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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to ss.240.14a(c) or ss.240.14a-12
WHAT A WORLD!, INC.
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(Name of Registrant as Specified in Its Charter)
_______________________________________________________________________
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
N/A
(2) Aggregate number of securities to which transaction applies:
N/A
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
One fiftieth of one percent (0.02%) of $500,000
(4) Proposed maximum aggregate value of transaction:
N/A
(5) Total fee paid:
$100.00
[_] Fee paid previously with preliminary materials:
N/A
[_] 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:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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PRELIMINARY COPY
WHAT A WORLD!, INC.
10901-B Roosevelt Boulevard
Suite 100
St. Petersburg, Florida 33716
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NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
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May 9, 1997
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To the Stockholders:
NOTICE IS HEREBY GIVEN that a Special Meeting (the "Meeting") of
Stockholders of WHAT A WORLD!, INC. (the "Company"), a Delaware corporation,
will be held at the offices of the Company, 10901-B Roosevelt Boulevard, St.
Petersburg, Florida, on May 9, 1997, at 10:00 a.m. (local time) for the
following purpose:
1. To consider and vote on a proposed resolution in favor of the
sale of substantially all of the operating assets of the Company, as described
in the attached proxy statement.
2. To transact such other business as may properly come before the
Meeting or any adjournment thereof.
All the above matters are more fully described in the accompanying
proxy statement. Under the General Corporation Law of the State of Delaware,
stockholders do not have appraisal rights in connection with the sale described
therein.
The Board of Directors has fixed March 17, 1997, as the record date
for the determination of the stockholders entitled to notice of, and to vote at,
the Meeting, or any adjournment or postponement thereof; and only shareholders
of record at the close of business on that date are entitled to notice of and to
vote at the Meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS
ADOPT THE PROPOSED RESOLUTION AUTHORIZING THE SALE OF SUBSTANTIALLY ALL THE
OPERATING ASSETS OF THE COMPANY.
By order of the Board of Directors,
DAVID B. CORNSTEIN DAVID F. MILLER
Chairman of the Board President and Secretary
St. Petersburg, Florida
April __, 1997
WHETHER OR NOT YOU PLAN TO ATTEND THIS MEETING, PLEASE DATE AND SIGN THE
ENCLOSED PROXY CARD AND RETURN IT IN THE ENVELOPE PROVIDED. YOU MAY REVOKE YOUR
PROXY AT ANY TIME PRIOR TO ITS EXERCISE BY SENDING WRITTEN NOTICE OF REVOCATION
TO THE SECRETARY OF THE COMPANY PRIOR TO THE MEETING OR BY ATTENDING THE MEETING
AND VOTING YOUR SHARES IN PERSON.
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PRELIMINARY COPY
WHAT A WORLD!, INC.
10901-B Roosevelt Boulevard
Suite 100
St. Petersburg, Florida 33716
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PROXY STATEMENT
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This proxy statement and accompanying form of proxy are being
furnished in connection with the solicitation of proxies by the Board of
Directors of What A World!, Inc., a Delaware corporation (the "Company" or
"WAW'), for use at the Company's Special Meeting of Stockholders to be held on
May 9, 1997, at 10:00 a.m. (local time) at the offices of the Company,
10901-B Roosevelt Boulevard, St. Petersburg, Florida, or any adjournment or
postponement thereof (the "Meeting"). Copies of this proxy statement, the
attached Notice of Special Meeting of Stockholders and the enclosed form of
proxy were first mailed to the Company's stockholders on or about April __,
1997.
The Proposal. At the Meeting, the Company's stockholders will
consider and vote upon a proposed resolution (the "Proposal") in favor of the
sale of substantially all of the Company's operating assets. A vote in favor of
the Proposal shall be deemed to be a vote of approval or ratification of: (A)
the Asset Purchase Agreement dated as of March 7, 1997 (the "Sale Agreement"),
between the Company and Natural Wonders, Inc. (the "Buyer" or "Natural
Wonders"), and the agreements related thereto, and (B) the sale (the "Sale") of
substantially all the assets of the Company, for an aggregate cash consideration
of $500,000, subject to adjustment, plus the assumption of certain liabilities,
as contemplated by the Sale Agreement, all as more fully described herein. A
copy of the Sale Agreement is attached to this proxy statement as Appendix A and
incorporated herein by reference.
Approval by the Board. The Company's Board of Directors has
unanimously approved, and recommends that the Company's stockholders approve the
Proposal and approve or ratify the Sale Agreement, the other agreements related
thereto and the Sale (collectively, the "Sale Transaction").
Voting of Proxies. A proxy in the accompanying form, which is
properly executed, duly returned to the Secretary of the Company and not
revoked, will be voted in accordance with the instructions contained in the
proxy. If no instructions are given with respect to any matter specified in the
Notice of Special Meeting to be acted upon at the Meeting, the proxies named
therein will vote the shares represented thereby FOR the Proposal relating to
the Sale Transaction. The Board of Directors currently knows of no other
business that will be presented for consideration at the Meeting. Each
stockholder who has executed a proxy and returned it to the Secretary of the
Company may revoke the proxy by notice in writing to the Secretary of the
Company, or by attending the Meeting in person and requesting the return of the
proxy, in either case at any time prior to the voting of the proxy. Presence at
the Meeting does not itself revoke the proxy. In addition, any later dated
proxies returned on a timely basis would revoke proxies submitted prior thereto.
Solicitation of Proxies. PROXIES ARE BEING SOLICITED BY AND ON
BEHALF OF THE COMPANY. Costs of the solicitation will be borne by the Company.
In addition to solicitation by the use of mails, proxies may be solicited by
directors, officers and employees of the Company in person or by telephone,
facsimile transmission or other means of communication. Such directors, officers
and employees of the Company will not be additionally compensated, but will be
reimbursed for out-of-pocket expenses in connection with such
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solicitation. Arrangements will also be made with brokers and dealers,
custodians, nominees and fiduciaries to assist the Company in the solicitation
of proxies, including for forwarding of proxy materials to beneficial owners of
Common Stock held of record by such persons, and the Company will reimburse such
brokers, dealers, custodians, nominees and fiduciaries for reasonable expenses
incurred in connection therewith but will not otherwise compensate such persons.
The close of business on March 17, 1997, has been fixed as the
record date (the "Record Date") for determining the stockholders entitled to
notice of and to vote at the Meeting. As of the Record Date, there were
2,118,125 shares of the common stock of the Company, $0.01 par value per
share (the "Common Stock") issued and outstanding and entitled to vote.
Shares Entitled to Vote. Each share of Common Stock entitles the
holder thereof to one vote. A majority of the shares of Common Stock issued,
outstanding and entitled to vote at the Meeting, present in person or
represented by proxy, shall constitute a quorum. Abstentions and broker
non-votes are counted as present in determining whether the quorum requirement
is satisfied.
Vote Required. The affirmative vote of the holders of a majority of
the shares of Common Stock issued and outstanding will be necessary for the
approval of the Proposal relating to the Sale Transaction. Abstentions and
broker non-votes will be counted as votes against the Proposal relating to the
Sale Transaction. A broker non-vote occurs when a nominee holding shares for a
beneficial owner does not vote on a Proposal because the nominee does not have
discretionary voting power and has not received instructions from the beneficial
owner.
Shares Committed. David B. Cornstein, the Chairman of the Board of
the Company, David F. Miller, the President and Secretary of the Company, and
Edward J. Munley, former President of the Company, have agreed to vote their
respective shares of Common Stock in favor of the approval of the Proposal
relating to the Sale Transaction. Messrs. Cornstein, Miller and Munley represent
in the aggregate approximately 54.3% of the issued and outstanding shares of
Common Stock. Accordingly, the affirmative vote of Messrs. Cornstein, Miller and
Munley will be sufficient to approve such Proposal. No action on the part of any
other stockholder will be required to approve the Proposal relating to the Sale
Transaction. See "The Sale Transaction--Terms of the Sale Agreement."
No Appraisal Rights. Under the General Corporation Law of the State
of Delaware, stockholders of the Company do not have appraisal rights in
connection with the Sale.
THIS PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE
NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON
REQUEST FROM WHAT A WORLD!, INC., 10901-B ROOSEVELT BOULEVARD, SUITE 100, ST.
PETERSBURG, FLORIDA 33716, ATTENTION OF DAVID F. MILLER, PRESIDENT AND SECRETARY
(TELEPHONE NUMBER (813) 577-9366). IN ORDER TO ENSURE TIMELY DELIVERY OF SUCH
DOCUMENTS, ANY REQUEST SHOULD BE DELIVERED TO MR. MILLER BY NO LATER THAN MAY
1, 1997.
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SUMMARY
The following is a summary, is not complete and is qualified in its
entirety by reference to the more detailed information set forth elsewhere in
this proxy statement, including the appendices hereto, which stockholders are
urged to read in its entirety. Certain capitalized terms used in this summary
are defined elsewhere in this proxy statement.
The Meeting
Time, Place, and Purpose
The Special Meeting will be held at 10:00 a.m. (local time) on
Monday, May 9, 1997, at the offices of the Company, 10901-B Roosevelt
Boulevard, St. Petersburg, Florida, to vote upon the Proposal and to approve
the Sale Transaction and to transact such other business as may properly come
before the Meeting or any adjournment thereof.
Required Vote
Approval of a majority of the 2,118,125 shares of Common Stock
outstanding on the Record Date has been established as a requirement for the
approval of the Sale Transaction in order to comply with the provisions of
Section 271 of the Delaware General Corporation Law which requires such approval
for the sale of all or substantially all of a corporation's assets. David B.
Cornstein, the Chairman of the Board of the Company, David F. Miller, the
President and Secretary of the Company, and Edward J. Munley, former President
of the Company, have agreed to vote their respective shares of Common Stock in
favor of the approval of the proposal and of the Sale Transaction. Messrs.
Cornstein, Miller and Munley represent in the aggregate approximately 54.3% of
the issued and outstanding shares of Common Stock. Accordingly, the affirmative
vote of Messrs. Cornstein, Miller and Munley will be sufficient to approve such
Proposal. No action on the part of any other stockholder will be required to
approve the Proposal relating to the Sale Transaction. See "The Meeting --
Quorum and Shares Entitled to Vote, Vote Required and Shares Committed." The
holders of a majority of such shares, present in person or represented by proxy,
shall constitute a quorum at the Meeting.
Recommendation
The Board of Directors believes that the Sale Transaction is in the
best interest of, and is fair to, the Company and its stockholders. The Board of
Directors unanimously recommends that stockholders vote FOR approval of the Sale
Transaction. See "The Sale Transaction - Recommendation of the Board of
Directors."
The Sale Transaction
Terms of the Sale
Pursuant to the terms of the Sale Agreement, the Buyer has agreed to
pay $500,000 in cash, subject to adjustment, and to assume certain liabilities
of the Company relating to the assets and business to be transferred. For a more
particular description of the Sale Agreement and the assets and liabilities to
be transferred to, and assumed by, the Buyer and to be retained by the Company,
see "The Sale Transaction Terms of the Sale Agreement, Management Agreement and
Related Agreements."
Consummation of the Sale is subject to the satisfaction of a number
of conditions, including obtaining the approval of the stockholders of the
Company. See "The Sale Transaction - Terms of the Sale Agreement."
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Reasons for the Sale
The Board of Directors unanimously approved the proposed Sale
Transaction, and recommends that stockholders approve the proposed Sale
Transaction, for the reasons discussed below under "The Sale Transaction
- -Background of the Sale," " -- The Company's Reasons for the Sale," " --
Possible Disadvantages to the Sale," and " -- Recommendation of the Board of
Directors."
Conduct of Business after the Sale; Use of Proceeds
As a result of the Sale, substantially all of the Company's assets
will be sold, its liabilities and obligations will be repaid and the Company
will become an acquisition company. The Company will be transformed to serve as
a vehicle to effect acquisitions, whether by merger, exchange of capital stock,
acquisition of assets or other similar business combination (a "Business
Combination"), of or with an operating business (an "Acquired Business"). The
business objective of the transformed Company (hereinafter, "Post-Sale WAW")
will be to effect a Business Combination with an Acquired Business which
Post-Sale WAW believes has significant growth potential. Post-Sale WAW intends
to utilize its remaining cash, equity, debt or a combination thereof in
effecting a Business Combination. See "The Sale of Assets Business of the
Company Following the Sale".
The Company plans to use the cash proceeds from the Sale to repay
debt, fund transactional expenses and pay ongoing general and administrative
costs. The Company may use the remainder of the net proceeds, if any, for
general corporate purposes and to seek acquisition candidates.
Potential Effect of Sale upon Holders of Common Stock
As the Company has had to date (and, it is anticipated, will have
for the foreseeable future) no earnings, stockholders will receive no dividends
for some time, if at all. There can be no assurance that stockholders will
receive any payments as a result of the Sale or upon the liquidation or
reorganization of the Company.
Accounting Treatment of the Sale
For accounting purposes, the Sale is presented as a sale of assets
transaction, resulting in a loss to the Company of approximately $2,353,000. In
addition, during the period February 2, 1997, through March 9, 1997, the Company
operated its business consistent with its past practices and incurred net
operating losses of approximately $231,000 during such period. The Company will
also be liable for a maximum closing penalty of $45,000, pursuant to the Sale
Agreement, if the closing occurs between April 15, 1997, and May 31, 1997. The
Company has recognized an asset and has accrued $100,000 of reimbursable and
documented legal costs and expenses relating to the Sale Agreement in the
accompanying statement of net assets on the liquidation basis of accounting. The
Company also expects to incur approximately $100,000 of nonreimbursable legal
costs and other expenses relating to the sale transaction subsequent to February
1, 1997. See "Unaudited Pro Forma Financial Information."
Federal Income Tax Consequences of the Sale
The Sale will be reported as a sale of assets for federal income tax
purposes. See "The Sale Transaction - Federal Income Tax Consequences of the
Sale" and "Unaudited Pro Forma Consolidated Financial Statements".
Pro Forma Financial Information
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See "Unaudited Pro Forma Financial Information" for certain pro
forma financial information with respect to the Sale Transaction.
No Dissenters' Rights of Appraisal
Under the General Corporation Law of the State of Delaware,
stockholders of the Company do not have appraisal rights in connection with the
Sale. See "The Sale Transaction - Absence of Dissenters' Rights of Appraisal."
AVAILABLE INFORMATION
The Company is subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements (if required) and other
information with the Securities and Exchange Commission (the "Commission"). The
reports, proxy Statements and other information filed by the Company with the
Commission may be inspected and copied at the public reference facilities
maintained by the Commission at Judiciary Plaza, Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's Regional Offices at 7
World Trade Center, 13th Floor, New York, New York 10048, and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material can also be obtained at prescribed rates from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents previously filed by the Company with the
Commission pursuant to the Securities Exchange Act of 1934 are incorporated by
reference into this document;
(1) The Company's Annual Report on Form 10-KSB for the fiscal year
ended February 3, 1996;
(2) The Company's Quarterly Report on Form 10-QSB for the three
months ended May 4, 1996;
(3) The Company's Quarterly Report on Form 10-QSB for the three
months ended August 3, 1996;
(4) The Company's Quarterly Report on Form 10-QSB for the three
months ended November 2, 1996;
(5) The Company's Current Report on Form 8-K dated March 26, 1996;
(6) The Description of the Company's Common Stock contained in Item
1 of the Company's Registration Statement on Form SB-2 (No. 33-84774), filed
under the Securities Act of 1933, as amended, with the Commission on October 4,
1994; and
All documents filed by the Company pursuant to Section 13(A), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this proxy statement
and prior to the date of the Meeting shall be deemed to be incorporated herein
by reference from the date of filing such documents. Any statement contained
herein or in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this proxy
statement to the extent that a statement contained herein (or in any
subsequently filed document which also is or is deemed to be incorporated by
reference herein) modifies or supersedes such statement. Any such statement so
modified, or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this proxy statement.
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THE MEETING
Quorum; Shares Entitled to Vote. As of the Record Date, 2,118,125
shares of Common Stock of the Company were issued and outstanding and entitled
to vote at the Meeting. The holders of a majority of such shares, present in
person or represented by proxy, shall constitute a quorum at the Meeting. Any
stockholder present in person or by proxy who abstains from voting on any
particular matter described herein will be counted for purposes of determining a
quorum. An abstention from voting or a broker's non-vote by a stockholder will
have the same effect as a vote against such matter by such stockholder.
Vote Required. Approval of a majority of the 2,118,125 shares of
Common Stock of the Company outstanding on the Record Date has been established
as a requirement for the approval of the Sale Transaction in order to comply
with the provisions of Section 271 of the Delaware General Corporation Law which
requires such approval for the sale of all or substantially all of a
corporation's assets.
Shares Committed. David B. Cornstein, the Chairman of the Board of
the Company, David F. Miller, the President and Secretary of the Company, and
Edward J. Munley, former President of the Company, have agreed irrevocably to
vote their respective shares of Common Stock in favor of the approval of the
Proposal relating to the Sale Transaction. Messrs. Cornstein, Miller and Munley
represent in the aggregate approximately 54.3% of the issued and outstanding
shares of Common Stock. Accordingly, the affirmative vote of Messrs. Cornstein,
Miller and Munley will be sufficient to approve such Proposal. No action on the
part of any other stockholder will be required to approve the Proposal relating
to the Sale Transaction.
Voting of Proxies. Proxies in the accompanying form, which are
properly executed and duly returned to the Secretary of the Company and not
revoked prior to exercise, will be voted in accordance with the instructions
contained therein. If a proxy is executed and returned without instructions as
to how it is to be voted, such proxy will be voted in favor of the Proposal to
approve the Sale Transaction. Each proxy granted pursuant to this solicitation
is revocable and may be revoked at any time prior to its exercise, provided
written notice of revocation is received by the Secretary of the Company prior
to the Meeting. A stockholder who attends the Meeting in person may, if he or
she wishes, vote by ballot at the Meeting, thereby canceling any proxy
previously given by such stockholder.
Solicitation of Proxies. Officers and employees of the Company may
solicit proxies by personal interview, mail, telegraph or telephone. The Company
may also retain third parties to solicit proxies from stockholders. Brokers,
bankers and other nominees will be reimbursed for out-of-pocket and other
reasonable clerical expenses incurred in obtaining instructions from beneficial
owners of the Company's Common Stock. The cost of preparing this proxy statement
and all other costs in connection with solicitation of proxies for the Meeting
are being borne by the Company.
Even if you plan to attend the Meeting in person, please sign, date
and return the enclosed proxy promptly. If you attend the Meeting, your proxy
will be voided and you can vote in person. A postage-paid return-addressed
envelope is enclosed for your convenience. Your cooperation in giving this
matter your immediate attention and in returning your proxy will be appreciated.
THE SALE TRANSACTION
BACKGROUND OF THE SALE
The terms of the Sale are the result of arm's-length negotiations
between the Company and Natural Wonders. The following is a brief description of
the negotiations leading to the execution of the Sale Agreement.
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After the Company's disappointing financial performance for the
fiscal year ended in February 1996, the Board of Directors determined to make a
number of changes which it believed could strengthen the organization and
improve sales. Mr. Munley, a member of the Board, resigned as President of the
Company in March 1996 and was replaced by Mr. Miller, also a member of the
Board. A number of measures were taken to strengthen merchandise planning and
maintenance as well as improve product assortments and in-stock positions. In
addition, several cost savings initiatives, at both the store level and in the
corporate office, were implemented by management. At about the same time, the
Company approached the underwriter of the Company's 1994 initial public offering
of securities to seek its assistance in locating another entity with a view
toward effectuating a possible business combination. The underwriter suggested a
party in the same business as the Company which was much larger than the Company
and, in February 1996, certain directors of the Company met with the president
of such candidate. A confidentiality agreement was signed and financial and
other information was delivered to such party. Such party never made an offer
for a transaction involving all or substantially all of the Company, whether by
merger, or stock or asset sale. In May 1996, such party advised the Company that
it was not interested in pursuing further a possible combination.
Based upon the Company's significant losses, working capital deficit
and considerable ongoing capital requirements, including the substantial monthly
rental and other expenses under its store leases, the Board of Directors
determined that unless external funding, such as from the sale of equity
securities or bank and other borrowings, was made available to the Company, it
would not survive through the 1996 Christmas selling season. As no alternative
sources of funds were available, in August 1996, Messrs. Cornstein, Miller and
Jones entered into a commitment to make seasonal loans, in the aggregate amount
of $600,000, to the Company. See Management Discussion and Analysis of Financial
Condition and Results of Operations." Despite increases in the Company's
year-end sales, the Board of Directors considered it unlikely that additional
funding from external sources, in sufficient amounts and on satisfactory terms,
would be available, particularly in view of the Company's significant cash
requirements for the operation of the Company's existing stores and seasonal
store program and the substantial central office overhead which was greater than
the amount which the Company's level of operations could support.
Preliminary discussions between the Company and Natural Wonders
regarding a possible business combination were held late in the Summer of
1996. In September 1996, Natural Wonders declined to pursue an acquisition of
the Assets (as hereinafter defined) at the Company's proposed price range of
$1 to $2 million. In October 1996, Mr. Miller approached Natural Wonders to
determine whether it continued to have an interest concerning a possible
transaction. The other major competitor in the industry had recently been
acquired and Mr. Miller believed it would not be interested in entering into
a transaction with the Company. In addition, the financial results had been
very negative. Representatives of Natural Wonders indicated that they might
have an interest, but stated that they would not be willing to focus on any
possible transaction during the Christmas season. However, they indicated
they would endeavor to contact the Company in early 1997.
As a result of cash flow shortfalls during the Christmas season, Mr.
Miller contacted the Buyer in January 1997 and negotiations between the parties
were renewed. In the course of discussions between the parties, Natural Wonders
indicated that it would be willing to assume the Company's obligations under its
store leases, even if any requisite landlord consents to assignment were not
obtained provided that the Company agree to enter into a mutually acceptable
alternative arrangement if any assignment was not forth coming.
In February 1997, concurrent with its negotiation with Natural
Wonders, the Company was contacted by another party in the same business as the
Company which had approximately four stores. During the preliminary discussions
with such party, it conveyed a tentative proposal to purchase the Company. After
its own preliminary analysis, such party determined that it lacked sufficient
financing both to acquire the Company and to provide working capital for its
ongoing operations. Such party did not make a formal offer for a possible
transaction with the Company. In late February and early March 1997, the
prospective purchaser again approached the Company with an informal proposal to
merge into the Company, indicating its belief that financing to operate the
business might be procured in the future. However, the prospective purchaser
advised the Company in March 1997 that it anticipated that it would not have
access to adequate funding in the
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foreseeable future, and thereupon abandoned its pursuit of negotiations with the
Company. The Company believed that such party would not obtain landlord approval
to assignment of the Company's store leases as quickly as such approval might be
obtained by Natural Wonders. In addition, any transaction would have to include
a provision that the acquirer satisfy the Company's obligations to its
landlords, regardless of whether the leases were formally assigned by the
Company. Furthermore, such party did not have available to it the funds to
satisfy the Company's obligations to the landlords in the event such approvals
were not obtained.
The Board then proceeded to review the final terms of the Sale to
Natural Wonders, commencing with the aggregate consideration of $500,000
(subject to adjustment) together with the assumption of certain liabilities. The
Board discussed in detail the fairness of the price, and the likelihood that any
other prospective buyer would emerge or be willing to pay a price equal to or
exceeding that offered by the Buyer prior to the time available cash on hand
would be exhausted.
The Board then reviewed the advantages to be gained by proceeding
with the Buyer under the terms set forth in the proposed Sale Agreement. In
light of the alternatives determined by the Board of Directors to be available
to the Company, which were to either seek protection under the Bankruptcy Code
or enter into the Sale Agreement, the Board of Directors determined to its
satisfaction the fairness of the Sale to the Company and the stockholders, and
that it was not necessary to engage, at a considerable cost which the Company
could not reasonably afford, any investment banking firm to render an opinion
regarding the fairness of the transaction.
The Board was provided with copies of the Sale Agreement for its
review prior to its execution, and members of the Company's management and
counsel were made available to the Board. The Board was also provided with
copies of the other agreements ancillary to the Sale Agreement. The Board had an
opportunity to discuss issues relating to other potential buyers (as well as
such other issues as they deemed appropriate) with the Company's management and
counsel.
After reviewing the proposed terms of the Sale Agreement and the
prospects for the Company if the Sale Transaction were not approved, the Board
of Directors unanimously voted to authorize the execution of the Sale Agreement
and to recommend that the stockholders of the Company approve the terms of the
Sale Transaction at the Meeting. On March 7, 1997, (i) the Company and the Buyer
executed the Sale Agreement and (ii) Messrs. Cornstein, Miller and Munley each
executed a separate agreement pursuant to which they irrevocably agreed to vote
in favor of the Sale Transaction at the Meeting. The Company and Natural Wonders
subsequently publicly announced the Sale Transaction.
THE COMPANY'S REASONS FOR THE SALE
In considering the Sale, the Board of Directors of the Company took
into account various advantages and disadvantages of the Sale to the Company and
the stockholders. The advantages identified by the Board of Directors were:
(a) The Sale Transaction will allow the Company to discontinue a
business that has been unprofitable and to allow the Company to pay all of its
obligations as they become due without liquidating the Company.
(b) The Sale Transaction will enable the Company to remain in
existence and to seek other opportunities.
POSSIBLE DISADVANTAGES TO THE SALE
The Company's Board of Directors also identified the following
possible disadvantages of the Sale to the Company and the stockholders:
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(a) The transaction will cause the Company to discontinue its
specialty retail business;
(b) The transaction will change the principal business of the
Company; and
(c) The new business of the Company, if any, will be subject to
substantial business risks. See "Business Plan for the Post-Sale WAW--Risk
Factors".
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors of the Company believes that the Sale
Transaction is in the best interests of, and is fair to, the Company and its
stockholders. In reaching its decision to approve the Sale, the Board of
Directors of the Company considered numerous factors including, but not limited
to: (i) the amount and nature of the consideration to be received by the
Company; (ii) the proposed business plan for the Company after the Sale; (iii)
the financial results of the Company since 1994 and the prospects for the
Company; (iv) the outstanding obligations of the Company; (v) the current and
historical stock prices of Common Stock; (vi) the absence of any better offer;
(vii) the risks associated with the specialty retail market segment generally;
and (viii) the alternatives available to the Company.
Among the factors considered in evaluating the Buyer's offer, the
Board of Directors of the Company noted:
(a) The Company has not been profitable since 1993, and there is no
assurance that the Company will be sufficiently profitable in the future to
service all of the Company's liabilities and obligations. The Board of Directors
determined that the Company should seek an opportunity to conduct future
operations, in a related or new industry, so as to provide the potential for a
return for stockholders.
(b) At February 1, 1997, the Company's unaudited results indicated
that its total liabilities exceeded $2 million, total assets were
approximately $2.3 million (comprised of cash and equivalents of $1,394,000,
prepaid expenses of $159,000 and inventories, property and equipment of
$767,000) and stockholders' equity was approximately $295,000. The Sale
provides a means of enabling the Company to satisfy or pay all of its current
liabilities and obligations (other than the store leases). See "Business of
the Company Following the Sale" and "Business Plan for Post-Sale WAW".
(c) The Company has discussed the sale of its assets with other
retail business companies and tried to solicit other potential buyers with
respect to acquiring the Assets. No other party contacted indicated an interest
in matching or exceeding the Buyer's offer, and no other party has approached
the Company with an offer equal to or greater than the Buyer's offer.
(d) The Buyer will pay cash for the Assets, so there is no risk
involved to the Company or the stockholders with the form of consideration.
While certain companies expressed an initial interest in the
Company, none of such companies was willing to make an offer for the
Company in its entirety.
The Board believes that there should be a value placed on the
possibility that the Company may be able to generate returns for its
stockholders in the future through its post-Sale acquisition strategy. See
"Business of the Company Following the Sale" - "Business Plan for Post-Sale
WAW".
The Board believes, therefore, that the Buyer's offer is the best
offer available to satisfy the Company's liabilities and obligations and to
preserve the Company for a possible future return to its stockholders.
9
<PAGE>
After considering these factors and the additional factors discussed
above (to which the Board did not assign specific weights), the Board approved
the Sale Transaction, and recommends that the stockholders approve the Proposal
and approve and ratify the Sale Transaction.
CONDUCT OF BUSINESS AFTER THE SALE; USE OF PROCEEDS
Consummation of the proposed Sale will terminate the Company's
unique specialty retail business, selling nature and science products, which
constitutes all of the Company's present operations. After collection of the
Company's accounts receivable and payment of its accounts payable, the Company
will have no operating business. The Company intends to look for acquisition
candidates for a new business for the Company. See "Business of the Company
Following the Sale".
The Board will explore any opportunities which arise in the future
which it believes are in the best interests of the Company's stockholders. Such
opportunities include selling the stock of the Company to raise capital to make
an acquisition or to merge with a privately-held company. Any such acquisition
would depend on the availability of attractive acquisition candidates and the
Company's ability to finance any such acquisition. The Company has not
identified any acquisition candidates or the availability of financing
arrangements and there can be no assurance that any acquisition will be
accomplished.
The Company plans to use the cash proceeds from the Sale to repay
its debt, fund transactional expenses and pay ongoing general and administrative
costs, which are anticipated to be minimal. The Company may use the remainder of
the net proceeds, if any, for general corporate purposes and to seek
acquisition candidates, as yet unidentified.
The Company agreed that, during the term of the Management
Agreement, as defined below, it shall maintain its corporate office and
distribution center and shall provide the services of two employees of the
Company to dedicate a substantial portion of their business time and attention
to providing services by the Company required thereunder. See "Terms of the Sale
Agreement - The Management Agreement". Thereafter, the Company will either
continue in or close such facility depending upon its business requirements.
In order to carry out the Sale Transaction, the Buyer will be
licensed to use the name of the Company for a limited period.
REGULATORY APPROVALS
In accordance with the Uniform Commercial Code, as adopted in the
State of New York, the Company and the Buyer intend to comply with the bulk
transfer procedure requiring notice to the creditors of the Company's Staten
Island, New York, store location prior to consummation of the Sale at the
Closing.
POTENTIAL EFFECT OF THE SALE UPON HOLDERS OF COMMON STOCK
As the Company has had to date (and, it is anticipated, will have
for the foreseeable future) no earnings, stockholders will receive no dividends
for some time, if at all. There can be no assurance that stockholders will
receive any payments as a result of the Sale or upon liquidation or
reorganization of the Company.
10
<PAGE>
TERMS OF THE SALE AGREEMENT, MANAGEMENT AGREEMENT
AND RELATED AGREEMENTS
The following is a summary, is not complete and is qualified in its
entirety by reference to the copy of the Sale Agreement, Management Agreement
and related agreements included as appendices to this proxy statement, which
stockholders are urged to read in their entirety. Capitalized terms used but not
defined herein shall have the meaning set forth in the Sale Agreement.
The Sale Agreement
General. Pursuant to the terms of the Sale Agreement, in
consideration of the transfer to the Buyer of substantially all of the operating
assets of the Company ("Assets"), comprised of specified inventories, fixed
assets and tangible personal property, intangible personal property and contract
rights, including store leases, other than certain excluded assets, the Buyer
has agreed to pay to the Company $500,000 in cash (the "Purchase Price"),
subject to adjustment, and to assume certain liabilities of the Company. The
liabilities to be assumed by the Buyer ("Assumed Liabilities") include certain
minimum future rental payments under the store leases, estimated by the Company
to be approximately $7,923,000, as well as certain other liabilities, including
common area maintenance charges and other obligations thereunder.
The Purchase Price (subject to adjustment as described below) is
payable in cash at the Closing (as hereinafter defined). On March 7, 1997, the
sum of $500,000 was deposited by Buyer into escrow with Baker & McKenzie, the
Buyer's legal advisors, pursuant to the terms of an escrow agreement dated as of
March 7, 1997, among the Company, the Buyer and Baker & McKenzie (the "Escrow
Agreement").
The Purchase Price is subject to adjustment as follows: the Buyer
has undertaken a physical inventory of certain of the Company's locations on or
about March 8, 1997, (the "Buyer's Inventory"). The Buyer's Inventory shall
be compared to the Company's perpetual inventory records for the select
inventories dated as of March 8, 1997, as adjusted for differences from its
physical inventory as of February 1, 1997. In the event that the Buyer's
Inventory (as extrapolated over all of the Company's inventory maintained at
all locations) is less than $700,000 (the "Minimum Inventory Amount"), any such
difference shall be subtracted at the Closing from the Purchase Price. Based on
the preliminary results of the Buyer's Inventory, the Company believes that no
such adjustment will be required.
Pursuant to the Sale Agreement, the Buyer will pay at Closing an
additional amount, of up to $25,000, to the Company equal to one-quarter of the
value of all good and saleable current inventory of the Company (exclusive of
all goods which are defined by the Company as permanent markdowns (approximately
$80,000 in goods) which goods the Buyer shall receive at no charge) in excess of
the Minimum Inventory Amount. In addition, the Buyer shall reimburse the Company
for (i) all prepaid expenses and deposits (including rent deposits for store
leases) assigned to the Buyer and all cash on hand at each of the Company's
retail store locations ("Leased Properties") as of the close of business on
March 9, 1997.
The closing of the Sale (the "Closing") is scheduled to occur on the
first business day following the approval of the Sale by the Company's
stockholders at the Meeting, or at such other place as the Buyer and the Company
may agree (the "Closing Date"). The obligations of the parties to consummate the
Sale are subject to certain customary conditions such as the accuracy of
representations and warranties in the Sale Agreement, to the performance of the
covenants set forth therein and to the absence of certain legal actions or
proceedings. David B. Cornstein, the Chairman of the Board of the Company, David
F. Miller, the President and Secretary of the Company and Edward J. Munley, the
former President of the Company, who collectively hold an aggregate of 54.3% of
the Common Stock, have irrevocably agreed to vote in favor of the Proposal
relating to the Sale. See "The Meeting".
11
<PAGE>
Assets and Liabilities to be Transferred. The Assets to be
transferred to the Buyer include all good and saleable current inventory of the
Company (which has a value of at least $700,000), fixed assets and tangible
personal property located at the Leased Properties and the Company's warehouse
(including store fixtures, furniture, lighting fixtures, and all store
supplies), intangible personal property (including deposits and prepaid
expenses, vendor lists, customer lists, customer files, customer records,
licenses and permits susceptible of transfer under regulatory agency rules) and
contract rights relating to the operation and maintenance of the Leased
Properties. Excluded assets include, among other assets, cash, a certificate of
deposit, a portion of the Company's inventory and other miscellaneous property
including its corporate office and distribution center. See "Description of
Properties."
Assumed liabilities include obligations of the Company under its
store leases (the "store leases"). The Buyer is assuming all liabilities under
the store leases arising on or after the Closing Date, regardless of whether the
Company is able to obtain the requisite consent to assignment of any one or more
of the store leases. To the extent consent to assignment of a store lease cannot
be obtained, the Company and the Buyer shall enter into such alternative
arrangements and agreements as may be appropriate to effectuate the intent of
the parties with respect to the store leases.
Pursuant to the Sale Agreement, the Company has agreed to permit the
Buyer to have full access and rights to the continued use of the computer and
store register equipment ("Leased Register Equipment") presently leased by the
Company (at a cost to the Company of approximately $7,000 per month in lease
payments) for a period not to exceed one year from the Closing Date, although
the Buyer has agreed to use its best efforts to discontinue the use of the
Leased Register Equipment as quickly as possible after Closing. Furthermore, in
the event the Company discontinues the use of its current corporate offices
which house certain components of the Leased Register Equipment, the Buyer shall
undertake to obtain and pay for a suitable facility for such equipment for the
period during which it requires the use thereof. The Buyer has agreed to pay all
maintenance costs related to the Leased Register Equipment, excluding the
underlying lease payments which shall remain solely an obligation of the
Company.
Liabilities not assumed by the Buyer include, among other
liabilities, accounts payable, accrued prior to (but unpaid as of) March 10,
1997, expenses, long term debt, computer equipment lease, certain severance
obligations and other minor liabilities.
Representations and Warranties. The Sale Agreement contains various
representations and warranties of the Company including, among others,
representations and warranties related to organization and similar corporate
matters; authorization, performance, enforceability and related matters;
requisite consents; the accuracy of financial statements and other financial
information provided to the Buyer; undisclosed liabilities; taxes; litigation;
ownership, condition and title to assets and properties; inventories; personal
property; contracts; real property; warranties and guarantees; personnel;
employee benefit plans; absence of certain changes; compliance with applicable
laws and environmental matters; licenses and permits; insurance; absence of
brokers; employee and labor relations; corporate names and proprietary rights;
and the disclosure in the Sale Agreement regarding representations and
warranties of the Company.
The Sale Agreement contains various representations and warranties
of the Buyer including, among others, representations and warranties related to
organization and similar corporate matters; authorization, performance,
enforceability and related matters; requisite consents; and absence of brokers.
The representations and warranties survive the Closing for a period
of two years from the Closing Date or until expiration of the applicable
statutes of limitations in respect of tax matters and litigation. With respect
to the Buyer's assumption of the liabilities, such obligation shall survive for
so long as there remain outstanding obligations under any of the assumed
liabilities.
12
<PAGE>
Covenants. Pursuant to the Sale Agreement, the Company has agreed,
among other things, that the Company (i) shall in good faith proceed to take all
actions within its power necessary to satisfy all conditions to its obligations
to consummate the transactions contemplated by the Sale Agreement; (ii) after
the Closing Date will conduct no business which competes with the business of
the Buyer; (iii) before the Closing Date will reimburse Buyer for the full
amount of gift certificates redeemed at any Leased Properties and, after the
Closing, will reimburse the Buyer for 50% of the face value of all gift
certificates redeemed; and (iv) after the Closing Date, to continue to make all
lease payments in connection with leased register equipment for a period not to
exceed twelve months.
Pursuant to the Sale Agreement, the Buyer has agreed that it shall
in good faith proceed to take or cause to be taken all actions within its power
necessary to satisfy all conditions to its obligations to consummate the
transactions contemplated by the Sale Agreement and to pay and perform all of
its obligations under the Assumed Liabilities.
Indemnification. The Company has agreed to indemnify the Buyer from
and against damages arising out of or based upon (i) the breach by the Company
of any representation or warranty made by the Company pursuant to the Sale
Agreement; (ii) the non-performance of any covenant made by it pursuant to the
Sale Agreement; (iii) any activities of the Company prior to the Closing; (iv)
liabilities under any employee benefit plans of the Company; (v) any claims for
brokers' fees; (vi) any liabilities arising from the failure to comply with
applicable bulk transfer laws; and (vii) any other liabilities of the Company
not assumed by the Buyer.
The Buyer has agreed to indemnify the Company from and against any
damages which arise out of or are based upon (i) the breach by the Buyer of any
representation or warranty made by the Buyer pursuant to the Sale Agreement;
(ii) any claims for brokers' fees; (iii) the non-performance of any covenant
made by it pursuant to the Sale Agreement; or (iv) the failure to satisfy any of
the assumed liabilities.
Pursuant to the Sale Agreement, neither party shall be obligated to
indemnify the other thereunder unless and until the aggregate amount of the
other party's damages exceeds $10,000.
Expenses. Each party agreed to absorb its own expenses in respect of
the Sale transaction, except that the Buyer agreed to reimburse the Company for
up to $100,000 of reasonable, documented legal costs and expenses.
Termination. The Sale Agreement may be terminated (i) by mutual
written consent of the Company and the Buyer, (ii) by the Buyer if on the
Closing Date the conditions to obligations of the Buyer to close shall not have
been met by the Company or waived by the Buyer or if the Closing does not occur
on or before May 31, 1997 (the "Final Closing Date"), and (iii) by the Company
if the conditions to the obligations of the Company to close shall not have been
met by the Buyer or waived by the Company.
Closing Penalty. The Sale Agreement provides that if the Closing
does not occur by April 15, 1997, for any reason other than the fault of the
Buyer, the Company shall pay to the Buyer on a weekly basis, commencing on April
18, 1997, the sum of $1,000 per day for the period April 16, 1997, through the
Final Closing Date.
The Management Agreement
Simultaneously with the execution of the Sale Agreement and in order
to implement immediately the benefits of the Sale (and to reduce losses by the
Company), the Buyer and the Company entered into a management agreement (the
"Management Agreement"), pursuant to which the Company engaged the Buyer to
operate the Company's specialty gift retail business (the "Business") consistent
with the past practice of the Buyer.
13
<PAGE>
The Buyer agreed to fund certain costs, expenses and liabilities
which relate to the operation of the Business at the Leased Properties
(excluding corporate overhead costs, expenses and liabilities associated with
the operation of the Company's corporate office and distribution center) during
the term thereof (the "Operating Expenses"), it being agreed by the parties that
the Buyer shall not be responsible for any costs, expenses and liabilities which
relate to the operation of the Business by the Company prior to March 10, 1997.
The Buyer agreed, as needed and on a continuing basis during the term thereof,
to procure requisite inventories and provide managerial advice, direction and
services to the Company's store and corporate office personnel. Inventories
shall, unless otherwise agreed by the parties, be supplied to the Company on a
C.O.D. basis, provided the Buyer provides the cash in payment therefor at or
before the time payment is due, or on a consignment basis.
The parties agreed that the Buyer shall be entitled to a fee (the
"Management Fee") equal to all gross operating revenues recognized and/or
received ("Operating Revenues") in respect of the operation of the Business from
and after March 10, 1997, through the date of termination of the Management
Agreement.
The Buyer agreed to open a bank account for the purpose of receiving
(i) cash generated from operations during the term of the Management Agreement
and (ii) to the extent that Operating Revenues exceed Operating Expenses, the
Management Fee. The Company agreed, on a weekly basis, during the term thereof,
to provide to the Buyer information regarding Operating Expenses to be paid
during the then-current week ("Weekly Reports") and the Buyer is required,
within two days after receipt of each Weekly Report, to wire transfer to the
Company such amounts as would enable the Company to make such Operating Expense
payments, it being agreed that any cash from credit card sales during the term
thereof shall be retained by the Company hereunder and shall be applied by the
Company against Operating Expense payments (and the Weekly Reports shall include
information regarding the amount of such credit card receipts in the prior
week).
The Buyer acknowledged that no rights in or to any of the
trademarks, trade names or labels ("Trademarks") of the Company of any kind
shall accrue to it by virtue of the performance of the activities contemplated
thereby; provided, however, that during the term of the Management Agreement,
the Buyer shall have a royalty-free license to use the Trademarks in respect of
operation of the Business at the Leased Properties.
The Company agreed that, during the term of the Management
Agreement, it shall maintain its corporate office and distribution center and
shall provide the services of two employees of the Company to dedicate a
substantial portion of their business time and attention to providing services
by the Company required thereunder.
The Management Agreement was effective as of March 10, 1997, and
shall terminate upon the earlier of the Closing Date or the Final Closing Date.
Subject to the terms of the Management Agreement, in the event the
Closing does not occur by May 31, 1997 due to the failure of the Company to
satisfy the closing conditions set forth in the Sale Agreement by such date, (a)
the Buyer shall be entitled to retain its fee thereunder relating to the period
ending on the date of termination; (b) the Company shall reimburse the Buyer to
the extent of the excess of, if any, of Operating Expenses funded by the Buyer
thereunder above Operating Revenues during the term of the Management Agreement;
and (c) to the extent not covered above, the Company shall reimburse the Buyer
for its reasonable, documented out-of-pocket expenses, including without
limitation legal, accounting and other advisory fees and expenses, salaries (up
to a maximum of $25,000 in aggregate salaries) and travel costs, related to the
transactions contemplated by the Sale Agreement and the Management Agreement
(excluding executive salaries and, except for reimbursable salaries referred to
above, corporate office overhead). The Company shall have no obligation to (i)
pay for inventory purchased or committed to purchase by the Buyer or (ii)
reimburse the Buyer for any expenses not constituting Operating Expenses. In
addition, if the Closing does not occur, the Buyer shall ensure that the Company
has on hand, in the Leased Properties, inventories of current, saleable
merchandise in an aggregate amount of at least $700,000. The Company shall have
no obligation to pay the Buyer for inventories
14
<PAGE>
in excess of $700,000 in the event the Closing does not occur. The Buyer shall
incur no capital expenditures without the Company's consent.
The Company agreed to continue to keep in force and effect during
the term of the Management Agreement all insurance theretofore maintained by the
Company involving the operation of the Business, subject to the obligation of
the Buyer to provide funds thereunder for the payment of premiums on all such
insurance constituting Operating Expenses.
The Company agreed to indemnify and hold harmless the Buyer, and its
officers, directors and employees, from and against any and all damages which
arise out of or are based upon the operation of the Business during the term of
the Management Agreement unless such damages resulted from the Buyer's gross
negligence or willful misconduct.
The Buyer agreed to indemnify and hold harmless the Company, and its
officers, directors and employees, from and against any and all damages which
arise out of or are based upon the Buyer's gross negligence or willful
misconduct.
The Non-Competition Agreement
By a non-competition undertaking to be entered into at or about
the time of the closing of the Sale, Messrs. Cornstein and Miller will agree
not to compete with the existing retail market category of the Company for a
period of two years from the Closing Date.
ACCOUNTING TREATMENT OF SALE
For accounting purposes, the Sale is presented as a sale of assets
transaction, resulting in a loss to the Company of approximately $2,353,000. In
addition, during the period February 2, 1997, through March 9, 1997, the Company
operated its business consistent with its past practices and incurred net
operating losses of approximately $231,000 during such period. The Company will
also be liable for a maximum closing penalty of $45,000, pursuant to the Sale
Agreement, if the closing occurs between April 15, 1997, and May 31, 1997. The
Company has recognized an asset and has accrued $100,000 of reimbursable and
documented legal costs and expenses relating to the Sale Agreement in the
accompanying statement of net assets on the liquidation basis of accounting. The
Company also expects to incur approximately $100,000 of nonreimbursable legal
costs and other expenses relating to the Sale Transaction subsequent to February
1, 1997. See "Unaudited Pro Forma Financial Information."
FEDERAL INCOME TAX CONSEQUENCES OF THE SALE
The Sale will be reported as a sale of assets for federal income tax
purposes. The resulting loss from the Sale, amounting to approximately
$2,353,000, may not be carried back to offset prior years' taxes, as the Company
has not operated profitably and paid any income taxes since prior to the
Offering. The Company has not received an opinion of counsel regarding the tax
consequences of the Sale. The foregoing description of the tax consequences of
the Sale is based upon the Company's review of its current tax status and its
review of applicable tax law and regulations.
Due to a change in the Company's operations from the specialty
retail business to an acquisition company after the Sale Transaction, the
benefit of any net operating loss carryforwards may not be realized.
THE COMPANY WILL NOT SEEK AN OPINION OF COUNSEL WITH RESPECT TO THE
ANTICIPATED TAX TREATMENT. THE FOREGOING SUMMARY OF CERTAIN FEDERAL INCOME TAX
CONSEQUENCES IS INCLUDED FOR GENERAL INFORMATION ONLY AND DOES NOT CONSTITUTE
LEGAL ADVICE TO ANY STOCKHOLDER.
15
<PAGE>
CERTAIN INFORMATION CONCERNING THE BUYER
Natural Wonders is a specialty retailer of unique and affordable
family gifts inspired by the wonders of science and nature. As of March 1, 1997,
it operated 151 stores in 36 states. Natural Wonders had sales of approximately
$138,800,000 for the fiscal year ended February 1, 1997. Natural Wonders will
fund the Purchase Price from available working capital.
All information contained in this proxy statement relating to the
Buyer has been supplied by it to the Company.
OUTSTANDING SECURITIES AND PRINCIPAL STOCKHOLDERS
Of the 10,000,000 currently authorized shares of Common Stock, as of
the Record Date, 2,118,125 were outstanding, 560,000 shares were reserved for
issuance upon exercise of employee stock options granted or available for future
grant under the Company's 1994 Stock Option Plan, 40,000 shares were
reserved for issuance upon exercise of options granted or available for future
grant under the 1994 Nonemployee Directors' Stock Option Plan. 1,350,000
shares were reserved for issuance upon exercise of outstanding warrants
issued in connection with the Company's offering in 1994 and 200,000 shares
were reserved for issuance upon exercise of outstanding warrants issued in
connection with the Working Capital Commitment.
The following table sets forth, as of the Record Date, the
beneficial ownership of shares of Common Stock by (i) each person who is known
by the Company to own more than 5% of the outstanding shares of Common Stock,
(ii) each director and executive officer of the Company and (iii) all of the
Company's current officers and directors as a group:
<TABLE>
<CAPTION>
Amount and Nature of
Name and Address of Beneficial Owner(1) Beneficial Ownership(2) Percent owned
- --------------------------------------- ----------------------- -------------
<S> <C> <C>
David B. Cornstein 680,352(3) 29.80%
David F. Miller 627,062(4) 27.14%
Edward J. Munley 280,000(5) 12.54%
Brian S. Lappin 7,533(6) *
Susan K. Shanfelter 28,100(7) 1.3%
James Martin Kaplan 14,000(8) *
Hugh H. Jones, Jr. 27,000(9) 1.26%
All officers and directors as a 1,659,047(3)(4)(5) 63.4%
group (7 persons) (7)(8)(9)
</TABLE>
- ----------
* Less than one percent
(1) The address of each person listed is c/o What A World!, Inc., 10901-B
Roosevelt Boulevard, Suite 100, St. Petersburg, Florida 33716.
(2) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date of this proxy statement
upon the exercise of options or warrants. Each beneficial owner's percentage
ownership is determined by assuming that options or warrants that are held by
such person (but not those held by any other person) and which are exercisable
within 60 days from the date of this proxy statement
16
<PAGE>
have been exercised. Unless otherwise noted, the Company believes that all
persons named in the table have sole voting and investment power with respect to
all shares of Common Stock beneficially owned by them.
(3) The number of shares beneficially owned by Mr. Cornstein assumes the
exercise of options to purchase 5,000 shares of Common Stock and the exercise of
warrants to purchase 160,000 shares of Common Stock.
(4) The number of shares beneficially owned by Mr. Miller assumes the
exercise of options to purchase 102,500 shares of Common Stock and the
exercise of warrants to purchase 90,000 shares of Common Stock, but does not
include any shares owned by Mr. Miller's adult children. Mr. Miller disclaims
beneficial ownership of any shares owned by his children.
(5) The number of shares beneficially owned by Mr. Munley assumes the
exercise of options to purchase 75,000 shares of Common Stock but does not
include any shares owned by Mr. Munley's adult children. Mr. Munley disclaims
beneficial ownership of any shares owned by his children. Mr. Munley resigned
as President of the Company in March 1996.
(6) The number of shares beneficially owned by Mr. Lappin assumes the
exercise of options to purchase 7,333 shares of Common Stock. Does not
include an aggregate of 12,667 shares of Common Stock issuable at various
times upon the exercise of options granted to Mr. Lappin.
(7) The number of shares beneficially owned by Mr.Shanfelter assumes the
exercise of options to purchase 28,000 shares of Common Stock. Does not
include an aggregate of 34,000 shares of Common Stock issuable at various
times upon the exercise of options granted to Ms. Shanfelter.
(8) The number of shares beneficially owned by Mr. Kaplan assumes the exercise
of options to purchase 5,000 shares of Common Stock.
(9) The number of shares beneficially owned by Mr. Jones assumes the exercise of
options to purchase 5,000 shares of Common Stock and the exercise of warrants
to purchase 21,000 shares of Common Stock.
MANAGEMENT
Directors and Officers
The following is a list of each director and executive officer of
the Company with their respective ages and positions:
Name Age Position
---- --- --------
David B. Cornstein 58 Chairman of the Board and
Director
David F. Miller 67 President, Secretary and Director
Brian S. Lappin 28 Vice President of Finance and
Chief Financial Officer
Susan K. Shanfelter 33 Vice President of Marketing and
Store Operations
Edward J. Munley* 65 Director
James Martin Kaplan 52 Director
17
<PAGE>
Hugh H. Jones, Jr. 67 Director
- ----------
* President through March 26, 1996
All directors hold office until the next annual meeting of stockholders and the
election and qualification of their successors.
FINANCIAL INFORMATION ABOUT THE COMPANY
The following sets forth summary historical financial data of the
Company for the two years ended February 1, 1997, and for the quarters ended
April 29, July 29 and October 28, 1995, and May 4, August 3, and November 2,
1996, respectively. As a result of the Sale Agreement and the approval of the
Sale Transaction by the Board of Directors of the Company, the Company has
changed its basis of accounting from the going concern basis to the liquidation
basis as of February 1, 1997. The data should be read in conjunction with the
Financial Statements of the Company, the Notes thereto and Management's
Discussion and Analysis of Financial Condition and Results of Operations,
included herein and incorporated herein by reference from pages 9 through 14
and F-1 through F-16 of the Company's 1995 Annual Report, the Company's November
2, 1996 financial statements and notes thereto and Management's Discussion and
Analysis of the Condensed Consolidated Statements of Operations for the Quarter
Ended November 2, 1996, incorporated herein by reference from pages 3 through 11
of the Company's Quarterly Report on Form 10-QSB for the quarterly period ended
November 2, 1996.
WHAT A WORLD!, INC.
CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Years Ended Quarters Ended
----------- --------------
February 3, February 1, April 29, May 4, July 29, August October November
1996 1997 1995 1996 1995 3, 1996 28, 1995 2, 1996
------------------------ ----------------------------------------------------------------------------
(Unaudited)
STATEMENT OF OPERATIONS
DATA:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $ 5,510 $ 8,167 $ 651 $ 1,203 $ 641 $ 1,318 $ 653 $ 1,275
Loss from operations (671) (1,053) (324) (499) (298) (357) (325) (470)
Net loss (561) (1,043) (287) (493) (264) (353) (295) (474)
Net loss per common $ (0.26) $ (0.49) $ (0.14) $ (0.23) $ (0.12) $ (0.17) $ (0.14) $ (0.22)
share
BALANCE SHEET DATA:
Property and equipment, net $ 2,654 $ * $ 1,170 $ 2,569 $ 1,135 $ 2,496 $ 1,864 $ 2,519
Working capital 1,813 * 3,121 1,426 2,902 1,162 1,936 653
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Years Ended Quarters Ended
----------- --------------
February 3, February 1, April 29, May 4, July 29, August October November
1996 1997 1995 1996 1995 3, 1996 28, 1995 2, 1996
------------------------ ----------------------------------------------------------------------------
(Unaudited)
STATEMENT OF OPERATIONS
DATA:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total assets 5,591 2,320 4,573 4,720 4,334 4,250 4,614 5,224
Capital lease obligations 157 * 124 140 111 123 120 107
Total stockholders' equity 3,691 295 3,965 3,198 3,701 2,845 3,406 2,371
</TABLE>
* Pursuant to the presentation under the standards applicable to a
liquidation basis of accounting, assets and liabilities are not classified as
current or non-current.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OF OPERATIONS FOR
THE FISCAL YEAR ENDED AND QUARTERLY PERIOD ENDED FEBRUARY 1, 1997
GENERAL
The Company was organized in July 1993 and opened its first
permanent store in August 1993. All of the Company's twelve permanent stores
have been in operation for over one year. Accordingly, the Company has a limited
operating history upon which an evaluation of its performance and prospects can
be made.
The fiscal year ended February 1, 1997 ("Fiscal 1996") included 52
weeks, while the fiscal year ended February 3, 1996 ("Fiscal 1995") included 53
weeks of operations. The quarterly period ended February 1, 1997, (the "Fourth
Quarter of Fiscal 1996") included 13 weeks while the quarterly period ended
February 3, 1996, (the "Fourth Quarter of Fiscal 1995") included 14 weeks of
operations.
The Company operated twelve permanent stores at both February 1,
1997 and February 3, 1996. In addition, the Company operated 13 temporary stores
during the Fourth Quarter of Fiscal 1996, as compared to three temporary stores
during the Fourth Quarter of Fiscal 1995.
RESULTS OF OPERATIONS
Net sales for the 13 weeks ended February 1, 1997 (the "Fourth
Quarter of Fiscal 1996") increased by approximately $806,000 over net sales for
the comparable 14 weeks ended February 3, 1996 (the "Fourth Quarter of Fiscal
1995"). Net sales also increased by $2,656,000 for the 52 weeks ended February
1, 1997 over the 53 weeks ended February 3, 1996. The increases are principally
a result of additional sales from 13 seasonal stores operated during the Fourth
Quarter of Fiscal 1996 and the operation of 12 permanent stores for the full 52
week period ended February 1, 1997.
Comparable store sales (sales of stores opened during the same
months during the comparable period in the prior year) decreased 4.9% in the
Fourth Quarter of Fiscal 1996 and decreased 6.7% in the 52 weeks of Fiscal 1996.
The comparable store sales analysis for stores opened during Fiscal 1995
includes less days of operation during the initial month of operation as
compared to the comparable month in Fiscal 1996. In addition, the seasonal store
locations are not included in the calculation, since there were no identical
locations. The Company adjusted its product assortment to respond to increased
competition and the changing demands of its customers.
Gross profit for the Fourth Quarter of Fiscal 1996 is estimated to
be $2,050,000 or 46.9% of net sales, compared with approximately $1,783,000 or
50.0% of net sales for the Fourth Quarter of Fiscal 1995. Gross profit for the
52 weeks of Fiscal 1996 is estimated to be $3,858,000, or 47.2% of net sales, as
compared to
19
<PAGE>
approximately $2,733,000, or 49.6% of net sales in the 53 weeks of Fiscal 1995.
The decrease in gross profit as a percentage of net sales was principally a
result of markdowns which were taken during the Fourth Quarter of Fiscal 1996
and the 52 weeks of Fiscal 1996 in an effort to refine the product assortment.
Comparable store gross profit (gross profit of stores opened during
the same months during the comparable period in the prior year) for the Fourth
Quarter of Fiscal 1996 decreased approximately $107,000 to approximately
$1,518,000, or 48.1% of net sales, from approximately $1,625,000, or 49.9% of
net sales, in the Fourth Quarter of Fiscal 1995. Comparable store gross profit
for the 52 weeks of Fiscal 1996 decreased approximately $300,000 to
approximately $2,573,000, or 49.5% of net sales, from approximately $2,274,000,
or 46.8% of net sales, in the comparable 53 weeks of Fiscal 1995. The comparable
store gross profit analysis for stores opened during Fiscal 1995 includes less
days of operation during the initial month as compared to the comparable month
in Fiscal 1996. The decrease in comparable store gross profit as a percentage of
sales has resulted primarily from inventory markdowns.
Net income of $277,000 was recorded for the Fourth Quarter of
Fiscal 1996, compared with net income of approximately $286,000 for the
comparable period in Fiscal 1995.
Selling, general and administrative expenses ("SG&A") increased to
approximately $1,777,000 in the Fourth Quarter of Fiscal 1996 and to
approximately $4,911,000 for the 52 weeks of Fiscal 1996 from approximately
$1,422,000 and $3,318,000 for the Fourth Quarter of Fiscal 1995 and the 53 weeks
of Fiscal 1995, respectively. The primary components of SG&A are store occupancy
costs (which include rent, utilities, common area charges, real estate taxes and
other expenses associated with the operation of a retail store in a regional
mall), store management and sales staff payroll, depreciation expense and
corporate payroll. The increase in SG&A was, for the most part, the result of
increases in store operating expenses, including store personnel compensation
and occupancy costs associated with additional permanent store openings.
Interest and other income for the Fourth Quarter of Fiscal 1996 and
in the 52 weeks of Fiscal 1996 was approximately $18,000 and $46,000,
respectively, as compared to approximately $17,000 and $135,000 from comparable
periods in 1995. The quarterly increase is due primarily to the increase in cash
equivalents during the Company's peak season while the yearly decrease is
primarily a result of reduced levels of cash equivalents throughout the year due
to new store openings.
Interest expense for the Fourth Quarter of Fiscal 1996 and in the 52
weeks of Fiscal 1996 was approximately $14,000 and $37,000, respectively, as
compared to approximately $7,000 and $25,000 from comparable periods in 1995.
The increases are due primarily to the interest paid on the cash borrowed
against the Working Capital Commitment (see below).
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of approximately $1.8 million at
February 3, 1996, and net equity of approximately $295,000 (and long-term
capital lease obligations of approximately $100,000) at February 1, 1997. In
order to fund its capital and operating requirements, the Company has been
primarily dependent (i) on cash proceeds received from loans from certain
members of the Board of Directors, from the Company's initial public offering
in November 1994 (the "Offering") and, prior thereto, from sales of equity
securities to David B. Cornstein, the Company's Chairman of the Board of
Directors, David F. Miller, the Company's current President, and Edward J.
Munley, the Company's former President, each of whom is a director and
founder of the Company (collectively, the "Original Stockholders"), and (ii)
on loans from others.
On August 28, 1996, Mr. Miller, Mr. Cornstein, and Hugh H. Jones,
Jr., also a member of the Company's Board of Directors (collectively, the
"lenders"), entered into a commitment to lend the Company, for working capital
purposes, as needed, and to fund the opening of 13 temporary stores, up to an
aggregate of $600,000 at an interest rate of 12% per annum (the "Working Capital
Commitment"). All amounts outstanding under the Working Capital Commitment were
repaid when due, together with accrued interest thereon, on January 3, 1997.
Such loans had been secured by a first priority lien on substantially all of the
assets of the
20
<PAGE>
Company. As partial consideration for the Working Capital Commitment, the
Company granted to the lenders options to purchase an aggregate of 200,000
shares at an exercise price of $1.00, exercisable until August 31, 2001. In
connection with the Working Capital Commitment, the Company granted to the
lenders certain demand and piggyback registration rights relating to the
securities underlying such warrants.
During the 52 weeks of Fiscal 1996, cash decreased by approximately
$93,000 to approximately $1,294,000. The overall decrease in cash resulted
primarily from cash used for the purchases of property and equipment used in
temporary stores of approximately $196,000. The Company repaid approximately
$62,000 in indebtedness during the period.
During the 53 weeks of Fiscal 1995, cash decreased by approximately
$1,565,000 to approximately $1,387,000. The overall decrease in cash resulted
primarily from cash used in the purchase of property and equipment of
$1,645,000. The Company repaid approximately $55,000 in indebtedness during the
period.
Except as stated above, the Company currently does not maintain any
lines of credit or cash borrowings to finance its capital requirements. The
Company maintains a $100,000 letter-of-credit to serve as collateral for
primarily all of the Company's capital lease obligations. The letter-of-credit
expires in November 1997 or in the event of a sale of all or substantially all
of the assets of the Company.
During Fiscal 1996, the Company's inventories increased by
approximately $229,000 to approximately $1,207,000 from approximately $978,000
at February 3, 1996. The increase is primarily a result of the Company retaining
unsold inventory from the seasonal locations. During Fiscal 1995, the Company's
inventories increased by approximately $333,000 to approximately $978,000 from
approximately $645,000 at January 28, 1995. The increase was primarily a result
of the Company modifying inventory quantities to appropriate seasonal levels.
However, as a result of a change to a liquidation basis of accounting effective
February 1, 1997, inventories, property, plant and equipment were written down
to net realizable value of $767,000.
Except as noted above, the Company has no current material
arrangements with respect to, or sources of, additional financing, and it cannot
be anticipated that any of the officers, directors or stockholders will provide
any additional portion of the Company's future financing requirements. With the
expiration of the Working Capital Commitment on January 3, 1997, there can be no
assurance that additional financing will be available to the Company on
commercially reasonable terms, or at all. Any inability to obtain additional
financing could have a materially adverse effect on the Company, including
possibly requiring the Company to significantly curtail, and possibly causing
the Company to cease, its operations. In addition, any equity financing may
involve substantial dilution to the interests of the Company's then-existing
stockholders. Further, there can be no assurance that the Company will achieve
profitability or positive cash flow.
SEASONALITY AND QUARTERLY FLUCTUATIONS
As is the general pattern in the retail industry where
disproportionately higher sales levels are generated during the Christmas
selling season, the Company's business is, and is expected to continue to be,
highly seasonal, with a substantial portion of its revenues derived from product
sales during the months of November and December. Seasonality factors have
caused the Company's operating results to fluctuate significantly from quarter
to quarter. Sales substantially below those normally expected in the fourth
quarter of any fiscal year would have a materially adverse effect on the
Company's operating results for such fiscal year. The Company's results of
operations have also fluctuated significantly from quarter to quarter as a
result of a number of other factors, including the timing of new store openings
(and expenses incurred in connection therewith) by either the Company or its
competitors, the marketing activities of its competitors and the emergence of
new market entrants.
21
<PAGE>
TAX LOSS CARRYFORWARDS
The Company's status as an S Corporation terminated upon the
consummation of the Offering. Any pro-rata net operating losses incurred by the
Company prior to such termination are not available to offset future taxable
income of the Company. See ("federal income tax consequences of the sale".)
EFFECTS OF INFLATION
Inflation has not had a material effect on the Company's operations.
The Company normally has been able to diminish the effects of inflationary cost
increases by increasing its prices.
BUSINESS OF THE COMPANY FOLLOWING THE SALE
The Company's ongoing ability to meet its obligations will be
dependent on its ability to complete successfully a business combination with an
entity having sufficient cash flow to meet the Company's obligations.
As a result of the Sale, substantially all of the Company's assets
will be sold, its liabilities and obligations will be repaid and the Company
will become an acquisition company. Set forth below is a description of the
Company's business as proposed to be operated following consummation of the
Sale. The stockholders of the Company will not have an opportunity to vote
separately on the sale of assets and the change in the nature of the Company's
business. A vote for the Sale is also a vote for a change in the Company's
business. Consequently, a vote in favor of the Sale will effectively constitute
a vote in favor of changing the nature of the Company's business. See "Risk
Factors" below for a description of certain business risks inherent in changing
the Company into an acquisition company.
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma financial information reflects the
following:
o The sale by the Company to the Buyer of the Assets for a
cash purchase price of $500,000, such Sale being
presented as if it had occurred on February 1, 1997.
o The application by the Company of the proceeds of the
Sale to the payment of debt of the Company.
o Sale by the Company to the Buyer of certain equipment,
with the remainder being revalued to fair market value.
o Elimination of the liability for deferred rent and
establishment of a reserve for severance liability.
o The discontinuation of the Company's mall-based
specialty retail business, featuring nature and science
items.
o The transformation of the Company, following the Sale,
into an acquisition company, dependent for service of
its general and administrative cost obligations on its
ability to complete with success a Business Combination
with a cash flow-producing entity.
The following unaudited pro forma information is provided for
comparative purposes only. The unaudited pro forma information presented is
based upon the historical financial statements of the Company and should be read
in conjunction with such financial statements and the related notes thereto
which are included elsewhere herein or incorporated herein by reference.
The pro forma data are based upon assumptions and include
adjustments as explained in the notes to the unaudited pro forma financial
statements that could differ from the actual recording of the transaction. The
actual recording of the transaction will reflect actual costs incurred in
connection with the Sale, which could differ from the estimates used in the pro
forma financial statements, and the results of business operations between the
date of the pro forma data and the actual closing date.
22
<PAGE>
What A World!, Inc.
Historical and Pro Forma Unaudited
Statement of Net Assets on the Liqidation Basis of Accounting
As of February 1, 1997
<TABLE>
<CAPTION>
February 1, 1997 Pro Forma Pro Froma as
---------------- Adjustments of 2/1/1997
(Unaudited) (Unaudited)
----------- -----------
<S> <C> <C> <C>
ASSETS:
Cash and cash equivalents 1,294,189 577,003 (a) 1,871,192
Certificate of Deposit 100,000 100,000
Inventories, property and equipment 767,325 (517,795)(b) 249,530(b)
Recoverable prepaid expenses and other assets 159,208 (59,208)(c) 100,000(c)
---------- ---------- ----------
TOTAL ASSETS 2,320,722 2,320,722
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
LIABILITIES:
Accounts payable 1,386,608 1,386,608(d)
Accrued expenses 638,999 638,999(e)
---------- ----------
TOTAL LIABILITIES 2,025,607 2,025,607
---------- ----------
STOCKHOLDERS' EQUITY:
Common stock 21,181 21,181
Additional paid-in capital 4,538,782 4,538,782
Accumulated deficit on the liquidation (4,264,848) (4,264,848)
basis of accounting ---------- ----------
Total stockholders' equity 295,115 295,115
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' 2,320,722 2,320,722
EQUITY ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations and Accumulated Deficit
as of February 1, 1997
<S> <C> <C>
NET SALES 8,166,755 8,166,755
COST OF SALES 4,308,643 4,308,643
---------- ----------
Gross profit 3,858,112 3,858,112
SELLING, GENERAL AND ADMINISTRATIVE 4,910,755 4,910,755
EXPENSES ---------- ----------
Loss from operations (1,052,643) (1,052,643)
INTEREST AND OTHER INCOME 46,356 46,356
INTEREST EXPENSE (36,789) (36,789)
---------- ----------
</TABLE>
23
<PAGE>
<TABLE>
<S> <C> <C> <C>
9,567 9,567
---------- ----------
NET LOSS (1,043,076) (1,043,076)
ACCUMULATED DEFICIT, beginning of year (868,752) (868,752)
ACCUMULATED DEFICIT, end of year (1,911,828) (1,911,828)
CONVERSION TO THE LIQUIDATION BASIS (2,353,020) (2,353,020)
OF ACCOUNTING ---------- ----------
ACCUMULATED DEFICIT ON THE (4,264,848) (4,264,848)
LIQUIDATION BASIS OF ACCOUNTING AT ========== ==========
FEBRUARY 1, 1997
NET LOSS PER WEIGHTED AVERAGE (0.49) (0.49)
COMMON AND COMMON EQUIVALENT ========== ==========
SHARE OUTSTANDING
WEIGHTED AVERAGE COMMON AND 2,118,125 2,118,125
COMMON EQUIVALENT SHARE ========== ==========
OUTSTANDING
</TABLE>
- ----------
(a) To record the sale of substantially all the assets of the Company. The
increase in cash is due primarily to receipt of the purchase price
($500,000) and adjustments thereto under the Sale Agreement, return of
deposits, and cancellation of prepaid services.
(b) Under the Sale Agreement, inventories, property and equipment are sold for
$500,000 plus 25% of the inventory cost for inventory in excess of
$700,000, up to a maximum of $25,000. The remaining inventory was sold
between February 2, 1997 and March 9, 1997 in normal operations in the
specialty retail business.
(c) Deposits and other prepaid expenses are reimbursable under the Sale
Agreement. The remaining balance relates to reimbursable legal costs
the Buyer, pursuant to the Sale Agreement.
(d) Trade payables remain liabilities of the Company.
(e) Accrued expenses include audit and reimbursable legal fees, future lease
commitments and imputed interest related to such commitments that are not
assumed by the Buyer, future insurance premiums, various payroll related
costs, and other miscellaneous items. Pursuant to the assignment of the
leases, the deferred rent no longer remains a liability of the Company.
NOTE: To record the unaudited pro forma adjustment loss on the Sale of
$2,353,000. For accounting purposes, the Sale is presented as a sale of assets
transaction, resulting in a loss to the Company of approximately $2,353,000. In
addition, during the period February 2, 1997, through March 9, 1997, the Company
operated its business consistent with its past practices and incurred net
operating losses of approximately $231,000 during such period. The Company will
also be liable for a maximum closing penalty of $45,000, pursuant to the Sale
Agreement, if the closing occurs between April 15, 1997, and May 31, 1997. The
Company has recognized an asset and has accrued $100,000 of reimbursable and
documented legal costs and expenses relating to the Sale Agreement in the
accompanying statement of net assets on the liquidation basis of accounting. The
Company also expects to incur approximately $100,000 of nonreimbursable legal
costs and other expenses relating to the sale transaction subsequent to February
1, 1997. See "Unaudited Pro Forma Financial Information."
NOTE: The pro forma Financial Statements are based upon the Company's position
on the final day of Fiscal 1996 (February 1, 1997) and adjustments are made as
if the Sale had been consummated on that day. In fact, the Company has had
continuing operations through March 9, 1997, which are not reflected.
The Condensed Balance Sheets as at May 4, August 3 and November 2,
1996, and Management Discussion and Analysis with respect thereto, are all
incorporated herein by reference from the Company's Quarterly Reports on Form
10-QSB for the quarters ended May 4, August 3 and November 2, 1996,
respectively.
24
<PAGE>
WHAT A WORLD!, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Fiscal Year Ended
------------------------
February 3, February 1,
1996 1997
----------- -----------
(Audited) (Audited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (561,217) $(1,043,076)
Adjustments to reconcile net loss to net cash and
cash equivalents provided by operating activities-
Depreciation and amortization 207,285 386,749
Loss on sales of property and equipment -- 4,114
Loss on impairment 85,789 --
Changes in operating assets and liabilities-
Construction allowance receivable (227,000) 267,000
Inventories (332,894) (228,786)
Prepaid expenses and other current assets (121,404) 84,262
Other assets (20,737) (2,713)
Accounts payable 387,236 834,192
Accrued expenses 295,968 (223,712)
Deferred rent 421,196 87,479
----------- -----------
Net cash provided by operating activities 134,222 165,509
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (1,644,542) (212,391)
Proceeds from sale of plant and equipment -- 15,900
----------- -----------
Net cash used in investing activities (1,644,524) (196,491)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations (54,829) (61,827)
----------- -----------
NET DECREASE IN CASH AND
CASH EQUIVALENTS (1,565,131) (92,809)
CASH AND CASH EQUIVALENTS, beginning of period 2,952,129 1,386,998
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 1,386,998 $ 1,294,189
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ 26,777 $ 36,789
</TABLE>
25
<PAGE>
The Balance Sheets as at February 3, 1996, the Notes to Financial
Statements, the Management Discussion and Analysis of Financial Condition and
Results of Operations and the Report dated March 15, 1996, of Arthur Andersen
LLP, independent certified public accountants, are all incorporated herein by
reference from the Company's Annual Report on Form 10-KSB for the fiscal year
ended February 3, 1996.
BUSINESS PLAN FOR THE POST-SALE WAW
INTRODUCTION
The Company will be transformed to serve as a vehicle to effect
acquisitions, whether by merger, exchange of capital stock, acquisition of
assets or other similar business combination (a "Business Combination"), with an
operating business (an "Acquired Business"). The business objective of the
transformed Company (hereinafter, "Post-Sale WAW") will be to effect a Business
Combination with an Acquired Business which Post-Sale WAW believes has
significant growth potential. Post-Sale WAW intends to seek to utilize cash,
equity, debt or a combination thereof in effecting a Business Combination. While
Post-Sale WAW may, under certain circumstances, explore possible Business
Combinations with more than one prospective Acquired Business, in all
likelihood, until other financing provides additional funds, or its stature
matures, Post-Sale WAW may be able to effect only a single Business Combination
in accordance with its business objective, although there can be no assurance
that any such transaction will be effected. See "Risk Factors" for important
factors that should be considered in connection with the realization of
Post-Sale WAW's business objective.
TRANSITION ACTIVITIES
At the closing of the Sale, substantially all of the assets of
the Company will be sold to Natural Wonders. In the interim, the Company has
engaged Natural Wonders to operate the Business. In transition, certain
current staff of the Company will be employed to invoice and collect funds,
pay trade creditors and perform other services. Post-Sale WAW will thereafter
own accounts receivable, cash, furniture, equipment and its corporate
office/distribution center miscellaneous assets, have certain liabilities,
and ongoing requirements to meet regulatory and stockholder obligations while
the business plan is being implemented. During the transition period,
Post-Sale WAW will evaluate its remaining assets with the objective of
maximizing their value. This may result in a liquidation of the Company or
some or substantially all of its assets.
INITIAL TRANSACTIONS
No agreements, commitments or understandings have been made with any
Acquired Business candidates. No assurances can be made that future discussions
will result in definitive agreements, although it is the Company's intention to
proceed diligently with Post-Sale WAW's business plan.
FUNDING OF THE BUSINESS PLAN
In view of the limited tangible net worth of Post-Sale WAW following
the sale of the assets, consideration may be given to additional private equity
or debt placement to fund its merger and acquisition activities as well as to
fund working capital for general corporate purposes that might be required to
effectuate the business plan.
It is anticipated that, in the event a Business Combination is
effected, Post-Sale WAW would use cash, equity, debt or a combination of these
to achieve a Business Combination.
Post-Sale WAW may borrow funds to increase the amount of capital
available for a Business Combination or otherwise finance the operation of the
Acquired Business. The amount and nature of any
26
<PAGE>
borrowings by Post-Sale WAW will depend on numerous considerations including its
capital requirements, its perceived ability to service such debt and prevailing
conditions in the financial markets and the general economy.
RISK FACTORS
IF THE SALE IS CONSUMMATED, POST-SALE WAW WILL BECOME AN ACQUISITION
COMPANY. THE STOCKHOLDERS OF THE COMPANY WILL NOT GET TO VOTE SEPARATELY ON
WHETHER TO CHANGE THE NATURE OF POST-SALE WAW'S BUSINESS TO AN ACQUISITION
COMPANY. CONSEQUENTLY, THE FOLLOWING RISK FACTORS SHOULD BE TAKEN INTO
CONSIDERATION BY EACH STOCKHOLDER IN DETERMINING WHETHER TO APPROVE THE SALE.
Additional Financing Required. The funds available to Post-Sale WAW
may not be adequate for it to acquire an interest in any chosen property,
business, or opportunity. Without raising additional funds, Post-Sale WAW may
not have sufficient capital to fully exploit any property, business or
opportunity acquired. Accordingly, the ultimate success of Post-Sale WAW may
depend upon its ability to raise additional capital or to have other parties
bear a portion of the required costs to further develop or exploit any business
venture in which Post-Sale WAW becomes involved. There is no assurance that
funds will be available from any source, and if not available, it will be
necessary for Post-Sale WAW to limit its operations to those that can be
financed from the existing assets.
Limited Assets. The Company's only assets after the Sale will be
its cash, if any, and minor furniture, equipment and its corporate office and
distribution center and any remainder of net proceeds of the Sale will be
used for general corporate purposes and to seek acquisition candidates. Any
business activity that Post-Sale WAW eventually undertakes may require
substantial capital, which may be difficult to obtain or not available in
light of the Company's pro forma financial condition. The success of
Post-Sale WAW will depend upon its ability to acquire additional capital.
Since the Company does not know the type of business, if any, in which it
will eventually engage, the Company does not know what its ultimate capital
needs will be.
Lack of Liquidity. Immediately following the closing of the Sale,
the Company will have no business to generate income. The Company's ongoing
ability to meet its general and administrative cost obligations will be
dependent on its ability to complete successfully a business combination with an
entity having sufficient cash flow to meet the Company's obligations.
No Operating History. The Company will change the nature of its
business if the Sale is approved and consummated. Post-Sale WAW has no operating
history in its new line of businesses, which is yet to be determined. There can
be no assurance that Post-Sale WAW's activities will be profitable. As of the
date of this proxy statement, the Company has not entered into any arrangement
to participate in any business ventures or purchase any products.
Speculative Nature of Company's Proposed Operations. The success of
Post-Sale WAW will depend to a great extent on the operations, financial
condition and management of the Company or companies, if any, with which
Post-Sale WAW may merge or which it may acquire. Management intends to cause
Post-Sale WAW to merge into or acquire one or more privately held entities with
established operating histories. However, there can be no assurance that
Post-Sale WAW will be successful in locating an acquisition candidate meeting
such criterion. In the event Post-Sale WAW completes a merger or acquisition
transaction, the success of its operations may be dependent, wholly or partly,
upon management of the successor firm and numerous other factors beyond
Post-Sale WAW's control. Post-Sale WAW anticipates that it will seek to acquire
an existing business. After the acquisition has taken place, management from the
acquired entity may operate Post-Sale
27
<PAGE>
WAW. There is, however, a possibility that Post-Sale WAW may seek to operate an
ongoing business, in which case Post-Sale WAW's management might be retained.
Change of Control. The consummation of a Business Combination may
involve a change in officers and directors of Post-Sale WAW.
Dilution in Merger or Acquisition Transaction. In order to merge
with or acquire a private concern, Post-Sale WAW may issue securities to the
stockholders of any such target concern. The issuance of previously authorized
and unissued Common Stock of Post-Sale WAW or the creation and issuance of
preferred stock would result in substantial dilution to present stockholders of
the Company, which may result in another change in control or management of
Post-Sale WAW.
Management Commitment. The management of Post-Sale WAW will serve at
will and may seek other opportunities at any time. The loss of part or of the
entirety of its management could have a material adverse impact on the viability
of Post-Sale WAW.
Dependence on Inexperienced Management. The success of Post-Sale WAW
will be dependent largely upon the active participation of its management. In
the event such management lacks experience or background in the business in
which Post-Sale WAW proposes to engage, it will probably be required to obtain
independent outside professionals to effectively evaluate and appraise a
potential business combination. Certain of the post-Sale directors have other
full time employment and will be available to participate in management
decisions only on a part time or as needed basis. Once Post-Sale WAW acquires a
business opportunity, the post-Sale management may resign. The amount of time
the post-Sale officers and directors devote to Post-Sale WAW matters will
increase if Post-Sale WAW operates an active business. The time which the
post-Sale officers and directors devote to the business affairs of Post-Sale WAW
and the skill with which they discharge their responsibilities, will
substantially affect Post-Sale WAW's success.
Business Risks. The Company has not identified the business
opportunities in which it will attempt to obtain an interest. The Company
therefore cannot describe the specific risks presented by such business. Such
business may involve an unproven product, technology or marketing strategy, the
ultimate success of which cannot be assured. The acquired business opportunity
may be in competition with larger, more established firms over which it will
have no competitive advantage. The specific risks of a business opportunity will
be disclosed to Post-Sale WAW's stockholders prior to its acquisition, and
approval therefor will be obtained. Post-Sale WAW's investment in a business
opportunity may be highly illiquid and could result in a total loss to Post-Sale
WAW if the opportunity is unsuccessful.
Conflicts of Interest. Certain of the directors and officers of
Post-Sale WAW will be associated with other firms or occupations involving other
business activities. Because of the affiliations, there are potential inherent
conflicts of interest in their acting as directors and officers of Post-Sale WAW
and of other entities. All of the Company's post-Sale directors and officers may
be directors or controlling stockholders of other entities engaged in a variety
of businesses which may in the future have various transactions with Post-Sale
WAW. Additional conflicts of interest and non-arm's length transactions may also
arise in the future in the event the Company's post-Sale officers or directors
are involved in the management of any firms with which Post-Sale WAW transacts
business. Post-Sale WAW may pay finder's fees or other fees to its post-Sale
officers, directors or affiliates in connection with any potential business
combination involving Post-Sale WAW.
Dependence on Outside Advisors. In order to supplement the business
experience of post-Sale management, Post-Sale WAW may employ accountants,
technical experts, appraisers, attorneys or other consultants or advisors. The
selection of any such advisors will be made by post-Sale management and without
any control from stockholders. Additionally, it is anticipated that such persons
may be engaged by Post-Sale WAW on an independent basis without a continuing
fiduciary or other obligation to Post-Sale WAW.
28
<PAGE>
No Dividends Anticipated. At the present time management does not
anticipate that Post-Sale WAW will pay dividends, cash or otherwise, on its
Common Stock in the foreseeable future. Future dividends will depend on
earnings, if any, of Post-Sale WAW, its financial requirements and other
factors.
Scarcity of and Competition for Merger or Acquisition Prospects.
Post-Sale WAW will be an insignificant participant in the business of seeking
mergers with and acquisitions of small private entities. In addition, Post-Sale
WAW will have very limited assets to support an acquisition. A large number of
established and well financed entities, including venture capital firms, are
active in mergers and acquisitions of private companies which may be desirable
target candidates for Post-Sale WAW. Nearly all such entities have significantly
greater financial resources, technical expertise and managerial capabilities
than Post-Sale WAW, and consequently, Post-Sale WAW will be at a competitive
disadvantage in identifying possible merger or acquisition candidates.
No Agreement for Business Combination or Other Transaction. The
Company has no arrangement, agreement or understanding with respect to a merger
with, or acquisition of, any entity, private or public. There can be no
assurance Post-Sale WAW will be successful in identifying and evaluating
suitable merger or acquisition candidates and in concluding a merger or
acquisition transaction on terms favorable to the Company; or, if concluded,
whether any such transaction will result in a financial return to its
stockholders.
Lack of Market Research. The Company has neither conducted nor has
it engaged other entities to conduct market research to determine that demand
exists for any transactions contemplated by Post-Sale WAW or for the business
activity in which a potential acquisition candidate engages. Even in the event
demand is identified for the business of an acquisition candidate, there is no
assurance Post-Sale WAW will be successful in completing any such transaction.
Possible Lack of Diversification. Post-Sale WAW may be unable to
diversify its business activities and, as a consequence, may suffer a total loss
to Post-Sale WAW and the stockholders should an acquisition by Post-Sale WAW
prove to be unprofitable. Post-Sale WAW's failure or inability to diversify its
activities into a number of areas may subject Post-Sale WAW to economic
fluctuations within a particular business or industry and, therefore, increase
the risks associated with Post-Sale WAW's operations.
Issuance of Additional Shares. Approximately 7,300,000 shares of
stock or 73% of the total authorized shares (10,000,000) of Common Stock of
the Company, less the number of shares underlining outstanding options and
warrants, have not yet been issued and thus are available for sale. The Board
of Directors has the power to issue such shares. Post-Sale WAW may issue
shares of Common Stock to raise additional capital or to effect a merger or
acquisition with a target corporation. Stockholders do not have preemptive
rights with respect to the issuance of shares of the Company's Common Stock.
Any additional issuance by Post-Sale WAW from its authorized but unissued
shares would have the effect of further reducing the percentage ownership of
the Stockholders.
Regulation. Although Post-Sale WAW will be subject to regulation
under the Securities Act of 1933 and the Securities Exchange Act of 1934,
management believes Post-Sale WAW will not be subject to regulation under the
Investment Company Act of 1940 insofar as Post-Sale WAW will not be engaged in
the business of investing or trading in securities. In the event Post-Sale WAW
engages in business combinations which result in Post-Sale WAW holding passive
investment interests in a number of entities, Post-Sale WAW could be subject to
regulation under the Investment Company Act of 1940. In such event, Post-Sale
WAW would be required to register as an investment company and could be expected
to incur significant registration and compliance costs. Management has obtained
no formal determination from the Securities and Exchange Commission as to the
status of Post-Sale WAW under the Investment Company Act of 1940 and,
consequently, any violation of such Act would subject Post-Sale WAW to material
adverse consequences.
Probable Change in Control and Management. Mergers or acquisitions
involving the issuance of Post-Sale WAW's Common Stock may result in
stockholders of a target company obtaining a controlling interest in Post-
29
<PAGE>
Sale WAW. The resulting change in control of Post-Sale WAW could result in
removal of the post-Sale officers and directors and a corresponding reduction in
their participation in the future affairs of Post-Sale WAW.
FORWARD LOOKING STATEMENTS
The foregoing section and other portions of this proxy statement
contain forward-looking statements. Actual results could differ materially from
those projected herein. Such difference could occur because of the application
of factors referred to above, of competitive or general business conditions or
of some other and unforeseen factor.
ABSENCE OF DISSENTERS' RIGHTS OF APPRAISAL
The General Corporation Law of the State of Delaware governs
stockholders' rights in connection with the Sale. Under the applicable
provisions of Delaware law, the Company's stockholders will have no right in
connection with the Sale to dissent and seek appraisal of their shares of Common
Stock.
DESCRIPTION OF PAST BUSINESS
GENERAL
The Company was a mall-based specialty unique gift retailer. The
Company's assortment of products generally targeted customers who have an
active interest in nature, education, the outdoors and science. The
merchandise offered by the Company includes home products, outdoor and garden
merchandise, recorded nature music, videotapes, statuary, telescopes, books,
games and puzzles and apparel. The Company believes that its customers are
generally middle or upper-middle income adults, ages 25 to 54, who may be
purchasing for themselves or others.
The Company was incorporated in Delaware in July 1993, opened its
first store in August 1993 and until March 9, 1997, operated twelve stores,
which are located in major regional malls in Florida (Tampa, Clearwater,
Tallahassee, Bradenton, Jacksonville, Ocala, Jensen Beach, Miami(two) and
Orlando), New York (Staten Island) and New Jersey (Eatontown). In addition,
the Company operated thirteen temporary holiday outlets (the "temporary
stores") in Florida, Georgia and South Carolina during the 1996 Christmas
selling season.
In November 1994, the Company completed its initial public offering
(the "Offering") whereby 1,000,000 shares of Common Stock and 1,150,000
Redeemable Warrants were sold. Concurrent with the consummation of the Offering,
the Company changed its fiscal year end from December 31 to the Saturday closest
to January 31.
BUSINESS STRATEGY
The Company's strategy has been to provide an interactive, unique
gift store environment which generates a sense of discovery for its customers.
High-quality customer service, through demonstration and assistance, is an
integral part of the Company's marketing strategy. Throughout its stores, the
Company has displayed its products prominently so as to be readily accessible to
customers, who are encouraged by an attentive, knowledgeable and enthusiastic
sales staff to take an active "hands on" approach to the merchandise. Each of
the Company's stores operated during the entire year (the "permanent stores")
typically has stocked over 3,000 different items and offered products at prices
generally ranging from $3 to $500. The Company stocks its best selling products
in its temporary stores.
The following is a brief description of certain of the current
merchandise categories that the Company has included in its stores:
30
<PAGE>
o Home Products: Decorative throw rugs, candles, frames, an
assortment of bath and body fragrances, essential oils,
aromatherapy and relaxation oriented products for the home.
o Outdoor and Gardening: Bird houses and feeders, wind chimes,
fountains, gardening seeds and kits, and decorative lawn and
garden ornaments.
o Music and Video: Easy listening compact discs and cassette
tapes featuring natural and environmental sounds. Assorted
video tapes of animals and nature settings.
o Statuary: Miniature wildlife statuary for collectors and
animal lovers.
o Optical Instruments and Other Products: Kaleidoscopes,
telescopes, weather instruments and globes.
o Educational Items: Teaching aids, books and science related
merchandise.
o Toys, Games, and Kits: Games, puzzles and "hands-on" activity
kits.
o Rocks and Minerals: Gift assortments of rocks, minerals and
fossils, which include bookends, clocks, pen and pencil sets
and assorted decorative items.
o Apparel: T-shirts and sweatshirts featuring nature and
environmental themes, hats and other outdoor gear.
STORE OPERATIONS
The Company endeavored to maintain an interactive store
environment which generates a sense of discovery for its customers. The
Company kept distinctive signage and design of its stores consistent among
its locations to increase its name recognition. Throughout the Company's
stores, which offer a well-lighted shopping atmosphere utilizing a
standardized floor plan that emphasizes its merchandising concept, products
are prominently displayed so as to be readily accessible to customers, who
are encouraged by attentive, knowledgeable and enthusiastic sales associates
to take an active "hands-on" approach to the merchandise. Interactive
fixtures permit customers to hear a sampling of music titles offered and one
or more television monitors continually play tapes of videos which are
available for sale. The Company believed that its strategy of appealing to
the customers' senses of smell, hearing and touch (as well as sight), when
combined with the assistance of the Company's sales associates, served to
enhance customer interest and the level of involvement, excitement and
enjoyment associated with shopping in the Company's stores.
Currently operated permanent stores generally range in size from
approximately 2,200 to 3,300 square feet of space. The Company's stores have
been open seven days a week during mall operating hours. Stores are typically
staffed with a manager, an assistant manager and several full-time and part-time
sales associates, the number of which varies depending on store volume. In order
to assure that employees are knowledgeable with respect to the Company's
merchandise, the Company generally provided new employees with on-the-job
training under the supervision of an experienced employee for approximately two
weeks. In addition, at least one day of product orientation class was provided
for employees of the Company's new permanent or temporary stores, and the
Company periodically arranged for various of its suppliers to give employee
seminars in which their products are demonstrated (and underlying scientific or
other applicable principles are explained) so as to facilitate the understanding
by the Company's staff of such products. Store management receives compensation
in the form of salaries and performance-based bonuses. Sales associates are paid
on an hourly basis plus performance incentives.
PURCHASING AND INVENTORY
The Company purchased merchandise from over 250 suppliers,
including manufacturers, distributors, craftsmen and importers. Although
certain suppliers may have provided a majority or all of the Company's
requirements for a particular product or category during the year ended
February 1, 1997 (fiscal 1996),
31
<PAGE>
no supplier accounted for more than 4.5% of the Company's total merchandise
purchases during such period. In fiscal 1996, approximately 99% of the Company's
merchandise was purchased from domestic vendors. The Company believes that the
loss of any one or more of its suppliers would not have a material adverse
effect on the Company and that alternative sources of merchandise are readily
available at comparable prices in all product categories. Although the Company
believes that its relationships with its suppliers are satisfactory, deferred
payment arrangements have been necessitated by the extremely competitive
environment and cash-starved condition in which the Company has been operating.
PROMOTIONAL ACTIVITIES
The Company did not rely on advertising to generate sales but,
rather, was substantially dependent upon mall traffic to attract new customers.
DISTRIBUTION
In conjunction with a change during March 1996 of its chief
executive officer (see "Management"), the Company has altered its distribution
strategy and substantially discontinued shipments from vendors to the Company's
distribution center in St. Petersburg, Florida, which occupies approximately
4,000 square feet of office and warehouse space. The Company had utilized this
facility for the centralized receipt of goods from vendors, as well as the
storage of inventory and the shipment of merchandise to its stores. The Company
will continue to have products shipped directly to the stores from its vendors
in order to expedite delivery of merchandise. The Company and its vendors have
used common carriers to deliver merchandise to its stores.
COMPETITION
The specialty retail business is characterized by intense
competition. The Company believes that it had competed with Natural Wonders,
Inc., The Nature Company, a subsidiary of CML Group, Inc., and World of Science,
Inc., each of which operates numerous nature and science specialty stores. In
April 1996, Discovery Communications Inc., which operates cable television's
Discovery Channel and owns and operates the 15 store Discovery Channel Store
chain, announced that it had acquired The Nature Company from CML Group, Inc.
PERSONNEL
Pursuant to the Sale Agreement and the Management Agreement, certain
employees of the Company have been retained by the Buyer and will be evaluated
by the Buyer in accordance with its requirements. A portion or a significant
portion of benefits accrued prior to March 9, 1997 to current employees will be
paid by the Company. The Company has approximately 39 full-time employees and 50
part-time sales associates. Temporary employees were usually added during peak
sales periods. Store management received compensation in the form of salaries
and performance-based bonuses. Sales associates typically were paid on an hourly
basis plus performance incentives. A number of programs offered incentives to
both management and sales associates to increase sales, including various sales
contests. None of the Company's employees is covered by any collective
bargaining agreement. Management believes that its well trained and motivated
employees were an integral part of its concept and that its employee relations
have been good.
SERVICE MARK
The Company will retain its federal service mark registration for
the What A World(R) name and the Company's design and logo. The Company believes
that its service marks have value and are important to its marketing and future
prospects. There can be no assurance that the Company's marks would be upheld if
challenged or that the Company would not be prevented by third parties (other
than Natural Wonders) from using its mark, which could have an adverse effect on
the Company. In addition, the Company would be prevented by the Sales Agreement
from using its marks in a retail segment in competition with the Buyer.
Moreover, there can be no assurance that the Company will have the financial
resources necessary to enforce or defend its service marks. The Company is not
aware of any claims of infringement or other challenges to the Company's right
to use its marks in the United States.
32
<PAGE>
PROPERTIES
All leases for the twelve permanent stores of the Company will be
assigned to, and assumed by, the Buyer in accordance with the Sale Agreement,
and the Buyer has agreed as part of such assignment or assumption to secure
necessary consents or modifications from interested parties. The Company
currently has leases for ten permanent stores in Florida, one permanent store in
New York and one permanent store in New Jersey. The store leases, which expire
at various times from 2003 through 2005, provide for specified minimum rental
payments and contingent payments based on gross sales exceeding certain levels.
The leases also require the Company to pay the cost of common area maintenance,
insurance, taxes and other expenses. Certain of the Company's lease agreements
contain provisions which enable the Company to terminate such agreements under
certain conditions, including failure to achieve specified sales performance
levels. The locations of the permanent stores and the approximate square footage
under the various store leases are as follows:
<TABLE>
<CAPTION>
Approximate Total
Square Footage
(Including Storage
Name of Mall (Location) Space) Date of Opening
- ----------------------- ------------------ ---------------
<S> <C> <C> <C>
Tampa Bay Center (Tampa, FL) 2,800 August 1993
Countryside Mall (Clearwater, FL) 2,200 November 1993
Governor's Square Mall (Tallahassee, 2,600 November 1993
FL)
DeSoto Square Mall (Bradenton, FL) 2,600 August 1994
Orange Park Mall (Jacksonville, FL) 4,400 September 1994
Paddock Mall (Ocala, FL) 3,300 January 1995
Treasure Coast Square Mall (Jensen 2,500 September 1995
Beach, FL)
Aventura Mall (Miami, FL) 3,200 November 1995
The Falls (Miami, FL) 3,200 November 1995
Monmouth Mall (Eatontown, NJ) 2,700 December 1995
Staten Island Mall (Staten Island, NY) 3,100 November 1995
Fashion Square Mall (Orlando, FL) 3,000 October 1995
</TABLE>
The Company also leases approximately 4,000 square feet for its
corporate office and distribution center in St. Petersburg, Florida, under a
lease which expires in 1998. The Company is reviewing its options in connection
with this facility.
During the 1996 Christmas selling season, the Company operated
thirteen temporary stores in Florida, Georgia and South Carolina pursuant to
short term license agreements each of which expired by January 1997.
LEGAL PROCEEDINGS
The Company is not a party or subject to any legal proceedings,
other than claims and lawsuits arising in the ordinary course of its business.
The Company does not believe that any such claims or lawsuits will have a
material adverse effect on its financial condition or results of operations.
33
<PAGE>
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the Company's security
holders during the fiscal quarters ended November 2, 1996, or February 1, 1997.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The following table sets forth, for the periods indicated, the range
of high and low closing sale prices for the Common Stock. Through January 31,
1997, the shares of Common Stock of the Company traded on the Nasdaq Small
Capitalization Market under the symbol "WHAT". Thereafter, the Company's Common
Stock traded under the same symbol on the bulletin board system maintained by
the National Association of Securities Dealers ("NASD") or in the
over-the-counter "pink sheets".
34
<PAGE>
Fiscal Year Ended February 23, 1996 High Low
- ----------------------------------- ---- ---
First Quarter (January 29 through January 29, 1995) 4.25 3.00
Second Quarter (April 30 through July 29, 1995) 3.75 2.88
Third Quarter (July 30 through October 28, 1995) 3.50 2.63
Fourth Quarter (October 29 through February 3, 1996) 3.00 1.25
<TABLE>
<CAPTION>
CLOSING BID CLOSING ASK
Fiscal Year Ended February 3, 1997 High Low High Low
- ---------------------------------- ---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter (February 4 through May 4, 1996) 1.625 0.75 1.75 1.25
Second Quarter (May 5 through August 3, 1996) 1.625 0.50 2.00 0.75
Third Quarter (August 4 through November 2, 1996) 1.00 0.75 1.125 1.00
Fourth Quarter (November 3, 1996 through February 1, 1997) 1.4375 0.50 1.4375 0.6875
</TABLE>
On March 12, 1997, the last reported (closing) sale price of the
Common Stock on the NASD Bulletin Board or in the over-the-counter "pink
sheets", preceding the public announcement on March 13, 1997, of the Sale
Transaction was $0.1875 bid and 0.4375 asked per share. The prices set forth
above reflect inter-dealer prices, without retail mark-up, markdown or
commission and may not necessarily represent actual transactions and were
provided by consultation with the NASD composite feed or other qualified
quotation medium.
The Company experienced during 1996 a substantial decline in the
price of its Common Stock. The market price fell to a point that precluded the
Company from continuing its listing on the Nasdaq Small Cap Market. Pursuant to
the requirements of Nasdaq, to be eligible for continued listing on the Nasdaq
Small Cap Market, the Common Stock must have maintained a minimum bid price of
$1.00 per share or, if the bid price is less than $1.00, maintain capital and
surplus of $2,000,000 and a market value of the public float of at least
$1,000,000. The Company was notified by Nasdaq that the Company's Common Stock
failed to maintain a closing bid price greater than or equal to $1.00 during a
specified of ten consecutive trade dates prior to the date of the notice, and
that the public float alternative requirement had also not been met. (The
closing bid price was equal to or higher than $1.00 per share prior to April 9,
1996 and was higher than such price on the four consecutive trading dates of
April 26, 1996 and April 29 through May 1, 1996.) As the Company was unable to
demonstrate, on or before the 90-day period ended July 28, 1996, compliance with
either the minimum $1.00 bid price during a period of ten consecutive trading
days or the alternative requirement, it submitted by that date its proposal for
achieving compliance. The submission was deemed by Nasdaq to not warrant
continued listing, and, accordingly, Nasdaq issued a formal notice of deficiency
for the Company's securities. As a result of such delisting, an investor could
find it more difficult to dispose of, or obtain accurate quotations as to the
market value of, the Company's securities. Delisting of the Company's securities
may result in lower prices for the Company's securities than might otherwise
prevail.
In addition, once the Common Stock was delisted from trading on
Nasdaq and the trading price of the Common Stock remained below $5.00 per share,
trading in the Common Stock also became subject to certain rules promulgated
under the Securities Exchange Act of 1934, as amended, which require additional
disclosure by broker-dealers in connection with any trades involving a stock
defined as a "penny stock" (generally, any non-Nasdaq equity security that has a
market price of less than $5.00 per share, subject to certain exceptions). Such
rules require the delivery, prior to any penny stock market transaction, of a
disclosure schedule explaining the penny stock market and the risks associated
therewith, and impose various sales practice requirements on broker-dealers who
sell penny stocks to persons other than established customers and accredited
investors (generally institutions). For these types of transactions, the broker
dealers must make a special suitability determination for the purchaser and have
received the purchaser's written consent to the transaction prior to sale. The
additional burden imposed upon broker-dealers by such requirements may
discourage broker-dealers from effecting transactions in the Company's
securities, the ability of security holders to sell the Company's securities in
the secondary market and the Company's ability to obtain additional financing.
The Company has not paid any cash dividends. Any determination to
pay dividends in the future will be at the discretion of the Company's Board of
Directors and will be dependent upon the Company's results of operations,
financial condition, capital requirements, contractual restrictions and other
factors deemed relevant by
35
<PAGE>
the Board of Directors. The Board of Directors does not intend to declare
dividends in the foreseeable future, but instead intends to retain earnings, if
any, for use in the Company's business operations.
As of March 5, 1997, as reported by the Company's transfer agent,
shares were held by approximately 17 persons based on the number of record
holders, including several holders who are nominees for an undetermined number
of beneficial owners.
INDEPENDENT AUDITORS
Arthur Andersen LLP, independent certified public accountants, have
been appointed by the Board of Directors, as independent auditors for the
Company to examine and report on its financial statements for the 1996 fiscal
year.
ANNUAL REPORT ON FORM 10-KSB
The Company's Annual Report on Form 10-KSB, as filed with the
Securities and Exchange Commission, may be obtained in the manner described
above under "Available Information" and "Documents Incorporated by Reference."
STOCKHOLDERS' PROPOSALS
The Company presently anticipates that its 1997 Annual Meeting of
Stockholders will be held in June of 1997. Any proposal by a stockholder of the
Company intended to be presented at the 1997 Annual Meeting of Stockholders was
required to have been received by the Company at its principal executive office
not later than December 31, 1996 for inclusion in the Company's proxy statement
and form of proxy relating to that meeting. Any such proposal must also comply
with the other requirements of the proxy solicitation rules of the Securities
and Exchange Commission.
OTHER BUSINESS
Management does not know of any other matters to be brought before
the Meeting except those set forth in the notice thereof. If other business is
presented properly for consideration at the Meeting, it is intended that the
Proxies will be voted by the persons named therein in accordance with their
judgment on such matters.
By order of the Board of Directors,
DAVID B. CORNSTEIN DAVID F. MILLER
Chairman of the Board President and Secretary
April ___, 1997
36
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
What a World!, Inc.:
We have audited the accompanying statement of net assets on the liquidation
basis of accounting of What a World!, Inc. (a Delaware corporation) as of
February 1, 1997. In addition, we have audited the statements of operations and
accumulated deficit and cash flows for the years ended February 3, 1996, and
February 1, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described in Note 1 to the financial statements, the Board of Directors
unanimously approved a resolution to sell substantially all of the Company's
operating assets as of March 10, 1997. As a result, the Company has changed its
basis of accounting from the going concern basis to the liquidation basis as of
February 1, 1997. Accordingly, the carrying value of the assets as of February
1, 1997, are presented at estimated realizable values and all liabilities are
presented at estimated settlement amounts.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets on the liquidation basis of accounting of
What a World!, Inc. as of February 1, 1997, and the results of its operations
and its cash flows for the years ended February 3, 1996, and February 1, 1997,
in conformity with generally accepted accounting principles applied on the bases
described in the preceding paragraph.
In the event that the closing of the Sale Agreement does not occur by May 31,
1997, or if the stockholders do not approve the sale transaction, the Company
would explore other alternatives, which could affect the carrying value of the
Company's assets and liabilities in the accompanying statement of net assets on
the liquidation basis of accounting as of February 1, 1997.
Tampa, Florida,
March 29, 1997
<PAGE>
WHAT A WORLD!, INC.
STATEMENT OF NET ASSETS ON THE LIQUIDATION BASIS OF ACCOUNTING
AS OF FEBRUARY 1, 1997
(Note 1)
<TABLE>
<CAPTION>
ASSETS: February 1, 1997
- ------- ----------------
<S> <C>
Cash and cash equivalents 1,294,189
Certificates of Deposit 100,000
Inventories, property and equipment 767,325
Recoverable prepaid expenses and other assets 159,208
---------
TOTAL ASSETS 2,320,722
=========
LIABILITIES AND STOCKHOLDERS' EQUITY:
LIABILITIES:
Accounts payable 1,386,608
Accrued Expenses 638,999
---------
TOTAL LIABILITIES 2,025,607
---------
STOCKHOLDERS' EQUITY:
Common stock 21,181
Additional paid-in capital 4,538,782
Accumulated deficit on the
liquidation bases of accounting (4,264,848)
---------
Total stockholders' equity 295,115
---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 2,320,722
=========
</TABLE>
The accompanying notes are an integral part of this statement.
F-2
<PAGE>
WHAT A WORLD!, INC.
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE YEARS ENDED FEBRUARY 3, 1996, AND FEBRUARY 1, 1997
(Note 1)
<TABLE>
<CAPTION>
Year Ended
Year Ended February 3,
February 1, 1997 1996
---------------- -----------
<S> <C> <C>
NET SALES 8,166,755 $5,510,278
COST OF SALES 4,308,643 2,777,633
---------- ----------
Gross profit 3,858,112 2,732,645
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 4,910,755 3,318,179
---------- ----------
LOSS ON IMPAIRMENT -- 85,789
---------- ----------
Loss from operations (1,052,643) (671,323)
---------- ----------
INTEREST AND OTHER INCOME 46,356 135,076
INTEREST EXPENSE (36,789) (24,970)
---------- ----------
9,567 110,106
---------- ----------
NET LOSS (1,043,076) (561,217)
ACCUMULATED DEFICIT, beginning of year (868,752) (307,535)
---------- ----------
ACCUMULATED DEFICIT, end of year (1,911,828) $ (868,752)
==========
CONVERSION TO THE LIQUIDATION BASIS OF ACCOUNTING (2,353,020)
----------
ACCUMULATED DEFICIT ON THE LIQUIDATION BASIS OF (4,264,848)
ACCOUNTING AT FEBRUARY 1, 1997 ==========
NET LOSS PER WEIGHTED AVERAGE COMMON AND (0.49) (0.26)
COMMON EQUIVALENT SHARE OUTSTANDING ========== ==========
WEIGHTED AVERAGE COMMON AND COMMON 2,118,125 2,118,125
EQUIVALENT SHARE OUTSTANDING ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
WHAT A WORLD!, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED FEBRUARY 3, 1996, AND FEBRUARY 1, 1997
(Note 1)
<TABLE>
<CAPTION>
Year Ended Year Ended
February 3, February 1,
1996 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (561,217) $(1,043,076)
Adjustments to reconcile net loss to net cash and
cash equivalents provided by operating activities-
Depreciation and amortization 207,285 386,749
Loss on sales of property and equipment -- 4,114
Loss on impairment 85,789 --
Changes in operating assets and liabilities-
Construction allowance receivable (227,000) 267,000
Inventories (332,894) (228,786)
Prepaid expenses and other current assets (121,404) 84,262
Other assets (20,737) (2,713)
Accounts payable 387,236 834,192
Accrued expenses 295,968 (223,712)
Deferred rent 421,196 87,479
----------- -----------
Net cash provided by operating activities 134,222 165,509
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (1,644,542) (212,391)
Proceeds from sales of plant and equipment -- 15,900
----------- -----------
Net cash used in investing activities (1,644,524) (196,491)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations (54,829) (61,827)
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,565,131) (92,809)
CASH AND CASH EQUIVALENTS, beginning of period 2,952,129 1,386,998
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 1,386,998 $ 1,294,189
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 26,777 $ 36,789
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
WHAT A WORLD!, INC.
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 3, 1996, AND FEBRUARY 1, 1997
1. BUSINESS ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
Nature of Business and Basis of Presentation
What a World!, Inc. (the Company) operated a chain of mall-based specialty gift
retail stores until March 10, 1997. Pursuant to the terms of the Sale Agreement
unanimously approved by the Company's Board of Directors (the Board), in
consideration of the transfer to Natural Wonders, Inc. (the Buyer) of
substantially all of the Company's operating assets (including specified
inventories, fixed assets and tangible personal property, intangible personal
property and contract rights, and store leases), the Buyer has agreed to pay to
the Company approximately $500,000 in cash, subject to certain adjustments
pursuant to the Sale Agreement, and to assume certain liabilities (including
minimum future rental payments under the store leases, common area maintenance
charges and other related obligations). In addition, in order to immediately
implement the benefits of the Sale Agreement (and to reduce operating losses
which were continuing to be incurred by the Company), the Company entered into a
Management Agreement with the Buyer whereby the Buyer began operating the
Company's specialty gift retail business consistent with the past practices of
the Buyer as of March 10, 1997. Under the Management Agreement, the Buyer is
entitled to a management fee equal to all gross operating revenue recognized
and/or received in respect of the operation of the business from and after March
10, 1997, through the date of termination, which is the earlier of the closing
date or May 31, 1997. The Buyer has agreed to fund certain costs, expenses and
liabilities associated with the operation of the Company during the term
thereof. The Company will be liable to the Buyer, in accordance with the terms
of the Management Agreement, for costs and expenses in excess of gross operating
revenues during the term thereof, if the closing does not occur by May 31, 1997,
due to the failure of the Company to satisfy the closing conditions.
In addition, the Chairman of the Board, the President and the Company will enter
into agreements at the closing of the Sale Agreement not to compete in the
existing retail market category.
The Sale Agreement may be terminated by the Buyer if on the closing date,
certain conditions are not met by the Company or waived by the Buyer or if the
closing does not occur on or before May 31, 1997. As a result of the Sale and
Management Agreements and the Board's approval of the sale transaction, the
Company has changed its basis of accounting from the going concern basis to the
liquidation basis of as of February 1, 1997. Accordingly, the carrying value of
the Company's assets as of February 1, 1997, are presented at their estimated
realizable values and all liabilities are presented at estimated settlement
amounts.
F-5
<PAGE>
The conversion to the liquidation basis of accounting has resulted in the
recognition of the effects of the Sale Agreement in the statement of net assets
on the liquidation basis of accounting as of February 1, 1997, a summary of
which is as follows:
Amount
----------
Write-down of inventories, property and equipment $2,899,073
Write-down of prepaid expenses and other assets 64,165
Recognition of accrued expenses 121,434
Reversal of previously recorded deferred rent (731,652)
----------
Effect of conversion to the liquidation basis
of accounting as of February 1, 1997 $2,353,020
==========
In addition, during the period February 2, 1997, through March 9, 1997, the
Company operated the specialty gift retail business consistent with its past
practices. The Company incurred net operating losses of approximately $231,000
during the term thereof. The Company will also be liable for a maximum closing
penalty of $45,000, as defined in the Sale Agreement, if the closing occurs
between April 15, 1997, and May 31, 1997. The Company has recognized an asset
and has accrued $100,000 of reimbursable and documented legal costs and expenses
relating to the Sale Agreement in the accompanying statement of net assets on
the liquidation basis of accounting. The Company also expects to incur
approximately $100,000 of non-reimbursable legal costs and other expenses
relating to the sale transaction subsequent to February 1, 1997.
Upon closing of the Sale Agreement, the Company is expected to pay its remaining
liabilities and obligations with available cash and the proceeds of the Sale
Agreement. At that time, the Company is expected to become an acquisition
company without operations and will no longer be a going concern in the
specialty retail business.
The closing of the Sale Agreement is subject to a number of conditions,
including majority approval by the stockholders.
In the event that the closing of the Sale Agreement does not occur by May 31,
1997, or if the stockholders do not approve the sale transaction, the Company
would explore other alternatives, which could affect the carrying value of the
Company's assets and liabilities in the accompanying statement of net assets on
the liquidation basis of accounting as of February 1, 1997.
Fiscal Year
The years ended February 3, 1996, and February 1, 1997, were 53-week and 52-week
years, respectively.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and investments with original
maturities of less than three months.
F-6
<PAGE>
Certificate of Deposit
A certificate of deposit is maintained to serve as collateral for the Company's
letter-of-credit relating to certain leased equipment. The certificate of
deposit matures in November 1997 and bears interest at a rate of 4.64 percent
per annum.
Inventories
Inventories were recorded at the lower of cost or market by utilizing the retail
method under the going concern basis of accounting. Upon changing to the
liquidation basis of accounting as of February 1, 1997, inventories are recorded
at their estimated net realizable values based on actual sales transactions
(including the Sale Agreement) subsequent to that date.
Property and Equipment
Under the going concern basis of accounting, property and equipment was stated
at cost. Depreciation was computed using the straight-line method over the
estimated useful lives of the assets. Assets acquired under capital lease
obligations and leasehold improvements were amortized over the lesser of the
useful lives of the assets or the lease terms. Maintenance and repairs of
property and equipment were expensed as incurred, and major improvements were
capitalized. Upon retirement, sale or other disposition of property and
equipment, the cost and accumulated depreciation or amortization were eliminated
from the accounts, and any gain or loss was charged or credited to operations.
Upon changing to the liquidation basis of accounting as of February 1, 1997,
property and equipment are recorded at their estimated realizable values based
on actual sales transactions (including the Sale Agreement) subsequent to that
date.
In the year ended February 3, 1996, the Company adopted the Financial Accounting
Standards Board's (FASB) Statement of Financial Accounting Standards (SFAS) No.
121, "Accounting for the Impairment of Long-lived Assets and for Long-lived
Assets to be Disposed Of" (SFAS 121). The impact of adoption of SFAS 121 is
reflected in loss on impairment in the accompanying statement of operations and
accumulated deficit for the year ended February 3, 1996.
Deferred Rent
Certain of the Company's operating leases contain predetermined fixed increases
of the base rental rate during the initial term and concessions granted by
lessors, including construction allowances. For these leases, under the going
concern basis of accounting, the Company recognized the related rental expense
on a straight-line basis over the lease term. The Company had recorded the
difference between the amounts charged to operations and amounts payable under
the leases as deferred rent prior to February 1, 1997. Upon changing to the
liquidation basis of accounting as of that date, previously recorded deferred
rent was eliminated because all store leases are being assumed by the Buyer
under the Sale Agreement.
F-7
<PAGE>
Store Pre-opening Costs
Under the going concern basis of accounting, operating costs (including site
selection costs and store set-up and stocking costs) incurred prior to the
opening of a new store were expensed and included in selling, general and
administrative expenses in the accompanying statements of operations and
accumulated deficit. All pre-opening expenses associated with temporary stores
were expensed. Legal and architectural fees associated with permanent store
openings were capitalized and included in other assets prior to February 1,
1997. Upon changing to the liquidation basis of accounting as of that date, all
such costs were written off.
Net Loss per Weighted Average Common and Common Equivalent Share
Net loss per weighted average common and common equivalent share is computed by
dividing net loss by the weighted average number of shares of common stock
outstanding and dilutive common equivalent shares from stock options and
warrants using the treasury stock method.
The FASB has issued SFAS No. 128, "Earnings Per Share" (SFAS 128). SFAS 128
effectively changes the primary earnings per share calculation to basic earnings
per share and requires a calculation for fully diluted earnings per share, which
is now referred to as diluted earnings per share. The Company is required to
adopt SFAS 128 in the following fiscal year. Management believes that the
adoption of SFAS 128 will have no impact on the financial statements.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
2. ACCRUED EXPENSES:
The Company has obligations for certain leased equipment which are included in
accrued expenses in the accompanying statement of net assets on the liquidation
basis of accounting.
Future minimum lease obligations under these leases were as follows at February
1, 1997:
Fiscal Year Amount
----------- --------
1998 $ 83,463
1999 76,662
2000 23,690
--------
Total minimum lease obligations $185,815
========
F-8
<PAGE>
Effective March 26, 1996, the president of the Company resigned. The president
has an employment agreement (the Agreement) with the Company which, as amended,
expires in February 1997. Under the Agreement, the president was entitled to
receive a base salary of approximately $90,000 and $95,000, respectively, during
the fiscal years ended February 3, 1996, and February 1, 1997. Remaining amounts
due under the Agreement of approximately $14,000 are included in accrued
expenses in the accompanying statement of net assets on the liquidation basis of
accounting.
The Company had a $55,000 corporate credit line as of February 1, 1997, to
facilitate employee expenses. The amount outstanding under this line is minimal
and is included in accounts payable in the accompanying financial statements as
of February 1, 1997.
The Company is not a party or subject to any legal proceedings, other than
claims and lawsuits arising in the ordinary course of business. The Company does
not believe that any such claims or lawsuits will have a material adverse effect
on its financial condition or results of operations.
3. INCOME TAXES:
As of February 1, 1997, the Company had net deferred income tax assets of
approximately $1,526,000, which were fully offset by a valuation allowance. The
net deferred income tax assets (before allocation of the valuation allowance)
consisted of the following as of February 1, 1997:
Amount
----------
Accrued expenses $ 102,000
Net operating loss (NOL) carryforwards 401,000
Tax and financial basis differences of inventory,
property and equipment 1,023,000
----------
Net deferred income tax assets $1,526,000
==========
As of February 1, 1997, the Company had different NOL carryforwards for tax and
financial purposes due to conversion to the liquidation basis of accounting. The
Company had federal NOL carryforwards of approximately $1,066,000 and $3,419,000
for tax and financial basis, respectively. Approximately $90,000 of the NOL, on
a tax basis, is associated with the period January 1, 1995, through January 28,
1995, and can be carried forward ratably over the next four fiscal years.
Approximately $976,000 of the NOL, on a tax basis, relates to the Company's C
corporation periods and can be carried forward through periods ranging from 2009
to 2012. Due to a change in the Company's operations from the specialty retail
business to an acquisition company after the sale transaction, the benefit of
the NOL carryforwards may not be realized.
F-9
<PAGE>
4. RELATED PARTY TRANSACTION:
During the year ended February 1, 1997, the Company entered into agreements with
three members of its Board to borrow up to $600,000 to fund operations. The
Company borrowed $410,000 under these agreements, all of which was repaid before
February 1, 1997. Outstanding balances under these agreements accrued interest
at 12 percent per annum, and interest of approximately $9,000 is included in
interest expense in the accompanying statements of operations and accumulated
deficit. Additionally, the Company granted to the three directors one warrant
for every three dollars of borrowings made available (see Note 5).
5. WARRANTS:
At February 1, 1997, the following warrants were outstanding:
<TABLE>
<CAPTION>
Aggregate
Title of Issue Amount of
of Security Securities
Called for by Called for by Terms of Exercise Redemption
Title Warrants Warrants Warrants Price Price
- ------------------- -------------- ------------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Redeemable Warrants Common 5/17/95-
Stock 1,150,000 5/17/98 $5.00 $0.10
Underwriters' Warrants Common 11/17/95-
Stock 100,000 11/17/99 $7.25 -
Underwriters' Warrants Redeemable 11/17/95-
Warrant 100,000 11/17/99 $.145 -
Directors' Warrants Common 8/31/96-
Stock 200,000 8/31/01 $1.00 -
---------
Warrants outstanding 1,550,000
=========
</TABLE>
The Redeemable Warrants may be redeemed by the Company, subject to certain
conditions, at $.10 per warrant if the Company's common stock trades for 20
consecutive days at or above $7.50 per share. The Underwriters' Warrants and
Directors' Warrants are not redeemable by the Company. The effect of warrants
outstanding has not been included in weighted average common and common
equivalent shares outstanding on the accompanying statements of operations and
accumulated deficit, as these warrants would have an antidilutive effect on net
loss per weighted average common and common equivalent share.
F-10
<PAGE>
6. STOCK OPTION PLANS:
1994 Non-Employee Directors' Stock Option Plan
In November 1994, the Board adopted the 1994 Non-Employee Directors' Stock
Option Plan (the Directors' Plan), which became effective upon the effective
date of the Company's initial public offering (the Offering), reserving 40,000
unregistered shares of common stock for issuance under the Directors' Plan.
Options under the Directors' Plan vest ratably over three years and may be
exercised for 10 years from the grant date. The exercise price per share of each
stock option will be equal to the fair market value of the stock on the date of
grant. No options were granted during the year ended February 3, 1996. During
the year ended February 1, 1997, the Company granted 10,000 options to
non-employee Board of Directors at an exercise price of $1.50 under the
Directors' Plan.
1994 Stock Option Plan
In November 1994, the Board adopted the 1994 Stock Option Plan (the Stock Option
Plan) which became effective upon the effective date of the Offering, reserving
260,000 unregistered shares of common stock for issuance under the Stock Option
Plan as incentive or non-incentive stock options. Options under the Stock Option
Plan vest ratably between one and five years as stated and may be exercised for
10 years from the grant date. The exercise price per share of each stock option
will be an amount not less than the par value of such shares and, in the case of
incentive options, not less than the fair market value of such shares on the
date of grant. No options were granted during the year ended February 3, 1996,
under the Stock Option Plan.
In May 1996, the Stock Option Plan was amended to add 300,000 shares to the
previously authorized shares that were subject to options under the Stock Option
Plan, resulting in a total of 560,000 shares of common stock available to grant
under the Stock Option Plan. During the year ended February 1, 1997, the Company
granted 400,000 options at exercise prices ranging from $1.00 to $1.68 per share
under the Stock Option Plan.
F-11
<PAGE>
Aggregate Stock Option Activity
The following table summarizes information about the aggregate stock option
activity for the years ended February 3, 1996, and February 1, 1997:
February 3, 1996 February 1, 1997
--------------------- ----------------------
Weighted- Weighted-
Average Average
Number Exercise Number Exercise
of Shares Price of Shares Price
--------- --------- --------- ----------
Outstanding, beginning of year 130,000 $4.54 130,000 $4.54
Granted -- -- 410,000 1.51
Exercised -- -- -- --
Forfeited -- -- -- --
------- ----- ------- -----
Outstanding, end of year 130,000 $4.54 540,000 $2.24
======= ===== ======= =====
Options vested, end of year 85,000 $4.54 293,333 $2.85
======= ===== ======= =====
The weighted-average fair value of options granted during the year ended
February 1, 1997, was $.69.
The following table summarizes information about stock options at February 1,
1997:
Options Outstanding Options Exercisable
------------------------------------- -----------------------
Weighted-
Weighted- Average Weighted-
Average Remaining Average
Number Exercise Contractual Number Exercise
Exercise Prices Outstanding Price Life (Years) Exercisable Price
- --------------- ----------- -------- ------------ ----------- ---------
$1.00 70,000 $ .13 9 14,000 $ .05
$1.50 110,000 .30 9 103,333 .52
$1.68 230,000 .71 9 46,000 .26
$4.25 80,000 .63 7 80,000 1.16
$5.00 50,000 .47 7 50,000 .86
------- ----- ---- ------- -----
540,000 $2.24 8.51 293,333 $2.85
======= ===== ==== ======= =====
The effect of options outstanding has not been included in weighted average
common and common equivalent shares outstanding in the accompanying statements
of operations and accumulated deficit, as these options would have an
antidilutive effect on net loss per weighted average common and common
equivalent share.
F-12
<PAGE>
Accounting for Stock-based Compensation
The Company accounts for its stock option plans under Accounting Principles
Board Opinion No. 25 (APB 25), under which no compensation expense has been
recognized. In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123), which was effective for fiscal years
beginning after December 15, 1995. SFAS 123 allows companies to continue
following the accounting guidance of APB 25, but requires pro forma disclosure
of net income and earnings per share for the effects on compensation expense had
the accounting guidance of SFAS 123 been adopted. The pro forma disclosures are
required only for options granted in fiscal years beginning after December 15,
1994.
The Company adopted SFAS 123 for disclosure purposes in the year ended February
1, 1997. For SFAS 123 purposes, the fair value of each option granted has been
estimated as of the grant date using the Black-Scholes option pricing model with
the following weighted average assumptions: risk-free interest rates ranging
from 5.9 to 6.4 percent, expected life of three years, no expected dividends,
and expected volatility of approximately 60 percent. Using these assumptions,
the fair value of the stock options granted in the year ended February 1, 1997,
was approximately $75,000, which would be amortized as compensation expense over
the vesting periods of the options.
Had compensation expense been recognized under SFAS 123, utilizing the
assumptions detailed above, the Company's net loss and net loss per weighted
average common and common equivalent share (LPS) would have been changed to the
following pro forma amounts for the fiscal year ended February 1, 1997 (no
effect for the fiscal year ended February 3, 1996):
Amount
-----------
Net loss: As reported $(1,043,076)
Pro forma $(1,085,328)
LPS: As reported $ (.49)
Pro forma $ (.51)
Because the SFAS 123 method of accounting has not been applied to options
granted in fiscal years beginning prior to December 15, 1994, the resulting pro
forma compensation expense may not be representative of that to be expected in
future years.
F-13
<PAGE>
PROXY PRELIMINARY COPY
WHAT A WORLD!, INC.
PROXY SOLICITED BY
THE BOARD OF DIRECTORS OF WHAT A WORLD!, INC.
FOR THE SPECIAL MEETING OF STOCKHOLDERS-MAY 5, 1997
The undersigned hereby appoints David F. Miller, David B. Cornstein
and James Martin Kaplan and each of them, with power of substitution to each, as
the proxies and attorneys of the undersigned to vote, as designated below, all
shares of common stock which the undersigned would be entitled to vote if
personally present at the Special Meeting of Stockholders of What A World!, Inc.
to be held at the offices of What A World!, Inc., Suite 100 McCormick Centre
II-B, 10901 Roosevelt Boulevard, St. Petersburg, Florida 33716, at 10:00 a.m.
(local time) on April __, 1997.
1. Proposal Relating to the Sale Transaction
|_| FOR |_| AGAINST |_| ABSTAIN
2. In their discretion, the proxies are authorized to vote upon such
other business as may properly come before the meeting or any
adjournment thereof.
If no direction is given, this proxy will be voted FOR Proposal No.
1.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
FOR PROPOSAL 1
(to be valid, this proxy must be signed and dated on the reverse side)
<PAGE>
[BACK]
Date: _____________________________
___________________________________
Signature
___________________________________
Signature
Please mark, date and sign as your
name appears above and return in
the enclosed envelope. If acting as
executor, administrator, trustee,
guardian, etc. you should so
indicate when signing. If the
signer is a corporation, please
sign the full corporate name, by a
duly authorized officer. If shares
are held jointly, each stockholder
named should sign.
<PAGE>
APPENDIX A
ASSET PURCHASE AGREEMENT
BY AND BETWEEN
NATURAL WONDERS, INC.
AND
WHAT A WORLD!, INC.
DATED MARCH 7, 1997
<PAGE>
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (the "Agreement") is made as of March 7, 1997
by and between Natural Wonders, Inc., a Delaware corporation ("Buyer"), and What
A World!, Inc., a Delaware corporation ("Seller"), with reference to the
following:
Seller is a mall-based specialty unique gift retailer which owns and
operates a total of twelve stores in Florida, New Jersey and New York. Subject
to the terms and conditions of this Agreement, Buyer is willing to purchase, and
Seller is willing to sell, certain of the assets, rights, and business of
Seller, subject to certain of the liabilities thereof.
The parties agree as follows:
1. SALE AND PURCHASE OF ASSETS.
1.1 SALE OF ASSETS.
On the terms and subject to the conditions of this Agreement and for the
consideration set forth herein, Seller shall at the Closing, as defined in
Section 1.6.1, sell, convey, assign, transfer and deliver to Buyer, and Buyer
shall purchase and acquire from Seller, the assets of Seller described below
(which assets, excluding the assets listed on Schedule 1.2, shall be referred to
as the "Assets"):
(a) Inventories. All good and salable current inventory of Seller (which
inventory shall have a value of at least $700,000 based upon the lower of cost
or market value (the "Minimum Inventory Amount")) as of the Closing Date
wherever located (the "Inventories"). A summary by class of such items on hand
as of March 1, 1997 is attached hereto as Schedule l.l(a).
(b) Fixed Assets and Tangible Personal Property. All fixed assets and
tangible personal property of Seller (other than the Inventories) located at
each of the Seller's Leased Properties (as defined below) and the Seller's
Warehouse, including without limitation, all store fixtures, furniture and
lighting fixtures, and all store supplies, wherever located. A list of such
fixed assets and tangible personal property by class of such items is attached
hereto as Schedule 1.1(b) showing, for each such class of asset: the amount at
which such class of asset is carried on Seller's books, its depreciation
schedule, its location and (in the event that Seller does not have possession)
the name of the person in possession.
(c) Intangible Personal Property. All deposits and prepaid expenses, vendor
lists, customer lists, customer files, customer records, and licenses and
permits susceptible of
1
<PAGE>
transfer under regulatory agency rules. A detailed list of such assets is
attached hereto as Schedule l.l(c).
(d) Contracts. All rights in and to all contracts of Seller to the extent
such rights and contracts relate specifically to the operation and
maintenance of the Leased Properties, and to the extent assignable, including
the Assets maintained by Seller therein, including without limitation,
license agreements, assignment agreements, maintenance agreements, service
agreements, and agreements for leased equipment (but not including the lease
for the Leased Register Equipment, as defined herein) (together, the
"Contracts"). A list of all Contracts involving the payment or receipt of
$2,500 or more in any one-year period is attached hereto as Schedule l.l(d)
showing, for each such Contract, the names of the parties, the subject of the
Contract and the date of the Contract. Copies of all material written
Contracts have been furnished to Buyer.
1.2 ASSETS NOT PURCHASED.
Seller shall not sell, and Buyer shall not acquire any interest in, any of
Seller's assets not transferred pursuant to Section 1.1. Such assets shall
remain the property of Seller, and Buyer shall have no liability or other
responsibility with respect thereto.
1.3 PURCHASE PRICE.
1.3.1 Purchase Price and Other Payments. Subject to the other terms
and conditions of this Agreement and in full consideration for the Assets: (a)
Buyer shall pay at the Closing (the "Purchase Price") the sum of $500,000 (as
adjusted in accordance with Section 1.3.2 below), in immediately available
funds; and (b) Buyer shall assume certain liabilities of Seller pursuant to
Section 1.4. In addition, Buyer shall reimburse Seller for (i) all prepaid
expenses and deposits (including, without limitation, all rent deposits for
the Store Leases (as defined herein)) assigned to Buyer, which payments are
listed on Schedule 1.3.1 attached hereto, and (ii) all cash on hand at each of
the Leased Properties as of the close of business on March 9, 1997.
1.3.2 Closing Inventory Adjustment. (a) Buyer shall, at its sole
discretion, undertake a physical inventory of the Seller's Inventories on or
about March 8, 1997 in accordance with the procedures set forth below (the
"Buyer's Inventory"). The Buyer's Inventory shall be compared to the Seller's
perpetual inventory records dated as of March 8, 1997, as adjusted for
differences from its physical inventory as of February 1, 1997. In the event
that Buyer's Inventory is less than the Minimum Inventory Amount, any such
difference shall be subtracted at the Closing from the Purchase Price set
forth in Section 1.3.1 above.
Inventory Procedures: (i) Seller has taken a physical inventory of
all Inventories at all Leased Properties on or about January 31,
1997; (ii) Seller has subsequently updated its perpetual inventory
records; (iii) Buyer will, at its sole discretion and expense, take a
total physical
2
<PAGE>
inventory on March 8, 1997 at the Monmouth, N.J. and Clearwater, Fla.
Leased Properties; (iv) Buyer will compare its Buyer's Inventory to
the perpetual inventory records of the Seller with respect to such
Leased Properties; (v) to the extent that the Buyer's Inventory is
less than the Seller's perpetual inventory for such Leased
Properties, the Buyer will apply the percentage difference to the
Seller's total perpetual inventory; (vi) to the extent that the
adjusted Seller's perpetual inventory is less than the Minimum
Inventory Amount, the Purchase Price shall be adjusted downward;
(vii) if Seller does not accept Buyer's Inventory, Seller can, at its
expense conduct a physical inventory of all Leased Properties on or
before the Closing and to the extent that such physical inventory is
less than the Minimum Inventory Amount, the Purchase Price shall be
adjusted downward.
(b) Buyer shall pay at Closing an additional amount of up to $25,000 to
Seller equal to one-quarter of the value of all good and salable current
inventory of Seller (exclusive of all goods which are are defined by Seller as
permanent markdowns (approximately $80,00 in goods) for which goods the Buyer
shall receive at no charge) which is in excess of the Minimum Inventory Amount.
Such goods shall be valued at the lower of cost or market value and the amount
of such goods shall be determined by reference to the Seller's perpetual
inventory records as of March 9, 1997, as adjusted for physical inventory
adjustment.
1.3.3 Purchase Price Escrow. Simultaneously with the execution of
this Agreement, Buyer shall deposit the sum of $500,000 into escrow with Baker
& McKenzie, counsel for Buyer (the "Escrow Agent") pursuant to the terms and
conditions of the Escrow Agreement between Buyer, Seller and Escrow Agent
substantially in the form of Exhibit 1.3.3 attached hereto.
1.4 ASSUMPTION OF LIABILITIES. In connection with the purchase and sale of
the Assets pursuant to this Agreement, Buyer shall assume in writing at the
Closing, only those liabilities and obligations of Seller that are specifically
described on Schedule 1.4, (the "Assumed Liabilities") including without
limitation, the retail store leases (the "Store Leases") for each of the
Seller's retail locations (the "Leased Properties"). Without limiting the
generality of the foregoing, Buyer shall assume all liabilities under the Store
Leases arising on or after the Closing Date regardless of whether Seller is able
to obtain requisite consent to assignment of any one or more of the Store
Leases. To the extent consent to assignment of a Store Lease cannot be obtained,
Buyer and Seller shall enter in to such alternative arrangements and agreements
as may be appropriate to effectuate the intent of the parties with respect to
the Store Leases. No other liabilities or obligations of any nature, whether
known or unknown, whether fixed or contingent, accrued or unaccrued, shall be
assumed by Buyer in connection with the purchase and sale of the Assets
hereunder.
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1.5 USE OF LEASED EQUIPMENT. Seller shall permit the Buyer to have full
access to and rights to the continued use of the computer and store register
equipment presently leased by the Seller (the "Leased Register Equipment") for a
period not to exceed one year from the date of Closing, which equipment and
lease is more fully described on Schedule 1.5 attached hereto. Buyer shall use
its best efforts to discontinue the use of the Leased Register Equipment as
quickly as possible after Closing. In the event Seller discontinues the use of
its current corporate offices which house certain components of the Leased
Register Equipment, Buyer shall undertake to obtain and pay for a suitable
facility for such equipment during the period in which it requires use of the
Leased Register Equipment. In addition, during its use of the Leased Register
Equipment, Buyer shall pay all maintenance costs related to the Leased Register
Equipment. The foregoing shall not include the underlying lease payments for the
Leased Register Equipment which payments shall remain solely an obligation of
Seller.
1.6 CLOSING.
1.6.1 Closing Date. The closing of the purchase and sale of the
Assets (the "Closing") shall take place at the offices of Baker & McKenzie,
660 Hansen Way, Palo Alto, CA at 10:00 a.m. on the first business day
following the approval of the transactions contemplated herein by the Seller's
stockholders at a properly noticed meeting of the stockholders of Seller or at
such other place, date or time as Buyer and Seller may agree (the "Closing
Date").
1.6.2 Seller's Deliveries at Closing. At the Closing, Seller shall
deliver or cause to be delivered the following to Buyer against delivery of
the items specified in Section 1.6.3:
(a) A Bill of Sale in a form mutually satisfactory to counsel to
Seller and Buyer;
(b) A License in favor of Buyer to use Seller's trademarks and
tradenames in a form mutually satisfactory to counsel to
Seller and Buyer;
(c) Certified resolutions of Seller's Board of Directors and
stockholders authorizing consummation of the transactions
contemplated by this Agreement;
(d) A compliance certificate pursuant to Section 4.3;
(e) The opinion of Seller's counsel pursuant to Section 4.4;
(f) A good standing certificate from the State of Delaware for
Seller as of a date not earlier than five business days
before
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the Closing;
(g) Termination statements for all outstanding UCC financing
statements (other than for UCC financing statements filed in
connection with leases being assumed under Section 1.4);
(h) All third party consents (excluding the consent of each of
the lessors of the Leased Properties specifically consenting
to the assignment of the Store Leases to the Buyer)
necessary for consummation of the transactions contemplated
hereby;
(i) A balance sheet showing the Assets, the Assumed Liabilities
of Seller as of the Closing Date;
(j) Buyer shall have received assurances satisfactory to it that
the provisions of the bulk-sales laws, if any, of the of
Florida, New York and New Jersey have been complied with;
(k) Buyer shall have received satisfactory evidence of the
payment of all outstanding liabilities to the vendors listed
on Schedule 1.6.2(k);
(l) Buyer shall have received satisfactory evidence of payment
of all sales taxes due and owing by the Seller as of the
close of business of the day immediately preceding the
Closing;
(m) Such other documents and instruments as shall be reasonably
requested to effect the transactions contemplated hereby.
Simultaneously with such deliveries, Seller shall take such steps as are
necessary to put Buyer in actual possession and control of the Assets.
1.6.3 Buyer's Deliveries at Closing. At the Closing, Buyer shall
deliver or cause to be delivered to (or pursuant to the instructions of)
Seller the following against delivery of the items specified in Section 1.6.2:
(a) Certified check or wire transfer of immediately available
funds of the Purchase Price, as adjusted in accordance with
Sections 1.3.2(a) and (b), together with the
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amount set forth in Schedule 1.3.1;
(b) Certified resolutions of Buyer's Board of Directors
authorizing consummation of the transactions contemplated by
this Agreement;
(c) A compliance certificate pursuant to Section 5.3;
(d) An assumption agreement with respect to the Assumed
Liabilities in a form mutually satisfactory to counsel to
Seller and Buyer; and
(e) Such other documents and instruments as shall be reasonably
necessary to effect the transactions contemplated hereby.
1.7 CONSENTS OF THIRD PARTIES. Nothing in this Agreement shall be
construed as an attempt or agreement to assign: (i) any Contract (other than the
Store Leases) which is non-assignable without the consent of the party or
parties thereto unless such consent shall have been obtained; or (ii) any
Contract (other than the Store Leases) or claim as to which all of the remedies
for the enforcement thereof enjoyed by Seller would not pass to Buyer as an
incident of the assignments provided for by this Agreement. Seller shall
cooperate with Buyer to obtain the consents of any other party required in
connection with the transfer of any Contract requiring such consent and shall
provide Buyer with all of the benefits enjoyed by Seller under any such Contract
until consent to the assignment thereof is obtained.
1.8 PRINCIPAL STOCKHOLDER LOCK-UP. Simultaneously with the execution of
this Agreement, each of David F. Miller, David B. Cornstein and Edward J. Munley
(collectively, the "Principal Stockholders") shall execute and deliver to Seller
a lock-up agreement in the form attached hereto as Exhibit 1.8.
1.9 MANAGEMENT AGREEMENT. Simultaneously with the execution of this
Agreement, the parties shall enter into a management agreement in the form
attached hereto as Exhibit 1.9 (the "Management Agreement").
2. REPRESENTATIONS AND WARRANTIES OF SELLER.
Seller hereby represents and warrants to Buyer that:
2.1 ORGANIZATION AND AUTHORITY. Seller: (i) is a corporation duly
organized,
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validly existing and in good standing under the laws of the State of
Delaware; (ii) has all necessary corporate power to own and lease its
properties, to carry on its business as now being conducted and at Closing
will have the power to enter into and perform this Agreement; and (iii) is
qualified to do business in all jurisdictions in which the failure to so
qualify would have a material adverse effect on its business or financial
condition.
2.2 Authority Relating to this Agreement: No Violation of Other
Instruments.
2.2.1 Subject to the approval of Seller's stockholders of the
transactions contemplated herein and compliance with applicable federal
securities laws and the Delaware General Corporation Law, the execution and
delivery of this Agreement and the performance hereunder by Seller have been
duly authorized by all necessary corporate action on the part of Seller and,
assuming execution of this Agreement by Buyer, this Agreement will constitute
a legal, valid and binding obligation of Seller, enforceable against Seller
in accordance with its terms, subject as to enforcement: (i) to bankruptcy,
insolvency, reorganization, arrangement, moratorium and other laws of general
applicability relating to or affecting creditors' rights; and (ii) to general
principles of equity, whether such enforcement is considered in a proceeding
in equity or at law.
2.2.2 Subject to the approval of Seller's stockholders of the
transactions contemplated herein and compliance with applicable federal
securities laws and the Delaware General Corporation Law, and except as set
forth in Schedule 2.2.2, neither the execution of this Agreement nor the
performance hereof by Seller will: (i) conflict with or result in any breach
or violation of the terms of any decree, judgment, order, law or regulation
of any court or other governmental body now in effect applicable to Seller;
(ii) conflict with, or result in, with or without the passage of time or the
giving of notice, any breach of any of the terms, conditions and provisions
of, or constitute a default under, or result in the creation of any lien,
charge, or encumbrance upon any of the Assets pursuant to, any indenture,
mortgage, lease, agreement or other instrument to which Seller is a party or
by which it or any of the Assets are bound; (iii) permit the acceleration of
the maturity of any indebtedness of Seller or of any other person secured by
the Assets; (iv) violate or conflict with any provision of Seller's
Certificate of Incorporation, Bylaws, or similar organizational instruments;
or (v) give rise to any statutory dissenter's rights from Seller's
stockholders, which, in the case of clauses (i) through (v) above,
individually, or in the aggregate, could reasonably be expected to materially
adversely affect the ability of the Seller to effectuate the transactions
contemplated herein.
2.2.3 Subject to compliance with applicable federal securities
laws, the Delaware General Corporation Law and state bulk transfer laws, to
the extent they apply, and except as otherwise disclosed in Schedule 2.2.3,
no consent from any third party and no consent, approval or authorization of,
or declaration, filing or registration with, any government or regulatory
authority is required to be made or obtained in order to permit the
execution, delivery or performance of this Agreement by Seller, or the
consummation of the transactions contemplated by this Agreement, except where
the failure to obtain any such consent, approval,
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authorization or declaration or make any filing or registration will not
individually, or in the aggregate, materially adversely affect the ability of
the Seller to effectuate the transactions contemplated herein.
2.3 OWNERSHIP AND DELIVERY OF ASSETS. The Assets, together with all other
assets of Seller, comprise substantially all of the assets, rights and business
of Seller. Seller is the true and lawful owner of the Assets and has all
necessary power and authority to transfer the Assets to Buyer free and clear of
all liens, charges, security interests, conditional sales contracts, equities,
claims or other encumbrances ("Liens") other than (i) Liens noted in Schedule
2.3, (ii) Liens for current real and personal property taxes not yet due and
payable and (iii) Liens, the existence of which would not have a material
adverse effect on the condition, financial or otherwise, Assets, liabilities,
business, prospects or results of operations of Seller. No other person,
including without limitation any officer, director, employee, or stockholder of
Seller, will have on the Closing Date any direct or indirect interest in any of
the Assets. Upon delivery to Buyer on the Closing Date of the Bill of Sale and
other instruments of conveyance with respect to the Assets, and of releases and
UCC termination statements from all Lien holders listed on Schedule 2.3 (except
holders of liens related to leases included in the Assumed Liabilities), Buyer
will acquire good title to the Assets free and clear of all Liens, other than
those specifically noted above.
2.4 COMPLIANCE WITH LAW. Seller holds all material licenses, permits and
authorizations necessary for the lawful conduct of Seller's business wherever
conducted pursuant to all applicable statutes, laws, ordinances, rules and
regulations of all governmental bodies, agencies and subdivisions having,
asserting or claiming jurisdiction over Seller or over any part of Seller's
operations, and Seller knows of no violation thereof. Schedule 2.4 constitutes
a true and complete list of such material licenses, permits and
authorizations. Seller is not in violation of any decree, judgment, order, law
or regulation of any court or other governmental body (including without
limitation, applicable environmental protection legislation and regulations,
equal employment and civil rights regulations, wages, hours and the payment of
social security taxes and occupational health and safety legislation), which
violation could have a material adverse effect on the condition, financial or
otherwise, Assets, liabilities, business, prospects or results of operations
of Seller.
2.5 Intentionally Deleted
2.6 FINANCIAL STATEMENTS. Seller has delivered to Buyer financial
statements of Seller (the "Financial Statements") as follows:
2.6.1 Balance Sheets and Statements of Operations and Cash Flows of
Seller as of January 4, 1997 and for the one month period ended February 1,
1997, which are unaudited and prepared by management in the ordinary course
of business of Seller and are attached as Exhibit 2.6.1A.
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2.6.2 Balance Sheets of Seller at February 3, 1996 and January 28,
1995, together with Statements of Operations and Cash Flow for the year ended
December 31, 1994 and for the period from January 1, 1995 to January 28,
1995, which financial statements are accompanied by the audit report thereon
of Arthur Andersen LLP are attached as Exhibit 2.6.2B.
Each Financial Statement as well as the notes thereto is in accordance with
the books and records of Seller, fairly presents in all material respects the
financial position of Seller at the date indicated and the results of
operations of Seller for the period indicated, and has been prepared in
accordance with generally accepted accounting principles ("GAAP") consistently
applied, except that all interim financial statements may vary from GAAP
insofar as footnote disclosures required for compliance with GAAP are not
included.
2.7 ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth on Schedule
2.7, as of February 1, 1997, Seller did not have and as of the Closing Date
Seller will not have, any indebtedness or liability (fixed or contingent, known
or unknown, accrued or unaccrued) which is not shown or provided for in full on
Schedule 2.7 and, in the case of the Closing Date, except for liabilities which
are not material and which have arisen in the ordinary course of business of
Seller after February 1, 1997.
2.8 TAX RETURNS AND PAYMENTS. Except as set forth in Schedule 2.8, all tax
returns and reports with respect to Seller required by law to be filed under the
laws of any jurisdiction, domestic or foreign, have been duly and timely filed
and all taxes, fees or other governmental charges of any nature which were
required to have been paid have been paid or provided for. Seller has no
knowledge of any unpaid taxes or any actual or threatened assessment of
deficiency or additional tax or other governmental charge or a basis for such a
claim against Seller. Seller has no knowledge of any tax audit of Seller by any
taxing or other authority in connection with any of its fiscal years, Seller has
no knowledge of any such audit currently pending or threatened, and there are no
tax liens on any of the properties of Seller, nor have any such liens been
threatened.
2.9 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31, 1996 through
the date of this Agreement, except as set forth on Schedule 2.9 or as
contemplated by this Agreement, there have been no material changes in the
condition, financial or otherwise, Assets, liabilities, business, prospects or
the results of operations of Seller, other than changes in the ordinary course
of business which in the aggregate have not been materially adverse. Without
limiting the foregoing, since December 31, 1996 through the date of this
Agreement, except as set forth in Schedule 2.9 and as contemplated by this
Agreement:
2.9.1 There have been no losses or damage to any of the Assets due to
fire or other casualty, whether or not insured, amounting to more than $10,000
in the aggregate;
2.9.2 Seller has not executed, created, amended or terminated
any Contract except in the ordinary course of business;
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2.9.3 There has been no material change in the contingent
obligations of Seller by way of guaranty, endorsement, indemnity, warranty or
otherwise;
2.9.4 There has been no change in accounting methods or practices
(including without limitation, any change in depreciation or amortization
policies or rates) by Seller;
2.9.5 There has been no revaluation by Seller of any of the Assets;
2.9.6 There has been no sale or transfer of any of the Assets,
except in the ordinary course of business;
2.9.7 There has been no commencement or notice of threat of
commencement of any governmental proceeding against or investigation of
Seller or its affairs; and
2.9.8 There has been no revocation of license or right to do
business granted to Seller.
2.10 INVENTORIES. The Inventories are all good and salable current
inventory of Seller. The amounts shown for inventories on Exhibit 2.6.1A have
been determined in accordance with generally accepted accounting principles
stated at lower of cost or market utilizing the retail method of inventory
valuation. The Inventories have a value of at least the Minimum Inventory Amount
as of the date hereof.
2.11 PERSONAL PROPERTY. Seller has good title, free and clear of all
Liens, to all equipment, furniture, and other personal property reflected on
Schedules l.l(a), (b) and (c), except as set forth in Schedule 2.11. Except as
set forth on Schedule 2.11, all such personal property is in good operating
condition, ordinary wear and tear excepted. Except as set forth on Schedule
2.11, all of the leases to personal property utilized in the business of Seller
are valid and enforceable and are not in default.
2.12 REAL PROPERTY. Except as set forth on Schedule 2.12, all of the Store
Leases are valid and enforceable and are not in default. Except as set forth in
Schedule 2.12, to Seller's knowledge, the Leased Properties, the improvements
located thereon, and the furniture, fixtures and equipment relating thereto
(including plumbing, heating, air conditioning and electrical systems), conform
to any and all applicable health, fire, safety, zoning, land use and building
laws, ordinances and regulations, except where a violation would not have a
material adverse effect on the condition, financial or otherwise, Assets,
liabilities, business, prospects or results of operations of Seller . There are
no outstanding contracts made by Seller for any improvements made to the Leased
Properties which have not been paid for. To Seller's knowledge, all Leased
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Properties have been constructed in accordance with all applicable building
codes and otherwise in accordance with the Store Leases and the rules and
regulations of the lessors of such Store Leases and all mechanical and
electrical systems present in and used in connection with the Leased Properties
are in good working order.
2.13 TRADEMARKS, TRADE NAMES AND COPYRIGHTS. All trademarks, trade names,
copyrights, trade secrets or other proprietary rights that are necessary to
the conduct of Seller's business are owned or are useable by Seller and are
listed on Schedule 2.13. Except as otherwise noted in Schedule 2.13, the
conduct of any business conducted by Seller does not infringe any trademark,
trade name, service mark, copyright, trade secret, or other proprietary right
of any other person. Except as otherwise noted in Schedule 2.13, no
litigation is pending or has been threatened in writing against Seller or, to
the knowledge of Seller, against any officer, director, stockholder, employee
or agent of Seller, for the infringement of any trademarks or trade names of
any other party or for the misuse or misappropriation of any trade secret or
other proprietary right owned by any other party; nor, to the knowledge of
Seller, does any basis exist for any such litigation. To Seller's knowledge
and except as otherwise noted in Schedule 2.13, there has been no
infringement or unauthorized use by any other person of any trademark, trade
name, copyright or other proprietary right belonging to Seller.
2.14 WARRANTIES AND GUARANTEES. Except as set forth on Schedule 2.14,
Seller has made no warranties or guarantees relating to its products.
2.15 LITIGATION. Except as set forth on Schedule 2.15, neither Seller nor,
to the knowledge of Seller, any officer, director, stockholder, employee or
agent of Seller is a party to any written pending or, to the knowledge of
Seller, threatened action, suit, proceeding or investigation, at law or in
equity or otherwise in, for or by any court or other governmental body which
could have a material adverse effect on: (i) the condition, financial or
otherwise, Assets, liabilities, business, prospects or results of operations of
Seller; or (ii) the transactions contemplated by this Agreement; nor does any
basis exist for any such action, suit, proceeding or investigation. Seller is
not subject to any pending or threatened product liability claim; nor does any
basis exist for any such claim. Except as set forth on Schedule 2.15, Seller is
not subject to any decree, judgment, order, law or regulation of any court or
other governmental body which could have a material adverse effect on the
condition, financial or otherwise, Assets, liabilities, business, prospects or
results of operations of Seller or which could prevent the transactions
contemplated by this Agreement.
2.16 PERSONNEL. Schedule 2.16 comprises a list of: (i) all Employee Plans
(as hereinafter defined) and all contracts or agreements with directors,
officers, employees or consultants to which Seller is a party or is subject as
of the date of this Agreement; (ii) the names, hire dates, accrued wages
(including salaries, commissions and bonuses), severance pay, vacation pay, sick
leave or other benefits, current salary rates, bonuses paid during the last
fiscal year and (iii) all group insurance programs in effect for employees of
Seller. Seller is not in default with respect to any of the obligations so
listed. Seller has delivered to Buyer complete
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and correct copies of all such written obligations and complete summaries of
all such oral obligations. Except as set forth on Schedule 2.16, Seller has
no union contracts or collective bargaining agreements with, or any other
obligations to, employee organizations or groups relating to Seller's
business, nor is Seller currently engaged in any labor negotiations except in
minor grievances not involving any employee organization or group, nor, to
the best knowledge of Seller, is Seller the subject of any union organization
affecting its business. There is no pending or, to Seller's best knowledge,
threatened labor dispute, strike or work stoppage affecting Seller's
business. All plans listed on Schedule 2.16 are in full compliance with
applicable provisions of the Employees Retirement Income Security Act of
1974, as amended ("ERISA"), and regulations issued under ERISA, and there is
no unfunded liability with respect to such plans. Schedule 2.16 also lists
the amount payable to employees of Seller under other fringe benefit plans.
2.17 INSURANCE. Schedule 2.17 constitutes a list of all insurance policies
and bonds in force with respect to Seller showing for each such policy or bond:
(i) the owner; (ii) the coverage of such policy or bond; (iii) the amount of
premium properly allocable to such policy or bond; (iv) the name of the insurer;
and (v) the termination date of the policy or bond. All such insurance policies
and bonds are in full force and effect, and the insurance coverage provided by
such policies and bonds is adequate for the conduct of the business conducted by
Seller in accordance with good business practices.
2.18 CERTAIN PAYMENTS. Neither Seller, nor to Seller's knowledge, any
director, officer, employee or agent of Seller, has made or caused to be made,
directly or indirectly, the payment of any consideration whatsoever to any
public official, candidate for public office, political party, or other third
person in connection with the business or operations of Seller, or pertaining to
Seller's relations with any customer, supplier, or creditor, in contravention of
the law of any applicable jurisdiction.
2.19 BROKERS AND FINDERS. Neither Seller nor any stockholder, director,
officer, employee or agent of Seller has retained any broker or finder in
connection with the transactions contemplated by this Agreement. As more fully
set forth in Section 9, Seller will indemnify and hold Buyer harmless against
all claims for brokers' or finders' fees made or asserted by any party claiming
to have been employed by Seller or any stockholder, director, officer, employee
or agent of Seller and all costs and expenses (including the reasonable fees of
counsel) of investigating and defending such claims.
2.20 CONTRACTS. Except as set forth on Schedule 2.20, neither Seller nor,
to Seller's knowledge, any other party to the Contracts is in default in
performance of or not in compliance with any material provisions of such
Contracts. Seller has no knowledge of any intent by any other party not to
perform its obligations under any such Contract. Except as set forth on Schedule
2.20, Seller has the right to assign all Contracts to Buyer pursuant to this
Agreement and neither the assignment of such Contracts nor the consummation of
the transactions contemplated by this Agreement permits, or to the best
knowledge of Seller, would
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lead any party to such Contract, to terminate or alter such Contract.
2.21 ABSENCE OF ENVIRONMENTAL LIABILITIES. To the knowledge of Seller,
at all times prior to the Closing Date, Seller has complied with all
applicable environmental laws, orders, regulations, rules and ordinances
adopted, imposed or promulgated by any governmental entity relating to the
Seller's Properties. To Seller's knowledge, neither Seller nor any of the
Leased Properties are in violation of any federal, state or local law,
ordinance or regulation relating to industrial hygiene, worker safety,
environmental hazardous materials or waste or toxic materials on, under or
about any of the properties, including soil and waste water conditions. To
Seller's knowledge, no current use of any of the Leased Properties constitutes
a public or private nuisance. To Seller's knowledge, the environmental
licenses, permits, clearances, consents and authorizations material to the
operations of Seller are in full force and effect. Seller is not aware of any
fact or circumstance that could involve Seller or Buyer in any environmental
litigation or impose any material environmental liability upon Seller or Buyer.
2.22 ACCURACY OF DOCUMENTS AND INFORMATION. The copies of all instruments,
agreements, other documents and written information set forth as, or referenced
in, Schedules or Exhibits to this Agreement or specifically required to be
furnished pursuant to this Agreement to Buyer by Seller are and will be complete
and correct in all material respects.
3. REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer hereby represents and warrants to Seller that:
3.1 ORGANIZATION AND AUTHORITY. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
Buyer has all necessary corporate power and authority to enter into and perform
this Agreement.
3.2 Authority Relating to this Agreement; No Violation of Other
Instruments.
3.2.1 The execution and delivery of this Agreement and the
performance hereunder by Buyer have been duly authorized by all necessary
corporate action on the part of Buyer and, assuming execution of this
Agreement by Seller, this Agreement will constitute a legal, valid and
binding obligation of Buyer, enforceable against Buyer in accordance with its
terms, subject as to enforcement: (i) to bankruptcy, insolvency,
reorganization, arrangement, moratorium and other laws of general
applicability relating to or affecting creditors' rights; and (ii) to general
principles of equity, whether such enforcement is considered in a proceeding
in equity or at law.
3.2.2 Neither the execution of this Agreement nor the performance
hereof by Buyer will: (i) conflict with or result in the breach or violation
of the terms of any decree, judgment, order, law or regulation of any court
or other governmental body now in effect
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applicable to Buyer; (ii) conflict with, or result in, with or without the
passage of time or the giving of notice, any breach of any of the terms,
conditions and provisions of, or constitute a default under, any indenture,
mortgage, lease, agreement or other instrument to which Buyer is a party or
by which it is bound; or (iii) violate or conflict with any provisions of
Buyer's Certificate of Incorporation, Bylaws, or similar organizational
instruments.
3.3 CONSENTS. No consent from any third party and no consent, approval or
authorization of, or declaration, filing or registration with, any governmental
or regulatory authority is required to be made or obtained by Buyer in order to
permit the execution, delivery or performance of this Agreement by Buyer, or the
consummation of the transactions contemplated by this Agreement.
3.4 BROKERS AND FINDERS. Neither Buyer nor any stockholder, director,
officer, employee or agent of Buyer has retained any broker or finder in
connection with the transactions contemplated by this Agreement. As more fully
set forth in Section 9, Buyer will indemnify and hold harmless Seller against
all claims for brokers' or finders' fees made or asserted by any party claiming
to have been employed by Buyer or any stockholder, director, officer, employee
or agent of Buyer and all costs and expenses (including the reasonable fees of
counsel) of investigating and defending such claims.
4. CONDITIONS TO THE OBLIGATIONS OF BUYER.
Except as otherwise specifically set forth herein or as contemplated by this
Agreement, all obligations of Buyer under this Agreement are subject to the
fulfillment, prior to or at the Closing Date, of each of the following
conditions:
4.1 REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. The representations
and warranties of Seller contained in this Agreement shall be deemed to have
been made again at and as of the Closing Date and shall then be true in all
respects.
4.2 COVENANTS PERFORMED BY SELLER. Each of the obligations of Seller to be
performed on or before the Closing Date pursuant to the terms of this Agreement
shall have been duly performed.
4.3 Authority Relating to this Agreement; Compliance Certificate. All
corporate and other proceedings (including without limitation stockholder
approval) required to be taken by or on behalf of Seller to authorize Seller
to execute, deliver and carry out this Agreement and to sell, transfer and
deliver the Assets to Buyer in accordance with this Agreement shall have been
duly and properly taken. Buyer shall have received a certificate of the
president and the secretary of Seller in a form mutually satisfactory to
counsel for Seller and Buyer, dated the Closing Date, certifying to the
fulfillment of the conditions specified in Sections 4.1., 4.2 and 4.3.
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4.4 OPINION OF COUNSEL. Buyer shall have been furnished with an opinion of
Zimet, Haines, Friedman & Kaplan, dated the Closing Date, in substantially the
form of Exhibit 4.4.
4.5 MATERIAL CHANGES IN BUSINESS OF SELLER. Between March 10, 1997 and the
Closing Date there shall have been no materially adverse change in the
condition, financial or otherwise, of the Assets, liabilities, business,
prospects or the results of operations of Seller except as permitted or
contemplated by this Agreement, other than changes related to declining sales at
each of the Leased Properties.
4.6 NO ACTION TO PREVENT COMPLETION. There shall not have been instituted
and be continuing or, to Seller's knowledge, threatened any claim, action or
proceeding which could have a material adverse effect on the condition,
financial or otherwise, of the Assets, liabilities, business, prospects or
results of operations of Seller, nor shall there have been instituted and be
continuing or, to Seller's knowledge, threatened any such claim, action or
proceeding to restrain, prohibit or invalidate, or to obtain damages in respect
of, the transactions contemplated by this Agreement or which might affect the
right of Buyer after the Closing Date to own or to operate the Assets.
4.7 CONSENTS. Seller shall have received all permits and authorizations
and consents necessary for the execution of this Agreement and the consummation
of the transactions contemplated by this Agreement, other than the consent of
the lessors of the Leased Properties to the assignment of the Store Leases,
which consents are not required by Buyer to be obtained by Seller, provided,
however, Seller shall use its best efforts to obtain such lessor consents.
4.8 DELIVERY OF CLOSING DOCUMENTS. Seller shall have delivered to Buyer
the closing documents required to be delivered pursuant to Section 1.6.2 in form
and substance reasonably satisfactory to Buyer and its counsel.
4.9 NONCOMPETITION AGREEMENTS. Noncompetition Agreements in favor of Buyer
effective as of the Closing shall have been received from David F. Miller and
David B. Cornstein in substantially the form attached as Exhibit 4.9.
4.10 FAILURE OF CONDITIONS. In the event any one or more of the conditions
set forth in this Section 4 is not satisfied, Buyer, in its sole and absolute
discretion, may elect: (i) to waive any such condition precedent or (ii) to
terminate this Agreement pursuant to Section 10.
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5. CONDITIONS TO THE OBLIGATIONS OF SELLER.
Except as otherwise specifically set forth herein, all obligations of Seller
under this Agreement are subject to the fulfillment and satisfaction, prior to
or at the Closing, of each of the following conditions:
5.1 REPRESENTATIONS AND WARRANTIES TRUE AT THE CLOSING. The
representations and warranties of Buyer contained in this Agreement shall be
deemed to have been made again at and as of the Closing Date and shall then be
true in all respects.
5.2 COVENANTS PERFORMED BY BUYER. Each of the obligations of Buyer to be
performed on or before the Closing Date pursuant to the terms of this Agreement
shall have been duly performed.
5.3 Authority Relating to this Agreement; Compliance Certificate. All
corporate and other proceedings required to be taken by or on behalf of Buyer
to authorize Buyer to execute, deliver and carry out this Agreement, shall
have been duly and properly taken. Seller shall have received a certificate of
the president and secretary of Buyer in a form mutually satisfactory to
counsel for Seller and Buyer, dated the Closing Date, certifying to the
fulfillment of the conditions specified in Section 5.1, 5.2 and 5.3.
5.4 NO ACTION TO PREVENT COMPLETION. There shall not have been instituted
and be continuing or, to Seller's knowledge, threatened any action or proceeding
by or before any court or other governmental body to restrain, prohibit or
invalidate, or to obtain damages in respect of, the transactions contemplated by
this Agreement.
5.5 DELIVERY OF CLOSING DOCUMENTS. Buyer shall have delivered to Seller
the closing documents required to be delivered pursuant to Section 1.6.3, in
form and substance reasonably satisfactory to Seller and its counsel.
5.6 NONCOMPETITION AGREEMENTS. Noncompetition Agreements in favor of Buyer
effective as of the Closing shall have been received from David F. Miller and
David B. Cornstein in substantially the form attached as Exhibit 4.9.
5.7 FAILURE OF CONDITIONS. In the event any one or more of the conditions
set forth in this Section 5 is not satisfied Seller, in its sole and absolute
discretion, may elect: (i) to waive any such condition precedent or (ii) to
terminate this Agreement pursuant to Section 10.
6. COVENANTS OF SELLER.
Seller covenants as follows:
6.1 SATISFACTION OF CONDITIONS. Seller shall in good faith proceed to
take or
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cause to be taken all actions within its power necessary to satisfy all
conditions to its obligations to close and consummate the transactions
contemplated by this Agreement.
6.2 CONDUCT OF THE BUSINESS AFTER CLOSING DATE. After the Closing Date,
the Seller will conduct no business which competes directly or indirectly with
the business of Buyer, except as contemplated by this Agreement.
6.3 CONTINUED LEASED REGISTER EQUIPMENT PAYMENTS. After the Closing Date,
Seller shall continue to make all lease payments (including all amounts for
maintenance and support of the Leased Register Equipment) to lessor in
connection with the Leased Register Equipment for a period not to exceed twelve
months from the Closing Date. Seller may cease making payments for the Leased
Register Equipment upon written notification by Buyer that it no longer requires
the use of the Leased Register Equipment.
6.4 GIFT CERTIFICATE REIMBURSEMENT. Seller shall promptly reimburse Buyer
for the full amount of Seller gift certificates redeemed at any of the Leased
Properties during the period that the Management Agreement between the parties
hereto is in effect. After the Closing, Seller shall reimburse Buyer for 50% of
the face value of all Seller gift certificates redeemed at any of the Leased
Properties.
7. COVENANTS OF BUYER.
Buyer covenants to Seller as follows:
7.1 SATISFACTION OF CONDITIONS. Buyer shall in good faith proceed to take
or cause to be taken all actions within its power necessary to satisfy all
conditions to its obligations to close and consummate the transactions
contemplated by this Agreement.
7.2 ASSUMED LIABILITIES. Buyer shall pay and perform all of its
obligations under the Assumed Liabilities.
8. EMPLOYMENT MATTERS.
8.1 EMPLOYEES. As of the date of this Agreement, Buyer shall have the
right, but not the obligation, to offer employment to any of Seller's employees,
at the salary levels and on other terms and conditions to be determined in
Buyer's sole discretion. Buyer shall have no liability for accrued wages
(including salaries, commissions and bonuses), severance pay, vacation pay, sick
leave or other benefits (including stock options to purchase shares of stock of
Seller, or Employee Plans of any type or nature on account of Seller's
employment of or termination of such employees arising before March 10, 1997,
and Seller shall indemnify Buyer and hold Buyer harmless against any liability
arising out of any claims for such pay or benefits or any other claims arising
from Seller's employment of or termination of employment of such employees
arising before March 10, 1997, as more fully set forth in Section 9 below. Buyer
shall
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indemnify Seller and hold Seller harmless against any liability arising out
of any claims for such payor benefits or any other claims arising from
Buyer's employment of or termination of employment of such employees arising
on or after March 10, 1997.
8.2 EMPLOYEE PLANS. Buyer is not assuming any of the Employee Plans of the
Corporation (as each such term is hereafter defined), and Buyer shall have no
liability whatsoever to employees of the Corporation (or to the Corporation)
with respect to accrued or future benefits under any such Employee Plans,
whether or not any of such employees are offered employment by, or become
employees of, Buyer, and Seller shall defend, indemnify and hold Buyer harmless
against any claims that it has liability under such Employee Plans, as more
fully set forth in Section 9 below. The term "Corporation" means Seller, any
controlled group (within the meaning of Section 414(b) of the Internal Revenue
Code of 1986, as amended ("IRC")) of which Seller is a member, all trades or
businesses under common control (within the meaning of IRC Section 414(c)) of
which Seller is a member and all affiliated service groups (within the meaning
of IRC Section 414(m)) of which Seller is a member. The term "Employee Plan"
includes all present and prior (including terminated and transferred) plans,
programs, agreements, arrangements and methods of contributions or compensation
(including all amendments to and components of the same, such as a trust with
respect to a plan) providing any remuneration or benefits, other than current
cash compensation, to any current or former employee of Seller or to any other
person who provides services to Seller's business, whether or not such plan or
plans, programs, agreements, arrangements and methods of contribution or
compensation are subject to ERISA, and whether or not such plan or plans,
programs, agreements, arrangements and methods of contribution or compensation
are qualified under the IRC. The term Employee Plan includes, but is not limited
to, pension, retirement, profit sharing, percentage compensation, stock
purchase, stock option, bonus and non-qualified deferred compensation plans. The
term Employee Plan also includes, but is not limited to, disability, medical,
dental, workers compensation, health insurance, life insurance or other death
benefits, incentive, severance plans, vacation benefits and fringe benefits. The
term Employee Plan also includes any employee plan that is a multi-employer plan
as defined in Section 3(37) of ERISA.
9. INDEMNITY AND RECOUPMENT.
9.1 SELLER'S INDEMNITY. Seller shall indemnify and hold harmless Buyer
from and against any and all losses, costs, expenses, liabilities, claims,
damages and judgments of every nature, including the cost of investigation and
defense thereof and reasonable attorneys' fees incurred ("Buyer's Damages")
which arise out of or based upon: (i) the breach by Seller of any
representation or warranty made by it pursuant to this Agreement; (ii) the
non-performance, partial or total, of any covenant made by it pursuant to this
Agreement; (iii) any activities of Seller prior to the Closing; (iv)
liabilities under any Employee Plans of the Corporation (as defined in Section
8.2); (v) claims for brokers' or finders' fees as described in Section 3.4;
(vi) any liabilities arising from the failure to comply with the applicable
state bulk transfer laws in connection with the transactions contemplated
hereby; and (vii) any other liabilities of Seller which Buyer is not assuming,
including, without limitation, any liabilities not disclosed to Buyer
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in this Agreement or the Exhibits and Schedules hereto.
9.2 BUYER'S INDEMNITY. Buyer shall indemnify and hold harmless Seller from
and against any and all losses, costs, expenses, liabilities, claims, damages
and judgments of every nature, including the costs of investigation and defense
thereof and reasonable attorneys' fees incurred ("Seller's Damages" and when
used together with or in the alternative to Buyer's Damages, "Damages"), which
arise out of: (i) the breach by Buyer of any representation or warranty made by
Buyer pursuant to this Agreement; (ii) claims for brokers' or finders' fees as
described in Section 3.4; (iii) the non-performance, partial or total, of any
covenant made by Buyer pursuant to this Agreement; or (iv) the failure to
satisfy any Assumed Liabilities assumed pursuant to Section 1.4.
9.3 NOTICE. In the event that either party suffers Damages, the party
making a claim for indemnification ("Indemnitee") shall within thirty (30) days
of discovering such Damage give the indemnifying party ("Indemnitor") written
notice thereof ("Notice of Claim"). The Notice of Claim shall state in
reasonable detail the nature of the claim, the specific provisions in this
Agreement alleged to have been breached, and the amount of the claim for
indemnification. Such amount shall represent the Indemnitee's good faith
estimate of the Damages. The Indemnitor shall have thirty (30) days from receipt
of the Notice of Claim to accept or reject the claim for indemnification. The
Indemnitee shall be deemed to have waived its right to indemnification for any
Damages for which notice is not given in a timely manner as set forth herein
only if and to the extent that the Indemnitor can show that such failure to give
timely notice has materially prejudiced the Indemnitor's ability to defend or
otherwise respond to such claim. Any claim for Damages accepted by the
Indemnitor or any claim determined as valid under the claim procedure set forth
below, shall be deemed "Established Damages" for the purposes of this Agreement.
9.4 CLAIMS OF BUYER AND SELLER. If a Notice of Claim is given pursuant to
Section 9.3 above, and no rejection is received within the thirty (30) day
period specified above, then the Indemnitor shall be deemed to have accepted
such claim. If the Indemnitor rejects a claim within such thirty (30) day
period, the parties shall, in good faith, attempt to negotiate a resolution of
such claim within sixty (60) days thereafter (the "Resolution Period"). If the
parties do not reach resolution during the Resolution Period, then the
Indemnitee may, within thirty (30) days after the end of the Resolution Period
proceed to submit the controversy to arbitration under the rules then in effect
of the American Arbitration Association in San Francisco. The determination of
the arbitrator(s) shall be binding, final and conclusive on the parties. The
expenses in connection with any arbitration shall be borne equally by the
parties unless determined otherwise by the arbitrator(s). If as a result of such
arbitration it is determined that the Indemnitor is obligated for such Damages,
the amount set by such arbitration shall be the amount of the Established
Damages and the Indemnitor shall owe such amount. If as a result of such
arbitration it is determined that the Indemnitor has no obligation to indemnify,
the Indemnitor shall have no further liability on the claim.
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9.5 CLAIMS OF THIRD PARTIES. If a claim for indemnification arises out
of a claim by a third party, including without limitation any governmental
agency, body or authority, ("Third Party Claim") in the Notice of Claim, the
Indemnitee shall state in reasonable detail the nature of the claim and the
basis for asserting such claim. Such notice shall be given in accordance with
Section 9.3 above and shall specify whether the Indemnitee intends to defend
the claim. If the claim has resulted in the commencement of litigation, the
Indemnitee shall take all necessary legal steps to preserve the legal rights
of the Indemnitor until such time as the Indemnitor is able to assume or
participate in the defense of the litigation. If the Indemnitee elects to
defend the claim, the Indemnitor shall have the right to participate in the
defense of the claim. If the Indemnitee does not elect to defend the claim,
the Indemnitor shall have the obligation to defend the claim and the
Indemnitee shall have the right to participate in such defense and hereby
agrees to cooperate with the Indemnitor and make available to it or its
counsel all records and other material reasonably required to defend the
claim. If the Indemnitee is defending the claim, the Indemnitor shall be given
written notice of any bona fide settlement offers received with respect to the
claim. Within twenty (20) days of receipt of such offer, the Indemnitor may
elect in writing to accept the settlement offer. If the Indemnitor wishes to
accept such settlement offer and the Indemnitee does not, then such Third
Party Claim shall be subject to a maximum indemnification in the amount of the
settlement offer and the right to such indemnification of the Indemnitee shall
be deemed established in such amount. So long as the Indemnitor may continue
to have liability for such claim, the Indemnitee shall not have the right to
settle such claim without the prior written consent of the Indemnitor. So long
as a Third-Party Claim is pending, the Indemnitee shall hold in abeyance its
claim for indemnification. If a settlement is reached which results in any
liability on the part of the Indemnitor, or if a judgment is rendered against
the Indemnitee which is not properly appealed or appealable, then the
Indemnitee shall be entitled to assert its claim for indemnification. Each
party shall be responsible for its own costs and expenses including legal fees
incurred in investigating and defending such Third Party Claim, except that
the Indemnitor shall pay the reasonable attorneys' fees: (a) for taking legal
actions necessary to preserve the legal rights of the Indemnitor in connection
with defending the claim of the Indemnitee; and (b) which are found to be
indemnifiable under this Agreement.
9.6 INDEMNITY LIMITS. Notwithstanding anything herein to the contrary,
Seller and Buyer shall not be obligated to indemnify, defend and hold harmless
the other party pursuant to this Section 9 unless and until and to the extent
that the aggregate amount of such Buyer's Damages or Seller's Damages, as the
case may be, exceeds Ten Thousand Dollars ($10,000).
10. TERMINATION.
10.1 MUTUAL AGREEMENT. This Agreement may be terminated and abandoned at
any time prior to the Closing Date by the written agreement of Seller and Buyer.
10.2 TERMINATION BY BUYER. This Agreement may be terminated by Buyer if
(i) on the Closing Date the conditions set forth in Section 4 of this Agreement
shall not have been
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met by Seller or waived by Buyer or (ii) the Closing does not occur on or
before May 31, 1997 (the "Final Closing Date").
10.3 TERMINATION BY SELLER. This Agreement may be terminated by Seller if
on the Closing Date the conditions set forth in Section 5 of this Agreement
shall not have been met by Buyer or waived by Seller.
10.4 EFFECT OF TERMINATION. In the event of termination of this Agreement
pursuant to this Section 10, neither party shall have any obligation to the
other whatsoever with respect to this Agreement, the transactions provided for
herein, or the expenses either of them incurred in connection with or in
contemplation of such transactions.
10.5 CLOSING PENALTY. In the event the Closing does not occur on or before
April 15, 1997 for any reason other than the fault of the Buyer, Seller shall
pay to Buyer in arrears on a weekly basis commencing on April 18, 1997 by wire
transfer to the Buyer the sum of $1,000 per calendar day for the period from
April 16, 1997 through the Final Closing Date.
11. MISCELLANEOUS.
11.1 ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of the successors and assigns of the parties. No assignment of the
rights, duties and obligations of either party may be made without the written
consent of the other party.
11.2 ALLOCATION OF PURCHASE PRICE. Within ten (10) days prior to Closing,
Buyer shall deliver to Seller an allocation of the Purchase Price among the
various items included in the Assets. Buyer and Seller shall file all tax
returns and reports in a manner consistent therewith.
11.3 TRANSFER TAXES. Any sales, use and other transfer taxes arising out
of or incurred in connection with the transactions contemplated by this
Agreement shall be paid by Seller. Both parties shall take reasonable steps to
minimize or eliminate any such taxes.
11.4 CONFIDENTIALITY.
11.4.1 Neither party shall disclose the terms of the transaction
contemplated hereby, without the prior written consent of the other party, to
anyone other than such party's board of directors, stockholders (except such
disclosure required by federal securities laws) and such members of
management and other employees who have need to know, and its legal counsel
and auditors, except as otherwise required by applicable law or regulation.
11.4.2 Each party to this Agreement will take all reasonable
precautions to maintain the confidentiality of any nonpublic information
obtained from the other, and no nonpublic information, documents or reports
provided to or obtained by either party in connection with this transaction
shall be disclosed to any non-party except as required in carrying
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out the transactions contemplated hereby and except as otherwise required by
law; provided, however, that after the Closing, Buyer may deal freely with
all such information that is included in the Assets. In the event this
Agreement is terminated as permitted herein, each party shall return to the
other party (without retaining copies) all such documents, information and
reports.
11.5 EXPENSES. Except as otherwise expressly provided herein, each party
will pay its own costs and expenses, including legal and accounting expenses,
related to the transactions provided for herein, irrespective of when incurred.
Notwithstanding the foregoing, Buyer shall reimburse Seller at Closing for its
reasonable, documented legal costs and expenses related to the transactions
contemplated hereby, in an amount not to exceed $100,000.
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11.6 FURTHER ASSURANCES. Seller will from time to time subsequent to the
Closing Date, at Buyer's request and without further consideration, execute and
deliver such other instruments of conveyance, assignment and transfer and take
such other actions as Buyer may reasonably request in order more effectively to
convey, assign, transfer to and vest in Buyer, the Assets and the right to
operate the business of Seller. Buyer will from time to time after the Closing
Date, at Seller's request provide to Seller, at Seller's expense, access on a
reasonable basis to tax and accounting records on an "as-needed" basis.
11.7 NOTICES. In order to be effective, any notice or other communication
required or permitted hereunder must be in writing and may be transmitted by
messenger, delivery service, mail, telex, telegram, telecopy or cable:
If to Buyer: Natural Wonders, Inc.
4209 Technology Drive
Fremont, CA 94538
Telecopier: 510-252-6795
Attention: Michael Waide
With a copy to: Baker & McKenzie
660 Hansen Way
Palo Alto, CA 94304
Telecopier: 415-856-9299
Attention: Andrew D. Zeif, Esq.
If to Seller: What A World!, Inc.
c/o Zimet, Haines, Friedman & Kaplan
460 Park Avenue, 9th Floor
New York, New York 10022
Telecopier: 212-223-1151
Attention: James Martin Kaplan, Esq.
With a copy to: Zimet, Haines, Friedman & Kaplan
460 Park Avenue, 9th Floor
New York, New York 10022
Telecopier: 212-223-1151
Attention: James Martin Kaplan, Esq.
or at such other address as the party shall designate in a written notice to
the other parties hereto,
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given in accordance with this Paragraph 11.7. All notices and other
communications shall be effective (i) if sent by messenger or delivery
service, when delivered; (ii) if sent by mail, five days after having been
sent by certified mail, with return receipt requested; (iii) if sent by
telegram or cable, when delivered; or (iv) if sent by telex or telecopier
with receipt acknowledged, when sent.
11.8 ENTIRE AGREEMENT AND MODIFICATION. This Agreement and the agreements
entered into between the parties in connection with the transactions
contemplated herein including, without limitation, the Management Agreement and
the Escrow Agreement, constitute and contain the entire agreement of the parties
and supersedes any and all prior negotiations, correspondence, understandings
and agreements between the parties respecting the subject matter hereof. This
Agreement may only be amended by written instrument signed by the parties.
11.9 SURVIVAL OF TERMS. All warranties and representations contained in
this Agreement and any certificate or other instrument delivered by or on
behalf of the parties pursuant to this Agreement shall be continuous and shall
survive the Closing for two years from the Closing Date or until the
expiration of the applicable statutes of limitation with respect to matters
covered by Sections 2.8 and 2.15 or, with respect to the Buyer's assumption of
the Assumed Liabilities, for so long as there remain outstanding obligations
under any of the Assumed Liabilities.
11.10 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to contracts
entered into and wholly to be performed in the State of Delaware by Delaware
residents.
11.11 SEVERABILITY. If any provision of this Agreement is held to be
unenforceable for any reason, it shall be adjusted rather than voided, if
possible, in order to achieve the intent of the parties to the extent possible.
In any event, all other provisions of this Agreement shall be deemed valid and
enforceable to the fullest extent possible.
11.12 HEADINGS. The headings appearing at the beginning of several
sections contained herein have been inserted for the convenience of the parties,
and shall not be used to determine the construction or interpretation of this
Agreement.
11.13 COUNTERPARTS. This Agreement may be executed in original or
facsimile counterparts, each of which shall be deemed an original, but both of
which when taken together shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above set forth.
NATURAL WONDERS, INC.
By: /s/ Michael J. Waide
-------------------------------
Title: Senior Vice President, Finance
and Chief Financial Officer
----------------------------
WHAT A WORLD!, INC.
By: /s/ David F. Miller
-------------------------------
Title: President
----------------------------
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Exhibit 99.2
MANAGEMENT AGREEMENT
AGREEMENT made as of March 7, 1997, by and between Natural Wonders,
Inc., a Delaware corporation ("Natural Wonders"), and What A World!, Inc., a
Delaware corporation ("WAW").
WHEREAS, the parties hereto have entered into an asset purchase
agreement of even date herewith (the "Purchase Agreement"), pursuant to which
Natural Wonders has agreed to purchase the Assets as of March 10, 1997 (the
"Effective Date");
WHEREAS, the Closing of the Purchase Agreement will not take place
on the date hereof; and
WHEREAS, WAW desires to engage, from the Effective Date until the
Closing, Natural Wonders to operate and manage WAW's specialty gift retail
business which involves the sale primarily of nature and science related
products at the locations ("WAW Locations") heretofore operated by WAW (the
"Business"), subject to the terms and conditions hereof.
NOW THEREFORE, in consideration of the terms, conditions, agreements
and covenants contained herein, the parties hereto mutually agree as follows:
1. Definitions. Unless the context requires otherwise, or unless
specified herein to the contrary, all capitalized terms used in this Agreement
without definition shall have the respective meanings provided therefor in the
Purchase Agreement.
2. Services To Be Rendered. (a) Subject to the terms and conditions
hereof, WAW hereby engages Natural Wonders to operate the Business consistent
with the past practice of Natural Wonders.
(b) Natural Wonders shall fund all costs, expenses and
liabilities referred to on Annex A which relate to the operation of the Business
at the WAW locations (excluding corporate overhead costs, expenses and
liabilities associated with the operation of WAW's home office/warehouse
facility) during the term hereof (the "Operating Expenses"), it being agreed
that Natural Wonders shall not be responsible for any costs, expenses and
liabilities which relate to the operation of the Business by WAW prior to the
Effective Date. Natural Wonders shall, as needed and on a continuing basis
during the term hereof, procure requisite inventories and provide managerial
advice, direction and services to WAW store and home office personnel.
Inventories shall, unless otherwise agreed by the parties, be supplied to WAW
(A) on a C.O.D. basis, provided Natural Wonders provides the cash in payment
therefor at or before the time payment is due, or (B) on a consignment basis.
(c) The parties agree that the Business shall be operated in
the ordinary course during the term hereof.
3. Management Fee. (a) Subject to the terms hereof, the parties
hereby agree that Natural Wonders shall be entitled to a fee (the "Management
Fee") equal to all gross operating revenues recognized and/or received
("Operating Revenues") in respect of the operation of the Business from and
after the Effective Date through the date of termination of this Agreement.
(b) Natural Wonders shall open a bank account for the purpose
of receiving (i) cash generated from operations during the term hereof and (ii)
to the extent that Operating Revenues exceed Operating Expenses, the Management
Fee. WAW shall, on a weekly basis, during the term hereof provide to Natural
Wonders information regarding Operating Expenses to be paid during the
then-current week ("Weekly Reports") and Natural Wonders shall, within two days
after receipt of each Weekly Report, wire transfer to WAW such amounts which
would enable WAW to make such Operating Expense payments, it being agreed that
any cash from credit card sales during the term hereof shall be retained by WAW
hereunder and shall be applied by WAW against Operating Expense payments (and
the Weekly Reports shall include information regarding the amount of such credit
card receipts in the prior week). WAW shall include in each Weekly Report
evidence of payment of Operating Expenses during the prior week.
4. Trademarks, Etc. Natural Wonders acknowledges that no rights in
or to any of the trademarks, trade names or labels ("Trademarks") of WAW of any
kind shall accrue to it by virtue of the performance of the activities
contemplated by this Agreement; provided, however, that during the term of this
Agreement, Natural Wonders shall have a royalty-free license to use the
Trademarks in respect of operation of the
<PAGE>
Business at the WAW Locations. WAW also agrees that if Natural Wonders desires
to use other trademarks in the Business during the term of this Agreement, such
use is acceptable to WAW provided that such use does not violate the terms of
any lease or other agreement to which WAW is a party. It is acknowledged and
agreed that during the term hereof Natural Wonders' branded merchandise may be
marketed and sold at the WAW Locations, subject to the proviso in the
immediately preceding sentence.
5. WAW Management Personnel. WAW agrees that, during the term
hereof, it shall maintain its home office/warehouse facility and shall provide
the services of Brian Lappin and Michelle Van Gelder, or such two other
employees of WAW as the parties may mutually agree upon, to dedicate a
substantial portion of their business time and attention to providing services
by WAW hereunder.
6. Term of Agreement. This Agreement shall be effective as of the
Effective Date, and shall terminate upon the earlier of the Closing Date or the
Final Closing Date. The termination of this Agreement shall not affect any of
the parties' rights and obligations hereunder arising prior to the date of such
termination. Notwithstanding anything to the contrary herein, the parties shall
have the right to terminate this Agreement in accordance with the provisions of
Section 7 hereof.
7. Events of Default. Upon the occurrence of any of the following
events, in addition to all other remedies at law or in equity that a party may
possess, such party may declare this Agreement terminated:
(i) default in the performance of any material term of
this Agreement or the Purchase Agreement by the other party (the "Other Party")
and the failure to cure the same within five (5) days after written notice to
the Other Party specifying such default and demanding that the same be remedied;
(ii) in the event the Other Party shall admit in writing
its inability to pay its debts generally as they become due, call a meeting of
its creditors, file a petition for relief under any bankruptcy laws or any
amended or successor statute, or any other applicable law, statute or
regulation, or take advantage of any insolvency law, statute or regulation, or a
petition to take advantage of any insolvency statute; make an assignment for the
benefit of its creditors; commence a proceeding for the appointment of a
receiver, trustee, liquidator or conservator of itself or of the whole or a
substantial part of its property; file a petition or answer seeking
reorganization or arrangements of similar relief under the bankruptcy laws or
under any other applicable law, statute or regulation of the United States or of
any state thereof; or
(iii) in the event the Other Party shall be named as a
debtor in an order for relief under any bankruptcy laws, statutes or regulations
or any amended or successor law, statute or regulation or a court of competent
jurisdiction shall enter an order, judgment or decree appointing a receiver,
trustee, liquidator or conservator of the Other Party or of the whole or a
substantial part of its properties or approve a petition filed against the Other
Party seeking reorganization or arrangement or similar relief under the federal
bankruptcy laws or any applicable law or statute of the United States or any
state thereof; or if, under the provisions of any other law for the relief or
aid of debtors, a court of competent jurisdiction shall assume custody or
control of the Other Party or of the whole or a substantial part of its
properties; or if there is commenced against the Other Party any proceeding for
any of the foregoing relief or if a petition relating to any insolvency statute
is filed against the Other Party and such proceeding or petition remains
undismissed for a period of thirty (30) days; or if the Other Party by any act
indicates its consent to, approval of or acquiescence in any such proceeding or
petition.
8. Failure to Consummate Purchase Agreement. Subject to the terms
hereof, in the event the Closing does not occur by May 31, 1997 due to the
failure of WAW to satisfy the closing conditions set forth in Section 4 of the
Purchase Agreement by such date, (a) Natural Wonders shall be entitled to retain
its fee hereunder relating to the period ending on the date of termination; (b)
WAW shall reimburse, within seven (7) days after the date of termination,
Natural Wonders to the extent of the excess of, if any, of Operating Expenses
funded by Natural Wonders hereunder above Operating Revenues during the term of
this Agreement; and (c) to the extent not covered by (b) above, WAW shall,
within seven (7) days after the date of termination, reimburse Natural Wonders
for its reasonable, documented out-of-pocket expenses, including without
limitation legal, accounting and other advisory fees and expenses, salaries (up
to a maximum of $25,000 in aggregate salaries) and travel costs, related to the
transactions contemplated by the Purchase Agreement and this Agreement
(excluding executive salaries and, except for reimbursable salaries referred to
above, corporate office overhead). WAW shall have no obligation to (i) pay for
inventory purchased or committed to purchase by Natural Wonders or (ii)
reimburse Natural Wonders for any expenses not constituting Operating Expenses.
In addition, if the Closing does not occur, Natural Wonders shall ensure that
WAW has on hand, in the WAW Locations, inventories of current, saleable
merchandise in an aggregate amount of at least $700,000. WAW shall have no
obligation to pay Natural Wonders for inventories in excess of $700,000 in the
event the Closing does not occur. Natural Wonders shall incur no capital
expenditures
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<PAGE>
without WAW's consent. In the event the Closing does not occur in accordance
with the Purchase Agreement and Natural Wonders shall have made capital
expenditures which were not approved by WAW, then Natural Wonders shall be
entitled to retain ownership of any assets acquired through any such capital
expenditures.
9. Independent Contractor. Natural Wonders shall act as, and shall
be deemed to be, an independent contractor hereunder. Nothing contained in this
Agreement shall be construed to place the parties in a relationship as partners,
joint venturers or employer and employee. Neither party shall have any authority
to act or purport to act as the other party's agent or legally empowered
representative for any purpose whatsoever, except as expressly set forth herein.
10. Insurance. WAW shall continue to keep in force and effect during
the term hereof all insurance heretofore maintained by WAW involving the
operation of the Business and listed on Schedule 2.17 to the Purchase Agreement,
subject to the obligation of Natural Wonders to provide funds hereunder for the
payment of premiums on all such insurance constituting Operating Expenses. It is
the intention of the parties that WAW shall reimburse Natural Wonders for any
premiums paid or funded by Natural Wonders for any period prior to the Effective
Date.
11. Indemnification. (a) WAW shall indemnify and hold harmless
Natural Wonders, and its officers, directors and employees, from and against any
and all losses, costs, expenses, liabilities, claims, damages and judgments of
every nature, including the cost of investigation and defense thereof and
reasonable attorneys' fees ("Damages") which arise out of or are based upon the
operation of the Business during the term hereof unless such Damages resulted
from Natural Wonders' gross negligence or willful misconduct hereunder or
otherwise.
(b) Natural Wonders shall indemnify and hold harmless WAW, and
its officers, directors and employees, from and against any and all Damages
which arise out of or are based upon Natural Wonders' gross negligence or
willful misconduct hereunder or otherwise.
12. Notices. Any notice or other communication required or permitted
under this Agreement shall be in writing and sent in accordance with the terms
of the Purchase Agreement.
13. Entire Agreement, Amendments, Etc. This Agreement supersedes and
terminates any and all prior existing agreements between the parties hereto
relating to the subject matter hereof and constitutes the complete understanding
between the parties hereto. No alteration, amendment, or modification of any of
the terms and provisions of this Agreement shall be valid unless made pursuant
to an instrument in writing signed by a duly authorized representative of the
parties hereto. All remedies, rights, undertakings, obligations, and agreements
contained in this Agreement shall be cumulative and none of them shall be in
limitation of any other remedy, right, undertaking, obligation or agreement of
either party. This Agreement shall be construed and enforced in accordance with
the laws of the State of Delaware.
14. Severability. In the event that any provision of this Agreement
shall be held to be invalid or unenforceable in any respect, the validity,
legality, or enforceability of the remaining provisions of this Agreement shall
be unaffected thereby.
15. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same document.
16. Headings. The headings of the paragraphs hereof are inserted for
reference purposes only, and shall not be construed as part of this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date and year first above written.
NATURAL WONDERS, INC.
By: /s/ Michael J. Waide
-------------------------------
Name: Michael J. Waide
Title: Senior Vice President,
Finance and Chief
Financial Officer
WHAT A WORLD!, INC.
By: /s/ David F. Miller
-------------------------------
Name: David F. Miller
Title: President
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<PAGE>
Annex A
Natural Wonders shall fund all of the following costs, expenses and liabilities
referred to below which relate to the operation of the Business at the WAW
Locations (excluding costs, expenses and liabilities associated with the
operation of WAW's home office/warehouse facility) during the term of the
foregoing Agreement (it being agreed that Natural Wonders shall not be
responsible for any costs, expenses and liabilities which relate to the
operation of the Business by WAW prior to the Effective Date):
- - Inventories
- - Costs and expenses associated with personnel, including without limitation,
salaries, workers' compensation, employee and dependent health insurance
(consistent with present Natural Wonders' personnel practices), and
unemployment insurance (all such insurance being referred to on Schedule
2.17 to the Purchase Agreement), and payroll service costs
- - Costs and expenses incurred pursuant to or in connection with the Store
Leases, including rent, common area maintenance, trash pick up and similar
expenses
- - Taxes, including without limitation sales tax, real estate and rental tax,
FICA, FUTA, Social Security and Medicare
- - Insurance (commercial real and personal property; commercial business
income; commercial crime insurance; commercial general liability; commercial
umbrella liability)
- - Utilities, including electric and telephone (including local and long
distance charges)
- - Supplies
- - Bank card/transaction fees
- - Banking fees
- - Check guaranty services
- - License and permit costs
- - Merchant association dues
- - Postage/shipping
- - Common area maintenance, trash pick-up and similar expenses
- - Store manager travel and entertainment
- - Advertising costs
-5-
<PAGE>
Exhibit 99.3
[FORM OF STOCKHOLDER LOCK-UP AGREEMENT]
AGREEMENT, dated March , 1997, between Natural Wonders, Inc., a
Delaware corporation (the "Buyer") and , a stockholder (the "Holder") of
What A World!, Inc. (the "Corporation").
In order to induce the Buyer to enter into the Asset Purchase Agreement (the
"Purchase Agreement") dated as of the date hereof among the Buyer and the
Corporation providing for the sale of substantially all of the assets of the
Corporation to the Buyer, the Holder and the Buyer hereby agree as set forth
below:
1. The Holder represents and warrants that he owns of record and
beneficially, and has good and marketable title to (free and clear of any lien,
pledge, charge or other encumbrance) an aggregate of shares of the
Corporation's common stock, par value $.01 per share (the "Common Stock").
2. The Holder hereby irrevocably appoints Ms. Kathleen M. Chatfield or Mr.
Michael J. Waide, the President and Chief Financial Officer of the Buyer,
respectively, as his proxy and attorney-in-fact, with full power of
substitution, on behalf of and in the name of the Holder, to represent the
Holder at any meeting of the stockholders of the Corporation held, or to sign
any written consents executed, during the term of this Agreement for the sole
purpose of voting upon the proposed sale of substantially all of the
Corporation's assets to the Buyer as contemplated by the Purchase Agreement. The
Holder acknowledges that the proxy and power of attorney granted hereby,
inasmuch as it is granted in conjunction with the proposed asset sale as
contemplated by the Purchase Agreement, is coupled with an interest.
3. The Holder agrees as follows:
(i) from and after the date hereof through the Closing (as defined in
the Purchase Agreement), to refrain from transferring, selling, pledging,
assigning or otherwise disposing of any of the shares of Common Stock
presently owned or hereafter acquired by him to any person, provided,
however, that the Holder may donate all or a portion of the Common Stock if
the donee, simultaneously with the donation, signs and delivers to Buyer an
agreement substantially similar to this Agreement;
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<PAGE>
(ii) from and after the date hereof through the Closing, to refrain from
soliciting or engaging in negotiations or discussions with respect to or
entering into any agreement with any person (except the Buyer or a
wholly-owned subsidiary thereof) for such transfer, sale, pledge, assignment
or disposition;
(iii) from and after the date hereof through the Closing, to use his best
efforts to cause the Corporation to comply with the terms of the Purchase
Agreement; and
(iv) subject to applicable laws, including without limitation, federal
securities laws, from and after the date hereof through the Closing, to
refrain from issuing any public statement or communication regarding the
matters contemplated hereby without first notifying the Buyer and the
Corporation and providing them with a copy of the text thereof;
4. The Holder acknowledges that this Agreement and the proxy granted
hereunder are provided in furtherance of Buyer's proposal to acquire
substantially all of the assets of the Corporation and that money damages are
not an adequate remedy. The Holder hereby agrees that in the event of any breach
of this Agreement by the Holder, Buyer shall be entitled to equitable relief of
specific performance of the terms hereof; provided that nothing herein shall be
deemed to constitute a waiver by Buyer of any other remedy available to it
hereunder, in law or in equity.
5. This Agreement is binding upon the parties and their respective heirs,
administrators, successors and assigns. This Agreement shall not be assignable
by any party without the prior written consent of the other party.
6. This Agreement shall be construed in accordance with the laws of the
State of Delaware.
7. This Agreement may be amended or modified but only by a writing signed by
the parties hereto or their respective successors and assigns.
8. The Agreement shall terminate upon the earlier to occur of (i) the
Closing or (ii) the termination of the Purchase Agreement in accordance with the
terms thereof.
9. This Agreement may be executed by the parties hereto in separate
counterparts, each of which when so executed and delivered shall be an original,
but all such counterparts shall together constitute but one and the same
instrument.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
NATURAL WONDERS, INC.
By:
-------------------------------
Name:
Title:
- ----------------------------------
[Stockholder]
3
<PAGE>
Exhibit 99.4
NON COMPETITION AGREEMENT
This Non Competition Agreement (the "Agreement") is made as of March ,
1997 is entered into between Natural Wonders, Inc., a Delaware Corporation
(the "Buyer") and [ ] of [ ] (the "Individual") with reference to
the following.
What A World!, Inc., a Delaware corporation (the "Seller"), and the Buyer
entered into a Asset Purchase Agreement dated March , 1997 (the "Asset
Purchase Agreement"), pursuant to which the Seller agreed to sell, and the Buyer
agreed to buy certain of the assets and assume certain of the liabilities the
Seller.
The Individual is a stockholder, director and officer of the Seller.
Pursuant to the Asset Purchase Agreement, the Individual, as a stockholder
of the Seller, will receive valuable consideration as a result of the sale by
the Seller of certain of its assets to the Buyer.
The Individual acknowledges that the ability of the Buyer to successfully
exploit the assets of the business of the Seller which it is acquiring will be
materially jeopardized and its value reduced if the Individual competes with or
assists any other person in competing with the business of the Buyer as such
terms are used or contemplated herein.
The Individual acknowledges that this Agreement is separately bargained for
consideration, that it is a condition to the Closing that certain of the
directors who are principal stockholders of the Seller agree that they will not
compete with the business of the and that the execution of this Agreement is a
material inducement to the Buyer to enter into the Asset Purchase Agreement.
The parties agree as follows:
1. For the purpose of this Agreement the definition "Business" shall mean a
business entity whose primary business is the operating of a specialty retailer
selling nature and science products, including, without limitation, telescopes,
minerals, gardening and outdoor products, educational toys and games and
apparel.
2. For a period of two (2) years following the date of this Agreement (the
"Non-Compete Period") the Individual covenants and agrees that the Individual
will not become involved as an employee, consultant or investor (other than as
an investor of less than 5% of a publicly traded company) in any specialty
retailer within the United States of America which is directly or indirectly
competitive with the any material aspect of the Business.
3. During the Non-Compete Period, the Individual shall not, either on its
own account or in conjunction with or on behalf of any other person, employ,
solicit, or entice away or attempt
<PAGE>
to employ, solicit or entice away from the Buyer any person who to
Individual's knowledge after due inquiry, is an employee of the Buyer, either
at present or at any time in the future.
4. The Individual acknowledges that a breach of this Agreement is likely to
result in irreparable and unreasonable harm to the Buyer, and that injunctive
relief, as well as damages, would be appropriate. If the Individual breaches
this Agreement, the Individual shall be liable for all legal fees and costs
incurred by the Buyer to enforce this Agreement or pursue remedies arising as a
result of such breach.
5. This Agreement shall inure to the benefit of the Buyer and its successors
and assigns.
6. This Agreement shall be governed by and construed in accordance with the
laws of the State of California applicable to contracts entered into and to be
wholly performed in the State of California.
7. If any provision of this Agreement is held to be unenforceable for any
reason, it shall be adjusted rather than voided, if possible, in order to
achieve the intent of the parties to the fullest extent possible. In any event,
all other provisions of this Agreement shall be deemed valid and enforceable to
the fullest extent possible.
8. This Agreement may be executed in counterparts, each of which shall be
deemed to be an original, but all of which when taken together shall constitute
one and the same instrument.
9. In order to be effective, any notice or other communication required or
permitted hereunder must be in writing and may be transmitted by messenger,
delivery service, mail, telex, telegram, telecopy or cable to the appropriate
party at the address set out above or to such other address as notified to the
other party from time to time.
10. This Agreement constitutes and contains the entire agreement of the
parties and supersedes any and all prior negotiations, correspondence,
understandings and agreements between the parties respecting the subject matter
of hereof. This Agreement may only be amended by the written instrument signed
by the parties.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first set forth above.
NATURAL WONDERS, INC.
By :
Title:
[INDIVIDUAL]
