the Company entered into an Agreement and Plan of
Reorganization (the "Reorganization Agreement") with Kids 'N Things, Inc., a
newly formed Delaware corporation wholly-owned by Mr. Rubin, Bernard Tessler and
Jerome Feldman and formed for the sole purpose
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of facilitating the merger ("Kids 'N Things"). In accordance with the terms of
the Reorganization Agreement, Alan Goldberg, Kent Q. Kreh, Mark Levine and
Richard A. Samber resigned as directors of the Company and Bernard Tessler,
Philip Baird and Louis Horvitz were appointed to the Board as designees of Kids
'N Things.
Pursuant to the terms of a letter agreement dated November 18, 1994 (the
"Letter Agreement") among the Company and each of Michael Astor, Susan Astor and
Fred Jaroslow, in their individual capacities, and Lawrence E. Kaplan, Stanley
Kaplan and Mr. Rubin (the "Investors"), the Company agreed to: (i) cause the
Board of Directors of each of the Company and Kid 'N Things to terminate the
Reorganization Agreement; (ii) issue 1,500,000 shares of Common Stock to Bernard
Tessler in consideration of the payment of $2,000 and past services rendered to
the Company (reduced to 750,000 shares in April 1995); (iii) elect each of
Messrs. Lawrence E. Kaplan, Rubin and Andrew Kaplan (the son of Stanley Kaplan)
to fill three vacancies on the Board of Directors caused by the resignations of
Messrs. Tessler, Baird and Horvitz; (iv) issue an aggregate of 100,000 shares of
Common Stock to Jerry Feldman in consideration of the payment of $100 and past
services rendered to the Company, (v) issue an aggregate of 3,250,000 shares of
Common Stock to Messrs. Andrew Kaplan (as Stanley Kaplan's designee), Lawrence
E. Kaplan and Rubin in consideration of the payment of an aggregate of $4,200,
past financial consulting services rendered and the joint and several agreement
among the Investors to make available to the Company a $275,000 line of credit
(the "Line of Credit"); and (vi) issue 400,000 shares of Common Stock to Mr.
Rubin in consideration of the payment of $400 and his agreement to waive any and
all defaults by Playorena to make current interest payments through the maturity
date arising under the Note. Issuance of the 4,500,000 shares required to be
issued pursuant to the Letter Agreement will result in substantial dilution of
the interests of the current shareholders of the Company.
On October 26, 1994, Messrs. Lawrence E. Kaplan, Rubin and Andrew Kaplan
were elected to the Board of Directors. Each of Mr. and Mrs. Astor, the current
directors of the Company, agreed to vote to elect three designees of the
Investors to the Board of Directors of the Company until such time as the Line
of Credit is repaid or the Investors default on their obligations arising under
the Line of Credit. Each of the Investor's designees to serve on the Board of
Directors have agreed to resign upon the earlier of repayment of all outstanding
amounts of principal and accrued interest under the Line of Credit or a material
breach of the Line of Credit by any of the Investors, unless such designees have
previously been elected to the Board of Directors by vote of the Company's
shareholders. Messrs. Lawrence E. Kaplan, Rubin and Andrew Kaplan subsequently
resigned as directors and no replacements have as yet been designated by the
Investors.
The Letter Agreement establishing the Line of Credit provides that the
outstanding principal amount drawn down shall bear interest at the rate of 10%
per annum, with principal and interest due on September 30, 1995. To date, the
Company has borrowed the full amount available under the Line of Credit
($275,000). The Line of Credit was not repaid and the Company does not at the
present time have the resources to repay the Line of Credit.
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Management Agreement with Bernard Tessler
On November 9, 1993, the Company entered into a Management Agreement with
Bernard Tessler, as amended by a letter agreement dated January 20, 1994
(collectively, the "Management Agreement"), whereby the Company agreed to engage
Mr. Tessler to manage its business for a period of one year. In addition to the
fee payable to Mr. Tessler pursuant to the Management Agreement, the Company
agreed that in the event that the merger with Kids 'N Things was not completed
before February 28, 1995, the Company would issue an aggregate of 2,600,000
shares of Common Stock to Messrs. Tessler, Rubin and Feldman in recognition and
consideration of Mr. Tessler entering into and the services to be rendered
pursuant to the Management Agreement, the credit to be extended by Mr. Rubin
pursuant to the Note and the services to be rendered and costs to be incurred by
Messrs. Tessler, Rubin and Feldman in connection with the merger. Pursuant to
the terms of the Letter Agreement, the Company and Mr. Tessler agreed to
terminate the Management Agreement, thereby relieving the Company of any future
obligation to issue any shares thereunder. Mr. Tessler and the Company further
agreed to enter into a Consulting Agreement effective January 1, 1995, pursuant
to which Mr. Tessler agreed to provide consulting services during 75% of his
full working time for a fee of $75,000 per annum through February 28, 1995 and
to provide consulting services during 20% of his full working time for a fee of
$25,000 per annum from March 1, 1995 through December 31, 1997. In April 1995,
Mr. Tessler agreed to release the Company from all payment obligations arising
under the Consulting Agreement in consideration for a payment of $6,200.
Additional Loans from Affiliates of the Company
In February and March 1995, the Company received loans in the aggregate
amount of $143,333 from three investors and the father of a principal
shareholder of the Company: (i) Lawrence E. Kaplan - $20,416; (ii) Stanley
Kaplan (the father of Andrew Kaplan) - $20,416; (iii) Fred Jaroslow - $40,500;
and (iv) Robert Rubin - $62,000. The lenders have agreed to accept an aggregate
of 3,278,890 (163,945 shares subsequent to the reverse stock split) shares of
Common Stock as payment in full for such loans. Such shares will be issued
simultaneous upon receipt of the shares to be delivered to the Company by Mr.
and Mrs. Astor.
Operation to be Discontinued
The Playorena Centers
The Company opened its first two centers in 1982 and, as of November 30,
1995, operated nine centers in New York, a decrease of 42 centers from November
30, 1994. Revenues from classroom fees generated by Company-owned centers were
$410,743 in fiscal 1995, representing a decrease of $508,427 from classroom fees
generated in fiscal 1994.
In addition to the nine Company-operated centers, the Company began a
franchise sales program in December 1984 and has sold franchises for the
operation of 28 centers, 16 of which are
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now being operated by seven franchisees -- six in New York, five in New Jersey,
four in Japan and one in Korea. Although such franchisees have been granted
licenses to operate 28 centers, there is no assurance that they will operate
that number. The initial franchise fee charged by the Company ranged from $7,000
to $14,000 per center. Thereafter each franchisee pays the Company a royalty fee
equal to 6% of gross sales. In addition, each franchisee may be required to pay
additional amounts to the Company for national advertising. In light of the
Company's belief that it was more economically advantageous to expand through
Company-owned centers, in 1989 the Company elected not to renew its franchise
registrations with the proper government authorities and is therefore unable to
offer additional franchises at this time.
During the past several months certain of the Company's current franchisees
have withheld required royalty payments asserting the Company has failed to
provide certain services. The Company estimates that the amounts being withheld
are between $10,000 and $15,000. Although management is discussing the
accusations with such franchisees in an attempt to resolve the dispute, the
Company does not believe that a significant amount of the royalty payments will
be collected. Upon the closing of the sale of the Company's assets to Mr. and
Mrs. Astor, the franchises will be transferred to the acquiring entity,
including the amounts owed to the Company by the franchisees.
The Playorena Program
The Playorena program is specifically designed to provide a positive
age-appropriate play and exercise environment for children from three months to
four years of age who are accompanied by a parent or guardian. Through a
combination of structured activities and play, each child's natural tendency to
explore and to develop physical and mental skills is encouraged. By providing
opportunities for successful experiences and adult approval, the Playorena
program is designed to foster self-esteem and a sense of accomplishment, and the
relaxed non-competitive atmosphere of the Playorena class can often serve as a
child's first socialization experience.
Each Playorena center appears as a brightly colored indoor playground and
is equipped with a variety of pieces of special, age-appropriate equipment such
as small slides, foam steps, barrels, tunnels, mini-climbers, bouncers, rocking
boats, mats, balls and foam inclines, all arranged in a pre-set format. Centers
are typically located in large rooms of at least 1,200 square feet rented from
religious organizations, community centers and other similar entities. The room
is typically rented on a per-diem basis and the equipment is stored on the
premises when not in use. As the Playorena program does not require any
renovations or improvements to be made to the room housing the center, and as
the rooms are typically rented on a per-diem basis, the Company has the ability
to relocate any center at a minimal cost. Historically, the Company has not
encountered any difficulties in locating suitable locations for its centers.
Each Playorena class is led and supervised by a "facilitator". Facilitators
are fully trained by the Company and are provided with a detailed manual which
describes each class for each developmental stage, includes a tape of songs used
in the program and sets forth other essential background material written and
reviewed specifically for the Playorena program. In addition, each
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child is accompanied by a parent or guardian. As such, the centers also serve as
a social activity for parents who are sharing similar experiences. In addition
to affording parents the opportunity to provide their children with positive
attention, the centers provide parents, especially mothers with their first
child who have changed their life styles after having a baby, with contact with
peers who have similar interests and concerns.
The Playorena program is sold by the Company as a series of 8 to 13 weekly
sessions which primarily operate in the Spring, Fall and Winter. All sessions
are paid for in advance upon enrollment and the Company accepts Visa and
MasterCard to facilitate payments. Classes are 45 minutes in length and each
center operates from one to three days per week, conducting between three and
eight classes per day. Class sizes are limited to a maximum of 20 children,
depending upon the size of the center, and are offered to four different
developmental stages at different class times. Each age group is offered
activities specifically designed to be appropriate for that stage of
development.
Since its inception, the Company and its franchisees have registered more
than 190,000 enrollments in its programs and during the fiscal year ended
November 30, 1994, the Company and its franchisees registered approximately
15,000 enrollments in its programs. During its last two sessions ( Winter 1995
and Spring 1995) the Company's selected 51 centers averaged an enrollment of
approximately 43 children per session, a decrease of 4 children per session from
1994 when the Company was operating 77 centers. An "enrollment" is one child's
participation in one 8 to 13 week session. Children who participate in more than
one session per year are counted as more than one "enrollment" during such year.
Since September 1991, the Company has experienced a decline in the average
number of enrollments per center and believes that such a decline is
attributable to the continuing economic downturn in the New York metropolitan
area and increased competition. The Company cannot predict how long this decline
will continue.
Marketing
In fiscal 1994, the Company spent 32.4% of participant registration fees on
marketing expenses. The majority of the amounts spent was for direct mail. Other
media efforts have included local newspaper advertisements. With respect to
fiscal 1995, in light of the discontinued operations accounting treatment as
presented in the Company's recast financial statements, only certain expenses,
consisting of minimal general and administrative expenses and debt service costs
have been evaluated. Such expenses have been evaluated as expenses attributable
to the continuing entity after consideration of the divestiture of operations.
Operating Controls and Procedures
For purposes of management and marketing, the Company had previously
implemented a system whereby the centers outside of the New York metropolitan
area were grouped in clusters of
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up to 8 centers, each of which was supervised by a local manager.
Franchisee-operated centers were not included in the clusters. Local managers
typically operated out of their homes using a telephone installed at the
Company's expense. Their primary responsibilities included locating potential
centers, hiring and training facilitators and processing registrations which
were forwarded to the main office. This program was terminated in Spring 1995.
Competition
The Company's major competitor in the exercise/play program market is
Gymboree Corp. ("Gymboree"), a publicly traded company. Although Playorena and
Gymboree evolved directly from the prototype developed, in substantial part, by
Ms. Astor, Gymboree has been operating for approximately five years longer than
the Company and is substantially larger with greater resources. Both Gymboree
and Playorena are similar in concept, purpose and pricing. Playorena's programs
are currently operating in several of the same markets in which Gymboree
operates. In addition, new indoor exercise/play centers have recently been
established by various operators which provide classes for a wider age range
than that for which the Company provides and allows participants to "drop in"
for individual programs without making a commitment for a full session. Such
centers have begun to create some competition for the Company. Other small
companies and local organizations such as YMCA programs, church-affiliated or
non-profit groups also compete with the Company as part of their overall
programs. Management believes that the Company competes by offering a trained
facilitator and a professionally-planned and specialized program in
well-equipped facilities.
Trademarks
The Company registered the trademarks "Playorena" in 1984 and "Playercise"
in 1986, in the principal register of the United States Patent and Trademark
Office. A federally-registered trademark is effective for 20 years and may be
renewed for additional terms of 20 years subject only to continued use by the
registrant. A federally-registered trademark provides presumption of ownership
of the mark by the registrant in connection with its goods and services and is
constructive notice throughout the United States of such ownership. The Company
has also received, or applied for, registrations of such trademarks for various
categories of uses in Japan.
Insurance
The Company's insurance coverage currently includes the following types of
policies: property; general liability and medical payments; excess umbrella
liability; workers compensation; New York disability benefits and group life and
medical. The liability policy includes a medical payment provision for accidents
which applies to each child enrolled in a program and is subject to various
limits. There can be no assurance that claims in excess of or not included
within the Company's coverage will not be asserted.
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Employees
In addition to the Company's two executive officers, the Company currently
employs a registrar and 14 part-time facilitators working at the Company's nine
centers.
Each class is conducted by a trained facilitator. Facilitators are
recruited through newspaper advertisements and are typically former teachers who
desire a part-time position. None of the Company's employees is represented by a
union or collective bargaining unit and the Company believes that its relations
with its employees are good.
Government Regulation
Although the Company's current exercise/play programs are not currently
subject to government regulations, it is possible that government regulations
will be enacted in the future that will subject the Company's present operations
to regulations or standards.
Initial Public Offering
On March 30, 1990, the Company completed an initial public offering (the
"Initial Public Offering") of 2,500,000 units, each unit consisting of one share
of Common Stock, par value $.001 per share, and one Common Stock Purchase
Warrant. (The Common Stock of the Company, par value $.001 per share, is
referred to herein as the "Common Stock" and the Common Stock Purchase Warrants
of the Company are referred to herein as the "Warrants"). The Warrants were
immediately separable and transferrable and originally entitled the registered
holder thereof to purchase one share of Common Stock at a price of $1.25 per
share from such date until January 16, 1993. The Company extended the expiration
date of the Warrants to January 16, 1996, at which time the Warrants expired.
The Company received approximately $2,085,305 of net proceeds resulting
from the offering. Such proceeds were used to open additional centers in 1990
and 1991 and were also applied to repayment of indebtedness, marketing,
merchandise inventory and expenses incurred in connection with the Initial
Public Offering.
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MANAGEMENT
The present directors of the Company and nominees for election to the Board
of Directors, their ages, position held and business experience during the past
five years are as follows:
Year First
Name Age Position Elected
---- --- -------- ---------
Susan Astor (a) 46 President and Director 1981
Michael Astor (b) 51 Vice President, Chief 1983
Operating Officer, Chief
Financial Officer, Treasurer,
Secretary and Director
Lawrence E. Kaplan (c) 53 Nominee NA
Robert M. Rubin (d) 56 Nominee NA
Alfred Romano (e) 59 Nominee NA
(a) Susan Astor is one of the Company's co-founders and has been its President
since its organization in 1981. From 1974 to 1978 Ms. Astor developed
"kindergym", a parent/toddler program in Marin County, California, which
served as the prototype for the Company's program. In response to the
success of the "kindergym" program, in 1979 Ms. Astor co-authored a book
entitled "Gymboree: Giving Your Child Physical, Mental and Social
Confidence Through Play" with the founder of the Gymboree program. Ms.
Astor served as the Director of Preschool Camp at the Marin County Jewish
Community Center in 1974, taught at the Atypical Infant Center of Marin
County in 1973 and was Director of Outdoor Pre-School Programs at the Marin
County YMCA in 1972. Ms. Astor has been recognized as an innovator in the
toddler play program field, has made numerous appearances on national and
local television and has frequently been quoted on play programs in
newspaper and magazine articles. Ms. Astor was a director of the Company
from November, 1981 to October, 1990. Ms. Astor was again elected as a
director in August, 1993.
(b) Michael Astor is one of the Company's co-founders and became Chief
Operating Officer and Vice President of the Company in December 1983. Mr.
Astor, who is the husband of Susan Astor, was the principal owner and
President of Astor Sales, Inc., a company specializing in sales of private
label garment programs to clothing chain and department stores, from 1979
to 1984. From 1970 to 1979, Mr. Astor was a marriage, family and child
counselor in Marin County, California. Mr. Astor was a director of the
Company from November, 1981 to October, 1990. Mr. Astor was again elected
as a director in August, 1993.
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(c) Lawrence E. Kaplan became a director of the Company in October 1994 as a
condition of the Letter Agreement and resigned as a director on March 27,
1995. Since 1987, Mr. Kaplan has been an officer, director and principal
shareholder of Gro-Vest, Inc., an investment banking firm located on Long
Island, New York. He is also a registered representative, officer, director
and principal shareholder of G-V Capital Corp., and since January 1993, he
has been an officer, director and principal shareholder of Gro-Vest
Management. Mr. Kaplan is also an officer and director of Saratoga
Standardbreds, Inc. ("Saratoga"), a company that was engaged in the
standardbred horse industry until it instituted in 1989 a Chapter 11
proceeding under the Federal Bankruptcy Act. Since the completion of the
Chapter 11 proceeding in 1990, Saratoga has had no business operations, but
has been looking to acquire a business. Mr. Kaplan is also a director of
American United Global, Inc., an original equipment manufacturer for the
automotive industry, and NFS Services, Inc., a subsidiary of Walnut Capital
Corporation. Finally, Mr. Kaplan also serves as a director of Andover
Equities and The Park Group Ltd, both of which are "blank check" companies.
(d) Robert M. Rubin became a director of the Company in October 1994 as a
condition of the Letter Agreement and resigned as a director on March 27,
1995. Mr. Rubin is also a director, Chairman and minority stockholder of
Universal Self Care, Inc., a public company engaged in the sale of products
used by diabetics. Mr. Rubin was the founder, President, Chief Executive
Officer and a director of Superior Care, Inc. ("SCI") from its inception in
1976 until May 1986. Mr. Rubin continued as a director of SCI, now known as
Olsten Corporation ("Olsten"), until the latter part of 1987. Olsten, an
American Stock Exchange listed company, is engaged in providing home care
and institutional staffing services and health care management services.
Mr. Rubin is also a director, Chairman and minority stockholder of American
United Global, Inc. ("AUG"), a public company which, through its public
company subsidiary Western Power & Equipment Corp. ("Western"), engaged in
the distribution of construction equipment principally manufactured by Case
Corporation and, through its subsidiaries ConnectSoft Holding Corp.
("ConnectSoft") and eXodus Technologies, Inc. ("eXodus") is engaged in
providing communications software applications and services relating to the
Internet. Mr. Rubin serves as Chairman of the Board of Directors of
Western, the Chairman, CEO and Director of eXodus, and as a Director of
ConnectSoft. Mr. Rubin is also a director, Chairman and minority
stockholder of Response USA, Inc., a public company engaged in the sale and
distribution of electronic security and personal emergency response
systems; and of Orthopedic Technology, Inc., a public company engaged in
the design and manufacture of custom and off-the-shelf orthotic products
primarily for the sports medicine market.. Mr. Rubin is also a director of:
United Vision Group, Inc., a public company engaged in providing prepaid
optical plans and the operation of retail optical centers; Analytical
Nursing Management Corp., a public home health care deliverer in Baton
Rouge, Louisiana; ERD Waste Technology, Inc., a diversified waste
management company specializing in the management and disposal of municipal
solid waste, industrial and commercial non-hazardous waste and hazardous
waste: Help at Home, Inc., a home health care provider; Transcap Medical,
Inc. an insurance development
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company and Kaye Korrs Associates, Inc., a provider of tax preparation and
assistance services. Mr. Rubin is a former director and Vice Chairman, and
is currently a minority stockholder, of American Complex Care,
Incorporated, a public company formerly engaged in providing on-site health
care services, including intra-dermal infusion therapies. In March 1995,
American Complex Care, Incorporated's operating subsidiaries made
assignments of their assets for the benefit of creditors without resort to
bankruptcy proceedings.
(e) Alfred Romano, a nominee to become a director, has been the President,
director and sole shareholder of Pope Liquors, Inc. since 1964. Pope
Liquors operates a store engaged in the retail sale of alcoholic beverages.
During the fiscal year ended November 30, 1995, the Board of Directors held
one meeting at which all of the directors were present. Directors do not receive
compensation for their services in such capacity. The Board of Directors does
not presently have, and has not in the past had, any committees.
Identification of Executive Officers
The executive officers of the Company, their ages, position held and
business experience during the past five years are as follows:
Name Age Position Year First
- ---- --- -------- Elected
----------
Susan Astor (a) 46 President 1981
Michael Astor (b) 51 Vice President, Chief 1983
Operating Officer, Chief
Financial Officer, Secretary
and Treasurer
(a) See note (a) on prior table.
(b) See note (b) on prior table.
None of the executive officers was selected as a result of any arrangement
or understanding with any person pursuant to which he or she was selected as an
executive officer.
Officers hold office until the first meeting of directors immediately
following the annual meeting of shareholders and until the successors are
appointed and qualified, subject to earlier removal by the Board.
26
<PAGE>
Pursuant to the Proposal and the terms of the Agreement, upon the closing
of the Asset Sale Mr. and Mrs. Astor will resign as officers and directors of
the Company and the newly elected Board of Directors will elect the following
persons to the offices set forth opposite their names:
Name Office
---- ------
Robert M. Rubin Chairman of the Board
Lawrence E. Kaplan President
Alfred Romano Secretary
EXECUTIVE COMPENSATION
Annual Compensation
The following table sets forth the cash compensation in each of the last
three completed fiscal years to the Company's then chief executive officer. Mr.
Jaroslow resigned as an officer and director of the Company effective March 27,
1995. Since Mr. Jaroslow's resignation, the Board of Directors of the Company
has not elected a successor Chief Executive Officer. While Susan Astor was the
President and Michael Astor was the Vice President, Chief Operating Officer,
Chief Financial Officer and Treasurer of the Company at November 30, 1995, the
table omits information as to their compensation because neither officer
received 1995 cash compensation in excess of $100,000.
27
<PAGE>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
Other
Annual All Other
Name and Compensation Compensation
Principal Position Year Salary* Bonus($) ($) (Shares)
- ------------------ ---- ------- -------- ------------ --------
<S> <C> <C> <C> <C> <C>
Fred Jaroslow, 1995 --
Former Chairman,
Chief Executive 1994 $12,946 -- -- --
Officer, Executive
Vice President and 1993 $24,077 -- -- --
Secretary*
</TABLE>
- ----------
* This amount does not include prerequisites and other personal benefits,
securities or property because the aggregate amount thereof in each fiscal year
did not exceed $50,000 or 10% of the total annual salary and bonus reported for
the named executive officer.
During the last three completed fiscal years, the Company granted no
restricted stock awards or stock appreciation rights (whether freestanding or in
tandem with stock options). In January 1994, however, pursuant to the Company's
1989 Incentive Stock Option Plan, Mr. Jaroslow was granted options to purchase
100,000 shares of the Common Stock of the Company exercisable beginning in 1996
at $.344 per share.
Aggregate Option Exercises and Values
The following table shows stock options exercised by executive officers
during 1995, including the aggregate value of any gains on the date of exercise.
In addition, this table includes the number of shares covered by both
exercisable and non-exercisable stock options as of November 30, 1995. Values
for the options are not reported because none of the exercisable options are
"in-the-money" options which represent the positive spread between the exercise
price of outstanding stock options and the year-end price of the Company's
Common Stock.
28
<PAGE>
AGGREGATE OPTION/SAR EXERCISES IN
LAST FISCAL YEAR AND FISCAL YEAR END OPTION/SAR VALUES
No. of Securities
Underlying
Unexercised
Options at
11/30/95
-----------------
Shares Acquired Value
Name on Exercise Realized Exercisable(1) Not Exercisable(2)
- ---- ----------- -------- -------------- ------------------
Fred Jaroslow --- --- 100,000 100,000
Susan Astor --- --- 50,000 131,250
Michael Astor --- --- 50,000 131,250
- ----------
(1) Includes the grant in March 1991 pursuant to the Company's 1989 Incentive
Stock Option Plan of options to purchase shares of Common Stock exercisable
beginning in December 1993 at $.8938 per share.
(2) Includes the grant in January 1994 pursuant to the Company's 1989 Incentive
Stock Option Plan of options, exercisable beginning in 1996 to (i) Mr.
Jaroslow to purchase 100,000 shares of Common Stock at $.344 per share, and
(ii) each of Mr. Astor and Ms. Astor to purchase 131,250 shares of Common
Stock at $.3125 per share.
Employment Agreements
In December 1988, the Company entered into separate five-year employment
agreements with Susan Astor and Michael Astor which became effective upon the
closing of the Initial Public Offering in March 1990. Pursuant to agreements
dated October 22, 1993, the employment agreements were amended to provide that
employment shall continue until December 31, 1996. The terms of such agreements
are renewable for one-year periods subject to the approval of the Board of
Directors of the Company. During the first two years of their agreements, the
officers were entitled to receive salaries at a combined rate of $245,000 and
each received ten percent increases during the third year. Thereafter, their
salaries were to be negotiated, in good faith, with the Board of Directors (with
such officers abstaining from any vote by the Board). Such employment agreements
provide for payments to the respective officers upon the termination of their
employment by the Company without cause and will terminate upon the closing of
the Asset Sale. While such officers are not currently receiving salaries at the
rate provided in the employment agreements, to
29
<PAGE>
the extent not paid, Mr. and Mrs. Astor's salaries are currently being accrued.
Mr. and Mrs. Astor have agreed to waive accrued vacation as of November 30,
1995. Such employment agreements will terminate upon the closing of the Asset
Sale and, to the extent not paid prior to the closing, all accrued salaries and
vacations shall be waived.
In addition, the Company has entered into a consulting agreement with Mr.
Jaroslow which became effective upon the termination of his service under his
employment agreement but which will terminate upon the closing of the Asset
Sale. The consulting agreement has a term of five years. In his first year of
the consulting agreement, Mr. Jaroslow's salary will be equal to $56,000. His
salary in successive years will be based upon a formula provided in the
consulting agreement and shall not exceed his salary for the first year of the
consulting agreement. During the term of the consulting agreement, Mr. Jaroslow
shall render services to the Company on a part-time basis not to exceed 50 days
per year. Mr. Jaroslow is not currently receiving any salary under this
agreement, and his compensation is not being accrued. Mr. Jaroslow has agreed to
waive all unpaid compensation under this agreement as of March 1995.
Pursuant to the terms of the Letter Agreement (see "Business of the Company
- - Recent Events - Termination of Plan of Reorganization, Issuance of Shares and
Line of Credit"), the Company agreed to enter into a consulting agreement with
Bernard Tessler, effective January 1, 1995 pursuant to which Mr. Tessler
provided consulting services to the Company encompassing 75% of his full working
time through February 28, 1995 and 20% of his full working time through December
31, 1997. In consideration therefore, the Company agreed to pay Mr. Tessler at
the rate of $75,000 per annum for the period from January 1, 1995 through
February 28, 1995 and $25,000 per annum for the period from March 1, 1995
through December 31, 1997. Pursuant to the terms of the amendment letter dated
April 10, 1995, the consulting agreement was terminated.
1989 Employee Incentive Stock Option Plan
The Company's 1989 Employee Incentive Stock Option Plan (the "Option Plan")
was adopted by the Board of Directors and approved by the shareholders as of
June 1, 1989. The Option Plan authorizes the Stock Option Plan Committee of the
Board of Directors ("Option Committee") to recommend that the Board grant to key
employees, officers and directors both "incentive stock options" within the
meaning of Section 422A of the Internal Revenue Code of 1986 and non-statutory
stock options. The Option Plan provides for the issuance of up to 600,000 shares
of Common Stock. Each option granted under the Option Plan has a term of up to
five years, is exercisable only at such times as the Board of Directors
determines at the time of grant for a price at least equal to the fair market
value of the Common Stock on the date the option is granted, will terminate
under certain circumstances if the holder ceases to be an employee of the
Company and requires that the exercise price be paid, in the discretion of the
Board of Directors, in cash, shares (valued at the fair market value thereof on
the date of exercise) or a combination thereof. The option exercise price of
"incentive stock options" granted to ten percent or greater shareholders of the
30
<PAGE>
Company must be equal to at least 110% of the fair market value of the Company's
shares of Common Stock on the date of grant.
Awards are granted in the discretion of the Option Committee. The Option
Committee awards options to key employees in order to provide an incentive for
them to expend maximum effort for the success of the Company's business. The
Committee uses no set criteria to determine amounts to be awarded under the
Plan. Factors used to determine awards in the past have included length of
service to the Company, job responsibility and achievement.
On March 7, 1991, the Board of Directors, acting upon the recommendation of
the Option Committee, authorized the grant of options to purchase an aggregate
of 267,500 shares of Common Stock under the Option Plan to eight employees of
the Company, including Mr. and Ms. Astor. Two of such employees have since left
the Company, upon which options with respect to 30,000 of such shares expired.
In addition, on January 31, 1994, the Board of Directors authorized the grant of
options to purchase an aggregate of 362,500 shares to Messrs. Jaroslow and
Astor, and Ms. Astor. All options granted shall vest from periods of one to five
years from the date of grant. However, all options granted shall terminate upon
the closing of the Asset Sale.
Compliance With Section 16(a) of the Securities and Exchange Act
Based solely upon a review its files, the Company was not furnished with
copies of Form 5 (Annual Statement of Beneficial Ownership of Securities) by any
officer, director or beneficial owner of more than ten percent of any class of
equity securities of the Company during or subsequent to its fiscal year ended
November 30, 1995.
INDEPENDENT PUBLIC ACCOUNTANTS
In September 1994 Gerstein, Metelka, Minkow & Co. ("GMM") resigned as the
Company's independent accountants. In December 1994, the Company engaged its
current independent accountants, Eichler Bergsman & Co., LLP ("EB"). The
resignation of GMM was not a result of any disagreements with GMM on any matter
of accounting principles or practices, financial statement disclosure or
auditing scope or procedure. On March 11, 1996, EB was dismissed as the
Company's independent accountant. For the year ended November 30, 1994, the
audit report of EB was qualified concerning the Company's ability to continue as
a going concern. During the Company's two most recent fiscal years and the
subsequent interim period up to the date of the change of accountants, the
Company did not have any disagreements with EB on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure. By letter dated March 12, 1996, the Company engaged the firm of
Feldman Radin & Co., P.C., certified public accountants ("FRC"), to serve as its
new independent accountant to audit the Company's financial statements. Such
decision was made by the executive officers of the Company and approved by the
Board of Directors. At no time during the Company's two most recent fiscal years
has the Company (or anyone on its behalf) consulted FRC regarding the
application of accounting principles to a specified transaction, the type of
audit opinion that might be rendered on the
31
<PAGE>
Company's financial statements or any other matter. The Company does not
anticipate that representatives of either EB or FRC will be present at the
Special Meeting.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In March 1992, the Company issued 600,000 shares of Common Stock to Mr.
Rubin in exchange for his investment of $100,000 in the Company.
In May 1992, Mr. and Mrs. Astor contributed to the Company a total of
500,000 shares of Common Stock owned by them.
In August 1991, the NASD promulgated revised requirements, effective March
2, 1992, for continued inclusion of an issuer's securities on the NASDAQ Stock
Market, including a requirement that the issuer maintain shareholders' equity of
at least $1,000,000 and have assets of at least $2,000,000. In order to meet
such requirements, certain members of the Board of Directors agreed to invest an
aggregate of $500,000 in the Company in exchange for $500,000 principal amount
of 10% Exchangeable Notes. The Notes were exchangeable for a series of
cumulative redeemable pre ferred stock, subject to, among other things, a
determination by a hearing panel of the NASD that issuance of such preferred
stock would enable the Company to maintain its NASDAQ listing. However, on July
30, 1992, following the determination of an NASD listing qualifications
committee that the issuance of such preferred stock would not enable the Company
to meet the net worth requirements of the NASD, the Company repaid the principal
of the outstanding 10% Exchangeable Notes in the aggregate amount of $500,000 by
the way of an investment by each of the noteholders in the Common Stock of the
Company. Each noteholder purchased the number of shares of Common Stock equal to
the principal amount of 10% Exchangeable Notes held by such noteholder at a
price of $1.00 per share. Such Common Stock was issued to the noteholders as
follows: Fred Jaroslow - 230,888 shares; Gro-Vest, Inc. (a corporation in which
Lawrence K. Fleischman, a former director of the Company, owns a 25% interest) -
19,236 shares; Alan Goldberg - 117,638 shares; Kent Q. Kreh - 5,000 shares; Mark
Levine - 117,638 shares; and Richard Samber - 9,600 shares.
On July 31, 1992, Fred Jaroslow and Michael Astor each purchased 97,500
shares of Common Stock of the Company at a price of $1.00 per share, for an
aggregate price of $195,000.
In January 1994, the Company issued 200,000 shares of its Common Stock to
Robert M. Rubin in consideration of loans made by Mr. Rubin pursuant to a
Revolving 10% Promissory Note under which the Company has borrowed an aggregate
principal amount of $200,000. See Item 1 "Recent Events - Loan to the Company" .
Pursuant to the terms of a letter agreement dated November 18, 1994 among
the Company and each of Michael Astor, Susan Astor and Fred Jaroslow, in their
individual capacities, and Lawrence E. Kaplan, Stanley Kaplan and Mr. Rubin, the
Company agreed to: (i) cause the Board of Directors of each of the Company and
Kid 'N Things to terminate the Reorganization Agreement;
32
<PAGE>
(ii) issue 1,500,000 shares of Common Stock to Bernard Tessler in consideration
of the payment of $2,000 and past services rendered to the Company; (iii) elect
each of Messrs. Lawrence E. Kaplan, Rubin and Andrew Kaplan (the son of Stanley
Kaplan) to fill three vacancies on the Board of Directors caused by the
resignations of Messrs. Tessler, Baird and Horvitz; (iv) issue an aggregate of
100,000 shares of Common Stock to Jerry Feldman in consideration of the payment
of $100 and past services rendered to the Company, (v) issue an aggregate of
3,250,000 shares of Common Stock to Messrs. Andrew Kaplan (as Stanley Kaplan's
designee), Lawrence E. Kaplan and Rubin in consideration of the payment of an
aggregate of $4,200, past financial consulting services rendered and the joint
and several agreement among the Investors to make available to the Company a
$275,000 line of credit; and (vi) issue 400,000 shares of Common Stock to Mr.
Rubin in consideration of the payment of $400 and his agreement to waive any and
all defaults by Playorena to make current interest payments through the maturity
date arising under the Note. The number of shares of common stock to be issued
to Mr. Tessler was subsequently reduced by 750,000 shares pursuant to a letter
agreement dated April 10, 1995.
On October 26, 1994, Messrs. Lawrence E. Kaplan, Rubin and Andrew Kaplan
were elected to the Board of Directors. Each of Mr. and Mrs. Astor, the current
directors of the Company, agreed to vote to elect three designees of the
Investors to the Board of Directors of the Company until such time as the Line
of Credit is repaid or the Investors default on their obligations arising under
the Line of Credit. Each of the Investor's designees to serve on the Board of
Directors have agreed to resign upon the earlier of repayment of all outstanding
amounts of principal and accrued interest under the Line of Credit or a material
breach of the Line of Credit by any of the Investors, unless such designees have
previously been elected to the Board of Directors by vote of the Company's
shareholders. Messrs. Lawrence E. Kaplan, Rubin and Andrew Kaplan subsequently
resigned as directors and no replacements have as yet been designated by the
Investors.
The Letter Agreement establishing the Line of Credit provided that the
outstanding principal amount drawn down would bear interest at the rate of 10%
per annum, with principal and interest due at the earlier of the closing of any
debt or equity offering of the Company's securities, the gross proceeds of which
is not less than $1,500,000, or September 30, 1995. To date, the Company has
borrowed the maximum amount available under the Line of Credit ($275,000) and
does not have the resources to repay the Line of Credit.
Pursuant to the terms of the Letter Agreement, the Company and Mr. Tessler
agreed to terminate the Management Agreement, thereby relieving the Company of
any future obligation to issue any shares thereunder. Mr. Tessler and the
Company further agreed to enter into a Consulting Agreement effective January 1,
1995, pursuant to which Mr. Tessler agreed to provide consulting services during
75% of his full working time for a fee of $75,000 per annum through February 28,
1995 and to provide consulting services during 20% of his full working time for
a fee of $25,000 per annum from March 1, 1995 through December 31, 1997. Under
the amendment letter dated April 10, 1995, Mr. Tessler agreed, among other
things, to release the Company from all payment obligations arising under the
Consulting Agreement in consideration for a payment of $6,200.
33
<PAGE>
In May 1994, the Company commenced and completed a private placement of
five units, each unit consisting of 22,222 shares of the Company's Common Stock
and a promissory note in the principal amount of $50,000, bearing interest at
the rate of ten percent per annum, with principal and interest due at the
earlier of the closing of any debt or equity offering of the Company's
securities yielding gross proceeds in excess of $1,500,000 or September 30,
1995. As each of the units were sold by the Company for $50,000, the Company
derived an aggregate of $250,000 from the private placement. With the exception
of one-half of one unit acquired by Lawrence E. Kaplan, a nominee to be elected
as a director of the Company, all of the units were acquired by unaffiliated
persons. These notes are currently in default and the Company does not at the
present time have any avenue to offer its debt or equity securities, nor does
the Company have the resources to repay the promissory notes that became due on
September 30, 1995.
In February and March 1995, the Company received loans in the aggregate
amount of $143,333 from three investors and the father of a principal
shareholder of the Company: (i) Lawrence E. Kaplan - $20,416; (ii) Stanley
Kaplan (the father of Andew Kaplan) - $20,416; (iii) Fred Jaroslow - $40,500;
and (iv) Robert Rubin - $62,000. As the Company does not have the resources to
repay such loans, the lenders agreed to accept an aggregate of 3,278,890
(163,945 shares subsequent to the reverse stock split) shares of Common Stock to
be issued simultaneous with the closing as payment in full for such loans.
34
<PAGE>
FINANCIAL STATEMENTS
35
<PAGE>
PLAYORENA, INC.
INDEX TO FINANCIAL STATEMENTS
Page
----
Auditor's report on financial statements....................................F-2
Prior auditor's report on financial statements..............................F-3
Balance sheet as of November 30, 1995.......................................F-4
Statements of operations for the years
ended November 30, 1995 and 1994.........................................F-5
Statement of changes in shareholders'
equity (deficiency) for the years ended
November 30, 1995 and 1994...............................................F-6
Statements of cash flows for the years
ended November 30, 1995 and 1994.........................................F-7
Notes to financial statements...............................................F-8
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
March 15, 1996
The Board of Directors and Shareholders
Playorena, Inc.
We have audited the accompanying balance sheet of Playorena, Inc. as of
November 30, 1995, and the related statements of operations, shareholders'
deficiency and cash flows for the year then ended. 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 audit. The
financial statements of Playorena, Inc. for the year ended November 30, 1994
were audited by other auditors whose report dated March 1, 1995 qualified their
opinion because of doubt as to the Company's ability to continue as a going
concern.
We conducted our audit 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 audit provides 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 Playorena, Inc. as of
November 30, 1995, and the results of its operations and cash flows for the year
then ended, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency that raises substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are described in Note 1. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
s/ Feldman Radin & Co., P.C.
Certified Public Accountants
F-2
<PAGE>
Prior Auditor's Report on
Financial Statements
[EICHLER BERGSMAN & CO., LLP LETTERHEAD]
INDEPENDENT AUDITOR'S REPORT
----------------------------
The Board of Directors and Shareholders
Playorena, Inc.
We have audited the accompanying balance sheet of Playorena, Inc. as of
November 30, 1994, and the related statements of operations, shareholders'
deficiency and cash flows for the year then ended. 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 audit. The
financial statements of Playorena, Inc. for the year ended November 30, 1993
were audited by other auditors whose report dated February 7, 1994 and
February 23, 1994 qualified their opinion because of doubt as to the Company's
ability to continue as a going concern.
We conducted our audit 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 audit provides 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 Playorena, Inc. as
of November 30, 1994, and the results of operations and its cash flows for the
year then ended, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from
about its ability to continue as a going concern. Management's plans in
reqard to these matters are described in Note 1. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
/s/ Eichler, Bergsman & Co., LLP
New York, New York
March 1, 1995
F-3
<PAGE>
PLAYORENA INC.
BALANCE SHEET
NOVEMBER 30, 1995
ASSETS
CURRENT ASSETS:
Cash $ 1,329
===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Notes payable $ 881,333
Net liabilities of discontinued operations 307,813
Accrued expenses 202,899
TOTAL CURRENT LIABILITIES 1,392,045
-----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIENCY):
Common stock, $ .001 par value;
15,000,000 shares authorized,
8,262,910 shares issued and outstanding 8,263
Additional paid-in-capital 4,089,783
Accumulated deficit (5,488,762)
-----------
TOTAL SHAREHOLDERS' DEFICIENCY (1,390,716)
-----------
$ 1,329
===========
The accompanying Notes are an integral part of these financial statements.
F-4
<PAGE>
PLAYORENA INC.
STATEMENT OF OPERATIONS
Years ended November 30,
--------------------------
1995 1994
----------- -----------
EXPENSES:
General and administrative $ 23,133 $ 46,349
Interest expense 86,710 44,854
----------- -----------
TOTAL EXPENSES 109,843 91,203
----------- -----------
LOSS FROM CONTINUING OPERATIONS (109,843) (91,203)
----------- -----------
LOSS FROM DISCONTINUED OPERATIONS:
Loss from discontinued operations (227,697) (728,495)
Loss on disposal, including provision for
losses of $106,417 during phase-out period (246,570) --
----------- -----------
TOTAL LOSS FROM DISCONTINUED OPERATIONS (474,267) (728,495)
----------- -----------
NET LOSS $ (584,110) $ (819,698)
=========== ===========
NET LOSS PER SHARE:
Continuing operations $ (0.01) $ (0.01)
Discontinued operations (0.06) (0.09)
----------- -----------
NET LOSS PER SHARE $ (0.07) $ (0.10)
=========== ===========
WEIGHTED AVERAGE SHARES USED IN COMPUTATION 8,262,910 8,181,206
=========== ===========
The accompanying Notes are an integral part of these financial statements.
F - 5
<PAGE>
PLAYORENA INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
Common Stock
------------------------ Additional Accumulated
Shares Amount Paid-in Capital Deficit Total
------------------------ --------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Balance, November 30, 1993 7,951,800 $ 7,952 $ 4,089,779 $(4,084,954) $ 12,777
Net loss -- -- -- (819,698) (819,698)
Stock issued for cash 200,000 200 -- -- 200
Private placement 111,110 111 4 -- 115
----------- ----------- ----------- ----------- -----------
Balance, November 30, 1994 8,262,910 8,263 4,089,783 (4,904,652) (806,606)
Net loss -- -- -- (584,110) (584,110)
----------- ----------- ----------- ----------- -----------
Balance, November 30, 1995 8,262,910 $ 8,263 $ 4,089,783 $(5,488,762) $(1,390,716)
=========== =========== =========== =========== ===========
</TABLE>
The accompanying Notes are an integral part of these financial statements.
F - 6
<PAGE>
PLAYORENA INC.
STATEMENT OF CASH FLOWS
Years Ended November 30,
------------------------
1995 1994
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(584,110) $(819,698)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 51,795 85,662
Gain (loss) on sale of equipment 2,219 (29,230)
Change in operating assets and liabilities 315,372 9,696
--------- ---------
CASH USED IN OPERATING ACTIVITIES (214,724) (753,570)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of property and equipment 0 (3,478)
Proceeds from the sale of equipment 70,742 37,250
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES 70,742 33,772
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (repayment of) debt financing 151,333 720,000
Decrease of capital lease obligations (8,966) (12,371)
Proceeds from issuance of common stock 0 311
--------- ---------
CASH PROVIDED BY FINANCING ACTIVITIES 142,367 707,940
--------- ---------
NET INCREASE (DECREASE) IN CASH (1,615) (11,858)
CASH AT BEGINNING OF YEAR 2,944 14,802
--------- ---------
CASH AT END OF YEAR $ 1,329 $ 2,944
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid during the year for:
Interest $ 2,489 $ 7,026
========= =========
NON-CASH FINANCING AND INVESTING ACTIVITIES:
At November 30, 1995, the Company had a total
of $27,094 included in Accounts Receivable
from sales of equipment during the 1995 year
The accompanying Notes are an integral part of these financial statements.
F - 7
<PAGE>
PLAYORENA, INC.
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1995
1. DISCONTINUED OPERATIONS
Playorena, Inc. (the "Company") was incorporated on December 4, 1981, under
the laws of the State of New York. The Company operates recreational play
and exercise programs specifically designed for children between three
months and four years of age. As part of its plan to expand the opening of
Company operated centers, in 1989 the Company did not renew its franchise
registration with the proper government authorities and suspended the sale
of franchises. As of November 30, 1995, the Company operated an aggregate
of 9 centers. In addition, there were 7 franchisees operating 12 centers.
On April 14, 1995, the Company entered into an Asset Purchase Agreement
(the "Agreement") with Michael Astor (who, along with his wife, Susan
Astor, comprise all of the current officers and members of the Board of
Directors of the Company), pursuant to which an entity to be formed by Mr.
and Mrs. Astor agreed to acquire all of the assets and properties of the
Company, including, without limitation, all copyrights, trademarks, trade
names (including the name "Playorena"), accounts receivable, equipment,
inventory, cash and cash equivalents, in exchange for the assumption of
certain liabilities of the Company and the transfer to the Company of
1,041,800 shares of Common Stock of the Company, representing all of the
Common Stock of the Company owned by Mr. and Mrs. Astor. Obtaining the
approval of the holders of not less than 66 2/3% of the issued and
outstanding shares of capital stock of the Company is a condition precedent
to the closing of the Asset Sale contemplated by the Agreement.
The terms of the Agreement were negotiated on behalf of the Company by
Robert M. Rubin. Mr. Rubin owns 2,923,334 shares of Common Stock of the
Company, representing 22.9% of the issued and outstanding shares of Common
Stock. In addition, in consideration for a loan made to the Company by Mr..
Rubin in January 1994 and due in September 1995, Mr. Rubin was granted a
first priority security interest in all of the assets of the Company. As
the Company does not presently have the resources to repay the $200,000
principal amount of the secured loan to Mr. Rubin, since September 30,
1995, Mr. Rubin has had the right to foreclose on his security interest in
all of the assets to the Company. Pursuant to the terms of the Agreement,
Mr. Rubin and certain other secured lenders will be required to release
their respective security interest so that Mr. Astor, or his designee, will
obtain title to the Company's assets free and clear of any liens or
encumbrances.
F-8
<PAGE>
The Agreement specifically provides that the Company shall retain "all
claims for tax refunds, tax loss carry forwards or carrybacks of tax
credits or any kind" applicable to the Company's business prior to the
closing of the Asset Sale. Without future profits by the Company, such tax
losses are of limited or no value. The Agreement further specifies that the
following liabilities will not be assumed by the acquiring entity:
(I) liabilities owed to certain affiliates of the Company, including
Mr. Rubin, estimated to be $878,333 in the aggregate (including
$143,333 loaned to the Company since January 1995);
(ii) liabilities owed to Solomon & Moskowitz, P.C. and certain other
professionals who have provided services to the Company, estimated to
be $40,000 aggregate;
(iii) amounts owned to the Company's transfer agent and to Standard
and Poors, estimated to be $6,600 in the aggregate;
(iv) claims made against the Company by shareholders of the Company;
(v) certain fees incurred in connection with compliance with
applicable securities laws and
(vi) all liabilities and obligations of the Company arising after the
closing of the Asset Sale.
Based upon the proposed structure of the transaction set forth in the
Agreement, immediately following the closing of the Asset Sale the Company
will have no assets or business but will retain estimated liabilities of
$878,333, plus certain obligations incurred between August 31, 1995 and the
date of the closing, plus possible liabilities with respect to certain
heretofore unasserted claims against the Company. In light of the fact that
subsequent to the closing the Company will not have any business or assets
with which to generate revenue, the Company will not have any means to
satisfy such liabilities or obligations unless and until the Company is
able to raise additional capital or acquire a profitable business. The
Company does not presently have any such plans and there can be no
assurance that raising such capital or acquiring a new business will be
possible. If such capital should become available or such business should
be offered to the Company, any such transaction is likely to result in
immediate and substantial dilution to the present shareholders of the
Company.
F-9
<PAGE>
Following is a summary of the assets and liabilities of the Company's
discontinued operations:
Property and equipment to be disposed of:
Play equipment $ 694,227
Office furniture 101,052
Automobile 27,836
--------
823,115
Less: Accumulated Depreciation 602,346
--------
Net property and equipment to be disposed of: 220,769
--------
NOther Assets to be disposed of:
Accounts receivable 39,619
Prepaid expenses 823
Other assets 15,781
--------
Total Assets to be disposed of: 276,992
--------
NLiabilities to be assumed by others:
Obligations under capital leases 17,324
Unearned registration fees 21,257
Accounts payable 227,575
Accrued expenses 212,232
--------
Total Liabilities to be assumed by others 478,388
Estimated losses through disposal date 106,417
--------
Total liabilities of discontinued operations 584,805
--------
Net Liabilities of discontinued operations: $307,813
========
The Company will remain contingently liable to the extent that assumed
liabilities are not satisfied. In this regard, the company has not
recognized any gain for the amount by which the liabilities to be assumed
exceed the assets to be disposed of.
Revenues of the discontinued business were $453,458 and $1,006,060 in
fiscal years ended November 30, 1995 and 1994, respectively.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation - Going Concern - The Company's financial
statements have been presented on the basis that it is a going
concern, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business.
The Company's viability as a going concern is dependent upon the
restructuring of its obligations and a return to profitability.
There was negative working capital of $1,390,716 at November 30, 1995,
and
F-10
<PAGE>
negative cash flows from operating activities of $214,724 for the year
then ended. Negative cash flows from operating activities have
continued.
Accordingly, the financial statements do not include any adjustments
relating to the recoverability of assets and classification of
liabilities or any other adjustments that might be necessary should
the Company be unable to continue as a going concern in its present
form.
(b) Revenue Recognition - Participant registration fees are fully paid by
participants prior to the session beginning and are recognized over
the term of the class session.
(c) Deferred Charges - Deferred charges represent direct selling expenses
associated with class sessions for which the term has not begun or is
incomplete at year-end. The expenses are recognized over the term of
the class session on a straight-line basis.
(d) Depreciation - Property and equipment are carried at cost. The
straight-line and double declining balance methods of depreciation are
used over their estimated useful lives ranging from three to ten
years.
(e) Earnings (Loss) Per Share - The computation of earnings (loss) per
common and common equivalent share is based on the weighted average
number of common shares outstanding during the period plus (in periods
in which they have a dilutive effect) the effect of common shares
contingently issuable, primarily from stock options and exercise of
warrants.
3. ACCRUED EXPENSES
Following is a summary at November 30, 1995:
Interest $ 121,888
Professional fees 73,511
Other 7,500
-------------
$ 202,899
=============
4. NOTES PAYABLE
Following is a summary of the balance of notes payable at November 30,
1995:
F-11
<PAGE>
a. Environmental Resources and Disposal, Ltd. $ 10,000
b. Private Placement 250,000
c. Robert M. Rubin 200,000
d. Revolving line of credit 275,000
e. Bridge loans 140,333
f. Other 6,000
------------
$ 881,333
============
a. The note originated November 18, 1993, bearing interest at 10% per
annum. The principal and interest were due on February 6, 1994, and is
currently in default. The noteholder has not taken action to enforce
payment.
b. In May 1994, the Company commenced and completed a private placement
of five units, each unit costing $50,000 consisted of a $50,000
promissory note and 22,222 shares of common stock offered at $.001 per
share. The terms of the promissory notes are interest at 10% per annum
with principal and interest due at the earlier of (I) the closing of
any debt or equity offering of the Company's securities, the gross
proceeds of which is not less than $1,500,000, or (ii) September 30,
1995. The notes are currently in default.
c. On January 19, 1994 the Company entered into an agreement with Mr.
Robert M. Rubin, a stockholder/director of the Company, under which
Mr. Rubin loaned the Company $200,000 in exchange for a promissory
note, with interest at 10% per annum payable monthly, and 200,000
shares of the Company's common stock. In addition, the Company must
accelerate the repayment of principal at any time at which the cash
balance of the Company exceeds a certain dollar amount over a certain
time period. The promissory note, which was due on September 30, 1995,
and is secured by a general lien in all of the assets of the Company.
The Company is in default of this note as of November 30, 1995.
d. On November 18, 1994, the Company entered into a preliminary agreement
with the following stockholders: Mr. Rubin, Mr. Lawrence E. Kaplan
(also a director) and Stanley Kaplan (the "Investors") regarding
$270,000 that had previously been advanced to the Company. The
investors agreed to lend to the Company up to $275,000 inclusive of
previous advances. Interest is payable at the rate of 10% per annum,
with principal and interest due on September 30, 1995 Should the
Company repay any principal before maturity, it is subject to terms
which limit reborrowing against this line of credit. The Company is in
default of these loans at November 30, 1995.
F-12
<PAGE>
e. In February through April 1995, the Company received loans in the
aggregate amount of $143,333 from three directors of the Company and
the father of a principal shareholder of the Company. Interest is
being accrued at 10% per annum. In connection with the proposed Asset
Purchase Agreement, the lenders have agreed to accept 3,278,890 shares
of common stock in full payment of these loans, simultaneously with
shares to be delivered to the Company by Mr. and Mrs. Astor.
5. OBLIGATIONS UNDER LEASES
The Company leases locations used for class sessions and the corporate
headquarters. The Company operates its class sessions from locations
typically leased on a monthly basis and cancelable at any time without
penalty or legal obligation.
Total rental expense for the years ended November 30, 1995 and 1994 was
$120,249 and $266,197, respectively.
6. INCOME TAXES
The Company has available net operating loss carry forwards for federal
income tax purposes of approximately $4,900,000 that expire from 1998
through 2009. In addition, the Company has investment tax credit carry
forwards of approximately $16,000 that expire in 1998. The Company has
applied a valuation allowance, eliminating entirely only tax benefits or
tax assets that may arise from these favorable tax attributes.
Furthermore, annual utilization of net operating losses can be subject to
limitations due to "equity structure shifts" or "owner shifts" involving 5%
stockholders (as these terms are defined in Section 382 of the Internal
Revenue Code), which result in a more than 50% change in ownership.
7. EMPLOYEE INCENTIVE STOCK OPTION PLAN
The Company's Employee Incentive Stock Option Plan was adopted and approved
as of June 1, 1989. The plan provides for the grant to key employees,
officers and directors of both "incentive stock options" within the meaning
of Section 422A of the Internal Revenue Code of 1986 and non-statutory
stock options. The plan provides for the issuance of up to 600,000 shares
of common stock. Each option granted under the plan has a term of up to
five years, is exercisable only at such times as the board of directors
determine at the time of grant for a price at least equal to the fair
market value of the common stock on the date of the option is granted, will
terminate under certain circumstances if the holder ceases to be an
employee of the Company and requires that the exercise price be paid, in
the discretion of the board of directors, in cash, shares (valued at the
fair market value thereof on the date of exercise) or a combination
thereof. The exercise price of "incentive stock options" granted to 10% or
greater shareholders of
F-13
<PAGE>
the Company must be equal to at least 110% of the fair market value of the
Company's shares of common stock on the date of grant.
On March 7, 1991, the Board of Directors authorized the grant of options to
purchase an aggregate of 267,500 shares of common stock under the plan to
eight employees of the Company, including Messrs. Jaroslow, Astor and Ms.
Astor. Such options shall vest from periods of three to five years from the
date of grant, are exercisable at a price per share of $.8938 - .8125 and
expire five years from the date of grant.
At November 30, 1995, there are options to purchase 200,000 shares of
common stock remaining, which are fully vested and have an exercise price
of $.8938 per share, expiring March 7, 1996. The remaining options were
canceled and no options have been exercised to date.
On January 31, 1994, the Board of Directors authorized the grant of options
to purchase an aggregate of 362,500 shares of common stock under the plan
as follows: Fred Jaroslow-100,000 shares, Michael Astor-131,250 shares, and
Susan Astor-131,250 shares. Such options will vest on December 31, 1996. As
of November 30, 1995, the options had not been issued.
8. EMPLOYMENT AGREEMENTS
In December 1988, the Company entered into separate five-year employment
agreements with Fred Jaroslow, Susan Astor and Michael Astor which became
effective upon the closing of the Initial Public Offering in March 1990.
On October 22, 1993, the employment agreements of Michael and Susan Astor
(also directors of the Company) were amended to provide that their
employment shall continue until December 31, 1996. The terms of such
agreements are renewable for one year periods subject to the approval of
the board of directors of the Company. During the first two years of their
agreements, the officers were entitled to receive salaries at a combined
amount of $245,000. Each officer is to receive a ten percent increase
during the third year.
All such employment agreements provide for payments to the respective
officers upon the termination of their employment by the Company without
cause. While such officers are not currently receiving salaries at the
rates provided in the employment agreements, to the extent not paid, Mr.
and Mrs. Astor's salaries are currently being accrued. Mr. Jaroslow has
agreed to waive his unpaid salary and accrued vacation as of November 30,
1994. Mr. and Mrs. Astor have agreed to waive accrued vacation as of
November 30, 1995. Such employment agreements will terminate upon closing
of the Asset Sale and, to the extent not paid prior to closing, all accrued
salaries and vacations shall be waived.
F-14
<PAGE>
A consulting agreement has been entered into with Mr. Fred Jaroslow which
becomes effective upon the termination of his employment agreement. The
consulting agreement will continue for a period of one-half the length of
his services under his employment agreement, described above which period,
however, will not exceed five (5) years. The maximum amount payable under
the consulting agreement will be $56,000 annually. Mr. Jaroslow has agreed
to waive all unpaid salary and accrued vacation under this agreement.
9. CONSULTING AGREEMENTS
On December 16, 1991, the Company entered into a consulting agreement with
Palmer & Moore Ltd., a New York corporation, in which Robert M. Rubin is
the sole shareholder. The consulting services were to assist the Company in
formulating an acquisition strategy, seek out potential acquisition
candidates, negotiate the transaction and assist in the financing
associated with it. The agreement terminated December 16, 1994.
As full compensation for the services, the Company issued 200,000 common
shares to be held in escrow in the year ended November 30, 1992. The shares
were released from escrow, as agreed upon, 100,000 on December 16, 1992 and
100,000 on December 16, 1993. The consultant agreed to pay $200 for these
shares. Pursuant to valuation regulations promulgated by the Securities and
Exchange Commission, the fair market value of such shares was determined to
be $200,000 and was charged to operations on a quarterly basis over a two
year period ending November 30, 1994.
Pursuant to the terms of the Letter Agreement (as defined in footnote 11),
the Company entered into a consulting agreement with Bernard Tessler,
effective January 1, 1995, pursuant to which Mr. Tessler agreed to provide
consulting services during 75% of his full working time for a fee of
$75,000 per annum through February 28, 1995 and to provide consulting
services during 20% of his full working time for a fee of $25,000 per annum
from March 1, 1995 through December 31, 1997. Pursuant to the terms of the
Second Letter Agreement, Mr. Tessler agreed, among other things, to release
the Company from all payment obligations arising under this consulting
agreement in consideration for a payment of $6,200.
10. WARRANTS
In March 1990, the Company closed its initial public offering of 2,500,000
units, each consisting of one common share and one common share purchase
warrant. Each common share purchase warrant entitles the warrant holder to
purchase one common share at $1.25 per share until January 16, 1993. In
addition, the Company received $40 from the Underwriter for the
Underwriter's purchase of 40,000 shares of common stock of the Company. The
Board of Directors has extended the expiration date of the outstanding
warrants until January 16, 1996 with all original terms of exercise in
effect.
F-15
<PAGE>
11. COMMITMENTS AND CONTINGENCIES
As a condition to Mr. Rubin's agreement to make a previously described loan
to the Company, on April 13, 1994 the Company entered into an Agreement and
Plan of Reorganization (the "Reorganization Agreement") with Kids 'N
Things, Inc., a newly formed Delaware corporation wholly-owned by Mr..
Rubin, Bernard Tessler and Jerome Feldman for the sole purpose of
facilitating the merger.
Pursuant to the terms of a letter of agreement dated November 18, 1994 (the
"Letter Agreement") among the Company and each of Michael Astor, Susan
Astor and Fred Jaroslow, in their individual capacities, and Lawrence E.
Kaplan, Stanley Kaplan and Mr.. Rubin (the "Investors"), the Company agreed
to: (I) cause the Board of Directors of each of the Company and Kid 'N
Things to terminate the Reorganization Agreement; (ii) issue 1,500,000
shares of Common Stock to Bernard Tessler in consideration of the payment
of $2,000 and past services rendered to the Company (reduced to 750,000
shares in April 1995); (iii) elect each of Messrs.. Lawrence E. Kaplan,
Rubin and Andrew Kaplan (the son of Stanley Kaplan) to fill three vacancies
on the Board of Directors caused by the resignations of Messrs. Tessler,
Baird and Horovitz; (iv) issue an aggregate of 100,000 shares of Common
Stock to Jerry Feldman in consideration of the payment of $100 and past
services rendered to the Company, (v) issue an aggregate of 3,249,996
shares of Common Stock to Messrs. Andrew Kaplan (as Stanley Kaplan's
designee), Lawrence E. Kaplan, and Rubin in consideration of the payment of
an aggregate of $4,200, past financial consulting services rendered and the
joint and several agreement among the Investors to make available to the
Company a $275,000 line of credit (the "Line of Credit"); and (vi) 400,000
shares of Common Stock to Mr. Rubin in consideration of the payment of $400
and his agreement to waive any and all defaults by Playorena to make
current interest payments through the maturity date arising under the Note.
The 5,250,000 shares of common stock to be issued to Mr. Tessler pursuant
to the Letter Agreement were reduced by 750,000 shares pursuant to a
subsequent letter agreement between the Company and Mr. Tessler dated April
10, 1995, wherein Mr. Tessler agreed, among other things, to reduce the
total number of shares of common stock to be issued to him from 1,500,000
to 750,000. The total number of shares now required to be issued pursuant
to the Letter Agreement is 4,500,000. Issuance of the 4,500,000 shares
required to be issued pursuant to the Letter of Agreement will result in
substantial dilution of the interests of the current shareholders of the
Company.
F-16
<PAGE>
PLAYORENA INC.
BALANCE SHEET
AUGUST 31, 1996
(UNAUDITED)
ASSETS
Cash $ 32,598
-----------
TOTAL ASSETS $ 32,598
===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Notes payable $ 875,333
Net liabilities of discontinued operations 341,474
Accrued expenses 296,253
-----------
TOTAL CURRENT LIABILITIES 1,513,060
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIENCY):
Common stock, $ .001 par value;
15,000,000 shares authorized,
8,262,910 shares issued and outstanding 8,263
Additional paid-in-capital 4,089,783
Accumulated deficit (5,578,508)
-----------
TOTAL SHAREHOLDERS' DEFICIENCY (1,480,462)
-----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 32,598
===========
See notes to financial statements.
1
<PAGE>
PLAYORENA INC.
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Nine months ended
------------------------- --------------------------
August 31, August 31, August 31, August 31,
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
EXPENSES:
General and administrative $ 1,549 $ 11,448 $ 10,120 $ 18,021
Interest Expense 22,256 22,469 66,768 64,548
----------- ----------- ----------- -----------
TOTAL EXPENSES 23,805 33,917 76,888 82,569
----------- ----------- ----------- -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS (23,805) (33,917) (76,888) (82,569)
----------- ----------- ----------- -----------
DISCONTINUED OPERATIONS:
Loss from discontinued operations -- -- -- (227,697)
Loss on disposal (13,289) (72,460) (12,858) (95,390)
----------- ----------- ----------- -----------
TOTAL INCOME (LOSS) FROM DISCONTINUED OPERATIONS (13,289) (72,460) (12,858) (323,087)
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (37,094) $ (106,377) $ (89,746) $ (405,656)
=========== =========== =========== ===========
NET INCOME (LOSS) PER SHARE:
Continuing operations $ (0.00) $ (0.00) $ (0.01) $ (0.01)
Discontinued operations (0.00) (0.01) (0.00) (0.04)
----------- ----------- ----------- -----------
NET INCOME (LOSS) PER SHARE $ (0.00) $ (0.01) $ (0.01) $ (0.05)
=========== =========== =========== ===========
WEIGHTED AVERAGE SHARES USED IN COMPUTATION 8,262,910 8,182,846 8,262,910 8,278,694
=========== =========== =========== ===========
</TABLE>
See notes to financial statements.
2
<PAGE>
PLAYORENA INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
Nine months ended
------------------------
August 31, August 31,
1996 1995
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (89,746) $(405,656)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 45,969 43,796
Gain (loss) on sale of equipment -- (16,926)
Change in operating assets and liabilities 81,046 164,345
--------- ---------
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 37,269 (214,441)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of property and equipment -- 150
Proceeds from the sale of equipment -- 61,387
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES -- 61,537
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (repayment of) debt financing (6,000) 150,333
Decrease of capital lease obligations -- (4,546)
Proceeds from officer loans -- 8,150
--------- ---------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (6,000) 153,937
--------- ---------
NET INCREASE (DECREASE) IN CASH 31,269 1,033
CASH AT BEGINNING OF PERIOD 1,329 2,944
--------- ---------
CASH AT END OF PERIOD $ 32,598 $ 3,977
========= =========
See notes to financial statements.
3
<PAGE>
PLAYORENA, INC.
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED AUGUST 31, 1996
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying financial statements are unaudited, but reflect all
adjustments which, in the opinion of management, are necessary for a fair
presentation of financial position and the results of operations for the
interim periods presented. All such adjustments are of a normal and
recurring nature. The results of operations for any interim period are not
necessarily indicative of the results attainable for a full fiscal year.
2. LOSS PER SHARE
Per share information is computed based on the weighted average number
of shares outstanding during the period.
3. DISCONTINUED OPERATIONS
Assets and liabilities of the Company's discontinued operations
consist of the following at August 31, 1996:
Assets:
Accounts receivable $ 13,496
Prepaid expenses 13,416
Property and equipment 167,806
Intangible assets 7,300
Liabilities:
Estimated losses through disposal date (58,269)
Accounts payable and accrued expenses (485,223)
---------------
Net liabilities of discontinued business $ (341,474)
===============
4
<PAGE>
The revenues of the discontinued business were $288,725 for the nine
month period ended August 31, 1996 and $355,626 for the nine month period
ended August 31, 1995.
4. ACCRUED EXPENSES
Accrued expenses consist of the following at August 31, 1996:
Interest $ 188,656
Professional fees 100,097
Other 7,500
--------------
$ 296,253
==============
5
<PAGE>
OTHER BUSINESS
In accordance with the Company's By-Laws, the only matters that may be
brought before the meeting are those set forth in the accompanying notice of
Special Meeting and matters germane thereto.
SHAREHOLDER PROPOSALS
FOR NEXT ANNUAL MEETING
The meeting is a Special Meeting of Shareholders. Any proposals which a
shareholder wishes to have included in the Proxy Statement and proxy relating to
the 1996 Annual Meeting of Shareholders must be received by Playorena at its
executive offices no later than June 30, 1996.
EXHIBITS
Exhibit 1 - Asset Purchase Agreement
By Order of the Board of Directors
Michael Astor,
Secretary
January 15, 1997
Port Washington, New York
36
<PAGE>
INDEX TO EXHIBITS
Exhibit 1 - Asset Purchase Agreement
37
<PAGE>
EXHIBIT 1
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT (this "Agreement"), entered into as of the 31st
day of March 1995, by and among MICHAEL ASTOR, an individual ("Astor"), on
behalf of himself and as nominee for PLAYORENA ACQUISITION COMPANY, a
corporation to be formed under the laws of the State of New York (hereinafter,
the "Buyer"); and PLAYORENA, INC., a New York corporation (hereinafter the
"Seller").
WITNESSETH:
WHEREAS, Seller desires to sell to the Buyer all of the "Assets", other
than the "Excluded Assets" (as those terms are hereinafter described) relating
to the business of the Seller as presently conducted (the "Business") as a going
concern, subject to the assumption by the Buyer of all of the "Liabilities",
other than the "Excluded Liabilities" of the Seller (as those terms are
hereinafter described); and
WHEREAS, the Buyer desires to purchase form Seller, all upon the terms and
subject to the conditions set forth in this Agreement, all, and not less than
all of the Assets, and will assume, pay and discharge in accordance with their
respective terms, all of the Liabilities, other than the Excluded Liabilities;
and
WHEREAS, the Board of Directors of the Seller and Astor have authorized
and approved the sale of the Assets to the Buyer, subject to approval of the
transaction by the shareholders of Seller, Buyer's assumption of the
Liabilities, and the consummation of the other transactions contemplated by this
Agreement all on the terms and subject to the conditions set forth in this
Agreement;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein set forth, the parties hereby covenant and agree
as follows;
1. ACQUISITION OF THE ASSETS AND ASSUMPTION OF LIABILITIES.
1.1 Transfer of Assets. On the Closing Date (as hereinafter defined)
and, solely in exchange for the consideration provided for in Section 3 below,
the Seller shall sell, assign, transfer and convey to the Buyer, and the Buyer
shall purchase and acquire from the Seller, all, and not less than all of the
assets and properties of the Seller, real, personal and mixed (the "Assets"),
and the business of the Seller as presently conducted (the "Business") as a
going concern. Such Assets shall include, without limitation, all copyrights,
trademarks, tradenames, accounts receivable, equipment, inventory and cash,
marketable
<PAGE>
securities and other cash equivalents of the Seller as at the Closing Date.
Notwithstanding the foregoing, the Seller shall not sell and the Buyer Shall not
purchase or acquire any of the "Excluded Assets" as described in Section 2.1
below.
1.2 Bill of Sale. On the Closing Date, Seller shall deliver to the
Buyer, against receipt of the consideration provided for in Section 3 below, a
bill of sale, deed and such other documents and instruments of conveyance which
shall be necessary to vest in the Buyer good and marketable title to the Assets.
1.3 Books and Records. On the Closing Date, in addition to its
delivery and transfer of the Assets to the Buyer, Seller shall deliver to the
Buyer all financial and accounting books and records of the Seller, and all
referral, client, customer and sales records of the Seller. From and after the
Closing Date, the Buyer shall permit Seller and their representatives to have
access to any and all of such books and records for the purpose of inspecting,
copying and/or making extracts of such books and records for such purposes as
may be required by Seller, such access to be upon reasonable prior notice,
during normal business hours, and in such a manner as to not unduly disrupt the
Business of the Buyer.
1.4 Assumption of Liabilities. On the Closing Date, against receipt
of such bill of sale and other conveyancing documents described in Section 1.2
above, the Buyer shall, pursuant to an assignment and assumption agreement (the
"Assumption Agreement") in form and content mutually acceptable to Seller and
Buyer and their legal counsel, assume and pay and discharge, when due, all
debts, accrued liabilities, accrued expenses, accounts payable, obligations,
costs, expenses and contingencies which exist or have been accrued as at the
Closing Date (collectively, the "Liabilities"); provided, that the Buyer shall
not assume any of the Excluded Liabilities set forth in Section 1.5(b) below.
The Liabilities assumed by the Buyer as at the Closing Date shall include,
without limitation.
(a) amounts owed to Bernard Tessler in respect of accrued fees
and other compensation up to and not in excess of $2,000.00;
(b) all accounts payable and accrued liabilities of the Seller
(other than the Excluded Liabilities); and
(c) all accrued payroll and other obligations to employees,
consultants and other agents of the Seller, except only for
the Excluded Liabilities.
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2. EXCLUDED ASSETS AND EXCLUDED LIABILITIES.
2.1 Excluded Assets. On the Closing Date, the Seller shall retain
all right and title to, and the Buyer shall not purchase or acquire any interest
in, any of the following assets and properties of the Seller (the "Excluded
Assets"):
(a) any claims for tax refunds, tax loss carryforwards or
carrybacks or tax credits of any kind applicable to the
Business, income (loss) or Assets of the Seller prior to the
Closing Date (collectively, "Tax Benefits"); and
(b) the stock book, minute book, stock records, transfer
sheets and other corporate records of the Seller.
2.2 Excluded Liabilities. On the Closing Date, the Seller shall
retain and be responsible for all obligations and liabilities relating to, and
the Buyer shall not assume or be responsible for, any of the following
liabilities or obligations of the Seller as at the Closing Date (the "Excluded
Assets"):
(a) all liabilities and obligations in respect of accrued fees
and/or compensation to Bernard Tessler which shall be in
excess of $2,000 in the aggregate;
(b) all liabilities and obligations owed by Seller to Messrs.
Robert M. Rubin, Stanley Kaplan, Lawrence E, Kaplan and other
affiliates of the Seller who have lent funds to the Seller
prior to the Closing Date, whether or not evidenced by notes
or other instruments, all as set forth on Schedule 2.2(b)
hereto (this "Affiliate Debt");
(c) all liabilities and obligations in respect of accrued
professional fees owed to Solomon Weiss & Moskowitz, P.C., and
other professionals who have provided services to Seller prior
to the Closing Date; provided, that such Excluded Liability
shall not include professional fees and/or disbursements owed
to Messrs. Kreinik Aaron & Gersh or other counsel and
associated professionals performing services for the Buyer
and/or the Seller in connection with certain matters described
herein, all of which professional fees and disbursements shall
be borne and paid solely by Astor or the Buyer;
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(d) all other liabilities and obligations of the Seller which
are listed and set forth on Schedule 2.2(d) annexed hereto and
made a part hereof;
(e) all liabilities and obligations in respect of the Seller's
compliance with federal and state securities laws, including
costs associated with compliance with the Securities Exchange
Act of 1934, as amended (the "Exchange Act") and related costs
associated with Seller being a publicly traded company subject
to the reporting requirements under the Exchange Act,
including the Section 14 Proxy Rules thereunder; and
(f) all liabilities and obligations of Seller arising after
the Closing Date.
3. CONSIDERATION AND PAYMENT.
3.1 The consideration. In full consideration for the sale and
transfer of the Assets to the Buyer and in addition to its assumption of the
Liabilities, on the Closing Date, Seller shall receive from Michael Astor and
Susan Astor (the "Buyer Stockholders") all, and not less than all, of the
1,041,800 shares of Common Stock of the Seller owned of record and beneficially
by the Buyer Stockholders (the "Astor Stock"); which Astor Stock shall be
evidenced by stock certificates, duly endorsed in blank for transfer to the
Seller, for cancellation.
3.2 Further Assurances.
From time to time from and after the Closing, the parties hereto
shall execute and deliver, or cause to be executed and delivered, any and all
such further agreements, certificates and other instruments, and shall take or
cause to be taken any and all such further action, as any of the parties may
reasonably deem necessary or desirable in order to carry out the intent and
purposes of this Agreement.
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4. REPRESENTATIONS AND WARRANTIES OF SELLER.
The Buyer and Michael Astor, by their execution of this Agreement,
do hereby acknowledge and agree that Michael Astor ("Astor") has served as the
Chief Operating Officer of the Seller and is intimately familiar with the
Business and financial condition of the Seller. Accordingly, except as otherwise
expressly set forth in this Section 4, neither the Seller nor any other officer,
director, stockholder or affiliate of the Seller, including any holder of
Affiliated Debt, shall make any representation or warranty to the Buyer, Astor
or any other person firm or corporation, pursuant to this Agreement. Subject to
the foregoing, the Seller hereby represents and warrants to the Buyer, as
follows;
4.1 Title to the Assets. Seller has good, valid and marketable title
to the Assets, free and clear of all pledges, liens, claims, charges, options,
calls, encumbrances, restrictions and assessments whatsoever, except as set
forth on Schedule 4.1 annexed hereto (the "Liens"). Except for Liens created in
connection with the Affiliate Debt (all of which shall be released and
discharged as at the Closing Date), on the Closing Date, the Buyer shall
purchase and acquire all of the Assets subject to all of the Liens.
4.2 Valid and Binding Agreement. Seller has full legal right, power
and authority to execute and deliver this Agreement and, subject to the
requisite vote and approval of the holders of record of sixty-six and 2/3
(66-2/3%) percent of the issued and outstanding shares of capital stock of the
Seller, as hereinafter described, has the full legal right, power and authority
to consummate the transactions contemplated hereby. This Agreement enforceable
against Seller in accordance with its terms, except to the extent limited by
bankruptcy, insolvency, reorganization and other laws affecting creditors'
rights generally, and except that the remedy of specific performance or similar
equitable relief is available only at the discretion of the court before which
enforcement is sought.
4.3 Organization, Good Standing and Qualification. The Seller: (a)
is a corporation duly organized, validly existing and in good standing under the
laws of the State of New York; (b) has all necessary corporate power and
authority to carry on its respective business and to own, lease and operate its
properties; and (c) is not required, by the nature of its properties or
business, to be qualified to do business as a foreign corporation in any foreign
jurisdiction.
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4.4 The Seller does not own, directly or indirectly, any stock or
other equity securities of any corporation or entity, or have any direct or
indirect equity or ownership interest in any person, firm, partnership,
corporation, venture or business (a "Subsidiary").
4.5 Compliance with Laws.
(a) To the best of Seller's knowledge, the Seller is, and has
been at all times during the three (3) year period prior to the date hereof, in
compliance with all domestic, foreign, federal, state, local and municipal laws
and ordinances and governmental rules and regulations and all requirements of
insurance carriers, applicable to its business, affairs, properties or assets.
(b) To the best of Seller's knowledge, neither the Seller nor
any of its respective directors, officers or employees, has received any written
notice of default or violation, nor, to the best of Seller's knowledge, is the
Seller or any of its directors, officers or employees in default or violation,
with respect to any judgement, order, writ, injunction, decree, demand or
assessment issued by any court or any federal, state, local, municipal or other
governmental agency, board, commission, bureau, instrumentality or department,
domestic or foreign, relating to any aspect of the Seller's Business, affairs,
properties or assets. Neither Seller, nor, to the best of Seller's knowledge,
the Seller or any of its directors, officers or employees, has received written
notice of, been charged with, or is under investigation with respect to, any
violation of any provision of any federal, state, local, municipal or other law
or administrative rule or regulation, domestic or foreign, relating to any
aspect of the Seller's Business, affairs, properties or the Assets, which
violation would have a material adverse effect on the Seller, the Business or
any material portion of the Assets.
4.6 Litigation. Except as disclosed on Schedule 4.6 annexed hereto,
or otherwise involving claims of $10,000 or less as to each action or $25,000 in
the aggregate, there is not suit, action, arbitration, or legal, administrative
or other proceeding, or governmental investigation (including, without
limitation, any claim alleging the invalidity, infringement or interference of
any patent, patent application, or rights thereunder owned or licensed by the
Seller) pending, or to the best knowledge of Seller, threatened, by or against
the Seller or any of its assets or properties. Except as set forth on Schedule
4.6 thereto, Seller is not aware of any state of facts, events, conditions or
occurrences which might properly constitute grounds for or the basis of any
suit, action, arbitration, proceeding or investigation against or with respect
to the Seller.
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4.7 Transactions with Affiliates. Except as expressly set forth in
the Seller's most recent Form 10-K and other periodic reports filed with the
Securities and Exchange Commission ("SEC") under the 1934 Act (the "1934 Act
Filings") and in connection with the Affiliate Debt, no asset employed or used
in any of the Business of the Seller is owned by, leased from or leased to
Seller, or any other partnership, corporation or trust formed, owned or operated
for Seller's benefit, or any officer, director or employee of the Seller or any
Affiliate of the Seller.
4.8 No Representations as to Future Events. Nothing contained in
this Agreement shall be deemed to constitute a representation or warranty by
Seller with respect to future profitability or business activities of the
Seller, or the effect of any legislation, or general economic conditions on the
Business of the Seller. To the best knowledge of Seller, it has furnished to the
Buyer all relevant information to enable the Buyer and its representatives to
make an informed investment decision concerning the Business and the Seller.
5. REPRESENTATIONS AND WARRANTIES OF THE BUYER.
In connection with the Buyer's purchase of the Assets from Seller,
the buyer represents and warrants to Seller as follows:
5.1 Valid and Binding Agreement. Astor has full legal right, power
and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. This Agreement constitutes the legal, valid
and binding obligations of Astor, enforceable against the Buyer in accordance
with their respective terms, except to the extent limited by bankruptcy,
insolvency, reorganization and other laws affecting creditors' rights generally,
and except that the remedy of specific performance or similar equitable relief
is available only at the discretion of the court before which enforcement is
sought.
5.2 Organization, Good Standing and Qualification. The Buyer: (a)
will be a corporation validly existing under the laws of the State of New York,
(b) will not be required, by the nature of its properties or business, to be
qualified to do business as a foreign entity or corporation in any foreign
jurisdiction.
6. ADDITIONAL AGREEMENTS OF THE PARTIES.
6.1 Confidentiality. Notwithstanding anything to the contrary
contained in this Agreement, and subject only to any disclosure requirements
which may be imposed upon the Buyer or Seller under applicable state or federal
securities, it is expressly understood and agreed by Seller and the Buyer that
(i) this Agreement and the conversations, negotiations and transactions relating
hereto and/or contemplated hereby, and
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(ii) all financial information, business records and other non-public
information concerning the Seller and the Buyer which the Buyer, seller or their
representatives has received or may hereafter receive, shall be maintained in
the strictest confidence by the parties hereto, and shall not be disclosed to
any person that is not associated or affiliated with the Buyer or the Seller and
involved in the transactions contemplated hereby, without the prior written
approval of Seller, on behalf of itself and the Seller, and Astor on behalf of
the Buyer. The parties hereto shall use their best efforts to avoid disclosure
of any of the foregoing or undue disruption of any of the business operations or
personnel of the Seller or the Buyer.
6.2 Additional Agreements and Instruments. On or before the Closing
Date, the Seller and the Buyer shall execute, deliver and file all exhibits,
agreements, certificates instruments and other documents, not inconsistent with
the provisions of this Agreement, which, in the opinion of counsel to the
parties hereto, shall reasonably be required to be executed, delivered and filed
in order to consummate the transactions contemplated by this Agreement,
including, without limitation, such consents and waivers as may be required by
the holders of the Affiliated Debt.
6.3 Non-Interference. Neither the Buyer nor Seller shall cause to
occur any act, event or condition which would cause any of their respective
representations and warranties made in this Agreement to be or become untrue or
incorrect in any material respect as of the Closing Date, or would interfere
with, frustrate or render unreasonably expensive the satisfaction by the other
party or parties of any of the conditions precedent set forth in Sections 7 and
8 below.
6.4 Access to Information. The Seller shall permit the Buyer and its
counsel, accountants and other representatives, as well as investment bankers
and other financing sources, upon reasonable advance notice to the Seller,
during normal business hours and without undue disruption of the Business of the
Seller, to have reasonable access to all properties, books, accounts, records,
contracts, documents and information relating to each of the Seller, and to all
management and employees of the Seller. the Buyer and its representatives shall
also be permitted to freely consult with the Seller's counsel and accountants
concerning the Business of the Seller.
6.5 Release of Liens in Respect of Affiliated Debt. Prior to the
closing Date, Seller shall have obtained from the holders of the Affiliated
Debt, full releases of all Liens on any of the Assets which are now, or may
hereafter, be held by the holders of such Affiliated Debt. the form and content
of such releases shall be reasonably acceptable to Buyer and its legal counsel.
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6.6 Conduct of Business in Normal Course. The Seller shall carry on
its business activities in substantially the same manner as heretofore
conducted, and shall not make or institute any unusual or novel methods of
service, sale, purchase, lease, management, accounting or operation that will
vary materially from those methods used by the Seller as of the date hereof,
without in each instance obtaining the prior written consent of the Buyer.
6.7 Preservation of Business and Relationships. The Seller shall,
without making or incurring any unusual commitments or expenditures, preserve
its business organization intact, and preserve its present relationships with
employees, customers, suppliers and other having business relationships with it.
6.8 Corporate Matters. The Seller shall not, without the prior
written consent of the Buyer:
(a) amend, cancel or modify any material contract, included
in the Assets, or enter into any material new agreement,
commitment or transaction except in each instance, in
the ordinary course of business;
(b) pay, grant or authorize any salary increases or bonuses
except in the ordinary course of business and consistent
with past practice, or enter into any employment,
consulting or management agreements;
(c) modify in any material respect any material agreement to
which it is a party or by which it may be bound, except
in the ordinary course of business;
(d) make any change in its existing management personnel;
(e) except pursuant to commitments in effect on the date
hereof, make any capital expenditure(s) or
commitment(s), whether by means of purchase, lease or
otherwise, or any operating lease commitment(s), in
excess of $2,000 in the aggregate;
(f) materially change its method of collection of accounts
or notes receivable, accelerate or slow its payment of
accounts payable, or prepay any of its obligations or
liabilities, other than prepayments of accounts payable
to take advantage of trade discounts not otherwise
inconsistent with or in excess of historical prepayment
practices;
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(g) declare, pay, set aside or make any dividend(s) or other
distribution(s) of cash or other property, or redeem any
outstanding shares of the Seller's capital stock;
(h) incur any Liability or other indebtedness except, in
each instance, in the ordinary course of business;
(m) subject any of its Assets to any further Liens or
encumbrances, other than Liens assumed by the Buyer
hereunder;
(n) forgive any liability or indebtedness owed to it; or
(o) agree to do, or take any action in furtherance of, any
of the foregoing.
6.9 No Bankruptcy Filing or Pending Acquisition. the Buyer and Astor
hereby covenant and agree that as at the date hereof and on the Closing Date:
(a) the Buyer has no present intention to effect any assignment for the benefit
of creditors or filing under the federal Bankruptcy Act or any state law
affecting creditors and debtors, whether voluntary or involuntary (a "Bankruptcy
Event"); and (b) there is not pending or contemplated by the Buyer or Astor, the
acquisition of the securities or assets of any person, firm or corporation, or
any joint venture or other material transaction with any such person, firm or
corporation (an "Acquisition") which has not been fully disclosed in writing to
the Seller and the holders of the Affiliated Debt.
6.10 Execution of Agreement by Bernard Tessler. On or before the
Closing Date, Seller shall have duly executed and entered into an agreement with
Bernard Tessler (in form and content satisfactory to such parties), pursuant to
which Bernard Tessler shall: (a) sell, at par value per share, an aggregate of
750,000 of his shares of Seller's Common Stock to the holders of the Affiliated
Debt or such other persons as the Seller shall designate; and (b) accept the
aggregate sum of $6,200 in full payment of all accrued fees and other
compensation due to such person by the Seller.
6.11 Change of Name. Within thirty (30) days after the Closing Date,
Seller shall take all steps as shall be necessary to change its corporate name
to a name that does not contain Playorena or any derivation thereof.
7. CONDITIONS PRECEDENT TO BUYER'S PERFORMANCE.
In addition to the fulfillment of the parties' agreements in Section
6 above, the obligations of Buyer to consummate the
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transactions contemplated by this Agreement are further subject to the
satisfaction, at or before the Closing Date of all the following conditions, any
one or more of which may be waived in writing by the Buyer;
7.1 Accuracy of Representations and Warranties. All representations
and warranties made by Seller in this Agreement, in any Schedule(s) hereto,
and/or in any written statement delivered to the Buyer under this Agreement
shall be true and correct in all material respects on and as of the Closing Date
as though such representations and warranties were made on and as of such dates.
7.2 Performance. The Seller shall have performed, satisfied and
complied with all covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by them on or before the
Closing Date.
7.3 Certification. The Buyer shall have received a certificate,
dated as of the Closing Date, signed by Seller, certifying, in such detail as
the Buyer and its counsel may reasonably request, that the conditions specified
in Sections 7.1 and 7.2 above have been fulfilled.
7.4 Resolutions. The Buyer shall have received certified resolutions
of the Board of Directors and Seller in form reasonably satisfactory to counsel
for the Buyer, authorizing the execution, delivery and performance of this
Agreement, and all actions to be taken by the Seller hereunder.
7.5 Proxy Statement and Vote of Seller's Stockholders. The Seller
shall:
(a) have filed with the SEC a Proxy or Information Statement
under the 1934 Act in connection with a special or annual meeting of
the stockholders of the Seller called, in whole or in part, for the
purpose of approving this Agreement and the transactions
contemplated hereby;
(b) such Proxy or Information Statement and all amendments
thereto shall have been received by and declared effective by the
SEC;
(c) no stop order or other administrative or legal action
shall have been instituted enjoining or preventing the holding of a
stockholders' meeting of the stockholders of the Seller (the
"Stockholders' Meeting") called, pursuant to the applicable
provisions of the federal securities laws, and the New York Business
Corporation Law, for the purpose of voting for the approval and
ratification of this Agreement and all transactions contemplated
hereby and pursuant to the Proxy Statement;
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(d) such Stockholders' Meeting shall have been duly held; and
(e) the record owners (as at the record date specified in such
Proxy or Information Statement declared effective by the SEC) of not
less than 66-2/3% of the issued and outstanding shares of capital
stock of the Seller as at such record date shall have validly
approved, adopted and ratified this Agreement and all transactions
contemplated hereby.
The legal counsel to the Buyer shall be solely responsible for the
preparation and filing of the Proxy or Information Statement and all other
documents required to be filed with the SEC and for the conduct of the
Stockholders' Meeting. The Buyer shall be solely responsible to pay all of the
legal fees of its cousel in connection therewith, as well as other services
provided by Buyer's counsel in connection with this Agreement and consummation
of the transactions contemplated hereby.
7.6 Absence of Litigation. No action, suit or proceeding by or
before any court or any governmental body or authority, against the Seller or
pertaining to the transactions contemplated by this Agreement or their
consummation, shall have been instituted on or before the Closing Date, which
action, suit or proceeding would, if determined adversely (a) have a material
adverse effect on the Seller, its Business or any material portion of its
assets, (b) impair the ability of the Seller to deliver all of the Assets to the
Buyer in accordance with the terms of this Agreement, or (c) impair the ability
of Buyer to consummate its acquisition of the Assets.
7.7 Consents. All necessary disclosures to and agreements and
consents of (a) the holders of Affiliated Debt, (b) any parties to any material
contracts and/or licensing authorities which are material to the Seller's
Business, and (c) any governmental authorities or agencies to the extent
required in connection with the transactions contemplated by this Agreement,
shall have been obtained and true and complete copies thereof delivered to the
Buyer.
7.8 Resignations. The Buyer shall have delivered to the Seller the
written resignations, dated and effective on the Closing Date, of all the
members of the Board of Directors of the Seller.
7.9 Proceedings and Instruments Satisfactory. All proceedings,
corporate or other, to be taken in connection with the transactions contemplated
by this Agreement, and all documents incidental thereto, shall be reasonably
satisfactory in form and substance to the Buyer and its counsel.
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7.10 Satisfaction of Agreements. All of the obligations and
agreements of Seller specified in Section 6 shall have been satisfied by Seller
to the reasonable satisfaction of the Buyer.
7.11 Bulk Transfer Compliance. Not less than twenty days prior to
the Closing Date, Seller shall provide Buyer with a list of Buyer's existing
creditors, including addresses, signed and sworn to by an authorized officer of
seller for the purpose of enabling Buyer to comply with the applicable
provisions of Article 6 of the Uniform Commercial Code - Bulk Transfer law as in
effect in the State of New York.
8. CONDITIONS PRECEDENT TO SELLER'S PERFORMANCE.
In addition to the fulfillment of the parties' agreements in Section
6 above, the obligations of Seller to consummate the transactions contemplated
by this Agreement are further subject to the satisfaction, at or before the
Closing Date of all of the following conditions, any one or more of which may be
waived in writing by Seller:
8.1 Accuracy of Representations and Warranties. All representations
and warranties made by the Buyer in this Agreement and/or in the written
statement delivered by the Buyer or Buyer under this Agreement shall be true and
correct in all material respects on and as of each of the Closing Date as though
such representations and warranties were made on and as of such dates.
8.2 Performance. The Buyer shall have performed, satisfied and
complied with all covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the Buyer on or before
each of the Closing Date.
8.3 Certification. Seller shall have received a certificate, dated
the each of the Closing Date, signed by the Buyer certifying, in such detail as
Seller and its counsel may reasonably request, that the conditions specified in
Sections 8.1 and 8.2 above have been fulfilled.
8.4 Resolutions. Seller shall have received certified resolutions of
the stockholders of Buyer and of the Board of Directors of the Buyer, in form
reasonably satisfactory to counsel for Seller, authorizing the execution,
delivery and performance of this Agreement and all actions to be taken by the
Buyer hereunder.
8.5 Proceedings and Instruments Satisfactory. All proceedigns to be
taken in connection with the transactions contemplated by this Agreement, and
all documents incidental thereto, shall be reasonably satisfactory in form and
substance to Seller and their counsel.
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8.6 Satisfaction of Agreements. All of the obligations and
agreements of the Buyer specified in Section 6 shall have been satisfied by the
Buyer to the reasonable satisfaction of Seller.
8.7 Approval of Seller's Stockholders. This Agreement and all of the
transactions contemplated hereby and pursuant to the Proxy or Information
Statement shall have been duly approved, adopted and ratified by the
stockholders of the Seller, all as contemplated by Section 7.5 of this
Agreement.
9. CLOSING.
9.1 Unless this Agreement shall be terminated pursuant to Section 10
below, the payment of the consideration and the delivery of all other documents
and instruments required pursuant to this Agreement to be executed and delivered
on the Closing Date (the "Closing"), shall take place at the offices of Kreinik,
Aaron & Gersh, 780 Third Avenue, New York, New York, 10017, legal counsel to the
Buyer, or such other location in New York, New York or elsewhere as agreed to
between the parties, on such date as shall be ten (10) days following the
requisite approval of this Agreement and the transactions contemplated hereby by
the stockholders of the Seller; provided, that in no event shall the Closing
Date be later than September 30, 1995 without the written consent of all parties
hereto (the date of the Closing being referred to in this Agreement as the
"Closing Date").
10. TERMINATION OF AGREEMENT.
10.1 Termination. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time prior to the
Closing Date:
(a) by the mutual written consent of Seller and the Buyer;
(b) by the Buyer or by Seller, if: (i) a material breach shall
exist with respect to the written representations and warranties made by the
other party or parties, as the case may be, (ii) the other party or parties, as
the case may be, shall fail to perform any covenant or agreement on their part
to be performed hereunder, or shall take any action prohibited by this
Agreement, if such actions shall or may have a material adverse effect on the
Seller and/or the transactions contemplated hereby, (iii) the other party or
parties, as the case may be, shall not have furnished, upon reasonable notice
therefor, such certificates and documents required in connection with the
transactions contemplated hereby and matters incidental thereto as it or they
shall have agreed to and matters incidental thereto as it or they shall have
agreed to furnish, and it is reasonably unlikely that the other party or parties
will be able to furnish such item(s) prior to September 30, 1995, or (iv) any
consent of any third party to the transactions contemplated hereby (whether or
not the necessity of which is
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disclosed herein or in any Schedule hereto) is reasonably necessary to prevent a
default under any outstanding material obligation of Seller or the Buyer, and
such consent is not obtainable without material cost or penalty (unless the
party or parties not seeking to terminate this Agreement agree or agrees to pay
such cost or penalty); or
(c) by the Buyer or by Seller, at any time on or after
September 30, 1995, if the transactions contemplated to be consummated at the
Closing shall not have been consummated prior thereto, and the party or parties
directing termination shall not then be in breach or default of any obligations
imposed upon such party by this Agreement.
10.2 Effect of Termination of Agreement.
In the event of termination of this Agreement pursuant to Section
10.1, no party to this Agreement shall have any further liability to the other.
In the event of termination by any party as provided in this Section 10.2,
prompt written notice shall be given to the other party.
11. INDEMNIFICATION.
11.1 General.
(a) Seller. Seller hereby agrees to defend, indemnify and hold
harmless the Buyer and/or Astor from, against and in respect of any and all
claims, losses, costs, expenses, obligations, liabilities, damages, recoveries
and deficiencies, including interest, penalties and reasonable attorneys' fees
(collectively "Losses"), that the Buyer and/or Astor may incur, sustain or
suffer as a result of:
(i) a breach of any of the representations, and
warranties of Seller, which are contained in Article 4
of this Agreement (hereinafter referred to as "Seller
Breach of Warranty Losses"); or
(ii) the failure of Seller to perform any of the
covenants and agreements of Seller in respect of the
Excluded Liabilites or which is contained in Articles 6
and 7 this Agreement on the Closing Date or thereafter,
(hereinafter referred to as "Seller Covenant Losses").
(b) The Buyer and Astor. The Buyer and Astor. The Buyer and
Astor do hereby jointly and severally agree to defend, indemnify and hold
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harmless Seller from, against and in respect of any and all Losses that Seller
many incur, sustain or suffer as a result of:
(i) a breach of any of the representations, and
warranties of the Buyer which are contained in Article 5
of this Agreement (hereinafter referred to as "Buyer
Breach of Warranty Losses"); or
(ii) the failure of the Buyer or Astor to perform any of
the covenants and agreements of Buyer in respect of the
Liabilities or which is contained in Articles 6 and 7 of
this Agreement on the Closing Date or thereafter
(hereinafter referred to as "Buyer Covenant Losses").
11.2 Limitations on Breach of Warranty Losses.
(a) Anything elsewhere contained in this Agreement to the
contrary notwithstanding, except for any Losses involving a finding by any court
of competent jurisdiction (from which no appeal can or has been taken) that
statutory or common law fraud has been committed by Seller, Seller shall not be
liable with respect to any Seller Breach of Warranty Losses unless and until the
aggregate amount of all such Seller Breach of Warranty Losses incurred by the
Buyer shall exceed the sum of $5,000 (the "Basket"), and Seller shall thereafter
only be liable for Seller Breach of Warranty Losses in excess of the Basket up
to an aggregate indemnification liability hereunder equal to the aggregate
amount of the Excluded Liabilities.
(b) Anything elsewhere contained in this Agreement to the
contrary notwithstanding, except for any Losses involving a finding by any court
of competent jurisdiction (from which no appeal can or has been taken) that
statutory or common law fraud has been committed by the Buyer or any affiliate
of the Buyer, the Buyer shall not be liable with respect to any Buyer Breach of
Warranty Losses unless and until the aggregate amount of all such Buyer Breach
of Warranty Losses incurred by Seller shall exceed the sum of $5,000 (the
"Basket"), and the Buyer shall thereafter only be liable for Buyer Breach of
Warranty Losses in excess of the Basket up to an aggregate indemnification
liability hereunder equal to the aggregate amount of the Liabilities assumed by
the Buyer hereunder.
(c) The Seller and the Buyer shall be entitled to
indemnification for Breach of Warranty Losses only in respect of claims for
which notice of claim shall have been given to Seller or Buyer (as the case may
be) on or before a date which shall be two (2) years following the Closing Date;
provided, however, that neither the Seller nor the Buyer shall be entitled to
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indemnification in the event that the subject claim for indemnification relates
to a third-party claim and the Seller or the Buyer (as the case may be) delayed
giving notice thereof to the indemnitor(s) to such an extent as to cause
material prejudice to the defense of such third-party claim.
(d) The provisions of this Section 11.2 shall apply only to
Seller Breach of Warranty Losses or Buyer Breach of Warranty Losses. In the
event that any Seller Covenant Losses or Buyer Covenant Losses shall occur and
shall be continuing at any time from and after the Closing Date, the injured
party or parties shall have all applicable remedies at law or in equity
available to it, as are provided in this Agreement, without regard to any Basket
or expiration of the right to assert claims.
11.3 Claims for Indemnity. Whenever a claim shall arise for which
any party shall be entitled to indemnification hereunder, the indemnified party
shall notify the indemnifying party in writing within sixty (60) days of the
indemnified party's first receipt of notice of, or the indemnified party's
obtaining actual knowledge of, such claim, and in any event within such shorter
period as may be necessary for the indemnifying party or parties to take
appropriate action to resist such claim. Such notice shall specify all facts
known to the indemnified party giving rise to such indemnity rights and shall
estimate (to the extent reasonably possible) the amount of potential liability
arising therefrom. If the indemnifying party shall be duly notified of such
dispute, the parties shall attempt to settle and compromise the same or may
agree to submit the same to arbitration or, if unable or unwilling to do any of
the foregoing, such dispute shall be settled by appropriate litigation, and any
rights of indemnification established by reason of such settlement compromise,
arbitration or litigation shall promptly thereafter be paid and satisfied by
those indemnifying parties obligated to make indemnification hereunder.
11.4 Right to Defend. If the facts giving rise to any claim for
indemnification shall involve any actual or threatened action or demand by any
third party against the indemnified party or any of its Affiliates, the
indemnifying party or parties shall be entitled (without prejudice to the
indemnified party's right to participate at its own expense through counsel of
its own choosing), at their expense and through a single counsel of their own
choosing, to defend or prosecute such claim in the name of the indemnifying
party or parties, or any of them, or if necessary, in the name of the
indemnified party. In any event, the indemnified party shall give the
indemnifying party advance written notice of any proposed compromise or
settlement of any such claim. If the remedy sought in any such action or demand
is solely money damages, the indemnifying party shall have fifteen (15) days
after receipt of such notice of settlement to object to the proposed compromise
or settlement, and if it does so object, the indemnifying party
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shall be required to undertake, conduct and control, through counsel of its own
choosing and at its sole expense, the settlement or defense thereof, and the
indemnified party shall cooperate with the indemnifying party in connection
therewith.
11.5 Resolution of Disputes.
(a) Any dispute involving the interpretation or application of this
Agreement which cannot be resolved by the parties hereto shall be resolved by
final and binding arbitration under the auspices of the American Arbitration
Association in New York, New York. The decision and award of any arbitrator
selected by the American Arbitration Association, or by the parties hereto from
a list supplied by the American Arbitration Association, shall be final and
binding upon all parties hereto, and may be enforced by the prevailing party or
parties in any court of competent jurisdiction. The costs of the arbitration
shall be borne by the losing party or parties; provided, that such costs shall
be appropriately pro-rated to the extent of any settlement prior to such
arbitration award, or compromised amount contained in any such award.
(b) Notwithstanding Section 11.5(a) above, in the event that any
actual or anticipatory breach of any covenant and agreement contained herein by
any one or more party may cause irreparable damage to any other parties hereto
for such actually or potentially damaged party would have no adequate remedy at
law, the aggrieved party or parties may immediately apply to any Court of
competent jurisdiction for a temporary restraining order or such other
preliminary or permanent injunctive or interim relief as may be deemed
appropriate by such court.
12. COSTS.
12.1 Finder's or Broker's Fees. Each of the Buyer and Seller
represents and warrants that neither they nor any of their respective Affiliates
have dealt with any broker or finder in connection with any of the transactions
contemplated by this Agreement, and no broker or other person is entitled to any
commission or finder's fee in connection with any of these transactions.
12.2 Expenses. The Buyer and Seller shall each pay all costs and
expenses incurred or to be incurred by them, respectively, in negotiating and
preparing this Agreement and in closing and carrying out the transactions
contemplated by this Agreement.
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13. FORM OP AGREEMENT.
13.1 Effect of Headings. The Section headings used in this Agreement
and the titles of the Schedules hereto are included for purposes of convenience
0nly, and shall not affect the construction or interpretation of any of the
provisions hereof or of the information set forth in such Schedules.
13.2 Entire Agreement; Waivers. This Agreement constitutes the
entire agreement between the parties pertaining to the subject matter hereof,
and supersedes all prior agreements or understandings as to such subject matter.
No party hereto has made any representation or warranty or given any covenant to
the other except as set forth in this Agreement. No waiver of any of the
provisions of this Agreement shall be deemed, or shall constitute, a waiver of
any other provisions, whether or not similar, nor shall any waiver constitute a
continuing waiver. No waiver shall be binding unless executed in writing by the
party making the waiver.
13.3 Counterparts. This Agreement may be executed simultaneously in
any number of counterparts; each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
14. PARTIES.
14.1 Parties in Interest. Nothing in this Agreement, whether
expressed or implied, is intended to confer any rights or remedies under or by
reason of this Agreement on any persons other than the parties to it and their
respective heirs, executors, administrators, personal representatives,
successors and permitted assigns, nor is anything in this Agreement intended to
relieve or discharge the obligations or liability of any third persons to any
party to this Agreement.
14.2 Notices. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be deemed to
have been duly given (i) on the date of service if served personally on the
party to whom notice is to be given, or if given by facsimile transmission to
the number indicated below, or (ii) on the third day after mailing if mailed to
the party to whom notice is to be given, by first class mail, registered or
certified, postage prepaid, and properly addressed as follows:
(a) If to the Buyer:
c/o Michael Astor
34 Summit Drive
Manhasset, New York 11030
facsimile no. (516) 883-7616
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(b) If to Seller:
Playorena Corporation
22 Manhasset Avenue
Port Washington, New York 1l050
Attention: Vice-President, Finance
or to such other address as either party shall have specified by notice in
writing given to the other party.
15. MISCELLANEOUS.
15.1 Amendments and Modifications. No amendment or modification of
this Agreement shall be valid unless made in writing and signed by the party to
be charged therewith.
15.2 Binding Effect. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective heirs,
executors, administrators, personal representatives, successors and permitted
assigns.
15.3 Governing Law; Jurisdiction. This Agreement shall be construed
and interpreted and the rights granted herein governed in accordance with the
laws of the State of New York applicable to contracts made and to be performed
wholly within such State.
15.4 Right of Assignment. Notwithstanding anything to the contrary
contained herein, Astor shal1 have the right, at any time subsequent to
execution of this Agreement, to assign all of his rights arising under this
Agreement to a corporation of which he is a shareholder by written notice of
such assignment to Seller, provided, that, unless otherwise agreed in writing by
the Seller, Astor shall remain fully liable for all for all representations,
warrants, covenants and agreements of the Buyer hereunder, including, without
limitation, liability which may have accrued or arisen from the date of this
Agreement through the date of such assignment.
IN WITNESS WHEREOF, the parties have executed this Agreement on and as of
the date first set forth above.
______________________________________
Michael Astor
PLAYORENA INC.
By: __________________________________
_________________, Vice President
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Schedule 2.2b
"Affiliate Debt" includes any and all liabilities and obligations,
whatsoever and however arising, whether contingent or otherwise, to the
following:
1. Robert Rubin
2. Stanley Kaplan
3. Lawrence Kaplan
4. Fred Jaroslow
5. Universal Partners L.P. (Joel Kanter)
6. Dr. Eugene Stricker
7. Sheila Kaplowitz (Mercury L.P.)
8. Alfred and Jean Romano
9. David M. Barnes
10. Peter Wolf
11. Edmond O'Donnell
12. Jamshid Amighi
13. Neil Ragin
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Schedule 2.2d
1. Expenses related to preparation and filing of the Form 10Q of
February 28, 1995 and all future SEC filings.
2. Amounts due to American Stock Transfer and Standard and Poors.
3. Claims made against Seller after the Closing Date by shareholders of
Seller, whether or not such claims are a result of actions or events
occurring before or after the Closing Date.
<PAGE>
Schedule 4.1
With the exception of liens arising with respect to liabilities and
obligations owing to the persons and entities listed in Schedule 2.2b,
there are no liens.
