-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DCvn1WupZr1w0iNRZ3/zuYneH3Pq+Ya1TOCQJbJ7o3cvVbVaRv7XtVCFZ6ganlT2 DgHx/U+1MaDqAyTscqdzGg== 0000950112-95-003223.txt : 19951218 0000950112-95-003223.hdr.sgml : 19951218 ACCESSION NUMBER: 0000950112-95-003223 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 19951214 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NOODLE KIDOODLE INC CENTRAL INDEX KEY: 0000043837 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-MISC DURABLE GOODS [5090] IRS NUMBER: 111771705 STATE OF INCORPORATION: NY FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 033-65029 FILM NUMBER: 95601855 BUSINESS ADDRESS: STREET 1: 105 PRICE PKWY CITY: FARMINGDALE STATE: NY ZIP: 11735 BUSINESS PHONE: 5162935300 MAIL ADDRESS: STREET 2: 105 PRICE PARKWAY CITY: FARMINGDALE STATE: NY ZIP: 11735 FORMER COMPANY: FORMER CONFORMED NAME: GREENMAN BROTHERS INC DATE OF NAME CHANGE: 19920703 S-1 1 NOODLE KIDDOODLE, INC. AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 14, 1995 REGISTRATION NO. 33-[ ] - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------- FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------- NOODLE KIDOODLE, INC. (Exact name of registrant as specified in its charter) NEW YORK 5945 11-1771705 (State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer of incorporation or Classification Code Number) Identification No.) organization)
------------------- 105 PRICE PARKWAY FARMINGDALE, NEW YORK 11735 (516) 293-5300 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ------------------- STANLEY GREENMAN, CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER NOODLE KIDOODLE, INC. 105 PRICE PARKWAY FARMINGDALE, NEW YORK 11735 (516) 293-5300 (Name, address, including zip code, and telephone number, including area code, of agent for service) ------------------- COPIES TO: RICHARD MARLIN, ESQ. MARK S. BERGMAN, ESQ. KRAMER, LEVIN, NAFTALIS, NESSEN, PAUL, WEISS, RIFKIND, WHARTON KAMIN & FRANKEL & GARRISON 919 THIRD AVENUE 1285 AVENUE OF THE AMERICAS NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10019 (212) 715-9100 (212) 373-3000 ------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered in this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended (the "Securities Act"), check the following box. / / If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / /__________ If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / /__________ If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / / ------------------- CALCULATION OF REGISTRATION FEE
PROPOSED PROPOSED AMOUNT OF TITLE OF EACH CLASS OF AMOUNT TO BE MAXIMUM OFFERING MAXIMUM AGGREGATE REGISTRATION SECURITIES TO BE REGISTERED REGISTERED(1) PRICE(2) OFFERING PRICE(2) FEE Common Stock, par value $.10 per share................. 2,415,000 shares $12.25 per share $29,583,750 $10,202
(1) Includes a maximum of 315,000 shares which may be purchased by the Underwriters to cover over-allotments, if any. (2) Estimated pursuant to Rule 457(c) under the Securities Act of 1933, as amended, solely for the purpose of calculating the registration fee, based on the average of the high and low prices for the shares reported on the American Stock Exchange on December 11, 1995. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NOODLE KIDOODLE, INC. CROSS-REFERENCE SHEET PURSUANT TO ITEM 501(B) OF REGULATION S-K
ITEMS OF FORM S-1 HEADING IN PROSPECTUS - -------------------------------------------------- ---------------------------------------- Item 1 Forepart of the Registration Statement and Outside Front Cover Page of Prospectus.............................. Outside Front Cover Page Item 2 Inside Front and Outside Back Cover Pages of Prospectus..................... Inside Front Cover Page; Outside Back Cover Page; Available Information Item 3 Summary Information, Risk Factors and Ratio of Earnings to Fixed Charges...... Prospectus Summary; Risk Factors Item 4 Use of Proceeds......................... Use of Proceeds Item 5 Determination of Offering Price......... Outside Front Cover Page; Underwriting Item 6 Dilution................................ Not Applicable Item 7 Selling Security Holders................ Principal and Selling Stockholders Item 8 Plan of Distribution.................... Outside Front Cover Page; Underwriting Item 9 Description of Securities to Be Registered.............................. Description of Capital Stock Item 10 Interests of Named Experts and Counsel................................. Legal Matters; Experts Item 11 Information With Respect to Registrant.............................. Prospectus Summary; Risk Factors; Price Range of Common Stock; Dividend Policy; Capitalization; Selected Consolidated Financial Data; Management's Discussion and Analysis of Financial Condition and Results of Operations; Business; Management; Financial Statements Item 12 Disclosure of Commission Position on Indemnification for Securities Act Liabilities............................. Not Applicable
SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS DATED DECEMBER 14, 1995 2,100,000 SHARES [LOGO] COMMON STOCK ------------------- Of the 2,100,000 shares of Common Stock offered hereby, 2,000,000 shares are being sold by Noodle Kidoodle, Inc., formerly known as Greenman Bros. Inc. (the "Company"), and 100,000 shares are being sold by certain stockholders of the Company (the "Selling Stockholders"). The Company will not receive any of the proceeds from the sale of shares by the Selling Stockholders. See "Principal and Selling Stockholders" and "Underwriting." The Common Stock is quoted on the Nasdaq National Market under the symbol "NKID." Until December 13, 1995, the Common Stock was traded on the American Stock Exchange under the symbol "GMN." On December 13, 1995, the last reported sale price of the Common Stock on the American Stock Exchange was $13.25 per share. See "Price Range of Common Stock." SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY. ------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Underwriting Proceeds to Price to Discounts and Proceeds to Selling Public Commissions(1) Company(2) Stockholders Per Share....................... $ $ $ $ Total........................... $ $ $ $ Total Assuming Full Exercise of Over- Allotment Option(3)........... $ $ $ $
(1) See "Underwriting." (2) Before deducting estimated expenses of $435,000, which are payable by the Company. (3) Assuming exercise in full of the 30-day option granted by the Company to the Underwriters to purchase up to 315,000 additional shares, on the same terms, solely to cover over-allotments. See "Underwriting." ------------------- The shares of Common Stock are offered by the Underwriters, subject to prior sale, when, as and if delivered to and accepted by the Underwriters, and subject to their right to reject orders in whole or in part. It is expected that delivery of the Common Stock will be made in New York City on or about , 1996. ------------------- PAINEWEBBER INCORPORATED RODMAN & RENSHAW, INC. ------------------- THE DATE OF THIS PROSPECTUS IS , 1996. INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. [3 pages of Pictures] ------------------- IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON NASDAQ IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SEE "UNDERWRITING." ------------------- Noodle Kidoodle(R), Oodles and Oodles of Fun Things to Learn(R) and Kidoodle Animation(R) are registered trademarks and service marks of the Company. 2 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and financial statements, including the notes thereto, appearing elsewhere and incorporated by reference in this Prospectus. Unless the context otherwise requires, all references herein to the "Company" include Noodle Kidoodle, Inc. and its subsidiaries. The Company's fiscal year ends on the Saturday closest to January 31 of that year. For example, references to fiscal 1995 refer to the fiscal year ended January 28, 1995. Unless otherwise indicated, the information in this Prospectus assumes no exercise of the Underwriters' over-allotment option. THE COMPANY Noodle Kidoodle, Inc. is a specialty retailer of a broad assortment of educationally oriented, creative and non-violent children's products, including toys, books, games, video and audio tapes, computer software, crafts and other learning products. The Noodle Kidoodle concept offers something new to parents and children by combining the attractive pricing and larger size of traditional toy stores with the more creative product selection and superior customer service of smaller boutiques, while providing an entertaining shopping environment through interactive play areas and daily in-store events. The Company's prototype store is approximately 12,000 square feet and offers customers a warm and inviting shopping environment with brightly lit spaces, colorful walls, ceilings and carpets, wide aisles for strollers and kid-level seating and product shelving. Each store typically carries approximately 25,000 stock-keeping units ("SKUs"), conveniently displayed in separate merchandise departments, such as "Science & Nature" and "Arts & Crafts," which are identified by eye-catching signs that are visual as well as verbal so that children can understand them. All of the products carried in Noodle Kidoodle stores conform to the Company's creative, non-violent and educational merchandising strategy. The Company generally does not carry mass market television advertised toys. However, in certain product categories, the Company does carry brand name products which fit the Noodle Kidoodle philosophy, such as Crayola, Lego, Playmobil, the full line of Walt Disney video titles and the Goosebumps line of books. The Company currently operates 18 Noodle Kidoodle stores in New York, New Jersey, Connecticut and the Chicago metropolitan area, and plans to open approximately 20 more stores in fiscal 1997 in new and existing markets. The Company's near-term plan is to cluster its stores in the Northeastern United States and several Midwestern markets, in order to leverage the Company's advertising programs as well as optimize the capabilities of its strategically located distribution center. The Company believes that there are substantial opportunities for nationwide expansion over the longer term. The Company's strategy is to become the leading national retailer of educationally oriented children's products. Key components of the Company's business strategy are: . Interactive Shopping Environment--Each Noodle Kidoodle store is designed with children in mind. Each store has designated play areas where children and their parents are encouraged to explore toys and games in keeping with the Company's "try before you buy" philosophy. Among the key interactive features of each store are the Computer Center, "Kidoodle Theater" and Electronic Learning Center. . Broad Assortment of Imaginative Products--Noodle Kidoodle stores offer a broad assortment of products designed to stimulate a child's imagination and contribute to his or her growth and development consistent with the Company's slogan that "Kids learn best when they're having fun." The Company believes that within its targeted age group of infant to twelve years, it offers 3 in a single location one of the broadest available assortments of educationally oriented, creative and non-violent children's products. To keep its merchandise mix fresh and exciting, the Company continually seeks innovative new products. . Daily In-Store Events--The Company provides without charge daily in-store events such as personal appearances by authors and children's television personalities, arts and crafts workshops and readings from selected books to provide entertainment to its customers, increase store traffic and position Noodle Kidoodle as a destination store. . Superior Customer Service--By providing knowledgeable and friendly customer service and selecting enthusiastic employees who enjoy working with children, the Company believes that it has a competitive advantage over lower-service superstores and mass merchandisers. . Targeted Marketing--The Company has created the Noodle Kidoodle Club in order to establish customer loyalty and track repeat customers. The club provides its members advance notice of sale events and special promotions, a bi-monthly newsletter and events calendar, birthday cards sent to children and similar special privileges. The Company is also establishing a targeted direct mail marketing program and is in the process of expanding its customer database for this purpose. . Competitive Pricing--Noodle Kidoodle offers everyday competitive pricing. Many products are regularly discounted and prices in general are believed to be competitive with those featured by superstores carrying the same lines of merchandise. The Company was founded in 1946 and, doing business under its former name Greenman Bros. Inc., historically was engaged in the retail toy business as well as the wholesale distribution of general merchandise, with an emphasis on toys, stationery and housewares. During the 1980s, the Company operated a number of retail toy stores, including a chain of 330 stores under the Circus World name located principally in shopping malls in approximately 30 states. The Company sold the Circus World stores in fiscal 1991 but continued to operate a number of retail toy stores under the Playworld name. The Company opened its first Noodle Kidoodle store in November 1993, and opened three additional Noodle Kidoodle stores in fiscal 1995. During fiscal 1996, management determined, based in large part on the success of its early Noodle Kidoodle stores, that the Company should focus exclusively on its retail business by expanding and developing the Noodle Kidoodle retail concept. Accordingly, in August 1995, the Company adopted a new business plan and ceased operating its wholesale division, which generated net sales of $113.2 million in fiscal 1995. The Company, which recently changed its name from Greenman Bros. Inc. to Noodle Kidoodle, Inc., is incorporated in New York, and has submitted to its stockholders for approval a proposal to reincorporate in Delaware. The Company's executive offices are located at 105 Price Parkway, Farmingdale, New York 11735. Its telephone number is (516) 293-5300. 4 THE OFFERING Common Stock Offered by the Company....................... 2,000,000 shares Common Stock Offered by the Selling Stockholders.......... 100,000 shares Common Stock to be Outstanding after the Offering......... 7,369,390 shares (1) Use of Proceeds........................................... Primarily to finance new store openings, as well as for general corporate purposes. See "Use of Proceeds" and "Business--Expansion Strategy." Nasdaq National Market Symbol............................. NKID
- ------------ (1) Excludes as of December 6, 1995 (i) 588,484 shares of Common Stock issuable upon exercise of outstanding options at exercise prices ranging from $3.50 to $13.13 per share and (ii) 279,250 shares of Common Stock reserved for issuance pursuant to options issuable under the Company's stock option plans. 5 SUMMARY FINANCIAL INFORMATION AND STORE DATA (IN THOUSANDS, EXCEPT PER SHARE AND STORE DATA)
THIRTY-NINE WEEKS FISCAL YEARS ENDED ENDED ---------------------------------------------------- ----------------------- FEB. 2, FEB. 1, JAN. 30, JAN. 29, JAN. 28, OCT. 29, OCT. 28, 1991 1992 1993 1994 1995 1994 1995 -------- -------- -------- -------- -------- ----------- -------- (UNAUDITED) STATEMENT OF OPERATIONS DATA: Net sales......................... $ 11,022 $ 12,850 $ 18,250 $ 20,712 $ 23,308 $12,042 $ 13,508 Gross profit...................... 3,885 4,794 5,471 6,143 7,116 3,828 4,724 Selling and administrative expenses............................ 5,078 5,813 6,645 8,401 10,790 6,937 10,563 Provision for restructured operations(a)....................... -- -- -- -- 3,900 3,500 500 Operating loss.................... (1,193) (1,019) (1,174) (2,258) (7,574) (6,609) (6,339) Net income (loss): Continuing operations........... (2,622) (1,141) (425) (1,180) (4,490) (3,819) (5,870) Discontinued operations(b)...... (12,305) 5,069 2,226 1,889 1,096 22 (9,059) Extraordinary item(c)........... 325 (263) -- -- -- -- -- -------- -------- -------- -------- -------- ----------- -------- Net income (loss)............. $(14,602) $ 3,665 $ 1,801 $ 709 $ (3,394) $(3,797) $(14,929) -------- -------- -------- -------- -------- ----------- -------- -------- -------- -------- -------- -------- ----------- -------- Net income (loss) per share: Continuing operations........... $ (.44) $ (.21) $ (.08) $ (.22) $ (.86) $ (.73) $ (1.11) Discontinued operations(b)...... (2.07) .92 .40 .35 .21 -- (1.71) Extraordinary item(c)........... .06 (.05) -- -- -- -- -- -------- -------- -------- -------- -------- ----------- -------- Net income (loss) per share... $ (2.45) $ .66 $ .32 $ .13 $ (.65) $ (.73) $ (2.82) -------- -------- -------- -------- -------- ----------- -------- -------- -------- -------- -------- -------- ----------- -------- Weighted average shares outstanding......................... 5,949 5,540 5,575 5,338 5,220 5,207 5,302 OTHER FINANCIAL DATA: Net sales: Noodle Kidoodle................. $ -- $ -- $ -- $ 1,168 $ 6,414 $ 2,544 $ 11,042 Other Retail(d)................. 11,022 12,850 18,250 19,544 16,894 9,498 2,466 -------- -------- -------- -------- -------- ----------- -------- Total net sales............... 11,022 12,850 18,250 20,712 23,308 12,042 13,508 Discontinued operations:(b) Net sales....................... $198,890 $151,718 $136,488 $122,138 $113,194 $80,729 $ 50,635 Gross profit.................... 52,753 33,475 31,035 26,711 24,604 17,069 9,164 Operating income (loss)......... [8,666] 5,576 3,633 3,171 1,781 37 (1,914) Provision for discontinued operations.......................... 5,712 -- -- -- -- -- 7,145 -------- -------- -------- -------- -------- ----------- -------- Net income (loss)............... [12,305] 5,069 2,226 1,889 1,096 22 (9,059) STORE DATA (AT END OF PERIOD): Number of stores: Noodle Kidoodle................. -- -- -- 1 4 3 15 Other Retail(d)................. 6 8 10 10 4 10 4 -------- -------- -------- -------- -------- ----------- -------- Total......................... 6 8 10 11 8 13 19 Gross square footage: Noodle Kidoodle................. -- -- -- 10,450 39,700 29,700 160,130 Other Retail(d)................. 56,570 68,870 86,400 86,400 31,500 86,400 31,500 -------- -------- -------- -------- -------- ----------- -------- Total......................... 56,570 68,870 86,400 96,850 71,200 116,100 191,630
6 OCTOBER 28, 1995 -------------------- ACTUAL AS ADJUSTED (E) ------- ----------- BALANCE SHEET DATA: Working capital....................................... $14,772 39,280 Net assets of discontinued operations(b).............. 6,327 6,327 Total assets.......................................... 38,872 63,380 Total debt............................................ -- -- Total liabilities..................................... 12,428 12,428 Stockholders' equity.................................. 26,444 50,952 - ------------ (a) Represents provisions primarily related to the closing of certain Playworld and other retail stores. (b) On August 30, 1995, the Company adopted a formal plan to discontinue its wholesale business. The operations and net assets of the Company's wholesale business are being accounted for as a discontinued operation. The thirty-nine week period ended October 28, 1995 includes a $7.1 million provision for (i) estimated gains or losses on the sale or liquidation of wholesale assets and (ii) estimated operating losses until such disposal or liquidation is completed. Fiscal 1991 results from discontinued operations include results from the Company's Circus World retail stores which were sold in fiscal 1991. (c) Represents the gain (loss) on early extinguishment of debt, net of income taxes (benefit). (d) Represents primarily the results of the Company's Playworld and Toy Park retail toy stores. The Company may close the remaining four Playworld and Toy Park stores, as certain lease issues are resolved. (e) Adjusted to reflect the sale of 2,000,000 shares of Common Stock offered by the Company hereby and the receipt of the estimated net proceeds therefrom. 7 RISK FACTORS In addition to the other information contained in this Prospectus, the following factors should be considered carefully before making an investment in the Common Stock offered hereby. NEW BUSINESS; LIMITED OPERATING HISTORY Noodle Kidoodle, Inc., doing business under its former name Greenman Bros. Inc., historically was engaged in the retail toy business as well as the wholesale distribution of general merchandise with an emphasis on toys, stationery and housewares. The Company opened its first Noodle Kidoodle store in November 1993. The Company operated four Noodle Kidoodle stores at the end of fiscal 1995 and currently operates 18 Noodle Kidoodle stores. Based on the success of the early stores, management determined in August 1995 that the Company should focus exclusively on its Noodle Kidoodle retail business and become a leading national retailer of educationally oriented children's products. In connection with that decision, the Company ceased operating its wholesale business, sold certain of its wholesale inventory and commenced liquidating the balance. Investors, therefore, have only a limited operating history to review in evaluating the Company's performance and the viability of the Noodle Kidoodle concept. For example, the Company currently has only three stores in operation for a sufficient period of time to provide meaningful year-to-year comparative data. There can be no assurance that the Company's more recently opened Noodle Kidoodle stores will be as successful as the earlier stores or that the Noodle Kidoodle concept will be successful. See "Business--Overview" and "--Expansion Strategy." HISTORICAL AND PROJECTED LOSSES The Company has reported operating losses in each of its last five fiscal years as a result of the discontinuation of its wholesale business and subsequent restatement of its historical financial statements. In addition, the Company's results of operations for the thirty-nine week period ended October 28, 1995 are not profitable. Based on the Company's limited experience with its Noodle Kidoodle stores, management believes that its new stores should generate operating profits at the store level in their first full year of operation. Because pre-opening expenses are amortized over the first twelve months of operations, new stores' contributions to the Company's profits have not been and are not expected to be material. In addition, the Company's aggressive expansion plans require it to carry significant central overhead. As a result of these two factors, the Company expects to continue to report losses at least through the end of fiscal 1996 and in fiscal 1997. There can be no assurance that the Company will be able to achieve or sustain profitable operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." ABILITY TO REALIZE EXPANSION PLANS The Company's growth over the next several years depends principally on its ability to open new stores in its existing and new markets and to operate those stores profitably. The Company currently operates 18 Noodle Kidoodle stores in New York, New Jersey, Connecticut and the Chicago metropolitan market. The Company plans to use a substantial portion of the net proceeds of this offering to open approximately 20 more Noodle Kidoodle stores in its existing and new markets during fiscal 1997. The Company's ability to open stores on a timely basis will depend upon a number of factors, including its ability to identify suitable store sites and obtain leases for those sites on acceptable terms. In order to achieve its long-term expansion plan, it is likely that the Company will be required to obtain additional financing in order to open planned new stores after fiscal 1997. There can be no assurance that the Company will be able to complete its expansion plans successfully or that opening new stores in markets already served by the Company will not adversely affect existing store profitability or reduce comparable store sales. In addition, there can be no assurance that additional financing for new stores will be available to the Company in amounts, at rates or upon terms and conditions acceptable to the Company. If such additional financing is unavailable, the Company would have to delay opening certain of the 8 planned stores until additional financing or sufficient internally generated funds are available. See "Use of Proceeds," "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources" and "Business--Expansion Strategy." DISCONTINUED OPERATIONS; RESTRUCTURING CHARGES In August 1995, the Company adopted a new business plan to focus on its Noodle Kidoodle retail concept and ceased operating its wholesale business. In fiscal 1995, the discontinued wholesale operations generated net sales and net income of $113.2 million and $1.1 million, respectively, compared to the Company's continuing retail operations' net sales and net loss of $23.3 million and $4.5 million, respectively. In connection with discontinuing its wholesale operations, the Company recorded a provision of $7.1 million in the fiscal quarter ended July 29, 1995 for (i) estimated gains or losses on the sale or liquidation of wholesale assets and (ii) estimated operating losses until such disposal or liquidation is completed. In addition, as of October 28, 1995, the Company had net assets of discontinued operations of $6.3 million, consisting primarily of accounts receivable, inventories, and properties of $10.5 million, less accounts payable, accrued expenses and capital lease obligations of $4.2 million. There can be no assurance that the charge recorded in the fiscal quarter ended July 29, 1995 will be sufficient. In addition, there can be no assurance that the Company will receive proceeds on the sale or liquidation of net assets of discontinued operations in the amounts anticipated, or by the anticipated dates. The receipt of significantly lower amounts than expected or an extended delay in receipt could have a material adverse effect on the Company's results of operations and financial condition. In addition, the Company's decision to focus on its Noodle Kidoodle retail concept has resulted in the closure of most of its Playworld and Toy Park stores. The Company closed several Playworld stores in fiscal 1995 and may close the remaining four Playworld and Toy Park stores, as certain lease issues are resolved. The Company recorded provisions for store closings of $3.9 million and $0.5 million, respectively, in fiscal 1995 and the thirty-nine week period ended October 28, 1995. While management believes such provisions to be sufficient, there can be no assurance that the Company will not record additional provisions in the future. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." MANAGEMENT OF GROWTH The Company's ability to manage growth will depend on its ability to improve operational, financial and management information systems on a timely basis and to recruit, hire and train additional management and store-level employees, as well as manage an increasing number of employees. The Company expects to apply up to $1.0 million of net proceeds from this offering to improve its MIS software capabilities in fiscal 1997. There can be no assurance that the Company's personnel, systems, procedures and controls will be adequate to support the Company's operations in the future. Any failure to improve the Company's operational, financial and management systems or to recruit, train and manage an increased number of employees could have a material adverse effect on the Company's business, operating results and financial condition. See "Business--Expansion Strategy" and "--Management Information Systems." DEPENDENCE ON SENIOR MANAGEMENT The success of the Company's business will continue to be dependent upon Stanley Greenman, Chairman of the Board and Chief Executive Officer of the Company, Stewart Katz, President and Chief Operating Officer of the Company, and other members of senior management. The loss of the services of one or more of these individuals could have a material adverse effect upon the Company's business. See "Management." 9 COMPETITION The retail toy business is highly competitive. Some of the Company's competitors are much larger in terms of sales volume and have more capital and greater management resources than the Company. If any of the Company's larger competitors were to increase their focus on the educational market or if any regional competitors were to expand their activities in the markets primarily served by the Company, the Company could be adversely affected. If any of the Company's major competitors seek to gain or retain market share by reducing prices, the Company may be required to reduce its prices on key items in order to remain competitive, which would have the effect of reducing its profitability. There can be no assurance that in the future the Company will not face greater competition from other national, regional and local retailers. See "Business--Competition." QUARTERLY AND SEASONAL FLUCTUATIONS The timing of new store openings, related pre-opening expenses and the amount of revenue contributed by new and existing stores may cause the Company's quarterly results of operations to fluctuate. In addition, the Company's business is affected by the pattern of seasonality common to most toy retailers. Historically, the Company's stores generate a significant portion of their net sales and the majority of their store level operating profits during the Company's fourth fiscal quarter, which includes the Christmas selling season, and have experienced operating losses or nominal profits in the Company's first, second and third fiscal quarters. VOLATILITY OF STOCK PRICE On December 14, 1995, the Common Stock became quoted on the Nasdaq National Market. Prior thereto, the Common Stock was traded on the American Stock Exchange. The market price of the Common Stock has been, and could in the future be, subject to significant fluctuations. Future announcements concerning the Company or its competitors, including operating results and earnings estimates, new store openings and other developments, as well as general economic and market conditions, could cause the market price of the Common Stock to fluctuate substantially. See "Price Range of Common Stock." GENERAL ECONOMIC CONDITIONS The Company's operating results may be adversely affected by unfavorable local, regional or national economic conditions. The Company's stores currently are located in the Northeastern United States and a major Midwestern sub-region of the United States. Accordingly, the Company is susceptible to fluctuations in its business caused by adverse economic conditions in these regions. In addition, the Company's future expansion strategy is to cluster its stores in relatively close geographic proximity to achieve operating and advertising efficiency. There can be no assurance that regional economic conditions will not adversely affect stores clustered in such relatively close geographic proximity. The success of the Company's operations also depends upon a number of factors relating to consumer spending, including future economic conditions affecting disposable consumer income such as employment, business conditions, interest rates and taxation. If existing economic conditions deteriorate, consumer spending on discretionary items such as children's toys and educational products may decline, with a negative impact on the Company's business and results of operations. POTENTIAL ANTI-TAKEOVER EFFECTS Certain provisions of the Company's Certificate of Incorporation, as amended (the "Certificate of Incorporation"), the Company's Bylaws, as amended (the "Bylaws"), and New York law could discourage potential acquisition proposals and could delay or prevent a change in control of the Company. Such provisions could diminish the opportunities for a stockholder to participate in tender 10 offers, including tender offers at a price above the then current market value of the Common Stock. Such provisions may also inhibit increases in the market price of the Common Stock that could result from takeover attempts. In addition, the Company's Board of Directors has the authority to issue Preferred Stock without any further vote or action by the stockholders. The issuance of Preferred Stock may have the effect of delaying, deferring or preventing a change in control of the Company without further action by the stockholders and could adversely affect the rights and powers, including voting rights, of the holders of Common Stock. Such effects could result in a decrease in the market price of the Common Stock. See "Description of Capital Stock--Anti-Takeover Provisions." USE OF PROCEEDS The net proceeds to the Company from the sale of 2,000,000 shares of Common Stock offered by the Company hereby are estimated to be approximately $24.5 million after deducting estimated offering expenses and underwriting discounts and commissions (approximately $28.4 million if the Underwriters' over-allotment option is exercised in full). The Company will not receive any proceeds from the sale of 100,000 shares of Common Stock offered by the Selling Stockholders. The Company intends to use the net proceeds primarily to finance the Company's store expansion plans as well as for general corporate purposes, including up to $1.0 million to improve its MIS software capabilities in fiscal 1997. The Company anticipates that it will open a total of approximately 20 additional Noodle Kidoodle stores in fiscal 1997. Total expenditures for a new store, including capital expenditures, pre-opening expenses and net working capital, are expected to range from $800,000 to $950,000 per store. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources" and "Business--Expansion Strategy." The foregoing represents the Company's best estimate of its allocation of the net proceeds of the offering based upon the current state of its business operations, its current plans, and current economic and industry conditions. Until used, the Company intends to invest the net proceeds from the offering in short-term investment-grade securities. PRICE RANGE OF COMMON STOCK The Common Stock is quoted on the Nasdaq National Market under the symbol "NKID." Until December 13, 1995, the Common Stock was traded on the American Stock Exchange under the symbol "GMN." The following table sets forth, for the periods indicated, the high and low sales prices per share for the Common Stock as reported on the American Stock Exchange for each of the fiscal quarters indicated, through December 13, 1995: HIGH LOW ------ ------ FISCAL 1994 First Quarter............................................ $ 4.88 $ 4.00 Second Quarter........................................... 5.00 4.13 Third Quarter............................................ 5.50 4.25 Fourth Quarter........................................... 6.75 5.00 FISCAL 1995 First Quarter............................................ 7.38 5.88 Second Quarter........................................... 7.25 5.63 Third Quarter............................................ 7.13 6.38 Fourth Quarter........................................... 6.38 4.38 FISCAL 1996 First Quarter............................................ 5.44 4.00 Second Quarter........................................... 11.63 5.06 Third Quarter............................................ 14.63 9.25 Fourth Quarter (through December 13, 1995)............... 13.75 11.13 11 On December 13, 1995, the last reported sale price of the Common Stock on the American Stock Exchange was $13.25 per share. As of December 6, 1995, there were approximately 600 holders of record of Common Stock. DIVIDEND POLICY The Company has not paid cash dividends on its Common Stock in many years. The Company currently anticipates that it will retain all available funds generated by its operations for the development and growth of its business and does not anticipate paying any cash dividends on its Common Stock in the foreseeable future. Any future determination as to dividend policy will be made at the discretion of the Board of Directors of the Company and will depend on a number of factors, including the future earnings, capital requirements, financial condition and business prospects of the Company and such other factors as the Board of Directors may deem relevant. CAPITALIZATION The following table sets forth the cash balance and capitalization of the Company as of October 28, 1995 and as adjusted to reflect (i) the sale of 2,000,000 shares offered by the Company hereby and the receipt of the estimated net proceeds therefrom and (ii) the increase in authorized capital approved by stockholders in December 1995.
OCTOBER 28, 1995 ---------------------- ACTUAL AS ADJUSTED ------- ----------- (IN THOUSANDS) Cash and cash equivalents.................................... $ 6,548 $ 31,056 ------- ----------- ------- ----------- Commitments and contingencies................................ $ -- $ -- Stockholders' equity: -- -- Preferred Stock--$1.00 par value, 500,000 shares authorized, none issued and outstanding.................. -- -- Common Stock--$0.10 par value, 10,000,000 shares authorized, 6,292,701 shares issued and outstanding; 15,000,000 shares authorized, 8,292,701 shares issued and outstanding, as adjusted (1).......................................... 629 829 Capital in excess of par value............................. 26,294 50,602 Retained earnings.......................................... 3,313 3,313 Less treasury stock, at cost--924,261 shares............... (3,792) (3,792) ------- ----------- Total stockholders' equity............................. 26,444 50,952 ------- ----------- Total capitalization................................... $26,444 $ 50,952 ------- ----------- ------- -----------
- ------------ (1) Excludes as of October 28, 1995 (i) 589,559 shares of Common Stock issuable upon exercise of outstanding options at exercise prices ranging from $3.50 to $13.13 per share and (ii) 279,250 shares of Common Stock reserved for issuance pursuant to options issuable under the Company's stock option plans. 12 SELECTED CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA) The selected consolidated financial data presented below reflects selected financial and operating data of the Company as of and for the periods indicated, after giving retroactive effect to the Company's discontinued wholesale business. This data should be read in conjunction with the consolidated financial statements and notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this Prospectus. The consolidated financial data as of and for each of the five fiscal years ended January 28, 1995 and as of and for the thirty-nine week period ended October 28, 1995 are derived from the Consolidated Financial Statements of the Company which have been audited by Janover Rubinroit, LLC, independent certified public accountants. The consolidated financial data for the thirty-nine week period ended October 29, 1994 are derived from unaudited Consolidated Financial Statements of the Company and reflect all adjustments, consisting only of normal recurring accruals, that the Company considers necessary for a fair presentation of the consolidated financial position and consolidated results of operations for this period.
THIRTY-NINE WEEKS FISCAL YEARS ENDED ENDED --------------------------------------------------- ---------------------- FEB. 2, FEB. 1, JAN. 30, JAN. 29, JAN. 28, OCT. 29, OCT. 28, 1991 1992 1993 1994 1995 1994 1995 -------- ------- -------- -------- -------- ----------- -------- (UNAUDITED) STATEMENT OF OPERATIONS DATA: Net sales................................. $ 11,022 $12,850 $ 18,250 $ 20,712 $ 23,308 $12,042 $ 13,508 Costs and expenses: Cost of products sold including buying and warehousing costs................. 7,137 8,056 12,779 14,569 16,192 8,214 8,784 Selling and administrative.............. 5,078 5,813 6,645 8,401 10,790 6,937 10,563 Provision for restructured operations(a).............................. -- -- -- -- 3,900 3,500 500 -------- ------- -------- -------- -------- ----------- -------- 12,215 13,869 19,424 22,970 30,882 18,651 19,847 -------- ------- -------- -------- -------- ----------- -------- Operating loss.......................... (1,193) (1,019) (1,174) (2,258) (7,574) (6,609) (6,339) Interest expense (income), net............ 2,699 236 (481) (277) (297) (243) (469) -------- ------- -------- -------- -------- ----------- -------- Loss from continuing operations before income taxes (benefit)..................... (3,892) (1,255) (693) (1,981) (7,277) (6,366) (5,870) Income taxes (benefit).................... (1,270) (114) (268) (801) (2,787) (2,547) -- -------- ------- -------- -------- -------- ----------- -------- Net income (loss): Continuing operations................... (2,622) (1,141) (425) (1,180) (4,490) (3,819) (5,870) Discontinued operations(b).............. (12,305) 5,069 2,226 1,889 1,096 22 (9,059) Extraordinary item(c)................... 325 (263) -- -- -- -- -- -------- ------- -------- -------- -------- ----------- -------- Net income (loss)..................... $(14,602) $ 3,665 $ 1,801 $ 709 $ (3,394) $(3,797) $(14,929) -------- ------- -------- -------- -------- ----------- -------- -------- ------- -------- -------- -------- ----------- -------- Net income (loss) per share: Continuing operations................... $ (.44) $ (.21) $ (.08) $ (.22) $ (.86) $ (.73) $ (1.11) Discontinued operations(b).............. (2.07) .92 .40 .35 .21 -- (1.71) Extraordinary item(c)................... .06 (.05) -- -- -- -- -- -------- ------- -------- -------- -------- ----------- -------- Net income (loss) per share........... $ (2.45) $ .66 $ .32 $ .13 $ (.65) $ (.73) $ (2.82) -------- ------- -------- -------- -------- ----------- -------- -------- ------- -------- -------- -------- ----------- -------- Weighted average shares................... 5,949 5,540 5,575 5,338 5,220 5,207 5,302 BALANCE SHEET DATA: Working capital........................... $ 52,000 $40,490 $ 40,212 $ 39,810 $ 35,667 $35,099 $ 14,772 Net assets of discontinued operations(b).............................. 26,640 28,214 25,968 31,217 24,621 26,298 6,327 Total assets.............................. 56,474 47,559 50,296 49,629 48,042 49,906 38,872 Total debt................................ 14,877 -- -- -- -- -- -- Total liabilities......................... 2,171 4,468 5,084 5,565 7,172 9,560 12,428 Stockholders' equity...................... 39,426 43,091 45,212 44,064 40,870 40,346 26,444
- ------------ (a) Represents provisions primarily related to the closing of certain Playworld and other retail stores. (b) On August 30, 1995, the Company adopted a formal plan to discontinue its wholesale business. The operations and net assets of the Company's wholesale business are being accounted for as a discontinued operation. The thirty-nine week period ended October 28, 1995 includes a $7.1 million provision for (i) estimated gains or losses on the sale or liquidation of wholesale assets and (ii) estimated operating losses until such disposal or liquidation is completed. Fiscal 1991 results from discontinued operations include results from the Company's Circus World retail stores which were sold in fiscal 1991. (c) Represents the gain (loss) on early extinguishment of debt, net of income taxes (benefit). 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis set forth certain information for the periods presented and should be read in conjunction with the Consolidated Financial Statements of the Company, and the notes thereto, appearing elsewhere in this Prospectus. GENERAL The Company was founded in 1946 and, doing business under its former name Greenman Bros. Inc., historically was engaged in the retail toy business as well as the wholesale distribution of general merchandise with an emphasis on toys, stationery and housewares. During the 1980s, the Company operated a number of retail toy stores, including a chain of 330 stores under the Circus World name, which were located principally in shopping malls in approximately 30 states. In fiscal 1991, the Company sold its Circus World stores and shifted its focus to its wholesale business, while retaining a number of Playworld retail stores. Based on results of operations and trends in the industry during fiscal 1990 through 1993, management concluded that the wholesale component of the Company's business could not grow and began investigating various possibilities outside the wholesale business for expansion opportunities which could best utilize remaining excess cash generated from the sale of the Circus World stores. The Company opened its first Noodle Kidoodle store in November 1993 and operated four Noodle Kidoodle stores at the end of fiscal 1995. Based in large part on the success of its early Noodle Kidoodle stores, management determined that the Company should focus exclusively on its retail business by further developing and expanding its Noodle Kidoodle retail concept. In August 1995, the Company adopted a new business plan and ceased operating its wholesale business. In fiscal 1995, the discontinued wholesale operations generated net sales and net income of $113.2 million and $1.1 million, respectively, compared to the Company's continuing retail operations' net sales and net loss of $23.3 million and $4.5 million, respectively. In addition, the Company's decision to focus on its Noodle Kidoodle retail concept has resulted in the closure of most of its Playworld and Toy Park stores. The Company closed several Playworld stores in fiscal 1995 and may close the remaining four Playworld and Toy Park stores, as certain lease issues are resolved. In connection with discontinuing its wholesale operations, the Company recorded a provision of $7.1 million in the fiscal quarter ended July 29, 1995 for (i) estimated gains or losses on the sale or liquidation of wholesale assets and (ii) estimated operating losses until such disposal or liquidation is completed. In addition, as of October 28, 1995, the Company had net assets of discontinued operations of $6.3 million, consisting primarily of accounts receivable, inventories, and properties of $10.5 million, less accounts payable, accrued expenses and capitalized lease obligations of $4.2 million. The Company has reported operating losses in each of its last five fiscal years as a result of the discontinuation of its wholesale business and subsequent restatement of its historical financial statements. In addition, the Company's results of operations for the thirty-nine week period ended October 28, 1995 are not profitable. Based on the Company's limited experience with its Noodle Kidoodle stores, management believes that its new stores should generate operating profits at the store level in their first full year of operation. Because pre-opening expenses are amortized over the first twelve months of operations, new stores' contributions to the Company's profits have not been and are not expected to be material. In addition, the Company's aggressive expansion plans require it to carry significant central overhead. As a result of these two factors, the Company expects to continue to report losses at least through the end of fiscal 1996 and in fiscal 1997. The Company's growth over the next several years depends principally on its ability to open new stores in its existing and new markets and to operate those stores profitably. The Company currently operates 18 Noodle Kidoodle stores in New York, New Jersey, Connecticut and the Chicago metropolitan market. The Company plans to use a substantial portion of the net proceeds of this offering to open approximately 20 more Noodle Kidoodle stores in its existing and new markets during fiscal 1997. The Company's ability to open stores on a timely basis will depend upon a number of factors, including its ability to identify suitable store sites and obtain leases for those sites on acceptable terms. In order to achieve its long-term expansion plan, it is likely that the Company will be required to obtain additional financing in order to open planned new stores after fiscal 1997. 14 RESULTS OF OPERATIONS The following table sets forth the percentage of net sales for certain items in the Company's statement of income (loss) for the periods indicated. "Noodle Kidoodle" reflects results for this retail concept only, while "Other Retail" reflects results for the Playworld and Toy Park Stores and certain leased toy departments. Corporate expenses in "Selling and administrative expenses" include management salaries, professional fees and other costs capable of supporting a much larger organization. As a result of recent strategic changes, period-to-period comparisons of financial results are not meaningful and results of operations for historical periods are not necessarily indicative of future results. SUMMARY RESULTS OF CONTINUING OPERATIONS ($ IN THOUSANDS)
FISCAL YEARS ENDED THIRTY-NINE WEEKS ENDED --------------------------------------------------- --------------------------------- JANUARY 30, JANUARY 29, JANUARY 28, OCTOBER 29, OCTOBER 28, 1993 1994 1995 1994 1995 --------------- --------------- --------------- --------------- --------------- % OF % OF % OF % OF % OF $ SALES $ SALES $ SALES $ SALES $ SALES ------- ----- ------- ----- ------- ----- ------- ----- ------- ----- Net sales: Noodle Kidoodle....... -- -- 1,168 5.6 6,414 27.5 2,544 21.1 11,042 81.7 Other Retail.......... 18,250 100.0 19,544 94.4 16,894 72.5 9,498 78.9 2,466 18.3 ------- ----- ------- ----- ------- ----- ------- ----- ------- ----- Total................. 18,250 100.0 20,712 100.0 23,308 100.0 12,042 100.0 13,508 100.0 ------- ----- ------- ----- ------- ----- ------- ----- ------- ----- ------- ----- ------- ----- ------- ----- ------- ----- ------- ----- Gross profit: Noodle Kidoodle....... -- -- 468 40.1 2,385 37.2 854 33.6 3,758 34.0 Other Retail.......... 5,471 30.0 5,675 29.0 4,731 28.0 2,974 31.3 966 39.2 ------- ----- ------- ----- ------- ----- ------- ----- ------- ----- Total................. 5,471 30.0 6,143 29.7 7,116 30.5 3,828 31.8 4,724 35.0 ------- ----- ------- ----- ------- ----- ------- ----- ------- ----- Selling and administrative expenses: Noodle Kidoodle....... -- -- 684 58.6 3,240 50.5 1,699 66.8 7,632 69.1 Other Retail.......... 5,104 28.0 5,896 30.2 5,269 31.2 3,526 37.1 1,181 47.9 Corporate............. 1,541 8.4 1,821 8.8 2,281 9.8 1,712 14.2 1,750 13.0 ------- ----- ------- ----- ------- ----- ------- ----- ------- ----- Total................. 6,645 36.4 8,401 40.6 10,790 46.3 6,937 57.6 10,563 78.2 ------- ----- ------- ----- ------- ----- ------- ----- ------- ----- Provision for restructuring.......... -- -- -- -- 3,900 16.7 3,500 29.1 500 3.7 ------- ----- ------- ----- ------- ----- ------- ----- ------- ----- Operating income (loss): Noodle Kidoodle....... -- -- (216) (18.5) (855) (13.3) (845) (33.2) (3,874) (35.1) Other Retail.......... 367 2.0 (221) (1.1) (538) (3.2) (552) (5.8) (215) (8.7) Corporate............. (1,541) (8.4) (1,821) (8.8) (2,281) (9.8) (1,712) (14.2) (1,750) (13.0) Provision for restructuring.......... -- -- -- -- (3,900) (16.7) (3,500) (29.1) (500) (3.7) ------- ----- ------- ----- ------- ----- ------- ----- ------- ----- Total................. (1,174) (6.4) (2,258) (10.9) (7,574) (32.5) (6,609) (54.9) (6,339) (46.9) Net loss............... (425) (2.3) (1,180) (5.7) (4,490) (19.3) (3,819) (31.7) (5,870) (43.5) ------- ----- ------- ----- ------- ----- ------- ----- ------- ----- ------- ----- ------- ----- ------- ----- ------- ----- ------- -----
SUMMARY RESULTS OF DISCONTINUED OPERATIONS ($ IN THOUSANDS)
FISCAL YEARS ENDED --------------------------------------------------- THIRTY-NINE WEEKS ENDED ---------------------------------------- JANUARY 30, JANUARY 29, JANUARY 28, 1993 1994 1995 OCTOBER 29, 1994 OCTOBER 28, 1995 --------------- --------------- --------------- --------------------- ---------------- % OF % OF % OF % OF % OF $ SALES $ SALES $ SALES $ SALES $ SALES ------- ----- ------- ----- ------- ----- ---------- -------- ------- ------ Net sales......... 136,488 100.0 122,138 100.0 113,194 100.0 80,729 100.0 50,635 100.0 Gross profit...... 31,035 22.7 26,711 21.9 24,604 21.7 17,069 21.1 9,164 18.1 Operating income (loss)............ 3,633 2.7 3,171 2.6 1,781 1.6 37 0.0 (1,914) (3.8) Provision for discontinued operations........ -- -- -- -- -- -- -- -- 7,145 14.1 Net income (loss)............ 2,226 1.6 1,889 1.5 1,096 1.0 22 0.0 (9,059) (17.9) ------- ----- ------- ----- ------- ----- ---------- -------- ------- ------ ------- ----- ------- ----- ------- ----- ---------- -------- ------- ------
15 THIRTY-NINE WEEKS ENDED OCTOBER 28, 1995 COMPARED WITH THIRTY-NINE WEEKS ENDED OCTOBER 29, 1994 CONTINUING OPERATIONS Net sales increased 12.2% to $13.5 million for the thirty-nine week period ended October 28, 1995 from $12.0 million in the comparable period in the prior year. Noodle Kidoodle sales increased $8.5 million to $11.0 million for the thirty-nine week period ended October 28, 1995 from $2.5 million in the comparable period in the prior year, primarily due to the addition of new Noodle Kidoodle stores during the period ended October 28, 1995. Other Retail sales decreased 74.0% to $2.5 million for the thirty-nine week period ended October 28, 1995 from $9.5 million in the comparable period in the prior year, primarily as a result of the closing of six Playworld stores during January 1995. At October 28, 1995, the Company operated 15 Noodle Kidoodle stores, two Playworld stores and two Toy Park stores. Gross profit (derived from net sales less the cost of merchandise sold, which includes buying and warehousing costs) increased 23.4% to $4.7 million for the thirty-nine week period ended October 28, 1995 from $3.8 million in the comparable period in the prior year. Overall gross margin increased to 35.0% in the period ended October 28, 1995 from 31.8% in the comparable period in the prior year. The increase results from an increase in sales at Noodle Kidoodle stores, which generated higher margins than the Playworld stores. Gross margin at Noodle Kidoodle increased to 34.0% in the current period from 33.6% in the comparable period in the prior year, primarily as a result of decreased buying and warehousing costs, partially offset by increased cost of merchandise. Gross margin at Other Retail increased to 39.2% in the current period from 31.3% in the comparable period in the prior year primarily due to a greater sales contribution by higher margin Toy Park stores. Selling and administrative expenses, excluding the provision for restructuring, increased 52.3% to $10.6 million in the thirty-nine week period ended October 28, 1995 from $6.9 million in the comparable period in the prior year, primarily as a result of changes in the store base. Selling and administrative expenses at Noodle Kidoodle increased to $7.6 million in the current period from $1.7 million in the comparable period in the prior year primarily as a result of higher direct store expenses, which increased by $3.7 million, higher advertising expenses, which increased by $1.1 million, and higher home office expenses. This increase was offset by a decrease in selling and administrative expenses at Other Retail to $1.2 million in the current period from $3.5 million in the comparable period in the prior year, principally attributable to a decrease in direct store expenses as a result of the closing of six Playworld stores. Selling and administrative expenses as a percentage of net sales increased to 78.2% in the period ended October 28, 1995 from 57.6% in the comparable period in the prior year, primarily attributable to the fact that Noodle Kidoodle stores have higher operating costs. Provision for restructuring related to the closing of Other Retail stores was $0.5 million in the thirty-nine week period ended October 28, 1995, compared to $3.5 million in the comparable period in the prior year. This included losses from store operations from the date of announcement until closing, employee severance costs, estimated lease liabilities, losses on liquidation of inventories and disposition of assets and other related restructuring costs. Operating loss decreased 4.1% to $6.3 million for the thirty-nine week period ended October 28, 1995 from $6.6 million in the comparable period in the prior year. Excluding restructuring charges, the operating loss would have been $5.8 million for the period ended October 28, 1995 compared to $3.1 million in the comparable period in the prior year. Net loss from continuing operations increased 53.7% to $5.9 million ($1.11 per share) in the thirty-nine week period ended October 28, 1995 from $3.8 million ($.73 per share) in the comparable period in the prior year. Excluding restructuring charges, the net loss would have been $5.4 million ($1.01 per share) for the period ended October 28, 1995 compared to $1.7 million ($.33 per share) in the comparable period in the prior year. The net loss for the period ended October 28, 1995 included no 16 tax benefit while the comparable period of the prior year included a tax benefit of $2.5 million. At October 28, 1995, the Company had approximately $13.5 million of net operating loss carryforwards. DISCONTINUED OPERATIONS Net sales decreased 37.3% to $50.6 million in the thirty-nine week period ended October 28, 1995 from $80.7 million in the comparable period in the prior year. This decrease resulted primarily from discontinuance of the wholesale business, effective August 30, 1995. Gross profit decreased 46.3% to $9.2 million in the thirty-nine week period ended October 28, 1995 from $17.1 million in the comparable period in the prior year. Gross margins decreased to 18.1% for the thirty-nine week period ended October 28, 1995 from 21.1% for the comparable period in the prior year, principally due to a higher mix of lower margin merchandise. Operating loss before provision for discontinued operations was $1.9 million in the thirty-nine week period ended October 28, 1995 compared to operating income of $37,000 for the comparable period in the prior year. Provision for discontinued operations represents a loss of $7.1 million related to the disposal of the wholesale business, including the estimated losses through the disposal period and the anticipated sale of two of the Company's distribution centers, net of income tax expense of $1.6 million. Net loss from discontinued operations was $9.1 million ($1.71 per share) in the thirty-nine week period ended October 28, 1995, including the $7.1 million ($1.35 per share) provision for discontinued operations, as compared to net income of $22,000 for the comparable period in the prior year. FISCAL 1995 COMPARED TO FISCAL 1994 CONTINUING OPERATIONS Net sales increased 12.5% to $23.3 million in fiscal 1995 from $20.7 million in fiscal 1994. Noodle Kidoodle sales increased $5.2 million to $6.4 million in fiscal 1995 from $1.2 million in fiscal 1994, while Other Retail sales decreased 13.6% to $16.9 million in fiscal 1995 from $19.5 million in fiscal 1994. The increase in Noodle Kidoodle sales resulted primarily from the addition of three new stores during fiscal 1995, while the decrease in Other Retail sales resulted from the closing of six Playworld stores including the remaining leased department operation. At the end of fiscal 1995, the Company operated four Noodle Kidoodle stores, two Playworld stores and two Toy Park stores. Gross profit increased 15.8% to $7.1 million in fiscal 1995 from $6.1 million in fiscal 1994. Overall gross margin increased to 30.5% in fiscal 1995 from 29.7% in fiscal 1994. The increase in gross margin was primarily attributable to increased sales volume at Noodle Kidoodle stores, which generated higher margins than the Playworld stores. Gross margin at Noodle Kidoodle decreased to 37.2% in fiscal 1995 from 40.1% in fiscal 1994 primarily attributable to a new store which opened during the high volume holiday season of fiscal 1994 as well as the corresponding absence of shrinkage and markdowns in such period relative to fiscal 1995. Gross margin at Other Retail decreased to 28.0% in fiscal 1995 from 29.0% in fiscal 1994 principally due to a higher mix of lower margin merchandise. Selling and administrative expenses, excluding the provision for restructuring, increased 28.4% to $10.8 million in fiscal 1995 from $8.4 million in fiscal 1994. Selling and administrative expenses at Noodle Kidoodle increased to $3.2 million in fiscal 1995 from $0.7 million in fiscal 1994 as a result of higher store payroll, occupancy and advertising costs for the new stores as well as higher home office payroll costs as a result of the increased number of stores. Selling and administrative expenses at Other Retail decreased to $5.3 million in fiscal 1995 from $5.9 million in fiscal 1994, primarily as a result of decreased payroll costs associated with the reduced level of operations. Corporate selling and administrative expenses increased to $2.3 million in fiscal 1995 from $1.8 million in fiscal 1994 due to one-time 17 insurance and property tax settlements which resulted in gains of $0.4 million during fiscal 1994. As a percentage of net sales, selling and administrative expenses increased to 46.3% in fiscal 1995 from 40.6% in fiscal 1994. The increase was primarily attributable to the increase in Noodle Kidoodle expenses in relation to total expenses, since Noodle Kidoodle operates with a higher cost structure as compared to Playworld and Toy Park stores. Noodle Kidoodle selling and administrative expenses as a percentage of net sales decreased to 50.5% in fiscal 1995 from 58.6% in fiscal 1994, as a result of the leveraging of advertising expenses over a larger store base as well as certain non-recurring pre-opening expenses incurred in fiscal 1994 relating to the first Noodle Kidoodle store. This decrease was partially offset by higher home office expenses relating to new stores opened in fiscal 1995. Provision for restructuring was $3.9 million in fiscal 1995 related to the closings of six Playworld stores. This included losses from store operations from the date of announcement until closing, employee severance costs, estimated lease liabilities, losses on liquidation of inventories and disposition of assets and other related restructuring costs. Operating loss increased $5.3 million to $7.6 million in fiscal 1995 from $2.3 million in fiscal 1994. Excluding restructuring charges, the operating loss would have been $3.7 million in fiscal 1995. Net loss from continuing operations increased $3.3 million to $4.5 million ($.86 per share) in fiscal 1995 from $1.2 million ($.22 per share) in fiscal 1994. The increase includes a pre-tax provision for restructured operations of $3.9 million ($.45 per share). Excluding this provision, net loss would have been $2.2 million ($.41 per share). DISCONTINUED OPERATIONS Net sales decreased 7.3% to $113.2 million in fiscal 1995 from $122.1 million in fiscal 1994. The decrease resulted primarily from decreased revenues in all merchandise categories associated with more direct buying from manufacturers by the Company's existing customer base. Gross profit decreased 7.9% to $24.6 million in fiscal 1995 from $26.7 million in fiscal 1994. Gross margin decreased to 21.7% in fiscal 1995 from 21.9% in fiscal 1994 resulting primarily from a lower sales mix of higher margin merchandise sold. Operating income decreased 43.8% to $1.8 million in fiscal 1995 compared to $3.2 million in fiscal 1994 primarily resulting from the decrease in net sales which was not offset by a corresponding decrease in selling and administrative expenses. Net income from discontinued operations decreased 42.0% to $1.1 million ($.21 per share) in fiscal 1995 compared to $1.9 million ($.35 per share) in fiscal 1994. FISCAL 1994 COMPARED TO FISCAL 1993 CONTINUING OPERATIONS Net sales increased 13.5% to $20.7 million in fiscal 1994 from $18.3 million in fiscal 1993. Noodle Kidoodle sales were $1.2 million in fiscal 1994, reflecting sales at the first Noodle Kidoodle store which opened in the fourth quarter of fiscal 1994. Other Retail sales increased 7.1% to $19.5 million in fiscal 1994 from $18.3 in fiscal 1993, primarily as a result of the opening of two new Playworld stores that opened during fiscal 1993 partially offset by a decrease of 2.8% in comparable store sales. Gross profit increased 12.3% to $6.1 million in fiscal 1994 from $5.5 million in fiscal 1993. Overall gross margin decreased to 29.7% in fiscal 1994 from 30.0% in fiscal 1993 due to lower margins in the Playworld stores partially offset by increased sales volume at Noodle Kidoodle which generated higher margins than the Playworld stores. Gross margin at Other Retail decreased to 29.0% in fiscal 1994 from 30.0% in fiscal 1993, primarily due to a higher mix of lower margin merchandise. 18 Selling and administrative expenses increased 26.4% to $8.4 million in fiscal 1994 from $6.6 million in fiscal 1993. Selling and administrative expenses at Other Retail increased to $5.9 million in fiscal 1994 from $5.1 million in fiscal 1993, principally as a result of new store openings. Corporate selling and administrative expenses increased to $1.8 million in fiscal 1994 from $1.5 million in fiscal 1993 principally as a result of higher professional and consulting costs offset by one-time insurance and property tax settlements in fiscal 1994. As a percentage of net sales, selling and administrative expenses were 40.6% in fiscal 1994 and 36.4% in fiscal 1993. The increase resulted primarily from expenses associated with the first Noodle Kidoodle store which had higher operating costs as compared to Playworld and Toy Park stores as well as the opening of new Playworld stores, which had higher operating costs as compared to older stores. Operating loss increased 92.3% to $2.3 million in fiscal 1994 from $1.2 in fiscal 1993. Net loss from continuing operations increased $0.8 million to $1.2 million ($.22 per share) in fiscal 1994 from $0.4 million ($.08 per share) in fiscal 1993. DISCONTINUED OPERATIONS Net sales decreased 10.5% to $122.1 million in fiscal 1994 from $136.5 million in fiscal 1993. The decrease was attributable to weak retail sales, bankruptcies of several major customers and more direct purchases from manufacturers by customers. Gross profit decreased 13.9% to $26.7 million in fiscal 1994 from $31.0 million in fiscal 1993. Gross margins decreased to 21.9% in fiscal 1994 from 22.7% in fiscal 1993, primarily reflecting a lower mix of higher margin merchandise. Operating income decreased 12.7% to $3.2 million in fiscal 1994 from $3.6 million in fiscal 1993. Net income decreased 15.1% to $1.9 million ($.35 per share) in fiscal 1994 from $2.2 million ($.40 per share) in fiscal 1993. 19 LIQUIDITY AND CAPITAL RESOURCES During the past three fiscal years and the thirty-nine week period ended October 28, 1995, the Company satisfied the cash requirements for its continuing retail operations principally through cash flows from discontinued wholesale operations and internal cash balances. These cash requirements principally include operating losses, working capital requirements and expenditures for new store openings. The table below summarizes the Company's cash flow from operating, investing and financing activities derived from the Consolidated Statements of Cash Flows of the Company.
FISCAL YEARS ENDED THIRTY-NINE WEEKS ENDED ----------------------------------------- -------------------------- JANUARY 30, JANUARY 29, JANUARY 28, OCTOBER 29, OCTOBER 28, 1993 1994 1995 1994 1995 ----------- ----------- ----------- ----------- ----------- (UNAUDITED) (IN THOUSANDS) Net cash provided by (used in) Operating activities: Continuing operations............ $(2,611) $ 8 $(1,466) $(4,734) $(6,981) Discontinued operations.......... 5,859 (3,048) 9,066 5,800 9,370 Investing activities............... (3,919) 187 (2,472) (1,244) (7,204) Financing activities............... 234 (1,918) 16 34 455 ----------- ----------- ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents..................... (437) (4,771) 5,144 (144) (4,360) Cash and cash equivalents--beginning of period............................ 10,972 10,535 5,764 5,764 10,908 ----------- ----------- ----------- ----------- ----------- Cash and cash equivalents--end of period............................... $10,535 $ 5,764 $10,908 $ 5,620 $ 6,548 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
During the thirty-nine weeks ended October 28, 1995, the Company generated $9.4 million of cash flow from discontinued operations, primarily attributable to reductions in inventory, and other working capital of $17.6 million offset by a net loss of $9.1 million, which included a $7.1 million provision for the discontinuation of wholesale operations. This cash was used primarily to fund $7.0 million of cash requirements for continuing retail operations, attributable to increases in working capital needs of $2.3 million due to new store openings and seasonal inventory build-up as well as a net loss of $5.9 million. The Company also used this cash to fund investing activities of $7.2 million primarily for the purchase of fixed assets for new stores. As a result of the foregoing, cash and cash equivalents decreased during the period by $4.4 million. During fiscal 1995, the Company received $9.1 million of cash flow from discontinued operations, primarily attributable to reductions in working capital of $7.2 million and net income of $1.1 million. This cash was used primarily to fund $1.5 million of cash requirements for continuing retail operations, attributable to a net loss of $4.5 million offset by decreased working capital needs of $1.7 million. The Company also used cash and $1.0 million of proceeds received from the sale of marketable securities to fund $3.5 million of property additions, primarily for the purchase of fixed assets for new stores. As a result of the foregoing, cash and cash equivalents increased during the fiscal year by $5.1 million. During fiscal 1994, the Company did not generate or use any cash from continuing operations since a net loss of $1.2 million was offset by decreased working capital needs of $0.9 million and depreciation. The Company used $3.0 million of cash flow from discontinued operations primarily attributable to increases in working capital of $5.8 million, offset by net income of $1.9 million. The Company applied net proceeds of $2.0 million from the sale of marketable securities to fund property additions of $2.0 million, primarily for the purchase of fixed assets for new stores. The Company also repurchased outstanding shares of Common Stock for $1.9 million. As a result of the foregoing, cash and cash equivalents decreased during the fiscal year by $4.8 million. 20 During fiscal 1993, the Company received $5.8 million of cash flow from discontinued operations attributable to net income of $2.2 million, depreciation and other non-cash charges of $1.9 million and reductions in working capital of $1.7 million. The Company used cash primarily to fund $2.6 million of cash requirements for continuing retail operations, principally working capital needs of $2.4 million. The Company also used this cash to fund investing activities of $3.9 million, primarily for the purchase of securities totaling $3.0 million. As a result of the foregoing, cash and cash equivalents during the period decreased by $0.4 million. During the past three fiscal years, the Company did not require any cash borrowings under its $10.0 million revolving credit line, which expired in June 1995. The Company currently has in place a bank line of credit. Borrowings under the facility, secured by certain assets of its discontinued wholesale business, provide for maximum borrowings of $12.5 million in short-term loans and commercial letters of credit and expires on June 30, 1996. Interest is at the bank's prime rate plus .5%, or at a Eurodollar rate. Based on an asset-based formula set by the bank, availability at October 28, 1995 was $5.0 million. As a result of the discontinuation of the wholesale business, this future availability is expected to decrease. The Company intends in the near future to arrange for a new bank facility for its continuing retail operations. As the Company expands its Noodle Kidoodle retail operations, it will continue to require cash. The Company expects to fund its near-term cash requirements principally from the net proceeds from this offering, as well as from the further sale of discontinued wholesale assets. The Company expects to finance its long-term expansion plan principally with externally generated funds, which may include borrowings under future bank facilities, and through the sale of equity, equity-related or debt securities. There can be no assurance that financing will be available in amounts, or at rates or on terms and conditions acceptable to the Company. See "Risk Factors--Ability to Realize Expansion Plans" and -- Discontinued Operations; Restructuring Charges." The Company estimates that capital expenditures during fiscal 1996 will be approximately $8.5 million, of which $7.1 million already has been expended during the thirty-nine week period ended October 28, 1995, and will be used primarily to open new stores. The Company anticipates that capital expenditures in fiscal 1997 will be approximately $11.0 million, primarily to finance approximately 20 new store openings, at an average cost of approximately $0.5 million per store. In addition to capital expenditure requirements, new stores require a working capital investment of approximately $0.4 million per store, primarily for inventory, a large portion of which is financed by vendor trade credit. Typically, pre-opening expenses are amortized over the first twelve months of operations. The Company also expects to spend up to $1.0 million to improve its MIS software capabilities in fiscal 1997. The Company has available net operating loss carryforwards of approximately $13.5 million for income tax purposes. QUARTERLY FLUCTUATIONS IN RESULTS AND SEASONALITY The timing of new store openings and related pre-opening expenses and the amount of revenue contributed by new and existing stores have caused, and are expected to cause in the future, the Company's quarterly results of operations to fluctuate. In addition, the Company's business is affected by the pattern of seasonality common to most toy retailers. Historically, the Company's stores generate a significant portion of their net sales and the majority of their store level operating profits during the Company's fourth fiscal quarter, which includes the Christmas selling season, and have experienced operating losses or nominal profits in the Company's first, second and third fiscal quarters. IMPACT OF INFLATION The impact of inflation on the Company's results of operations has not been significant. The Company attempts to pass on increased costs by increasing product prices over time. 21 BUSINESS OVERVIEW The Company is a specialty retailer of a broad assortment of educationally oriented, creative and non-violent children's products, including toys, books, games, video and audio tapes, computer software, crafts and other learning products. The Noodle Kidoodle concept offers something new to parents and children by combining the attractive pricing and larger size of traditional toy stores with the more creative product selection and superior customer service of smaller boutiques, while providing an entertaining shopping environment through interactive play areas and daily in-store events. The Company was founded in 1946 and, doing business under its former name Greenman Bros. Inc., historically was engaged in the retail toy business as well as the wholesale distribution of general merchandise, with an emphasis on toys, stationery and housewares. During the 1980s, the Company operated a number of retail toy stores, including a chain of 330 stores under the Circus World name located principally in shopping malls in approximately 30 states. The Company sold the Circus World stores in fiscal 1991, but continued to operate a number of retail toy stores under the Playworld name. In November 1993, the Company opened its first Noodle Kidoodle store, which emphasized educationally oriented children's products, and opened three additional Noodle Kidoodle stores in fiscal 1995. During fiscal 1996, management determined, based in large part on the success of its early Noodle Kidoodle stores, that the Company should focus exclusively on its retail business by expanding and developing the Noodle Kidoodle retail concept. Accordingly, in August 1995, the Company adopted a new business plan and ceased operating its wholesale division, which generated net sales of $113.2 million in fiscal 1995. The Company currently operates 18 Noodle Kidoodle stores in New York, New Jersey, Connecticut and the Chicago metropolitan area. The Company opened 14 of these stores in fiscal 1996, and plans to open approximately 20 more stores in fiscal 1997 in new and existing markets. The Company continues to operate four other retail toy stores, two each under the Playworld and Toy Park names. The Company closed several Playworld stores in fiscal 1995 and may close the remaining Playworld and Toy Park stores, as certain lease issues are resolved. BUSINESS STRATEGY The Company's strategy is to become the leading national retailer of educationally oriented children's products by offering a broad assortment of creative and non-violent products at competitive prices in an interactive and entertaining shopping environment with superior levels of customer service. The key components of the Company's business strategy are: Interactive Shopping Environment. Each Noodle Kidoodle store is designed with children in mind. The stores' award-winning design uses colorful walls, ceilings and carpets to create a playful and exciting atmosphere, where adults and children are likely to spend more time than in other retail environments. Seating and product shelves are at kid-level, and there are designated play areas at each store where children and their parents are encouraged to explore toys and games in keeping with the Company's "try before you buy" philosophy. A Computer Center containing six computer stations enables children and adults to test an assortment of approximately 60 different software programs from the store's vast selection. An Electronic Learning Center enables children to sample the store's considerable selection of electronic learning toys. A sampling of the musical selections available in the store is continually broadcast over the store's sound system, and a selection from the store's video offerings is regularly displayed on a large screen television in the store's "Kidoodle Theater." The Company believes that its customer friendly and interactive environment differentiates it from large and impersonal superstore competitors. 22 Broad Assortment of Imaginative Products. The Company's Noodle Kidoodle stores offer a broad assortment of educationally oriented, creative and non-violent products. These products are designed to stimulate a child's imagination and contribute to his or her growth and development consistent with the Company's slogan that "Kids learn best when they're having fun." Each store typically carries approximately 25,000 SKUs, which are conveniently displayed in separate merchandise departments. These departments are identified by colorful and eye-catching signs which are visual as well as verbal so that children can understand them. The Company believes that within its targeted age group of infant to twelve years, its Noodle Kidoodle stores offer in a single location one of the broadest available assortments of educationally oriented, creative and non-violent children's products. The Company continually seeks innovative new products consistent with its merchandising philosophy. Daily In-Store Events. The Company provides without charge daily in-store events such as personal appearances by authors and children's television personalities, arts and crafts workshops and readings from selected books to provide entertainment to its customers, increase store traffic and position Noodle Kidoodle as a destination store. The Company provides advance notice of in-store events through its monthly calendar distributed at the stores and in the Company's newsletter. These events also frequently demonstrate the value of the products and encourage customers to make purchases. Superior Customer Service. Providing knowledgeable and friendly customer service is a key aspect of the Company's business strategy and, the Company believes, a competitive advantage over lower-service superstores and mass merchandisers. The Company seeks to select enthusiastic employees who enjoy working with children. As a result of the Company's training and development of its personnel, the Company's sales associates are able to highlight the benefits of the products being offered to customers. The Company believes that this approach enables it to attract and retain highly motivated, well qualified store managers and associates who are committed to providing the customer with superior service. The Company also offers its customers such services as free gift wrapping, shipping and special orders. Targeted Marketing. The Company has created the Noodle Kidoodle Club in order to establish customer loyalty and track repeat customers. The club provides its members advance notice of sale events and special promotions, a bi-monthly newsletter and events calendar, birthday cards sent to children and similar special privileges. The Company is also establishing a targeted direct mail marketing program and is in the process of expanding its customer database for this purpose. Competitive Pricing. Offering everyday competitive pricing is a key element in the Company's merchandising strategy. Many products are regularly discounted and prices in general are believed to be competitive with those featured by superstores carrying the same lines of merchandise. "Noodle Knockouts," special value items which are often used as end-of-aisle displays, offer the customer quality products at substantially reduced prices. The Company believes that its long involvement in the retail and wholesale toy business affords it a competitive advantage in selecting and purchasing special value merchandise and implementing its pricing strategy. EXPANSION STRATEGY The Company believes that the Noodle Kidoodle concept has nationwide appeal. The Company currently operates 18 Noodle Kidoodle stores in New York, New Jersey, Connecticut and the Chicago metropolitan area, and plans to open approximately 20 more stores in fiscal 1997 in new and existing markets. The Company's near-term plan is to cluster its stores in the Northeastern United States and several Midwestern markets, in order to leverage the Company's advertising programs as well as optimize the capabilities of its strategically located distribution center. The Company believes that there are substantial opportunities for nationwide expansion over the longer term. 23 The Company has identified a number of large metropolitan markets which it believes will support multiple Noodle Kidoodle stores. In fiscal 1996, the Company entered two new markets, opening five stores in the Chicago metropolitan area and two in Connecticut. In fiscal 1997, the Company plans to enter two additional new markets, opening stores in the Detroit and Boston metropolitan areas. The Company's site selection process involves conducting market research and demographic analysis which consider population density, location relative to major traffic arteries and such factors as age, household income and education. The Company seeks locations in high traffic urban and suburban areas with a demographic profile of above average income and education levels. The Company employs a dual real estate strategy, situating stores in both strip center and mall locations. The Company currently leases all of its stores and expects to continue to lease its stores in the future. Typically it takes three to four months from the time that a lease is signed until a store is operational. The cost of leasehold improvements and furniture and fixtures for a typical Noodle Kidoodle store has ranged from $400,000 to $600,000 per store, depending on the location and size of the store. Pre-opening expenses are amortized over the first twelve months of operations. A typical store requires a working capital investment of approximately $400,000, primarily for inventory, a large portion of which is financed through vendor trade credit. Based on the Company's limited experience with Noodle Kidoodle stores, management believes that its new stores should generate store level operating profits after pre-opening expenses in their first full year of operation. MERCHANDISING The Company's merchandising strategy is to provide the broadest possible assortment of products which stimulate a child's imagination and contribute to his or her growth and development consistent with the Company's slogan that "Kids learn best when they're having fun." Each store typically carries approximately 25,000 SKUs conveniently displayed in separate merchandise departments. These departments are identified by colorful and eye-catching signs which are visual as well as verbal so that children can understand them. All of products carried in Noodle Kidoodle stores conform to the Company's creative, non-violent, and educational merchandising strategy. The Company generally does not carry mass market television advertised toys. However, in certain product categories, the Company does carry brand name products which fit the Noodle Kidoodle philosophy, such as Crayola, Lego, Playmobil, the full line of Walt Disney video titles and the Goosebumps line of books The stores also feature a designated "Teacher's Center" where teaching aids can be purchased. To keep its merchandising mix fresh and exciting, the Company continually seeks innovative new products. The Company's products generally fall into two main categories: Creative and Educational Toys Multi-Media Products - ----------------------------- -------------------- Arts & Crafts Audio Construction Books Electronic Learning Software Games & Puzzles Video Impulse Infants & Pre-School Let's Pretend Music Science & Nature Seasonal Stationery Stickers & Stamps 24 Creative and Educational Toys accounted for approximately 75% of Noodle Kidoodle's retail sales in fiscal 1995 compared to Multi-Media Products which accounted for 25%. Creative and Educational Toys in the aggregate generate higher margins than Multi-Media Products. STORE OPERATIONS The Company's prototype store has increased in size from approximately 10,000 to approximately 12,000 square feet to accommodate additional selections of merchandise. All of the Noodle Kidoodle stores are based on the Company's award-winning design and offer a warm and inviting shopping environment with brightly lit spaces, colorful walls, ceilings and carpets, wide aisles for strollers and kid-level seating and product shelving. Products are conveniently displayed in separate merchandise departments, such as "Science & Nature" and "Arts & Crafts," which are identified by colorful eye-catching signs that are visual as well as verbal so that children can understand them. Noodle Kidoodle stores contain designated play areas where children and their parents are encouraged to explore toys and games in keeping with the Company's "try before you buy" philosophy. Among the key interactive features at each store are the Computer Center, Kidoodle Theater and the Electronic Learning Center. Noodle Kidoodle stores generally are open seven days a week and the typical hours of operation are from 10:00 a.m. to 9:00 p.m. The following is a typical floor plan of a prototype Noodle Kidoodle store: [insert diagram] The Company emphasizes customer convenience and satisfaction. The Company's sales associates develop product knowledge in order to assist customers with purchasing decisions. For example, the Company believes that adults who are not computer literate are less likely to feel intimidated seeking 25 software products in Noodle Kidoodle stores than at computer retailers. The Company is initiating a program to train sales associates with respect to product knowledge, customer service and loss prevention. In addition, certain vendors provide training for their products, to enable sales associates to highlight the benefits and value of these products to customers. A Noodle Kidoodle store is generally staffed with one manager, two assistant managers and a varying number of full-time and part-time sales associates, depending on store volume. Store managers are responsible for virtually all aspects of store operations, including store staffing and shrinkage control. However, merchandise replenishment is controlled centrally to ensure adequate inventory levels consistent with the rate of sale at each store. Store managers are eligible to receive incentive bonuses based on sales and shrinkage targets set by management. In addition, store management participates in the Company's stock option plan. ADVERTISING AND MARKETING The Company utilizes newspaper and radio advertising throughout its target markets to promote the Noodle Kidoodle name and increase awareness of the Noodle Kidoodle concept and philosophy. Such advertising is also used to attract customers to grand openings, selected celebrity appearances and special sale events. During peak holiday seasons, Noodle Kidoodle runs glossy, full-color newspaper inserts to convey the quality and value of its merchandise and to highlight specific promotional items. The Company spent approximately $0.6 million and $1.3 million on advertising expenses in fiscal 1995 and the thirty-nine week period ended October 28, 1995, respectively, substantially all of which were spent on the Noodle Kidoodle retail business. In order to build customer loyalty and track repeat customers, the Company has established the Noodle Kidoodle Club. Sales associates promote free club membership by encouraging customers to complete a short application form. The club provides its members advance notice of sale events and special promotions, a bi-monthly newsletter and events calendar, birthday cards sent to children and similar special privileges. The Noodle Kidoodle Club currently has approximately 18,000 members and the Company believes that it is a very effective marketing tool for maintaining long-term customer relationships. To ensure that frequent customers receive special incentives to shop at Noodle Kidoodle, the Company is developing a targeted direct mail marketing program. The Company is in the process of expanding its customer database, which consists of names acquired from a variety of sources, including the Noodle Kidoodle Club and at the point of sale. Currently, the customer database contains approximately 82,000 names. The Company also targets teachers by offering them a 10% discount on all products and holding semi-annual "teachers' nights" during which teachers can receive additional discounts. In addition, the Company has devoted a major effort to develop relationships with civic and charitable organizations that promote the education, development and welfare of children. The Company contacts schools, museums and ecological societies in connection with store openings, and attempts are made to work jointly with these groups. To date, the Company has worked with, among others, the Save the Children Foundation, the Liberty Science Center in New Jersey and the Chicago Children's Museum. PURCHASING AND DISTRIBUTION The Company has implemented a centralized purchasing and distribution system designed to minimize the delivery cost of merchandise and to maximize the in-stock position of its stores. As the number of stores increases, the Company anticipates that it will be able to take greater advantage of 26 volume discounts. In the future, the Company expects to pursue other measures designed to reduce or control the cost of goods sold, such as direct importing and private label products. Noodle Kidoodle purchases merchandise from over 500 suppliers. There are currently two suppliers who represent slightly more than 5% of total purchases. Most of the Company's products come from manufacturers oriented to supplying specialty stores. The Company employs five buyers, each of whom is responsible for purchasing selected categories of the Company's merchandise. These buyers generally have extensive purchasing experience with major toy and other specialty retailers. The Company currently owns and operates one central distribution center, located in Phillipsburg, New Jersey. This warehouse contains approximately 269,000 square feet, and is equipped with a conveyor and racking system that allows for an efficient "pick and ticket" operation capable of supporting at least 100 stores. Approximately two thirds of the Company's products are distributed through this warehouse and the balance is shipped to the stores directly by the manufacturers or distributors. Direct shipments include books, computer software, audio, stickers and stamps, and certain other merchandise. The Company's management has been in the distribution business for many years and believes that such experience represents a significant competitive advantage. MANAGEMENT INFORMATION SYSTEMS The Company utilizes an IBM RS 6000 system which handles all major informational requirements of the Company's business, including sales, warehousing and distribution, purchasing, inventory control, merchandise planning and replenishment as well as various financial systems. At the store level, the Company uses a point-of-sale ("POS") computer system with the capability to provide sales data and perpetual inventory data on an SKU basis to the home office and store locations. Information obtained from daily polling of this system results in merchandise replenishment in response to specific SKU requirements of each store. Additional capabilities include scanning and price look-up. The Company plans to make improvements in this system during fiscal 1997 with up to $1.0 million of the net proceeds from this offering. These improvements will primarily consist of new software and should enhance merchandise planning, analysis and replenishment capabilities. In addition, the improved system is expected to provide customer profiling capabilities to assist in the Company's targeted marketing efforts and contribute to more efficient store operations. COMPETITION The retail toy business is highly competitive. The Company competes on the basis of its stores' interactive environment, broad merchandise selection, superior customer service and competitive pricing. The Company competes with a variety of mass merchandisers, superstores and specialty retailers selling portions of its product lines, including books, software, video and audio products, and arts and crafts. It also competes with toy superstores and other toy retailers, including Toys R Us and Kay Bee Toy Stores and other store formats selling children's products, such as discount stores and smaller specialty toy stores. Retailing of children's educational products is a relatively new concept. Included among the Company's direct competitors are Zany Brainy, Learningsmith and Imaginarium. Some of the Company's competitors are much larger in terms of sales volume and have more capital and greater management resources than the Company. If any of the Company's larger competitors were to increase their focus on the educational market or if any regional competitors were to expand their activities in the markets primarily served by the Company, the Company could be adversely affected. If any of the Company's major competitors seek to gain or retain market share by reducing prices, the Company may be required to reduce its prices on key items in order to remain competitive, which would have the effect of reducing its profitability. 27 EMPLOYEES As of October 28, 1995, the Company employed approximately 680 people, approximately 350 of whom were employed full-time. The Company also employs additional part-time personnel during the pre-Christmas season. Approximately 15 of the Company's employees in the Playworld and Toy Park stores are covered by contracts with a union. The Company believes that its relations with its employees are generally good. TRADEMARKS The Company has registered several service marks and trademarks with Federal and state authorities, including Noodle Kidoodle,(R) Oodles & Oodles of Fun Things to Learn(R) and Kidoodle Animation,(R) and has applied for a service mark for the Company's slogan "Kids learn best when they're having fun." The Company believes it has all licenses necessary to conduct its business. PROPERTIES The Company currently supports its retail operations with an owned 269,000 square foot distribution center in Phillipsburg, New Jersey. The Company had previously supported its total retail and wholesale operations with three other distribution centers located in Farmingdale, New York, West Haven, Connecticut and Birmingham, Alabama. In conjunction with discontinuing its wholesale operations, the Company has ceased operating the Farmingdale distribution center. The Company discontinued the use of the Birmingham center in 1989 and has been sub-leasing the space to third parties since such discontinuance. The Company intends to dispose of its owned Farmingdale and Birmingham properties in fiscal 1997. The Company ceased operating its West Haven center in October 1995 and the lease expires in March 1996. The Company does not believe that disposing of or discontinuing operations in any of these facilities will have a material adverse effect on its operations or financial condition. The Company continues to operate four other retail toy stores, two each under the Playworld and Toy Park names. The Playworld stores are both located in Nassau County, New York, and the Toy Park stores are located in Huntington, New York and in Manhattan, New York. The Playworld stores are each approximately 10,000 square feet and the Toy Park stores are 7,000 and 4,000 square feet for the Huntington and Manhattan stores, respectively. The Company has closed several Playworld stores in fiscal 1995 and may close the remaining Playworld and the Toy Park stores, as certain lease issues are resolved. The Company's executive offices are located at its Farmingdale, New York owned facility. This building, which has historically been used as a distribution center for the Company's wholesale operations, is expected to be sold or leased during fiscal 1997, at which time the Company may move to new headquarters. If the Company chooses to change the location of its headquarters, it does not expect to experience any difficulty in finding a suitable new location. The Company leases all of its Noodle Kidoodle stores. Original lease terms generally are for ten years, and many leases contain renewal options. The Company's stores are generally located in either strip centers or mall locations. 28 The following chart sets forth the location, size and grand opening date of each of the 18 Noodle Kidoodle stores: MARKET AREA AND APPROXIMATE STORE LOCATION GROSS DATE OF SQUARE FOOTAGE GRAND OPENING - --------------------------------------- ---------------- ----------------- NEW YORK Greenvale.............................. 10,450 11/13/93 Oceanside.............................. 8,000 7/16/94 East Northport......................... 10,800 6/24/95 Massapequa............................. 11,250 6/24/95 Plainview.............................. 9,050 6/24/95 Albany................................. 10,000 10/14/95 Staten Island.......................... 10,000 11/13/95 NEW JERSEY Wayne.................................. 11,250 8/27/94 Paramus................................ 10,000 11/19/94 Livingston............................. 11,300 2/25/95 Freehold............................... 9,400 11/04/95 CONNECTICUT Manchester............................. 12,000 9/30/95 Norwalk................................ 11,500 11/18/95 CHICAGO METROPOLITAN Clybourne.............................. 9,500 8/26/95 Wilmette............................... 10,000 8/26/95 Woodridge.............................. 12,500 8/26/95 Arlington Heights...................... 12,850 10/07/95 Vernon Hills........................... 11,250 10/07/95 -------- Total Gross Square Footage......... 191,100 -------- -------- LEGAL PROCEEDINGS The Company is a defendant in a purported class action filed in August 1995, in the United States District Court for the Eastern District of New York against Playmobil, USA, Inc., a toy manufacturer ("Playmobil"), and against the Company and another retailer as defendant class representatives of those toy retailers nationwide selling products manufactured by Playmobil. The Complaint alleges that Playmobil, through its suggested retail pricing policy, conspired with its retailers unlawfully to restrict competition in the sales of Playmobil products. The Company believes the allegations against it to be meritless and intends to vigorously defend the action. Except as set forth above, the Company is not a party to any legal proceedings other than various claims and lawsuits arising in the normal course of its business which, in the opinion of the Company's management, are not individually or in the aggregate material to its business. The Company maintains general liability insurance coverage in amounts deemed adequate by management. 29 MANAGEMENT EXECUTIVE OFFICERS, DIRECTORS AND OTHER KEY EMPLOYEES The executive officers, directors and other key employees of the Company are as follows: NAME AGE POSITION - ----------------------------- --- -------------------------------------- Stanley Greenman(3).......... 46 Chairman of the Board, Chief Executive Officer and Treasurer Stewart Katz(2).............. 54 President, Chief Operating Officer, Assistant Secretary and Director William A. Johnson, Jr....... 42 Corporate Vice President, Chief Financial Officer and Secretary Robin L. Farkas(2)........... 62 Director Lester Greenman(1)........... 40 Director Joseph A. Madenberg(3)....... 58 Director Barry W. Ridings(1).......... 43 Director Robert Stokvis(3)............ 48 Director Irwin Tantleff(1)............ 60 Director Jerry I. Cohen............... 47 Vice President--Merchandise Planning Henry S.Y. Lee............... 46 Vice President--Marketing Matthew J. Peoples........... 37 Vice President--Information Systems Pauline Pettit............... 43 Vice President--Store Development and Design Joel M. Seibert.............. 47 Vice President--Real Estate - ------------ (1) Class 1 director; term expires in 1998. (2) Class 2 director; term expires in 1996. (3) Class 3 director; term expires in 1997. Stanley Greenman has been the Chairman of the Board, Chief Executive Officer and Treasurer of the Company since 1990 and has served as a director of the Company since 1976. Mr. Greenman has been an employee of the Company since 1969. Mr. Greenman is a brother of Lester Greenman and a brother-in-law of Stewart Katz. Stewart Katz has been the President, Chief Operating Officer and Assistant Secretary of the Company since 1977 and has served as a director of the Company since 1973. Mr. Katz has been an employee of the Company since 1970. Mr. Katz is a brother-in-law of both Lester Greenman and Stanley Greenman. William A. Johnson, Jr. has served as Corporate Vice President and Chief Financial Officer since May 1989. Mr. Johnson worked for the Company as Vice President/Corporate Controller from May 1988 to May 1989 and as Director of Internal Audit from July 1987 to May 1988. Mr. Johnson worked as an Audit Manager for Touche Ross & Co. prior to joining the Company in July 1987. Robin L. Farkas has served as a director of the Company since 1993. He is currently a private investor. From 1984 to 1992, Mr. Farkas was Chairman of the Board and Chief Executive Officer of Alexanders, Inc. (mass merchandise retail chain). Alexanders, Inc. filed for bankruptcy under Chapter 11 of the United States Bankruptcy Code on May 15, 1992 and emerged from bankruptcy and reorganized on October 4, 1993. Mr. Farkas is also a member of the boards of directors of Insignia Financial Group, Inc. and Refac Technology Corp. Lester Greenman has served as a director of the Company since 1994. Mr. Greenman has been a Vice President of Legal and Business Affairs for Sony Electronic Publishing Company ("SEPC") since 1994. From 1991 to 1994, he was Director of Legal and Business Affairs for SEPC. He was an Assistant 30 United States Attorney in the Southern District of New York from 1990 to 1991, and an associate at the law firm of Gibson, Dunn & Crutcher from 1987 to 1990. Mr. Greenman is a brother of Stanley Greenman and a brother-in-law of Stewart Katz. Joseph A. Madenberg has served as a director of the Company since 1993. He has been the President of Joseph A. Madenberg, Inc. (retail management consulting firm) since 1968 and prior thereto, he was a Professor of Business Administration at Suffolk County Community College until his retirement in December 1992. Barry W. Ridings has served as a director of the Company since 1994. He has been a Managing Director of Alex. Brown & Sons Incorporated (an investment banking and securities brokerage firm) since 1990 and he was a Managing Director at Drexel Burnham Lambert from 1986 to 1990. Mr. Ridings is also a member of the boards of directors of New Valley Corporation, Norex America, Inc., SubMicron Systems Corporation, Telemundo Group, Inc., Transcor Waste Services, Inc. and Trinity Six Inc. Robert Stokvis has served as a director of the Company since 1991. He has been the President of Stokvis Enterprises, Inc., (distributor of materials handling equipment) for more than the past five years. Irwin Tantleff has served as a director of the Company since July 1995. He has been a Managing Partner of Four T Associates (real estate and financial management) since 1986 and has been adjunct Professor of Management at New York University, Stern School of Business, since 1992. From 1986 to 1989 he was Corporate Senior Vice President and director of First National Supermarkets, Inc., d/b/a Finast/Edwards. From 1965 to 1986, he was the founder and Chief Executive Officer of IJT Limited, d/b/a Foodtown Supermarkets. Jerry I. Cohen has been the Vice President--Merchandise Planning of the Company since November 1995. He joined the Company in 1978 and in 1980 was promoted to the position of Controller. In 1988 he was appointed Vice President of Finance--Wholesale. Prior to joining the Company, he served as Assistant Controller for Wallach's, Inc., Accounting Manager for Robert Hall Clothes and Accounting Supervisor of Interstate Department Stores. Henry S.Y. Lee has been the Vice President--Marketing of the Company since November 1995. He joined the Company in 1994, after having provided consulting services to the Company relating to the implementation of the Noodle Kidoodle concept through a private company, Corporate Marketing Network. Prior to entering the consulting field, Mr. Lee was employed by the Children's Place Retail Stores, Inc. from May 1991 to December 1991 and Brookstone, Inc. from January 1988 to May 1991, and Laura Ashley from 1985 to 1987, holding the Vice President of Marketing position at each company. Matthew J. Peoples has been the Vice President--Information Systems of the Company since 1990. Mr. Peoples joined the Company as Manager of Systems Development in 1985, and held the position of Director of MIS from 1988 to 1990. Prior to joining the Company, he held the position of Software Manager for The Ultimate Corp. and was a Technical Specialist for ADP, Inc. Pauline Pettit has been the Vice President--Store Development and Design of the Company since November 1995. Ms. Pettit joined the Company in May 1993 as Director of Retail Operations. For 17 years prior to joining the Company in May 1993, Ms. Pettit was employed by Record World, Inc. where she held the position of Director of Retail Operations and Loss Prevention. Joel M. Seibert has been Vice President--Real Estate of the Company since November 1995. He joined the Company in July 1994. From 1990 to 1994, Mr. Seibert was Senior Vice President and General Counsel for Job Lot Incorporated, and its affiliated companies. From 1987 to 1990, Mr. Seibert 31 was Director of Real Estate for Dress Barn, Inc. and, from 1985 to 1987, served as Associate General Counsel and Director of Real Estate for Caldor, Inc. BOARD OF DIRECTORS COMMITTEES Executive Committee. The Executive Committee is currently comprised of Stanley Greenman, Stewart Katz and Joseph Madenberg. The Executive Committee is authorized to meet between Board meetings when necessary and has the authority to act, within limits set by the Board of Directors, on behalf of the entire Board of Directors in connection with substantially all operating matters. Audit Committee. The Audit Committee is currently comprised of Barry Ridings, Stewart Katz and Irwin Tantleff. The primary function of the Audit Committee is to recommend independent accountants, review the overall scope of any audits made by the independent accountants and communicate to the Board the Committee's findings as to the adequacy of the Company's internal or external financial controls. Compensation and Stock Option Committee. The Compensation and Stock Option Committee is currently comprised of Robin Farkas, Joseph Madenberg and Robert Stokvis. The primary function of the Compensation and Stock Option Committee is to review and approve the compensation of certain officers of the Company, to review and approve the granting of stock options to officers and other key members of management, and to administer the Company's stock option plans. Strategic Planning Committee. The Strategic Planning Committee is currently comprised of Robin Farkas, Joseph Madenberg, Robert Stokvis, Irwin Tantleff, Stanley Greenman and Stewart Katz. This Committee has the responsibility for developing short- and long-term strategies for the Company's business and reviewing, from time to time, the Company's progress in implementing such strategies. DIRECTOR COMPENSATION Directors who are not employees of the Company receive a fee of $2,000 for each Board meeting they attend. Additionally, directors who are not employees of the Company receive a fee of $1,000 for attendance at committee meetings held on a date other than the date of a scheduled Board of Directors meeting. Under the Company's Outside Directors' 1994 Stock Option Plan, directors who are not employees of the Company are issued options to purchase 5,000 shares of Common Stock upon initial election to the Board of Directors. On April 26, 1995, non-employee directors were automatically issued an option to purchase an additional 1,000 shares of Common Stock, and pursuant to a plan amendment approved by stockholders in December 1995, on April 26 of each year thereafter, such directors will automatically be issued an option to purchase an additional 4,000 shares of Common Stock. The options granted under such plan have a term of five years and become exercisable as to 50% of the shares on the first anniversary of the date of the grant and as to the remaining 50% of the shares on the second anniversary of the date of grant. Bernard Greenman, a founder and former Chairman of the Board, passed away in April 1994. Pursuant to a consulting agreement, dated January 31, 1990, by and between the Company and Mr. Greenman, the Company is obligated to pay Mr. Greenman's estate the $75,000 annual consulting fee payable under the agreement, through January 31, 1996. In addition, pursuant to the agreement, the Company is required to provide coverage or reimbursement for all medical and dental expenses incurred by Phyllis Greenman, Mr. Greenman's widow, during her lifetime. Mr. Joseph Madenberg, a director of the Company since 1993, provides consulting services to the Company under a consulting agreement with the Company dated January 18, 1994. Pursuant to the agreement, the Company is required to pay Mr. Madenberg annual consulting fees totalling $7,300. 32 EXECUTIVE COMPENSATION The following table sets forth information concerning the compensation for services, in all capacities for fiscal 1995, fiscal 1994 and fiscal 1993, of those persons who were, at the end of fiscal 1995, the Chief Executive Officer and the most highly compensated executive officers of the Company (collectively, the "Three Named Officers"). SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ------------ ANNUAL NUMBER OF COMPENSATION SECURITIES NAME AND FISCAL ------------------ UNDERLYING ALL OTHER PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION(1) - -------------------------------------------- ------ -------- ----- ------------ --------------- Stanley Greenman............................ 1995 $263,500 None 30,000 $552 Chairman of the Board, 1994 $275,000 None None $613 Chief Executive Officer 1993 $275,000 None 56,250 $360 and Treasurer Stewart Katz................................ 1995 $241,000 None 30,000 $738 President, Chief Operating 1994 $250,000 None None $996 Officer and Assistant 1993 $250,000 None 56,250 $736 Secretary William A. Johnson, Jr. .................... 1995 $160,000(2) None None $639 Corporate Vice President, Chief Financial 1994 $157,000 None 7,500 $685 Officer and Secretary 1993 $157,000 None 500 $643
- ------------ (1) Represents for each of the Three Named Officers the amount contributed as matching contributions by the Company under the Company's 401(k) Plan. (2) Includes a retroactive annual increase of $5,000 from fiscal 1994 paid to Mr. Johnson in fiscal 1995. 33 The following table sets forth information concerning stock option grants made during fiscal 1995 to the Three Named Officers. These grants are also reflected in the Summary Compensation Table. In accordance with Commission rules, a repricing of outstanding options is treated as a new grant. Also in accordance with the Commission rules, the hypothetical gains or "option spreads" for each option grant are shown based on compound annual rates of stock price appreciation of 5% and 10% from the grant date to the expiration date. The assumed rates of growth are prescribed by the Securities and Exchange Commission (the "Commission") and are for illustrative purposes only; they are not intended to predict future stock prices, which will depend upon market conditions and the Company's future performance. The Company has not granted any stock appreciation rights. OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS POTENTIAL ------------------------------------------------------- REALIZABLE VALUE % OF TOTAL AT ASSUMED ANNUAL NUMBER OF OPTIONS RATES OF STOCK SECURITIES GRANTED TO PRICE APPRECIATION UNDERLYING EMPLOYEES IN EXERCISE FOR OPTION TERM OPTIONS FISCAL YEAR PRICE EXPIRATION ------------------ NAME GRANTED(#) 1995(1) ($/SHARE)(2) DATE(3) 5% 10% - ----------------------------------- ---------- ------------ ------------ ---------- ------- -------- Stanley Greenman................... 30,000 31.8% $ 5.50 12/20/99 $45,600 $100,800 Stewart Katz....................... 30,000 31.8% $ 5.50 12/20/99 $45,600 $100,800 William A. Johnson, Jr. ........... None -- -- -- -- --
- ------------ (1) During fiscal 1995, (a) the expiration date of options to purchase a total of 12,500 shares held by 2 employees was extended, (b) the exercise price of such options was increased and (c) options to purchase 81,750 shares were granted to 17 employees. (2) The exercise price of the options granted was equal to the fair market value of the underlying stock on the date of grant. (3) Options become exercisable in equal installments on the first four anniversaries of the date of grant. Vesting may be accelerated upon the occurrence of certain events. See "Management -- Employment Agreements." The following table sets forth information concerning the number of unexercised options and the fiscal 1995 year-end value of unexercised options on an aggregated basis held by each of the Three Named Officers. The Company has not granted any stock appreciation rights and no options were exercised in fiscal 1995. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT FISCAL YEAR-END(#) FISCAL YEAR-END($)(1) ---------------------------- ---------------------------- NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - --------------------------------------------- ----------- ------------- ----------- ------------- Stanley Greenman............................. 112,500 30,000 $14,062 $ 0 Stewart Katz................................. 112,500 30,000 $14,062 $ 0 William A. Johnson, Jr. ..................... 21,250 3,750 $ 8,781 $ 0
- ------------ (1) Options are "in-the-money" if, on January 28, 1995, the market price of the Common Stock ($4.5625) exceeded the exercise price of such options. The value of such options is calculated by determining the difference between the aggregate market price of the Common Stock underlying the options on January 28, 1995 as reported on the American Stock Exchange and the aggregate exercise price of such options. 34 EMPLOYMENT AGREEMENTS As of February 1, 1995, the Company entered into employment agreements with Stanley Greenman and Stewart Katz (collectively, the "Employment Agreements") to replace the employment agreements with each of them, which expired on January 31, 1995 (the "Old Employment Agreements"). During fiscal years 1993, 1994 and 1995, the employment of Mr. Greenman and Mr. Katz was governed by their Old Employment Agreements, which provided for base salaries for Mr. Greenman and Mr. Katz of $250,000 and $225,000, respectively, in each case subject to increases determined by the Compensation and Stock Option Committee and approved by the Board of Directors. For fiscal 1995, Mr. Greenman and Mr. Katz requested that their base salaries, as adjusted in prior years, be reduced by 5% in view of the transition to the new business plan. Each of the Employment Agreements provides for employment until January 31, 1998, at annual base salaries of $275,000 (in the case of Mr. Greenman) and $250,000 (in the case of Mr. Katz), in each case subject to increases determined by the Compensation and Stock Option Committee and approved by the Board of Directors. In addition, each of the Employment Agreements, and a separate agreement for the benefit of William A. Johnson, Jr., provides that in the event of a Change in Control of the Company (as defined in such agreements) which results in an actual or constructive termination of employment (as defined in such agreements), each of the Three Named Officers is entitled to receive severance pay equal to the difference between 299% of his average annual compensation for the prior five calendar years and the present value of all other payments received by him which would be considered as contingent on a change in control. Exercisability of certain stock options held by the Three Named Officers would also be accelerated by actual or constructive termination or hostile takeover events and the value of such accelerated options would be included in the aforementioned calculation. In addition, the Employment Agreements provide for the payment of a performance bonus to each of Mr. Greenman and Mr. Katz (each an "Executive"), for each of the three fiscal years ended February 3, 1996 ("Year 1"), February 1, 1997 ("Year 2"), and January 31, 1998 ("Year 3"), based upon the net pre-tax profits or losses of the Company during each such year. The level of the performance bonus for each year can range from zero to 30% of such Executive's base salary for the applicable year. If the maximum performance bonus is not payable for all of Years 1, 2 and 3, each Executive will be paid an additional bonus if a certain aggregate profit level is reached during Years 1, 2 and 3; provided, however, that the aggregate performance bonus paid to each Executive cannot exceed 30% of the total of such Executive's salary during Years 1, 2 and 3. In addition, the maximum amount of the aggregate performance bonus paid to the Executives shall not exceed 10% of the Company's pre-tax profits (as defined in the Employment Agreements) for Year 3. The Employment Agreements also provide that each Executive will be granted stock options pursuant to the Company's 1994 Stock Incentive Plan based upon the level of pre-tax profits, net of losses achieved by the Company in Year 1 and Year 2. The option grant for each year can range from no options to a maximum of 30,000 options. In addition, if the maximum option grant is not awarded for both Year 1 and Year 2, each Executive will be awarded additional options if a certain aggregate profit level is reached during Year 1 and Year 2; provided, however, that in no event will any Executive be granted more than an aggregate of 60,000 options for Year 1 and Year 2. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Robert Stokvis, Robin Farkas and Joseph Madenberg currently serve as members of the Compensation and Stock Option Committee of the Board of Directors. Mr. Madenberg replaced Benjamin Zdatny as a member of the Committee during fiscal 1995. None of Messrs. Stokvis, Farkas or Madenberg is or was formerly an officer or employee of the Company. 35 PRINCIPAL AND SELLING STOCKHOLDERS The following table sets forth certain information regarding beneficial ownership of shares of Common Stock as of December 6, 1995 for (i) each person or group that is known by the Company to be a beneficial owner of more than 5% of the outstanding shares Common Stock, (ii) each of the Three Named Officers and directors, (iii) the Company's executive officers and directors as a group and (iv) each Selling Stockholder.
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP PRIOR TO OFFERING NUMBER OF AFTER OFFERING ------------------------- SHARES ------------------------- NAME AND ADDRESS OF NUMBER OF PERCENTAGE BEING NUMBER OF PERCENTAGE BENEFICIAL OWNER** SHARES OF OWNERSHIP OFFERED SHARES OF OWNERSHIP - ------------------------------------------ --------- ------------ --------- --------- ------------ Ryback Management Corporation............. 426,900(1) 8.0% -- 426,900 5.8% and/or Lindner Fund, Inc. 7711 Carondelet Avenue Box 16900 St. Louis, MO 63105 Dimensional Fund Advisors Inc............. 387,000(2) 7.2% -- 387,000 5.3% 1299 Ocean Avenue Suite 650 Santa Monica, California 90401 Phyllis Greenman,......................... 276,034 5.1% 50,000 226,034 3.1% Successor Trustee of the Bernard Greenman Marital Deduction Trust Under Agreement Dated March 22, 1991 16915 River Birch Circle Delray Beach, Florida 33445 Stanley Greenman.......................... 360,022(3) 6.6% -- 360,022 4.8% 105 Price Parkway Farmingdale, New York 11735 Stewart Katz.............................. 351,607(4) 6.4% -- 351,607 4.7% 105 Price Parkway Farmingdale, New York 11735 Lester Greenman(5)........................ 182,500 3.4% 50,000 132,500 1.8% William A. Johnson, Jr.(5)................ 9,500 * -- 9,500 * Robert Stokvis(5)......................... 21,750 * -- 21,750 * Barry W. Ridings(5)....................... 3,500 * -- 3,500 * Joseph A. Madenberg(5).................... 3,000 * -- 3,000 * Robin L. Farkas(5)........................ 3,000 * -- 3,000 * Irwin Tantleff............................ 1,500 * -- 1,500 * All executive officers and directors as a group (9 persons)........................ 936,379 16.6% 50,000 886,379 11.6%
- ------------ * Less than 1% of the outstanding Common Stock. ** Address provided for beneficial owners of more than 5% of the Common Stock. (1) Based upon information contained in a Schedule 13G filed with the Securities and Exchange Commission on January 25, 1995. Such Schedule states that as of December 31, 1994, Ryback Management Corporation ("Ryback"), a registered investment advisor, had sole voting and investment power as to 426,900 shares of the Company's Common Stock, 325,300 shares (6.2%) of which are held by Lindner Fund, Inc., a registered investment company, for which Ryback serves as investment advisor. (2) Based upon information contained in a Schedule 13G filed with the Securities and Exchange Commission on January 30, 1995. Such Schedule states that the beneficial owner has sole voting power as to 245,300 shares and sole investment power as to 387,000 shares. Dimensional Fund Advisors Inc. ("Dimensional"), a registered investment advisor, is deemed to have beneficial ownership of 387,000 shares of the Company's Common Stock, all of which shares are held in portfolios of DFA Investment Dimensions Group Inc., a registered open-end investment company, or in series of the DFA Investment Trust Company, a Delaware business trust, or the DFA Group Trust and the DFA Participating Group Trust, investment vehicles for qualified employee benefit plans, all of which Dimensional Fund Advisors Inc. serves as investment manager. Dimensional disclaims beneficial ownership of all such shares. (3) Includes 18,750 shares owned of record by Stanley Greenman as custodian for a child, with respect to which shares Mr. Greenman disclaims beneficial ownership, and 120,000 shares issuable upon the exercise of options exercisable within 60 days. (4) Includes 181,200 shares owned of record and beneficially by Stewart Katz's wife, 37,907 shares owned of record by Mr. Katz's children, with respect to which shares Mr. Katz disclaims beneficial ownership, and 120,000 shares issuable upon the exercise of options exercisable within 60 days. (5) Includes shares issuable upon exercise of options exercisable within 60 days as follows: Lester Greenman (2,500), William A. Johnson, Jr. (8,500), Robert Stokvis (4,250), Barry W. Ridings (2,500), Joseph A. Madenberg (3,000) and Robin L. Farkas (3,000).
36 DESCRIPTION OF CAPITAL STOCK COMMON STOCK The Company is authorized to issue an aggregate of 15,000,000 shares of Common Stock, par value $.10 per share, 5,369,390 of which are issued and outstanding, net of 924,261 shares of treasury stock, and held by approximately 600 stockholders of record. The holders of Common Stock are entitled to one vote per share on all matters to be voted upon by shareholders. The holders of Common Stock are entitled, among other things, (i) to share ratably in dividends if, when and as declared by the Board of Directors out of funds legally available therefor and (ii) in the event of liquidation, dissolution or winding-up of the Company, to share ratably in the distribution of assets legally available therefor, after payment of debts and expenses. The holders of Common Stock do not have cumulative voting rights in the election of directors and have no preemptive rights to subscribe for additional shares of the Company. All currently outstanding shares of the Common Stock are, and the shares offered hereby, when sold in the manner contemplated by this Prospectus, will be, fully paid and nonassessable. PREFERRED STOCK The Company is authorized to issue an aggregate of 500,000 shares of Preferred Stock, par value $1.00 per share, 440,000 shares of which are designated Series A Junior Participating Preferred and reserved for issuance in connection with the Company's stockholders' rights agreement (the "Rights Agreement"). No shares of Preferred Stock are issued and outstanding. The Board of Directors is authorized to determine, among other things, with respect to each series that may be issued, (i) the dividend rate and conditions and the dividend preferences, if any; (ii) whether dividends would be cumulative and, if so, the date from which dividends on such series would accumulate; (iii) whether, and to what extent, the holders of such series would enjoy voting rights, if any, in addition to those prescribed by law; (iv) whether, and upon what terms, such series would be convertible into or exchangeable for shares of any other class of capital stock or other series of Preferred Stock; (v) whether, and upon what terms, such series would be redeemable; (vi) whether or not a sinking fund would be provided for the redemption of such series and, if so, the terms and conditions thereof; and (vii) the preference, if any, to which such series would be entitled in the event of voluntary or involuntary liquidation, dissolution or winding up of the Company. With regard to dividends, redemption and liquidation preference, any particular series of Preferred Stock may rank junior to, on a parity with or senior to any other series of Preferred Stock and the Common Stock. It is not possible to state the actual effect of the authorization of the Preferred Stock upon the rights of holders of the Common Stock until the Board of Directors determines the specific rights of the holders of a series of the Preferred Stock. However, such effects might include: (i) restriction on dividends on the Common Stock if dividends on Preferred Stock have not been paid; (ii) dilution of the voting power of the Common Stock to the extent that the Preferred Stock has voting rights; (iii) dilution of the equity interest of the Common Stock to the extent that the Preferred Stock is converted into Common Stock; or (iv) the Common Stock not being entitled to share in the Company's assets upon liquidation until satisfaction of any liquidation preference granted the holders of the Preferred Stock. Issuance of Preferred Stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could make it more difficult for a third party to acquire a majority of the outstanding voting stock. Accordingly, the issuance of Preferred Stock may be used as an "anti-takeover" device without further action on the part of the shareholders of the Company. The Company has no present plans to issue any shares of Preferred Stock. ANTI-TAKEOVER PROVISIONS The Company's Certificate of Incorporation and Bylaws contain several provisions intended to limit the possibility of a takeover of the Company. In addition to providing for a classified Board of 37 Directors and the issuance of Preferred Stock having terms established by the Board of Directors without shareholder approval, the Certificate of Incorporation requires that, unless the actions set forth below are approved by the Board of Directors and a majority of such approving directors were members of the Board prior to the time the Major Stockholder (as defined below) involved in such action became a Major Stockholder, the affirmative vote of not less than 80% of the shares of stock entitled to vote thereon is required to authorize (i) any merger, reorganization or consolidation of the Company or of any subsidiary with or into any other corporation, person or other entity (collectively, "person"), (ii) any sale, lease, hypothecation, exchange or other disposition (in one transaction or in a series of related transactions) of all or any substantial part of the assets of the Company or of any subsidiary to or with any other person, or (iii) any issuance or transfer by the Company or by any subsidiary of any of its securities to any other person in exchange for assets or securities (or a combination thereof) having an aggregate fair market value of 15% or more of the consolidated assets of the Company immediately preceding the record date for determination of stockholders entitled to notice thereof and to vote thereon, if in any such case the person which is a party to such action beneficially owns (as defined therein) 15% or more of the outstanding capital stock of the Company (a "Major Stockholder"). Pursuant to the Rights Agreement maintained by the Company, each outstanding share of the Company's Common Stock carries a stock purchase right. Under certain circumstances, as defined in the Rights Agreement, each right may be exercised to purchase 1/100 of a share of Series A Junior Participating Preferred Stock for $25.00, subject to certain anti-dilution adjustments. The rights are redeemable by the Company or, under certain circumstances, by a third party to whom the Company assigns its rights, at $0.01 each until such a person or group acquires 15% of the Company's Common Stock or until the rights expire on May 15, 1998. The exercise of any rights under the Rights Agreement may discourage unsolicited takeover bids by third parties. Section 912 of the New York Business Corporation Law prohibits a company from entering into a business combination (e.g., a merger, consolidation, sale of substantially all assets, or issuance of securities with an aggregate market value of 10% or more of the aggregate market value of all of the Company's outstanding capital stock) with a beneficial owner of 20% or more of a company's securities (a "20% shareholder") for a period of five years following the date such beneficial owner became a 20% shareholder (the "stock acquisition date"), unless such business combination or the purchase of stock resulting in the 20% shareholder's beneficial ownership was approved by the Company's board of directors prior to the stock acquisition date or, among other things, the business combination is approved by the affirmative vote of the holders of a majority of the outstanding voting stock, exclusive of the stock owned by the 20% shareholder. The applicability of this provision to the Company may discourage unsolicited takeover bids by third parties. TRANSFER AGENT AND REGISTRAR Chemical Mellon Shareholder Services, Washington Bridge Station, P.O. Box 469, New York, New York 10033, is the transfer agent and registrar for the securities of the Company. 38 UNDERWRITING The Underwriters named below, for whom PaineWebber Incorporated and Rodman & Renshaw, Inc. are acting as representatives (the "Representatives"), have severally agreed, subject to the terms and conditions of the Underwriting Agreement (the "Underwriting Agreement"), to purchase from the Company and the Selling Stockholders, and the Company and the Selling Stockholders have agreed to sell to the Underwriters, the number of shares of Common Stock set forth opposite their names. NUMBER UNDERWRITER OF SHARES - -------------------------------------------------------- ----------- PaineWebber Incorporated................................ Rodman & Renshaw, Inc................................... Total........................................... 2,100,000 ----------- ----------- The Underwriting Agreement provides that the obligations of the Underwriters to purchase the shares of Common Stock offered hereby are subject to certain conditions. The Underwriters are committed to purchase, and the Company and the Selling Stockholders are obligated to sell, all of the shares of Common Stock offered by this Prospectus (other than those covered by the over-allotment option described below), if any are purchased. The Company has been advised by the Representatives that the Underwriters propose initially to offer the shares of Common Stock to the public at the public offering price set forth on the cover page of this Prospectus, and to certain securities dealers at such price less a concession not in excess of $ per share. The Underwriters may allow, and such dealers may reallow, concessions of not more than $ per share on sales to certain other dealers. After the public offering, the offering price and concessions may be changed by the Representatives. The Company has granted to the Underwriters an option, exercisable within the 30-day period after the date of this Prospectus, to purchase up to an additional 315,000 shares of Common Stock at the public offering price set forth on the cover page of this Prospectus, less the underwriting discounts and commissions. The Underwriters may exercise such option only to cover over-allotments, if any, in the sale of the shares of Common Stock offered hereby. To the extent that such option is exercised, each Underwriter will become obligated, subject to certain conditions, to purchase approximately the same percentage thereof that the number of shares to be purchased by each Underwriter bears to the 2,100,000 shares of Common Stock offered hereby. The Company, its executive officers and directors, and the Selling Stockholders have agreed not to (a) sell, offer to sell or otherwise dispose of shares of Common Stock or securities convertible into Common Stock or (b) sell, offer to sell, contract to sell, or grant rights, options, warrants or other rights 39 to shares with respect to Common Stock or securities convertible into Common Stock, prior to the expiration of 150 days from the date of this Prospectus, without the prior written consent of PaineWebber Incorporated, other than pursuant to existing employee stock option plans or in connection with other employee incentive compensation arrangements of the Company and issuances of Common Stock upon exercise of options outstanding as of the date of this Prospectus. In connection with this offering, certain Underwriters and selling group members (if any) or their respective affiliates may engage in passive market making transactions in the Common Stock on the Nasdaq National Market in accordance with Rule 10b-6A under the Securities Exchange Act of 1934, as amended (the "Exchange Act") during the two business day period before commencement of offers or sales of the Common Stock. The passive market making transactions must comply with applicable volume and price limits and be identified as such. In general, a passive market maker may display its bid at a price not in excess of the highest independent bid for such security; if all independent bids are lowered below the passive market maker's bid, however, such bid must then be lowered when certain purchase limits are exceeded. The Company and the Selling Stockholders have agreed to indemnify the Underwriters and their controlling persons against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the Underwriters may be required to make in respect thereof. EXPERTS The financial statements and scheduled included or incorporated by reference in this prospectus and elsewhere in the registration statement have been audited by Janover Rubinroit, LLC, independent certified public accountants, as set forth in their report thereon and are included herein in reliance upon the authority of said firm as experts in accounting and auditing. LEGAL MATTERS The validity of the shares of Common Stock offered hereby will be passed upon for the Company by Kramer, Levin, Naftalis, Nessen, Kamin & Frankel, 919 Third Avenue, New York, New York 10022. Certain legal matters in connection with the Common Stock offered hereby will be passed upon for the Underwriters by Paul, Weiss, Rifkind, Wharton & Garrison, 1285 Avenue of the Americas, New York, New York 10019. 40 AVAILABLE INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission") in Washington D.C., a Registration Statement on Form S-1 (together with all amendments and exhibits thereto, the "Registration Statement") under the Securities Act of 1933, with respect to the shares of Common Stock offered hereby. This prospectus constitutes a part of the Registration Statement and does not contain all the information set forth therein. Any statements contained herein concerning the provisions of any contract or other document are not necessarily complete and, in each instance, reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement or otherwise filed with the Commission. Each such statement is qualified in its entirety by such reference. For further information regarding the Company and the securities offered hereby, reference is made to the Registration Statement and to the exhibits thereto. The Company is subject to the informational requirements of the Exchange Act, and, in accordance therewith, files reports, proxy statements and other information with the Commission. These reports, proxy statements and other information can be inspected and copied at the public reference facilities maintained by the Commission at Room 1024 of the Commission's office at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices located at 7 World Trade Center, Suite 1300, New York, New York 10048, and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Company distributes to its stockholders, annual reports containing audited financial statements and an opinion thereon by the Company's independent public accountants, and quarterly reports containing unaudited summary financial information for each of the first three fiscal quarters of each fiscal year. 41 NOODLE KIDOODLE, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Independent Auditors' Report.......................................................... F-2 Consolidated Balance Sheets as of January 29, 1994, January 28, 1995 and October 28, 1995.................................................................... F-3 Consolidated Statements of Income (Loss) for each of the three fiscal years ended January 28, 1995 and for each of the thirty-nine week periods ended October 29, 1994 (unaudited) and October 28, 1995...................................................... F-4 Consolidated Statements of Stockholders' Equity for each of the three fiscal years ended January 28, 1995 and for the thirty-nine week period ended October 28, 1995... F-5 Consolidated Statements of Cash Flows for each of the three fiscal years ended January 28, 1995 and for each of the thirty-nine week periods ended October 29, 1994 (unaudited) and October 28, 1995.................................................... F-6 Notes to Consolidated Financial Statements............................................ F-8
F-1 INDEPENDENT AUDITORS' REPORT To the Stockholders and Board of Directors of Noodle Kidoodle, Inc. (formerly Greenman Bros. Inc.): We have audited the accompanying consolidated balance sheets of Noodle Kidoodle, Inc. (formerly Greenman Bros. Inc.) and Subsidiaries as of January 29, 1994, January 28, 1995, and October 28, 1995 and the related consolidated statements of income (loss), stockholders' equity, and cash flows for each of the three fiscal years ended January 28, 1995 and for the thirty-nine week period ended October 28, 1995. Our audits also include the financial statement schedule listed in the index at Item 16(b) of the Registration Statement. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Noodle Kidoodle, Inc. and Subsidiaries as of January 29, 1994, January 28, 1995, and October 28, 1995, and the results of their operations and cash flows for each of the three fiscal years ended January 28, 1995 and for the thirty-nine week period ended October 28, 1995 in conformity with generally accepted accounting principles. Further, in our opinion, the financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. Janover Rubinroit, LLC New York, New York December 13, 1995 F-2 NOODLE KIDOODLE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
JANUARY 29, JANUARY 28, OCTOBER 28, 1994 1995 1995 ----------- ----------- ----------- (IN THOUSANDS, EXCEPT SHARE DATA) ASSETS Current assets: Cash and cash equivalents................................ $ 5,764 $10,908 $ 6,548 Short-term investments................................... 1,000 -- -- Merchandise inventories.................................. 6,319 4,330 12,437 Prepaid expenses and other current assets................ 1,075 1,551 1,888 Recoverable income taxes................................. -- 1,429 -- Net assets of discontinued operations.................... 31,217 24,621 6,327 ----------- ----------- ----------- Total current assets................................. 45,375 42,839 27,200 Property, plant and equipment at cost...................... 6,476 7,752 14,843 Less accumulated depreciation............................ (2,726) (2,589) (3,221) ----------- ----------- ----------- 3,750 5,163 11,622 Other assets............................................... 504 40 50 ----------- ----------- ----------- Total Assets............................................. $49,629 $48,042 $38,872 ----------- ----------- ----------- ----------- ----------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Trade accounts payable................................... $ 2,387 $ 2,262 $ 7,191 Accrued expenses and taxes............................... 3,041 4,777 5,237 Income taxes............................................. 137 133 -- ----------- ----------- ----------- Total current liabilities............................ 5,565 7,172 12,428 Commitments and contingencies.............................. -- -- -- Stockholders' equity: Preferred Stock-authorized 500,000 shares, par value $1.00 (none issued).................................... -- -- -- Common Stock-authorized 10,000,000 shares, par value $0.10; issued 6,119,348, 6,185,301 and 6,292,701 shares, respectively................................... 612 619 629 Capital in excess of par value........................... 25,608 25,801 26,294 Retained earnings........................................ 21,636 18,242 3,313 Less treasury stock, at cost-924,261 shares.............. (3,792) (3,792) (3,792) ----------- ----------- ----------- Total stockholders' equity........................... 44,064 40,870 26,444 ----------- ----------- ----------- Total Liabilities and Stockholders' Equity............... $49,629 $48,042 $38,872 ----------- ----------- ----------- ----------- ----------- -----------
The accompanying notes are an integral part of the financial statements. F-3 NOODLE KIDOODLE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (LOSS)
THIRTY-NINE WEEKS FISCAL YEARS ENDED ENDED ----------------------------------------- ---------------------- OCTOBER OCTOBER JANUARY 30, JANUARY 29, JANUARY 28, 29, 28, 1993 1994 1995 1994 1995 ----------- ----------- ----------- --------- --------- (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Net sales........................... $18,250 $20,712 $23,308 $12,042 $ 13,508 Costs and expenses: Cost of products sold including buying and warehousing costs........ 12,779 14,569 16,192 8,214 8,784 Selling and administrative expenses............................ 6,645 8,401 10,790 6,937 10,563 Provision for restructured operations.......................... -- -- 3,900 3,500 500 ----------- ----------- ----------- --------- --------- 19,424 22,970 30,882 18,651 19,847 ----------- ----------- ----------- --------- --------- Operating loss.................... (1,174) (2,258) (7,574) (6,609) (6,339 ) Interest income..................... 624 392 372 299 501 Interest expense.................... (143) (115) (75) (56) (32 ) ----------- ----------- ----------- --------- --------- Loss from continuing operations before income taxes................. (693) (1,981) (7,277) (6,366) (5,870 ) Income taxes (benefit).............. (268) (801) (2,787) (2,547) -- ----------- ----------- ----------- --------- --------- Net loss from continuing operations.......................... (425) (1,180) (4,490) (3,819) (5,870 ) ----------- ----------- ----------- --------- --------- Discontinued operations: Income (loss) net of income tax expense of $1,407, $1,282, $685, $15 and $0, respectively............ 2,226 1,889 1,096 22 (1,914 ) Operating loss of $7,305 including gain from disposal of assets and income taxes of $1,602.............. -- -- -- -- (7,145 ) ----------- ----------- ----------- --------- --------- Net income (loss) from discontinued operations......... 2,226 1,889 1,096 22 (9,059 ) ----------- ----------- ----------- --------- --------- Net income (loss)................. $ 1,801 $ 709 $(3,394) $(3,797) $(14,929 ) ----------- ----------- ----------- --------- --------- ----------- ----------- ----------- --------- --------- Net income (loss) per share: Continuing operations............. $ (.08) $ (.22) $ (.86) $ (.73) $ (1.11 ) Discontinued operations........... .40 .35 .21 -- (1.71 ) ----------- ----------- ----------- --------- --------- Net income (loss)................. $ .32 $ .13 $ (.65) $ (.73) $ (2.82 ) ----------- ----------- ----------- --------- --------- ----------- ----------- ----------- --------- --------- Weighted average shares outstanding......................... 5,574,547 5,338,012 5,220,222 5,206,615 5,301,702 ----------- ----------- ----------- --------- --------- ----------- ----------- ----------- --------- ---------
The accompanying notes are an integral part of the financial statements. F-4 NOODLE KIDOODLE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
CAPITAL TREASURY STOCK COMMON STOCK IN EXCESS (AT COST) ---------------- OF PAR RETAINED ---------------- SHARES AMOUNT VALUE EARNINGS SHARES AMOUNT ------ ------ --------- -------- ------ ------ (IN THOUSANDS) Balance--February 1, 1992.................. 6,051 $605 $ 25,281 $ 19,126 511 $1,920 Exercise of stock options including related tax benefits......... 66 7 313 -- -- -- Net income for the year.................. -- -- -- 1,801 -- -- ------ ------ --------- -------- ------ ------ Balance--January 30, 1993.................. 6,117 612 25,594 20,927 511 1,920 Exercise of stock options including related tax benefits......... 2 -- 14 -- -- -- Purchase of treasury stock............... -- -- -- -- 413 1,872 Net income for the year.................. -- -- -- 709 -- -- ------ ------ --------- -------- ------ ------ Balance--January 29, 1994.................. 6,119 612 25,608 21,636 924 3,792 Exercise of stock options (net of stock tendered) including related tax benefits................... 66 7 193 -- -- -- Net loss for the year.................... -- -- -- (3,394) -- -- ------ ------ --------- -------- ------ ------ Balance--January 28, 1995.................. 6,185 619 25,801 18,242 924 3,792 Exercise of stock options................ 107 10 493 -- -- -- Net loss for the period.................. -- -- -- (14,929) -- -- ------ ------ --------- -------- ------ ------ Balance--October 28, 1995.................. 6,292 $629 $ 26,294 $ 3,313 924 $3,792 ------ ------ --------- -------- ------ ------ ------ ------ --------- -------- ------ ------
The accompanying notes are an integral part of the financial statements. F-5 NOODLE KIDOODLE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEARS ENDED THIRTY-NINE WEEKS ENDED ----------------------------------------- ------------------------------- JANUARY 30, JANUARY 29, JANUARY 28, OCTOBER 29, OCTOBER 28, 1993 1994 1995 1994 1995 ----------- ----------- ----------- -------------- ----------- (UNAUDITED) (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss from continuing operations....................... $ (425) $(1,180) $(4,490) $ (3,819) $(5,870) Adjustments to reconcile to net cash provided (used): Depreciation................. 219 297 499 437 648 Restructuring charges--non- cash portion..................... -- -- 834 3,500 500 Decrease (increase) in non- cash working capital accounts: Merchandise inventories.... (1,503) (226) 1,989 (3,317) (8,107) Prepaid expenses and other current assets................... (1,518) 636 (1,905) (2,030) 1,092 Trade accounts payable, accrued expenses and taxes............................ 616 481 1,607 495 4,756 ----------- ----------- ----------- -------------- ----------- Net cash provided by (used in) continuing operations............ (2,611) 8 (1,466) (4,734) (6,981) ----------- ----------- ----------- -------------- ----------- Net income (loss) from discontinued operations.......... 2,226 1,889 1,096 22 (9,059) Adjustments to reconcile to net cash provided (used): Depreciation and other non- cash changes..................... 1,933 899 775 655 867 Decrease (increase) in non- cash working capital accounts and other............... 1,700 (5,836) 7,195 5,123 17,562 ----------- ----------- ----------- -------------- ----------- Net cash provided by (used in) discontinued operations.......... 5,859 (3,048) 9,066 5,800 9,370 ----------- ----------- ----------- -------------- ----------- Net cash provided by (used in) operating activities............. 3,248 (3,040) 7,600 1,066 2,389 ----------- ----------- ----------- -------------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of securities....................... -- 2,987 1,000 1,000 -- Purchase of securities......... (2,987) (1,000) -- -- -- Property additions: Continuing operations........ (646) (935) (2,751) (1,893) (7,118) Discontinued operations...... (520) (1,071) (1,213) (934) (86) Other........................ 234 206 492 583 -- ----------- ----------- ----------- -------------- ----------- Net cash provided by (used in) investing activities............. (3,919) 187 (2,472) (1,244) (7,204) ----------- ----------- ----------- -------------- -----------
F-6 NOODLE KIDOODLE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
FISCAL YEARS ENDED THIRTY-NINE WEEKS ENDED ----------------------------------------- ------------------------------- JANUARY 30, JANUARY 29, JANUARY 28, OCTOBER 29, OCTOBER 28, 1993 1994 1995 1994 1995 ----------- ----------- ----------- -------------- ----------- (UNAUDITED) (IN THOUSANDS) CASH FLOWS FROM FINANCING ACTIVITIES: Reduction in long-term debt and obligations under capital leases........................... (56) (60) (64) (45) (48) Purchase of treasury stock..... -- (1,872) -- -- -- Exercise of employee options... 290 14 80 79 503 ----------- ----------- ----------- -------------- ----------- Net cash provided by (used in) financing activities............. 234 (1,918) 16 34 455 ----------- ----------- ----------- -------------- ----------- Net increase (decrease) in cash and cash equivalents............. (437) (4,771) 5,144 (144) (4,360) Cash and cash equivalents-- beginning of period.............. 10,972 10,535 5,764 5,764 10,908 ----------- ----------- ----------- -------------- ----------- Cash and cash equivalents--end of period........................ $10,535 $ 5,764 $10,908 $ 5,620 $ 6,548 ----------- ----------- ----------- -------------- ----------- ----------- ----------- ----------- -------------- ----------- SUPPLEMENTAL CASH FLOW INFORMATION: Net cash paid (received) during the period for: Interest expense............. $ 143 $ 115 $ 75 $ 56 $ 32 Income taxes, net............ 1,633 1,068 328 308 (1,522)
The accompanying notes are an integral part of the financial statements. F-7 NOODLE KIDOODLE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1--SIGNIFICANT ACCOUNTING POLICIES: The following summary of the Company's major accounting policies is presented to assist in the interpretation of the financial statements. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the parent company and all subsidiary companies. Intercompany balances and material transactions are eliminated in consolidation. The Company and its subsidiaries are on a 52-53 week accounting period ending on the Saturday closest to January 31. Fiscal 1993, 1994 and 1995 each contained 52 weeks. INTERIM FINANCIAL INFORMATION The information provided in the consolidated financial statements for the thirty-nine weeks ended October 29, 1994 is unaudited but includes all adjustments which, in the opinion of management, are necessary for a fair presentation of results for the interim period reported. All adjustments were of a normal and recurring nature. CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS All highly liquid investments purchased with a maturity of three months or less are considered to be cash equivalents; investments with maturities between three and twelve months are considered to be short-term investments. These investments are stated at cost which approximates market value. The Company places its temporary cash investments in high grade instruments with high credit quality financial institutions and, by policy, limits the amount of credit exposure to any one financial institution. INVENTORIES Inventories of continuing operations are stated at the lower of cost (first-in, first-out) or market. EARNINGS PER SHARE The computation of earnings per share is based on the weighted average number of outstanding common shares. The inclusion of common stock equivalents had no significant dilutive effect or were antidilutive and therefore, were not utilized in the computations of net income (loss) per share. PROPERTY, PLANT AND EQUIPMENT Plant and equipment is stated at cost and is depreciated on a straight-line basis over estimated useful lives. Repairs and maintenance are charged to expense as incurred; renewals and betterments, which significantly extend the useful lives of existing plant and equipment, are capitalized. Leasehold improvements are amortized over the terms of the respective leases or over their useful lives, whichever is shorter. Useful lives of other plant and equipment varies among the classifications, but range for buildings and improvements from 10-40 years and for fixtures and equipment from 4-10 years. PRE-OPENING EXPENSES Costs incurred in the opening of new stores are amortized over the first twelve months of operations. F-8 NOODLE KIDOODLE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 1--SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED) INCOME TAXES In fiscal 1994, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 109. Deferred taxes provided under SFAS No. 109 result principally from temporary differences in depreciation, capitalized inventory costs, restructuring charges, and allowance for doubtful accounts. Upon implementation of SFAS No. 109, there was no material impact on the Company's results of operations or financial position. The Company previously accounted for income taxes based upon SFAS No. 96. RECLASSIFICATIONS Certain reclassifications of prior periods' data have been made to conform to current period classifications. NOTE 2--DISCONTINUED OPERATIONS: On August 30, 1995, the Company adopted a formal plan to discontinue its wholesale business segment. The plan provides for the sale of two of the Company's distribution centers and the disposition through sale or liquidation of substantially all of the operating assets of such segment. The operations and net assets of the wholesale business segment are being accounted for as a discontinued operation, and accordingly, its operating results and net assets are reported in this manner in all periods presented in the accompanying consolidated financial statements. In connection with discontinuing its wholesale operations, the Company recorded a provision of $7.1 million in the fiscal quarter ended July 29, 1995 for (i) estimated gains or losses on the sale or liquidation of wholesale assets and (ii) estimated operating losses until such disposal or liquidation is completed. Summary operating results from discontinued operations are as follows:
FISCAL YEARS ENDED THIRTY-NINE WEEKS ENDED ----------------------------------------- -------------------------- JANUARY 30, JANUARY 29, JANUARY 28, OCTOBER 29, OCTOBER 28, 1993 1994 1995 1994 1995 ----------- ----------- ----------- ----------- ----------- (UNAUDITED) (IN THOUSANDS) Net sales............................ $ 136,488 $ 122,138 $ 113,194 $80,729 $50,635 Gross profit......................... 31,035 26,711 24,604 17,069 9,164 Operating income (loss).............. 3,633 3,171 1,781 37 (1,914) Provision for discontinued operations........................... -- -- -- -- 7,145 Net income (loss).................... 2,226 1,889 1,096 22 (9,059)
Net assets of discontinued operations represent total assets less liabilities of the Company's wholesale business segment. Net assets of this segment at October 28, 1995 consist principally of accounts receivable, inventories and properties of $10,487,000 less accounts payable, accrued expenses, and capitalized lease obligations of $4,160,000. F-9 NOODLE KIDOODLE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 3--PROPERTY, PLANT AND EQUIPMENT: JANUARY 29, JANUARY 28, OCTOBER 28, 1994 1995 1995 ----------- ----------- ----------- (IN THOUSANDS) Land................................ $ 272 $ 272 $ 272 Buildings and improvements.......... 1,356 1,506 1,657 Fixtures and equipment.............. 2,713 2,797 5,618 Leasehold improvements.............. 2,135 3,177 7,296 ----------- ----------- ----------- 6,476 7,752 14,843 Less accumulated depreciation....... (2,726) (2,589) (3,221) ----------- ----------- ----------- $ 3,750 $ 5,163 $ 11,622 ----------- ----------- ----------- ----------- ----------- ----------- NOTE 4--CREDIT FACILITY: The Company has a secured line of credit with a bank which provides maximum borrowings of $12.5 million in short-term loans and commercial letters of credit that expires on June 30, 1996. Credit availability under the line is subject to, among other things, a borrowing base formula of 75% of eligible accounts receivable and 50% of eligible inventory (maximum inventory of $6.25 million) of the wholesale segment. Eligible assets at October 28, 1995 would result in availability of $5.0 million under the provisions of the line of credit. Interest on borrowings is at the bank's prime rate plus 0.5% or at a Eurodollar rate. The Company had no borrowings under this facility during the thirty-nine week period ended October 28, 1995. Management intends to replace this credit facility upon expiration. NOTE 5--COMMITMENTS AND CONTINGENCIES: Minimum annual commitments under non-cancelable leases in effect at October 28, 1995 are as follows: SUBLEASE OPERATING RENTAL LEASES INCOME --------- -------- (IN THOUSANDS) 1996 (three months)................................ $ 1,409 $ 164 1997............................................... 6,383 517 1998............................................... 6,078 152 1999............................................... 6,061 157 2000............................................... 6,037 161 2001............................................... 6,106 166 Thereafter......................................... 29,631 525 --------- -------- Total minimum obligations.................... $61,705 $1,842 --------- -------- --------- -------- At October 28, 1995, the Company and its subsidiaries were lessees of stores, vehicles, and warehouse equipment under various leases. In addition to fixed rents and rentals based on sales, certain of the leases require the payment of taxes and other costs. Some leases include renewal options. F-10 NOODLE KIDOODLE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 5--COMMITMENTS AND CONTINGENCIES:--(CONTINUED) Rental expense (income) for operating leases was as follows:
FISCAL YEARS ENDED THIRTY-NINE WEEKS ENDED ----------------------------------------- -------------------------- JANUARY 30, JANUARY 29, JANUARY 28, OCTOBER 29, OCTOBER 28, 1993 1994 1995 1994 1995 ----------- ----------- ----------- ----------- ----------- (UNAUDITED) (IN THOUSANDS) Minimum rentals...................... $ 1,320 $ 1,647 $ 1,850 $ 1,304 $ 1,940 Taxes and other costs................ 655 635 1,027 712 855 Sublease rentals..................... (851) (837) (953) (777) (813) ----------- ----------- ----------- ----------- ----------- $ 1,124 $ 1,445 $ 1,924 $ 1,239 $ 1,982 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
LITIGATION Several lawsuits are pending against the Company. In the opinion of management, the Company has meritorious defenses or is covered by insurance and the Company's liability, if any, when ultimately determined will not be significant. EMPLOYMENT AND CONSULTING AGREEMENTS The Company has employment and consulting agreements with certain directors, officers, and employees. Certain agreements provide for minimum salary levels as well as for incentive bonuses which are payable if specified management goals are attained. NOTE 6--CAPITAL STOCK: PREFERRED STOCK The Company has 500,000 authorized (non-issued) shares of preferred stock, par value $1.00, consisting of 440,000 shares of Series A Junior Participating Preferred reserved for use under the Company's Rights Agreement and the remainder for other unspecified purposes. STOCKHOLDERS' RIGHTS AGREEMENT Each outstanding share of the Company's common stock carries a stock purchase right. Under certain circumstances, as defined in the Company's Rights Agreement, each right may be exercised to purchase 1/100 of a share of Series A Junior Participating Preferred Stock for $25.00, subject to certain anti-dilution adjustments. The rights are redeemable by the Company or, under certain circumstances, by a third party to whom the Company assigns its rights at $.01 each until a person or group acquires fifteen percent of the Company's common stock or until they expire on May 15, 1998. TREASURY STOCK On February 4, 1993, the Company's Board of Directors authorized the repurchase from time to time of up to 500,000 shares of its common stock. The Company purchased 413,600 shares of common stock at an average price of $4.52 per share under this authorization. In April 1995, the Board terminated its stock repurchase program. F-11 NOODLE KIDOODLE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 7--STOCK OPTIONS: STOCK INCENTIVE PLAN In 1994, the Company's stockholders adopted a Stock Incentive Plan (the "Plan") for key employees and consultants. The Plan reserves 500,000 shares of common stock for the issuance of stock options, stock appreciation rights (SARs), dividend equivalent rights, restricted stock, unrestricted stock and performance shares and is administered by the Compensation and Stock Option Committee (the "Committee") of the Board of Directors of the Company. Under the terms of the Plan, options granted may be either non-qualified or incentive stock options and the exercise price, determined by the Committee, shall be at least 75% (100% in the case of an incentive stock option) of the fair market value of a share on the date of grant. SARs may be granted (subject to specified restrictions) in connection with all or any part of, or independently of, any option granted under the Plan. No SARs, dividend equivalent rights, restricted stock, unrestricted stock or performance shares have been granted to date under the Plan. Options granted under the Plan are exercisable in installments; however, no options are exercisable within one year or later than ten years from the date of grant. STOCK OPTION PLAN FOR OUTSIDE DIRECTORS In 1994, the Company adopted the 1994 Outside Directors' Stock Option Plan (the "Stock Option Plan") and reserved 75,000 shares of common stock for the issuance of stock options related to this plan. The Stock Option Plan for outside directors provides that upon the initial election to the Board, each eligible director is granted an option to purchase 5,000 shares of common stock and 1,000 shares each year thereafter at the fair market value on the date of grant. The options have a term of five years and become exercisable 50% on the first anniversary of the date of grant and 50% on the second anniversary of the date of grant. See Note 13--Subsequent Events. 1984 STOCK OPTION PLAN The Company's 1984 Stock Option Plan expired in April 1994, and the remaining options available, but not granted, under the plan were canceled. The following summary sets forth the activity under the Company's stock incentive plans:
FISCAL YEARS ENDED ---------------------------------------------- THIRTY-NINE WEEKS ENDED JANUARY 29, 1994 JANUARY 28, 1995 OCTOBER 28, 1995 --------------------- ---------------------- ----------------------- SHARES PRICE RANGE SHARES PRICE RANGE SHARES PRICE RANGE ------- ----------- -------- ----------- -------- ------------ Outstanding at beginning of period......................... 576,503 $3.50-$6.25 582,878 $3.50-$6.25 501,459 $3.50-$ 6.50 Granted........................ 22,000 $4.13-$5.00 96,750 $5.50-$6.50 213,500 $4.56-$13.13 Exercised...................... (2,100) $4.00-$4.50 (168,544) $4.00-$4.50 (107,400) $4.00-$ 6.50 Terminated..................... (13,525) $3.75-$4.81 (9,625) $4.00-$6.25 (18,000) $4.50-$ 6.50 ------- -------- -------- Outstanding at end of period... 582,878 $3.50-$6.25 501,459 $3.50-$6.50 589,559 $3.50-$13.13 ------- ----------- -------- ----------- -------- ------------ ------- ----------- -------- ----------- -------- ------------ Exercisable at end of period... 540,228 $3.50-$6.25 384,209 $3.50-$6.50 290,341 $3.50-$ 6.50 ------- ----------- -------- ----------- -------- ------------ ------- ----------- -------- ----------- -------- ------------ Available for grant at end of period......................... 115,886 -- 484,250 -- 279,250 -- ------- -------- -------- ------- -------- --------
F-12 NOODLE KIDOODLE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 8--TAXES ON INCOME: Income taxes consist of the following:
FISCAL YEARS ENDED THIRTY-NINE ----------------------------------------- WEEKS ENDED JANUARY 30, JANUARY 29, JANUARY 28, OCTOBER 28, 1993 1994 1995 1995 ----------- ----------- ----------- ----------- (IN THOUSANDS) Current: Federal............................... $951 $180 $(1,429) $ -- State and local....................... 361 184 -- -- ----------- ----------- ----------- ----------- 1,312 364 (1,429) -- Deferred................................ (173) 117 (673) 1,602 ----------- ----------- ----------- ----------- 1,139 481 (2,102) 1,602 Discontinued operations................. 1,407 1,282 685 1,602 ----------- ----------- ----------- ----------- Continuing operations................... $(268) $(801) $(2,787) $ -- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
A reconciliation of the statutory federal income tax rate attributable to income (loss) from continuing operations to the effective income tax rate is as follows:
FISCAL YEARS ENDED THIRTY-NINE ----------------------------------------- WEEKS ENDED JANUARY 30, JANUARY 29, JANUARY 28, OCTOBER 28, 1993 1994 1995 1995 ----------- ----------- ----------- ----------- Federal at statutory rates..................... 34% 34% (34)% (34)% State and local taxes, net of federal tax benefits....................................... 6 6 (4) (4) Losses with no current tax benefit............. -- -- -- 38 Other.......................................... (1) -- -- -- -- -- --- --- 39% 40% (38)% --% -- -- -- -- --- --- --- ---
The components of deferred tax assets (liabilities) consist of the following:
JANUARY 29, JANUARY 28, OCTOBER 28, 1994 1995 1995 ----------- ----------- ----------- (IN THOUSANDS) Net operating loss carryforwards (expires 2011)............ $ -- $ -- $ 5,545 Capitalizable inventory costs.............................. 529 411 160 Allowance for doubtful accounts............................ 297 393 542 Restructured operations and other.......................... 393 1,011 864 ----------- ----------- ----------- Gross deferred tax assets.................................. 1,219 1,815 7,111 ----------- ----------- ----------- Depreciation............................................... (290) (213) (131) ----------- ----------- ----------- Gross deferred tax liabilities........................... (290) (213) (131) ----------- ----------- ----------- Net deferred tax assets.................................. 929 1,602 6,980 ----------- ----------- ----------- Valuation allowance........................................ -- -- 6,980 ----------- ----------- ----------- Net tax assets included in net assets from discontinued operations................................................. $ 929 $ 1,602 $ -- ----------- ----------- ----------- ----------- ----------- -----------
F-13 NOODLE KIDOODLE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 8--TAXES ON INCOME:--(CONTINUED) Deferred income taxes result from temporary differences in the recognition of revenue and expense for tax and financial statement purposes. Principal items resulting in deferred income tax liabilities or assets are differences in depreciation, inventory valuations, restructuring charges and allowance for doubtful accounts. At January 28, 1995, management had determined, based on the Company's history of prior operating earnings and its expectations for the future, that operating income of the Company would, more likely than not, be sufficient to recognize fully these net deferred tax assets. As a result of the Company's decision to discontinue the wholesale business segment, the Company has incurred losses for which no current tax benefits are available. The provision for income taxes included in discontinued operation for the thirty-nine weeks ended October 28, 1995 results primarily from a reduction in net deferred tax assets. For financial reporting purposes, the effective tax rate represents an increase in the valuation allowance of net deferred tax assets to an amount realizable based upon taxes paid for prior years without relying on future income. The tax provision for the thirty-nine weeks ended October 29, 1994 was based upon management's estimate of its annualized effective tax rate. NOTE 9--EMPLOYEE RETIREMENT PLANS: The Company has a 401-k savings plan designed to provide additional financial security during retirement by providing eligible employees with an incentive to make regular savings. The Company matches 10% of the first 4% of compensation contributed by the employee. Certain former employees were covered by union sponsored, multi-employer pension plans. Contributions and costs were determined in accordance with the provisions of negotiated labor contracts or terms of the plans. The Company does not administer nor control the plans. One of the plans, to which the Company and many other employers made contributions, has had financial difficulties and has informed the Company that it has initiated a mass termination of the Plan. "ERISA" imposes certain liabilities upon employers who are contributors to multi-employer pension plans in the event of withdrawal or termination of such a plan. The Company has provided for an estimated settlement cost based on the estimates provided by the plan administrators. NOTE 10--INDUSTRY SEGMENTS: The Company operates substantially in one industry segment which includes the retail sales of children's toys and other products. NOTE 11--PROVISION FOR RESTRUCTURED OPERATIONS: On August 10, 1994, the Company announced the closing of stores operating under the name Playworld Toy Stores and one leased department operation. Provision of $3,900,000 was recorded for restructuring costs representing losses from store operations from the date of announcement until closing, employee severance costs, estimated lease liabilities, losses on liquidation of inventories and disposition of assets and other related restructuring costs. This charge increased the net loss for fiscal 1995 by $2,340,000, ($.45 per share). The Company provided an additional $500,000 ($.09 per share) in the current period primarily to reflect the closing of one store that was not anticipated previously. F-14 NOODLE KIDOODLE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 12--INTERIM FINANCIAL DATA (UNAUDITED):
FIRST SECOND THIRD QUARTER QUARTER QUARTER ------- ------- ------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Fiscal year ending February 3, 1996: Sales................................................ $ 3,281 $ 3,939 $ 6,288 Gross profit......................................... 1,162 1,396 2,166 Net loss: Continuing operations.............................. (1,226) (1,674) (2,970) Discontinued operations............................ (840) (8,219) -- ------- ------- ------- Net loss......................................... $(2,066) $(9,893) $(2,970) ------- ------- ------- ------- ------- ------- Net loss per share: Continuing operations.............................. $ (.23) $ (.32) $ (.55) Discontinued operations............................ (.16) (1.55) -- ------- ------- ------- Net loss per share............................... $ (.39) $ (1.87) $ (.55) ------- ------- ------- ------- ------- ------- Weighted average shares................................ 5,263 5,287 5,356 ------- ------- ------- ------- ------- -------
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ------- ------- ------- ------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Fiscal year ended January 28, 1995: Sales................................................ $ 4,008 $ 3,835 $ 4,199 $11,266 Gross profit......................................... 1,201 1,260 1,367 3,288 Net income (loss): Continuing operations.............................. (566) (2,679) (574) (671) Discontinued operations............................ (320) (8) 350 1,074 ------- ------- ------- ------- Net income (loss)................................ $ (886) $(2,687) $ (224) $ 403 ------- ------- ------- ------- ------- ------- ------- ------- Net income (loss) per share: Continuing operations.............................. $ (.11) $ (.51) $ (.11) $ (.13) Discontinued operations............................ (.06) (.01) .07 .21 ------- ------- ------- ------- Net income (loss) per share...................... $ (.17) $ (.52) $ (.04) $ .08 ------- ------- ------- ------- ------- ------- ------- ------- Weighted average shares................................ 5,200 5,202 5,218 5,261 ------- ------- ------- ------- ------- ------- ------- -------
F-15 NOODLE KIDOODLE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 12--INTERIM FINANCIAL DATA (UNAUDITED):--(CONTINUED)
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ------- ------- ------- ------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Fiscal year ended January 29, 1994: Sales................................................ $ 3,410 $ 3,144 $ 3,242 $10,916 Gross profit......................................... 1,004 986 924 3,229 Net income (loss): Continuing operations.............................. (359) (404) (505) 88 Discontinued operations............................ 170 62 829 828 ------- ------- ------- ------- Net income (loss)................................ $ (189) $ (342) $ 324 $ 916 ------- ------- ------- ------- ------- ------- ------- ------- Net income (loss) per share: Continuing operations.............................. $ (.06) $ (.07) $ (.09) $ .01 Discontinued operations............................ .03 .01 .15 .16 ------- ------- ------- ------- Net income (loss) per share...................... $ (.03) $ (.06) $ .06 $ .17 ------- ------- ------- ------- ------- ------- ------- ------- Weighted average shares................................ 5,562 5,353 5,193 5,194 ------- ------- ------- ------- ------- ------- ------- -------
The Company's sales are highly seasonal. Income (loss) per share calculations for each of the quarters are based on the weighted average number of shares outstanding for each period and the sum of the quarters may not necessarily be equal to the full year income (loss) per share amount. NOTE 13--SUBSEQUENT EVENTS: PUBLIC OFFERING On December 12, 1995, the Company's Board of Directors approved a public offering of Common Stock (the "Offering"). These financial statements are intended to be part of the Prospectus for the Offering, in which the Company is offering 2,000,000 shares of its Common Stock. The net proceeds from the Offering will be used primarily to finance the Company's store expansion plans as well as for general corporate purposes, including up to $1.0 million to improve its MIS software capabilities in fiscal 1997. SPECIAL MEETING OF STOCKHOLDERS At a special meeting held on December 11, 1995, the Company's stockholders voted to change the name of the Company from Greenman Bros. Inc. to Noodle Kidoodle, Inc. The stockholders also voted to increase the number of authorized shares of common stock to 15,000,000 shares from 10,000,000 shares. In addition, the stockholders voted to increase the number of stock options automatically awarded annually to outside directors to 4,000 from 1,000 and the number of shares authorized for issuance under the Company's 1994 Stock Option Plan for outside directors to a total of 125,000 shares from 75,000 shares. F-16 - --------------------------------------------- --------------------------------- - --------------------------------------------- --------------------------------- NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF 2,100,000 SHARES GIVEN OR MADE, SUCH INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDERS OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY [LOGO] CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO COMMON STOCK BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. ------------------- ------------------- PROSPECTUS ------------------- TABLE OF CONTENTS PAGE ---- Prospectus Summary.................... 3 Risk Factors.......................... 8 Use of Proceeds....................... 11 Price Range of Common Stock........... 11 Dividend Policy....................... 12 PAINEWEBBER INCORPORATED Capitalization........................ 12 Selected Consolidated Financial Data.................................. 13 Management's Discussion and Analysis of RODMAN & RENSHAW, INC. Financial Condition and Results of Operations.......................... 14 Business.............................. 22 Management............................ 30 Principal and Selling Stockholders.... 36 Description of Capital Stock.......... 37 Underwriting.......................... 39 Experts............................... 40 ------------------- Legal Matters......................... 40 Available Information................. 41 Index to Consolidated Financial Statements.......................... F-1 ,1996 - --------------------------------------------- --------------------------------- - --------------------------------------------- --------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The expenses payable by the Registrant in connection with the issuance and distribution of the securities being registered (other than the underwriting discounts and commissions) are estimated to be as follows: SEC Registration Fee............................................ $ 10,202 NASD Filing Fee................................................. 5,000 Legal Fees and Expenses......................................... 200,000 Accounting Fees and Expenses.................................... 100,000 Printing and Engraving Expenses................................. 100,000 Transfer Agent and Registrar Fees and Expenses.................. 10,000 Miscellaneous Expenses.......................................... 9,798 -------- Total Expenses............................................ $435,000 -------- -------- ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. To the fullest extent that limitations on the liability of directors and officers are permitted by the New York Business Corporation Law, no director or officer of the Registrant shall have any liability to the Registrant or its stockholders for damages. This limitation on liability applies to events occurring at the time a person serves as a director or officer of the Registrant whether or not such person is a director or officer at the time of any proceeding in which liability is asserted. The Registrant shall indemnify and advance expenses to its currently acting and its former directors to the fullest extent that indemnification of directors is permitted by the New York Business Corporation Law. The Registrant shall indemnify and advance expenses to its officers to the same extent as its directors and to such further extent as is consistent with law. The Board of Directors may, through a by-law, resolution or agreement, make further provisions for indemnification of directors, officers, employees and agents to the fullest extent permitted by the New York Business Corporation Law. Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the "Act"), may be permitted to directors, officers or persons controlling the Registrant pursuant to the foregoing provisions, the Registrant has been informed that in the opinion of the Commission, such indemnification is against public policy as expressed in the Act and is therefore unenforceable. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. There have been no sales of unregistered securities by the Registrant during the past three years. II-1 ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) The following documents are filed as Exhibits to this Registration Statement:
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT - ------- ---------------------------------------------------------------------------------- 1.1 Form of Underwriting Agreement* 3.1 Restated Certificate of Incorporation of Registrant, with all amendments (Incorporated by reference to Exhibits 3.01, 3.02, 3.03, 3.04 to Registrant's Annual Report on Form 10-K for the fiscal year ended January 29, 1983 and Exhibit 3.01 to Registrant's Annual Report on Form 10-K for the fiscal year ended January 28, 1989) 3.2 By-Laws of Registrant, as amended through July 9, 1991 (Incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended January 29, 1994) 4.1 Rights Agreement, dated as of May 6, 1988, between Registrant and Manufacturers Hanover Trust Company, as Rights Agent (Incorporated by reference to Registrant's Report on Form 8-K dated May 6, 1988 and the exhibits filed therewith) 4.2 First Amendment to Rights Agreement dated as of November 22, 1991 (Incorporated by reference to Registrant's Report on Form 8-K, dated November 22, 1991, and the exhibits filed therewith) 5.1 Opinion of Kramer, Levin, Naftalis, Nessen, Kamin & Frankel as to the legality of the Common Stock** 10.1 Stock Incentive Plan and Outside Directors Stock Option Plan, dated April 26, 1994 (Incorporated by reference to Registrant's Form S-8 Registration Statement (Commission File No. 33-82104), effective July 26, 1994 and the exhibits filed therewith) 10.2 Employment Agreement by and between Registrant and Stanley Greenman dated as of February 1, 1995 (Incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended January 28, 1995) 10.3 Employment Agreement by and between Registrant and Stewart Katz dated as of February 1, 1995 (Incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended January 28, 1995) 10.4 Non-Contributory Insured Medical Reimbursement Plan (Incorporated by reference to Exhibit 10.05 to Registrant's Annual Report on Form 10-K for the fiscal year ended January 30, 1993) 10.5 Agreement and Plan of Merger dated February 1, 1994 by and between Registrant and certain wholly-owned subsidiaries of the Registrant (Incorporated by reference to Exhibit 10.08 to Registrant's Annual Report on Form 10-K for fiscal year ended January 29, 1994) 10.6 Amendment to Outside Directors Stock Option Plan, dated December 13, 1995* 11.1 Computation of Earnings Per Share** 21.1 Subsidiaries of Registrant (Incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended January 28, 1995) 23.1 Consent of Janover Rubinroit, LLC* 23.2 Opinion of Kramer, Levin, Naftalis, Nessen, Kamin & Frankel (contained in the opinion filed as Exhibit 5.1) 24.1 Powers of Attorney (set forth on the signature page of this Registration Statement)
II-2 (b) The following documents are filed as Schedules to this Registration Statement:
SCHEDULE NUMBER DESCRIPTION OF DOCUMENT - -------- ----------------------------------------------------------------------------------- VIII Valuation and Qualifying Accounts For the Fiscal Years Ended January 30, 1993, January 29, 1994 and January 28, 1995 and the Thirty-Nine Weeks Ended October 29, 1994 and October 28, 1995
- ------------ * Filed herewith. ** To be filed by amendment ITEM 17. UNDERTAKINGS. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers, and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer, or controlling person of the Registration in the successful defense of any action, suit or proceeding) is asserted by such director, officer, or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Farmingdale, County of Suffolk, State of New York, on December 14, 1995. NOODLE KIDOODLE, INC. By: /s/ STANLEY GREENMAN .................................. Name: Stanley Greenman Title: Chairman of the Board, Chief Executive Officer and Treasurer POWERS OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints each of Stanley Greenman and Stewart Katz his true and lawful attorney-in-fact and agent, each acting alone, with full powers of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments to this registration statement and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, each acting alone, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully for all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, each acting alone, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - -------------------------------------- ----------------------------- --------------------- /s/ STANLEY GREENMAN Chairman of the Board, Chief December 14, 1995 ...................................... Executive Officer and Stanley Greenman Treasurer (Principal Executive Officer) /s/ STEWART KATZ President, Chief Operating December 14, 1995 ...................................... Officer and Stewart Katz Assistant Secretary /s/ WILLIAM A. JOHNSON, JR. Vice President, Chief December 14, 1995 ...................................... Financial William A. Johnson, Jr. Officer and Secretary (Principal Financial and Accounting Officer) /s/ LESTER GREENMAN Director December 14, 1995 ...................................... Lester Greenman /s/ BARRY W. RIDINGS Director December 14, 1995 ...................................... Barry W. Ridings /s/ IRWIN TANTLEFF Director December 14, 1995 ...................................... Irwin Tantleff /s/ JOSEPH MADENBERG Director December 14, 1995 ...................................... Joseph Madenberg /s/ ROBERT STOKVIS Director December 14, 1995 ...................................... Robert Stokvis /s/ ROBIN FARKAS Director December 14, 1995 ...................................... Robin Farkas
II-4 NOODLE KIDOODLE, INC. AND SUBSIDIARIES SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS FOR THE FISCAL YEARS ENDED JANUARY 30, 1993, JANUARY 29, 1994 AND JANUARY 28, 1995 AND THE THIRTY-NINE WEEKS ENDED OCTOBER 29, 1994 AND OCTOBER 28, 1995
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E - ------------------------------------- ---------- ------------------------ ---------- ---------- ADDITIONS (1) (2) BALANCE AT CHARGED TO CHARGED TO BALANCE AT BEGINNING COSTS AND OTHER END OF DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD - ------------------------------------- ---------- ---------- ---------- ---------- ---------- (IN THOUSANDS) For estimated losses in collection: Year ended January 30, 1993........ $2,000 $ 42 $ -- $813(a) $1,229 Year ended January 29, 1994........ $1,229 $275 $ -- $630(a) $ 874 Year ended January 28, 1995........ $ 874 $250 $ -- $141(a) $ 983 Thirty-nine weeks ended October 29, 1994................................. $ 874 $296 $ -- $ -- $1,170 Thirty-nine weeks ended October 28, 1995................................. $ 983 $581 $ -- $138(a) $1,426
- ------------ (a) Write-offs net of recoveries All amounts are included in discontinued operations. S-1 INDEX TO EXHIBIT ----------------
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT - ------- ---------------------------------------------------------------------------------- 1.1 Form of Underwriting Agreement* 3.1 Restated Certificate of Incorporation of Registrant, with all amendments (Incorporated by reference to Exhibits 3.01, 3.02, 3.03, 3.04 to Registrant's Annual Report on Form 10-K for the fiscal year ended January 29, 1983 and Exhibit 3.01 to Registrant's Annual Report on Form 10-K for the fiscal year ended January 28, 1989) 3.2 By-Laws of Registrant, as amended through July 9, 1991 (Incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended January 29, 1994) 4.1 Rights Agreement, dated as of May 6, 1988, between Registrant and Manufacturers Hanover Trust Company, as Rights Agent (Incorporated by reference to Registrant's Report on Form 8-K dated May 6, 1988 and the exhibits filed therewith) 4.2 First Amendment to Rights Agreement dated as of November 22, 1991 (Incorporated by reference to Registrant's Report on Form 8-K, dated November 22, 1991, and the exhibits filed therewith) 5.1 Opinion of Kramer, Levin, Naftalis, Nessen, Kamin & Frankel as to the legality of the Common Stock** 10.1 Stock Incentive Plan and Outside Directors Stock Option Plan, dated April 26, 1994 (Incorporated by reference to Registrant's Form S-8 Registration Statement (Commission File No. 33-82104), effective July 26, 1994 and the exhibits filed therewith) 10.2 Employment Agreement by and between Registrant and Stanley Greenman dated as of February 1, 1995 (Incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended January 28, 1995) 10.3 Employment Agreement by and between Registrant and Stewart Katz dated as of February 1, 1995 (Incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended January 28, 1995) 10.4 Non-Contributory Insured Medical Reimbursement Plan (Incorporated by reference to Exhibit 10.05 to Registrant's Annual Report on Form 10-K for the fiscal year ended January 30, 1993) 10.5 Agreement and Plan of Merger dated February 1, 1994 by and between Registrant and certain wholly-owned subsidiaries of the Registrant (Incorporated by reference to Exhibit 10.08 to Registrant's Annual Report on Form 10-K for fiscal year ended January 29, 1994) 10.6 Amendment to Outside Directors Stock Option Plan, dated December 13, 1995* 11.1 Computation of Earnings Per Share** 21.1 Subsidiaries of Registrant (Incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended January 28, 1995) 23.1 Consent of Janover Rubinroit, LLC* 23.2 Opinion of Kramer, Levin, Naftalis, Nessen, Kamin & Frankel (contained in the opinion filed as Exhibit 5.1) 24.1 Powers of Attorney (set forth on the signature page of this Registration Statement)
- -------------- * Filed herewithin. ** To be filed by amendment EX-1.1 2 Exhibit 1.1 2,100,000 Shares NOODLE KIDOODLE, INC. Common Stock UNDERWRITING AGREEMENT ---------------------- [DATE] PAINEWEBBER INCORPORATED RODMAN & RENSHAW, INC. As Representatives of the several Underwriters c/o PaineWebber Incorporated 1285 Avenue of the Americas New York, New York 10019 Dear Ladies and Gentlemen: Noodle Kidoodle, Inc., a [New York] corporation (the "Company"), and the persons named in Schedule I (the "Selling Shareholders") propose to sell an aggregate of 2,100,000 shares (the "Firm Shares") of the Company's Common Stock, $[.001] par value per share (the "Common Stock"), of which 2,000,000 shares are to be issued and sold by the Company and an aggregate of 100,000 shares are to be sold by the Selling Shareholders in the respective amounts set forth opposite their respective names in Schedule I, in each case to you and to the other underwriters named in Schedule II (collectively, the "Underwriters"), for whom you are acting as representatives (the "Representatives"). The Company has also agreed to grant to you and the other Underwriters an option (the "Option") to purchase up to an additional 315,000 shares of Common Stock (the "Option Shares") on the terms and for the purposes set forth in Section 1(b). The Firm Shares and the Option Shares are hereinafter collectively referred to as the "Shares." The initial public offering price per share for the Shares and the purchase price per share for the Shares to be paid by the several Underwriters shall be agreed upon by the Company, the Selling Shareholders and the Representatives, acting on behalf of the several Underwriters, and 2 such agreement shall be set forth in a separate written instrument substantially in the form of Exhibit A hereto (the "Price Determination Agreement"). The Price Determination Agreement may take the form of an exchange of any standard form of written telecommunication among the Com- pany, the Selling Shareholders and the Representatives and shall specify such applicable information as is indicated in Exhibit A hereto. The offering of the Shares will be governed by this Agreement, as supplemented by the Price Determination Agreement. From and after the date of the execution and delivery of the Price Determination Agreement, this Agreement shall be deemed to incorporate, and, unless the context otherwise indicates, all references contained herein to "this Agreement" and to the phrase "herein" shall be deemed to include the Price Determination Agreement. Each Selling Shareholder has executed and delivered a Custody Agreement and a Power of Attorney in the form attached hereto as Exhibit B (collectively, the "Agreement and Power of Attorney") pursuant to which each Selling Shareholder has placed his Firm Shares in custody and appointed the persons designated therein as a committee (the "Committee") with authority to execute and deliver this Agreement on behalf of such Selling Shareholder and to take certain other actions with respect thereto and hereto. The Company and the Selling Shareholders confirm as follows their respective agreements with the Representatives and the several other Under- writers. 1. Agreement to Sell and Purchase. ------------------------------ (a) On the basis of the respective representations, warranties and agreements of the Company and the Selling Shareholders herein contained and subject to all the terms and conditions of this Agree- ment, (i) the Company and each of the Selling Shareholders, severally and not jointly, agree to sell to the several Underwriters and (ii) each of the Underwriters, severally and not jointly, agrees to purchase from the Company and the Selling Shareholders, at the purchase price per share for the Firm Shares to be agreed upon by the Representatives, the Company and the Selling Shareholders in accordance with Section 1(c) or 1(d) and set forth in the Price Determination Agreement, the number of Firm Shares set forth opposite the name of such Underwriter in Schedule II, plus such additional number of Firm Shares which such Underwriter may become obligated to 3 purchase pursuant to Section 9 hereof. Schedule II may be attached to the Price Determination Agreement. (b) Subject to all the terms and conditions of this Agreement, the Company grants the Option to the several Underwriters to purchase, severally and not jointly, up to 315,000 Option Shares from the Company at the same price per share as the Underwriters shall pay for the Firm Shares. The Option may be exercised only to cover over-allotments in the sale of the Firm Shares by the Underwriters and may be exercised in whole or in part at any time (but not more than once) on or before the 45th day after the date of this Agreement (or, if the Company has elected to rely on Rule 430A, on or before the 45th day after the date of the Price Determination Agreement), upon written or telegraphic notice (the "Option Shares Notice") by the Representatives to the Company no later than 12:00 noon, New York City time, at least two and no more than five business days before the date specified for closing in the Option Shares Notice (the "Option Closing Date") setting forth the aggregate number of Option Shares to be purchased and the time and date for such purchase. On the Option Closing Date, the Company will issue and sell to the Underwriters the number of Option Shares set forth in the Option Shares Notice, and each Underwriter will purchase such percentage of the Option Shares as is equal to the percentage of Firm Shares that such Underwriter is purchasing, as adjusted by the Representatives in such manner as they deem advisable to avoid fractional shares. (c) The initial public offering price per share for the Firm Shares and the purchase price per share for the Firm Shares to be paid by the several Underwriters shall be agreed upon and set forth in the Price Determination Agreement. In the event such price has not been agreed upon and the Price Determination Agreement has not been executed by the close of business on the fourteenth business day following the date on which the Registration Statement becomes effective, this Agreement shall terminate forthwith, without liability of any party to any other party except that Section 7 shall remain in effect. 2. Delivery and Payment. Delivery of the Firm Shares shall be -------------------- made to the Representatives for the accounts of the Underwriters against payment of the purchase price by certified or official bank checks payable in New York Clearing House (next-day) funds to the order of each of the Company and the Committee at the office of PaineWebber 4 Incorporated, 1285 Avenue of the Americas, New York, New York 10019. Such payment shall be made at 10:00 a.m., New York City time, on the third busi- ness day (or if pricing of the offering occurs after 4:30 p.m. Eastern Standard Time, the fourth business day) after the date on which the first bona fide offering of the Shares to the public is made by the Underwriters or at such time on such other date, not later than ten business days after such date, as may be agreed upon by the Company and the Representatives (such date is hereinafter referred to as the "Closing Date"). To the extent the Option is exercised, delivery of the Option Shares against payment by the Underwriters (in the manner specified above) will take place at the offices specified above for the Closing Date at the time and date (which may be the Closing Date) specified in the Option Shares Notice. Certificates evidencing the Shares shall be in definitive form and shall be registered in such names and in such denominations as the Representatives shall request at least two business days prior to the Closing Date or the Option Closing Date, as the case may be, by written notice to the Company. For the purpose of expediting the checking and packaging of certificates for the Shares, the Company agrees to make such certificates available for inspection at least 24 hours prior to the Closing Date or the Option Closing Date, as the case may be. The cost of original issue tax stamps, if any, in connection with the issuance and delivery of the Firm Shares and Option Shares by the Company to the respective Underwriters shall be borne by the Company. The cost of tax stamps, if any, in connection with the sale of the Firm Shares by the Selling Shareholders shall be borne by the Selling Shareholders. The Company and the Selling Shareholders will pay and save each Underwriter and any subsequent holder of the Shares harmless from any and all liabil- ities with respect to or resulting from any failure or delay in paying Federal and state stamp and other transfer taxes, if any, which may be payable or determined to be payable in connection with the original issuance or sale to such Underwriter of the Firm Shares and Option Shares. 3. Representations and Warranties of the Company. The Company --------------------------------------------- represents, warrants and covenants to each Underwriter that: 5 (a) A registration statement (Registration No. ) on Form S-1 relating to the Shares, including a preliminary prospectus and such amendments to such registration statement as may have been required to the date of this Agreement, has been prepared by the Company under the provisions of the Securities Act of 1933, as amended (the "Act"), and the rules and regulations (collectively referred to as the "Rules and Regulations") of the Securities and Exchange Commission (the "Commission") thereunder, and has been filed with the Commission. The term "preliminary prospectus" as used herein means a preliminary prospectus as contemplated by Rule 430 or Rule 430A ("Rule 430A") of the Rules and Regulations included at any time as part of the registration statement. Copies of such registration statement and amendments and of each related preliminary prospectus have been delivered to the Representatives. The term "Registra- tion Statement" means the registration statement as amended at the time it becomes or became effective (the "Effective Date"), including financial statements and all exhibits and any information deemed to be included by Rule 430A or Rule 434 of the Rules and Regulations. If the Company files a registration statement to register a portion of the Shares and relies on Rule 462(b) of the Rules and Regulations for such registration statement to become effective upon filing with the Commission (the "Rule 462 Regis- tration Statement"), then any reference to the "Registration Statement" shall be deemed to include the Rule 462 Registration Statement, as amended from time to time. The term "Prospectus" means the prospectus as first filed with the Commission pursuant to Rule 424(b) of the Rules and Regula- tions or, if no such filing is required, the form of final prospectus included in the Registration Statement at the Effective Date. (b) On the Effective Date, the date the Prospectus is first filed with the Commission pursuant to Rule 424(b) (if required), at all times subsequent to and including the Closing Date and, if later, the Option Closing Date and when any post-effective amendment to the Registra- tion Statement becomes effective or any amendment or supplement to the Prospectus is filed with the Commission, the Registration Statement and the Prospectus (as amended or as supplemented if the Company shall have filed with the Commission any amendment or supplement thereto), including the financial statements included in the Prospectus, did or will comply with all applicable provisions of the Act and the Rules and Regulations and will contain all statements required to be stated therein in accordance with the Act and the Rules and Regulations. On the Effective Date and when 6 any post-effective amendment to the Registration Statement becomes effective, no part of the Registration Statement or any such amendment did or will contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading. At the Effective Date, the date the Prospectus or any amendment or supplement to the Prospectus is filed with the Commission and at the Closing Date and, if later, the Option Closing Date, the Prospectus did not or will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the state- ments therein, in the light of the circumstances under which they were made, not misleading. The foregoing representations and warranties in this Section 3(b) do not apply to any statements or omissions made in reliance on and in conformity with information relating to any Underwriter furnished in writing to the Company by the Representatives specifically for inclusion in the Registration Statement or Prospectus or any amendment or supplement thereto. For all purposes of this Agreement, the amounts of the selling concession and reallowance set forth in the Prospectus constitute the only information relating to any Underwriter furnished in writing to the Company by the Representatives specifically for inclusion in the preliminary prospectus, the Registration Statement or the Prospectus. The Company has not distributed any offering material in connection with the offering or sale of the Shares other than the Registration Statement, the preliminary prospectus, the Prospectus or any other materials, if any, permitted by the Act. (c) As of the Effective Date, the Company has made and completed all filings required under the Securities Exchange Act of 1934, as amended, (the "Exchange Act"), and the rules and regulations thereunder (the "Exchange Act Rules and Regulations") and such filings conform in all material respects with the applicable provisions of the Exchange Act and the Exchange Act Rules and Regulations. (d) The only subsidiaries (as defined in the Rules and Regulations) of the Company are the subsidiaries listed on Exhibit 21 to the Registration Statement (the "Subsidiaries"). The Company and each of its Subsidiaries is, and at the Closing Date will be, a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation. The Company and each of its Subsidiaries has, and at the Closing Date will 7 have, full power and authority to conduct all the activities conducted by it, to own or lease all the assets owned or leased by it and to conduct its business as described in the Registration Statement and the Prospectus. The Company and each of its Subsidiaries is, and at the Closing Date will be, duly licensed or qualified to do business and in good standing as a foreign corporation in all jurisdictions in which the nature of the activities conducted by it or the character of the assets owned or leased by it makes such licensing or qualification necessary. All of the outstanding shares of capital stock of the Subsidiaries have been duly authorized and validly issued, and are fully paid and non-assessable and are owned by the Company free and clear of all liens, encumbrances and claims whatsoever. Except for the stock of the Subsidiaries and as dis- closed in the Registration Statement, the Company does not own, and at the Closing Date will not own, directly or indirectly, any shares of stock or any other equity or long-term debt securities of any corporation or have any equity interest in any firm, partnership, joint venture, association or other entity. Complete and correct copies of the certificate of incorpora- tion and of the by-laws of the Company and each of its Subsidiaries and all amendments thereto have been delivered to the Representatives, and no changes therein will be made subsequent to the date hereof and prior to the Closing Date or, if later, the Option Closing Date. (e) The outstanding shares of Common Stock have been, and the Shares to be issued and sold by the Company upon such issuance will be, duly authorized, validly issued, fully paid and nonassessable and will not be subject to any preemptive or similar right. The description of the Common Stock in the Registration Statement and the Prospectus is, and at the Closing Date will be, complete and accurate in all respects. Except as set forth in the Prospectus, the Company does not have outstanding, and at the Closing Date will not have outstanding, any options to purchase, or any rights or warrants to subscribe for, or any securities or obligations convertible into, or any contracts or commitments to issue or sell, any shares of Common Stock, any shares of capital stock of any Subsidiary or any such warrants, convertible securities or obligations. (f) The financial statements and schedules included in the Registration Statement or the Prospectus present fairly the consolidated financial condition of the Company as of the respective dates thereof and the consolidated results of operations and cash flows of the 8 Company for the respective periods covered thereby, all in conformity with generally accepted accounting principles applied on a consistent basis throughout the entire period involved, except as otherwise disclosed in the Prospectus. The pro forma financial statements and other pro forma financial information included in the Registration Statement or the Pros- pectus (i) present fairly in all material respects the information shown therein, (ii) have been prepared in accordance with the Commission's rules and guidelines with respect to pro forma financial statements and (iii) have been properly computed on the bases described therein. The assumptions used in the preparation of the pro forma financial statements and other pro forma financial information included in the Registration Statement or the Prospectus are reasonable and the adjustments used therein are appropriate to give effect to the transactions or circumstances referred to therein. No other financial statements or schedules of the Company are required by the Act or the Rules and Regulations to be included in the Registration Statement or the Prospectus. Janover Rubinroit (the "Accountants") who have reported on such financial statements and schedules, are independent accountants with respect to the Company as required by the Act and the Rules and Regulations. The statements included in the Registration Statement with respect to the Accountants pursuant to Rule 509 of Regulation S-K of the Rules and Regulations are true and correct in all material respects. (g) The Company maintains a system of internal accountings control sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authoriza- tion; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (h) Subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus and prior to the Closing Date, except as set forth in or contemplated by the Registration Statement and the Prospectus, (i) there has not been and will not have been any change in the capitalization of the Company, or in 9 the business, properties, business prospects, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries, arising for any reason whatsoever, (ii) neither the Company nor any of its Subsidiaries has incurred nor will it incur any material liabilities or obligations, direct or contingent, nor has it entered into nor will it enter into any material transactions other than pursuant to this Agreement and the transactions referred to herein and (iii) the Company has not and will not have paid or declared any dividends or other distributions of any kind on any class of its capital stock. (i) The Company is not an "investment company" or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company," as such terms are defined in the Investment Company Act of 1940, as amended. (j) Except as set forth in the Registration Statement and the Prospectus, there are no actions, suits or proceedings pending or threatened against or affecting the Company or any of its Subsidiaries or any of their respective officers in their capacity as such, before or by any Federal or state court, commission, regulatory body, administrative agency or other governmental body, domestic or foreign, wherein an unfavorable ruling, decision or finding might materially and adversely affect the Company or any of its Subsidiaries or its business, properties, business prospects, condition (financial or otherwise) or results of operations. (k) The Company and each of its Subsidiaries has, and at the Closing Date will have, (i) all governmental licenses, permits, consents, orders, approvals and other authorizations necessary to carry on its business as contemplated in the Prospectus, (ii) complied in all respects with all laws, regulations and orders applicable to it or its business and (iii) performed all its obligations required to be performed by it, and is not, and at the Closing Date will not be, in default, under any indenture, mortgage, deed of trust, voting trust agreement, loan agreement, bond, debenture, note agreement, lease, contract or other agree- ment or instrument (collectively, a "contract or other agreement") to which it is a party or by which its property is bound or affected. To the best knowledge of the Company and each of its Subsidiaries, no other party under any contract or other agreement to which it is a party is in default in any respect thereunder. Neither the Company nor 10 any of its Subsidiaries is, nor at the Closing Date will any of them be, in violation of any provision of its certificate of incorporation or by-laws. (l) No consent, approval, authorization or order of, or any filing or declaration with, any court or governmental agency or body is required in connection with the authorization, issuance, transfer, sale or delivery of the Shares by the Company, in connection with the execution, delivery and performance of this Agreement by the Company or in connection with the taking by the Company of any action contemplated hereby, except such as have been obtained under the Act or the Rules and Regulations and such as may be required under state securities or Blue Sky laws or the by- laws and rules of the National Association of Securities Dealers, Inc. (the "NASD") in connection with the purchase and distribution by the Underwriters of the Shares to be sold by the Company. (m) The Company has full corporate power and authority to enter into this Agreement. This Agreement has been duly authorized, executed and delivered by the Company and constitutes a valid and binding agreement of the Company and is enforceable against the Company in accordance with the terms hereof. The performance of this Agreement and the consummation of the transactions contemplated hereby and the application of the net proceeds from the offering and sale of the Shares to be sold by the Company in the manner set forth in the Prospectus under "Use of Proceeds" will not result in the creation or imposition of any lien, charge or encumbrance upon any of the assets of the Company or any of its Subsidiaries pursuant to the terms or provisions of, or result in a breach or violation of any of the terms or provisions of, or constitute a default under, or give any other party a right to terminate any of its obligations under, or result in the acceleration of any obligation under, the certificate of incorporation or by-laws of the Company or any of its Subsidiaries, any contract or other agreement to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries or any of its properties is bound or affected, or violate or conflict with any judgment, ruling, decree, order, statute, rule or regulation of any court or other governmental agency or body applicable to the business or properties of the Company or any of its Subsidiaries. (n) The Company and each of its Subsidiaries has good and marketable title to all properties and assets 11 described in the Prospectus as owned by it, free and clear of all liens, charges, encumbrances or restrictions, except such as are described in the Prospectus or are not material to the business of the Company or its Subsidiaries. The Company and each of its Subsidiaries has valid, subsisting and enforceable leases for the properties described in the Prospectus as leased by it, with such exceptions as are not material and do not materially interfere with the use made and proposed to be made of such properties by the Company and such Subsidiaries. (o) There is no document or contract of a character required to be described in the Registration Statement or the Prospectus or to be filed as an exhibit to the Registration Statement which is not described or filed as required. All such contracts to which the Company or any Subsidiary is a party have been duly authorized, executed and delivered by the Company or such Subsidiary, constitute valid and binding agreements of the Company or such Subsidiary and are enforceable against the Company or such Subsidiary in accordance with the terms thereof. (p) No statement, representation, warranty or covenant made by the Company in this Agreement or made in any certificate or document required by this Agreement to be delivered to the Representatives was or will be, when made, inaccurate, untrue or incorrect. (q) Neither the Company nor any of its directors, officers or controlling persons has taken, directly or indirectly, any action intended, or which might reasonably be expected, to cause or result, under the Act or otherwise, in, or which has constituted, stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Shares. (r) No holder of securities of the Company has rights to the registration of any securities of the Company because of the filing of the Registration Statement. (s) Prior to the Closing Date, the Shares will be duly delisted from the American Stock Exchange and duly authorized for listing on the [Nasdaq National Market] upon official notice of issuance. (t) Neither the Company nor any of its Subsidiaries is involved in any material labor dispute nor, 12 to the knowledge of the Company, is any such dispute threatened. (u) The Company and its Subsidiaries own, or are licensed or otherwise have the full exclusive right to use, all material trademarks and trade names which are used in or necessary for the conduct of their respective businesses as described in the Prospectus. No claims have been asserted by any person to the use of any such trademarks or trade names or challenging or questioning the validity or effectiveness of any such trademark or trade name. The use, in connection with the business and operations of the Company and its Subsidiaries of such trademarks and trade names does not, to the Company's knowledge, infringe on the rights of any person. (v) Neither the Company nor any of its Subsidiaries nor, to the Company's knowledge, any employee or agent of the Company or any Subsidiary has made any payment of funds of the Company or any Subsidiary or received or retained any funds in violation of any law, rule or regulation or of a character required to be disclosed in the Prospectus. (w) The Company has complied, and until the completion of the distribution of the Shares, will comply with all of the provisions of (including, without limitation, filing all forms required by) Section 517.075 of the Florida Securities and Investor Protection Act and regulation 3E-900.001 issued thereunder with respect to the offering and sale of the Shares. (x) Except as described in detail on Schedule III, neither the Company nor any of its Subsidiaries has incurred, or reasonably expects to incur any liability under Title IV of the Employee Retirement Income Security Act ("ERISA") arising in connection with the termination, insolvency or reorganization of, or a complete or partial withdrawal from, any plan covered or previously covered by Title IV of ERISA including, without limitation,any "multi-employer plan" as defined in Section 3(37) of ERISA (a "Multi-Employer Plan"). If a "complete withdrawal" by the Company and all of its Subsidiaries were to occur as of this date with respect to each Multi-Employer Plan as to which the Company or its Subsidiaries has an obligation to make contributions or otherwise has any liability, none of the Company and any of its Subsidiaries 13 would incur an aggregate withdrawal liability under Title IV of ERISA in excess of $____. 4. Representations and Warranties of the Selling Shareholders. ---------------------------------------------------------- Each Selling Shareholder, severally and not jointly, represents, warrants and covenants to each Underwriter that: (a) Such Selling Shareholder has full power and authority to enter into this Agreement and the Agreement and Power of Attorney. All authorizations and consents necessary for the execution and delivery by such Selling Shareholder of the Agreement and Power of Attorney, and for the execution of this Agreement on behalf of such Selling Shareholder, have been given. Each of the Agreement and Power of Attorney and this Agreement has been duly authorized, executed and delivered by or on behalf of such Selling Shareholder and constitutes a valid and binding agreement of such Selling Shareholder and is enforceable against such Selling Shareholder in accordance with the terms thereof and hereof. (b) Such Selling Shareholder now has, and at the time of delivery thereof hereunder will have, (i) good and marketable title to the Shares to be sold by such Selling Shareholder hereunder, free and clear of all liens, encumbrances and claims whatsoever (other than pursuant to the Agreement and Power of Attorney), and (ii) full legal right and power, and all authorizations and approvals required by law, to sell, transfer and deliver such Shares to the Underwriters hereunder and to make the representations, warranties and agreements made by such Selling Shareholder herein. Upon the delivery of and payment for such Shares hereunder, such Selling Shareholder will deliver good and marketable title thereto, free and clear of all liens, encumbrances and claims whatsoever. (c) On the Closing Date or the Option Closing Date, as the case may be, all stock transfer or other taxes (other than income taxes) which are required to be paid in connection with the sale and transfer of the Shares to be sold by such Selling Shareholder to the several Underwriters hereunder will have been fully paid or provided for by such Selling Shareholder and all laws imposing such taxes will have been fully complied with. (d) The performance of this Agreement and the consummation of the transactions contemplated hereby 14 will not result in the creation or imposition of any lien, charge or encumbrance upon any of the assets of such Selling Shareholder pursuant to the terms or provisions of, or result in a breach or violation of any of the terms or provisions of, or constitute a default under, or result in the acceleration of any obligation under, if such Selling Shareholder is a corporation or partnership, the organizational documents of such Selling Shareholder, or, as to all such Selling Shareholders, any contract or other agreement to which such Selling Shareholder is a party or by which such Selling Shareholder or any of its property is bound or affected, or under any ruling, decree, judgment, order, statute, rule or regulation of any court or other governmental agency or body having jurisdiction over such Selling Shareholder or the property of such Selling Shareholder. (e) No consent, approval, authorization or order of, or any filing or declaration with, any court or governmental agency or body is required for the consummation by such Selling Shareholder of the transactions on its part contemplated herein and in the Agreement and Power of Attorney, except such as have been obtained under the Act or the Rules and Regulations and such as may be required under state securities or Blue Sky laws or the by-laws and rules of the NASD in connection with the purchase and distribution by the Underwriters of the Shares to be sold by such Selling Shareholder. (f) The sale of the Shares proposed to be sold by such Selling Shareholder is not prompted by any knowledge of any material fact or condition not set forth in the Registration Statement or the Prospectus which has adversely affected, or may adversely affect, the business, properties, business prospects, condition (financial or otherwise) or results of operations of the Company. (g) All information with respect to such Selling Shareholder contained in the Registration Statement and the Prospectus (as amended or supplemented, if the Company shall have filed with the Commission any amendment or supplement thereto) complied and will comply with all applicable provisions of the Act and the Rules and Regulations, contains and will contain all statements required to be stated therein in accordance with the Act and the Rules and Regulations, and does not and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading. 15 (h) To the best knowledge of such Selling Shareholder, the representations and warranties of the Company contained in Section 3 are true and correct. (i) Other than as permitted by the Act and the Rules and Regulations, such Selling Shareholder has not distributed and will not distribute any preliminary prospectus, the Prospectus or any other offering material in connection with the offering and sale of the Shares. Such Selling Shareholder has not taken, directly or indirectly, any action intended, or which might reasonably be expected, to cause or result in, under the Act or otherwise, or which has caused or resulted in, stabili- zation or manipulation of the price of any security of the Company to facilitate the sale or resale of the Shares. (j) Certificates in negotiable form for the Firm Shares to be sold hereunder by such Selling Shareholder have been placed in custody, for the purpose of making delivery of such Firm Shares under this Agreement, under the Agreement and Power of Attorney which appoints as custodian (the "Custodian") for each Selling Shareholder. - -------------- Such Selling Shareholder agrees that the Shares represented by the certif- icates held in custody for him or it under the Agreement and Power of Attorney are for the benefit of and coupled with and subject to the interest hereunder of the Custodian, the Committee, the Underwriters, each other Selling Shareholder and the Company, that the arrangements made by such Selling Shareholder for such custody and the appointment of the Custodian and the Committee by such Selling Shareholder are irrevocable, and that the obligations of such Selling Shareholder hereunder shall not be terminated by operation of law, whether by the death, disability, incapacity or liquidation of any Selling Shareholder or the occurrence of any other event. If any Selling Shareholder should die, become disabled or incapacitated or be liquidated or if any other such event should occur before the delivery of the Shares hereunder, certificates for the Shares shall be delivered by the Custodian in accordance with the terms and conditions of this Agreement and actions taken by the Committee and the Custodian pursuant to the Agreement and Power of Attorney shall be as valid as if such death, liquidation, incapacity or other event had not occurred, regardless of whether or not the Custodian or the Committee, or either of them, shall have received notice thereof. 16 5. Agreements of the Company and the Selling Shareholders. The ------------------------------------------------------ Company and the Selling Shareholders (as to Sections 5(i), (j), (n), (o), (p) and (q)) agree, severally and not jointly, with the several Under- writers as follows: (a) The Company will not, either prior to the Effective Date or thereafter during such period as the Prospectus is required by law to be delivered in connection with sales of the Shares by an Underwriter or dealer, file any amendment or supplement to the Registration Statement or the Prospectus, unless a copy thereof shall first have been submitted to the Representatives within a reasonable period of time prior to the filing thereof and the Representatives shall not have objected thereto in good faith. (b) The Company will use its best efforts to cause the Registration Statement to become effective, and will notify the Representatives promptly, and will confirm such advice in writing, (1) when the Registration Statement has become effective and when any post-effective amendment thereto becomes effective, (2) of any request by the Commission for amendments or supplements to the Registration Statement or the Prospectus or for additional information, (3) of the issuance by the Commission of any stop order suspending the effectiveness of the Regis- tration Statement or the initiation of any proceedings for that purpose or the threat thereof, (4) of the happening of any event during the period mentioned in the second sentence of Section 5(e) that in the judgment of the Company makes any statement made in the Registration Statement or the Prospectus untrue or that requires the making of any changes in the Registration Statement or the Prospectus in order to make the statements therein, in light of the circumstances in which they are made, not misleading and (5) of receipt by the Company or any representative of the Company of any other communication from the Commission relating to the Company, the Registration Statement, any preliminary prospectus or the Prospectus. If at any time the Commission shall issue any order suspending the effectiveness of the Registration Statement, the Company will make every reasonable effort to obtain the withdrawal of such order at the earliest possible moment. The Company will use its best efforts to comply with the provisions of and make all requisite filings with the Commission pursuant to Rule 430A and to notify the Representatives promptly of all such filings. 17 (c) The Company will furnish to the Representatives, without charge, two signed copies of the Registration Statement and of any post-effective amendment thereto, including financial statements and schedules, and all exhibits thereto and will furnish to the Representatives, without charge, for transmittal to each of the other Underwriters, a copy of the Registration Statement and any post-effective amendment thereto, including financial statements and schedules but without exhibits. (d) The Company will comply with all the provisions of any undertakings contained in the Registration Statement. (e) On the Effective Date, and thereafter from time to time, the Company will deliver to each of the Underwriters, without charge, as many copies of the Prospectus or any amendment or supplement thereto as the Representatives may reasonably request. The Company consents to the use of the Prospectus or any amendment or supplement thereto by the several Underwriters and by all dealers to whom the Shares may be sold, both in connection with the offering or sale of the Shares and for any period of time thereafter during which the Prospectus is required by law to be deliv- ered in connection therewith. If during such period of time any event shall occur which in the judgment of the Company or counsel to the Underwriters should be set forth in the Prospectus in order to make any statement therein, in the light of the circumstances under which it was made, not misleading, or if it is necessary to supplement or amend the Prospectus to comply with law, the Company will forthwith prepare and duly file with the Commission an appropriate supplement or amendment thereto, and will deliver to each of the Underwriters, without charge, such number of copies thereof as the Representatives may reasonably request. (f) Prior to any public offering of the Shares by the Underwriters, the Company will cooperate with the Representatives and counsel to the Underwriters in connection with the registration or qualification of the Shares for offer and sale under the securities or Blue Sky laws of such jurisdictions as the Representatives may request; provided, that in no event shall the Company be obligated to qualify to do business in any jurisdiction where it is not now so qualified or to take any action which would subject it to general service of process in any jurisdiction where it is not now so subject. 18 (g) During the period of five years commencing on the Effective Date, the Company will furnish to the Representatives and each other Underwriter who may so request copies of such financial statements and other periodic and special reports as the Company may from time to time distribute generally to the holders of any class of its capital stock, and will furnish to the Representatives and each other Underwriter who may so request a copy of each annual or other report it shall be required to file with the Commission. (h) The Company will make generally available to holders of its securities as soon as may be practicable but in no event later than the last day of the fifteenth full calendar month following the calendar quarter in which the Effective Date falls, an earnings statement (which need not be audited but shall be in reasonable detail) for a period of 12 months ended commencing after the Effective Date, and satisfying the provisions of Section 11(a) of the Act (including Rule 158 of the Rules and Regulations). (i) Whether or not the transactions contemplated by this Agreement are consummated or this Agreement is terminated, the Company and the Selling Shareholders, jointly and severally, will pay, or reimburse if paid by the Representatives, all costs and expenses incident to the performance of the obligations of the Company and the Selling Shareholders under this Agreement, including but not limited to costs and expenses of or relating to (1) the preparation, printing and filing of the Registration Statement and exhibits to it, each preliminary prospectus, the Prospectus and any amendment or supplement to the Registration Statement or the Prospectus, (2) the preparation and delivery of certificates representing the Shares, (3) the printing of this Agreement, the Agreement Among Under- writers, any Dealer Agreements, any Underwriters' Questionnaire and the Agreement and Power of Attorney, (4) furnishing (including costs of shipping, mailing and courier) such copies of the Registration Statement, the Prospectus and any preliminary prospectus, and all amendments and supplements thereto, as may be requested for use in connection with the offering and sale of the Shares by the Underwriters or by dealers to whom Shares may be sold, (5) the listing of the Shares by the [Nasdaq National Market], (6) any filings required to be made by the Underwriters with the NASD, and the fees, disbursements and other charges of counsel for the Underwriters in connection therewith, (7) the registration 19 or qualification of the Shares for offer and sale under the securities or Blue Sky laws of such jurisdictions designated pursuant to Section 5(f), including the fees, disbursements and other charges of counsel to the Underwriters in connection therewith, and the preparation and printing of preliminary, supplemental and final Blue Sky memoranda, (8) counsel to the Company and counsel to the Selling Shareholders, (9) the transfer agent for the Shares and (10) the Accountants. (j) If this Agreement shall be terminated by the Company or the Selling Shareholders pursuant to any of the provisions hereof (otherwise than pursuant to Section 9) or if for any reason the Company or any Selling Shareholder shall be unable to perform its obligations hereunder, the Company and the Selling Shareholders, jointly and severally, will reimburse the several Underwriters for all out-of-pocket expenses (including the fees, disbursements and other charges of counsel to the Underwriters) reasonably incurred by them in connection herewith. (k) The Company will not at any time, directly or indirectly, take any action intended, or which might reasonably be expected, to cause or result in, or which will constitute, stabilization of the price of the shares of Common Stock to facilitate the sale or resale of any of the Shares. (l) The Company will apply the net proceeds from the offering and sale of the Shares to be sold by the Company in the manner set forth in the Prospectus under "Use of Proceeds." (m) The Company will not, and will cause each of its executive officers, directors and each beneficial owner of more than 5% of the outstanding shares of Common Stock to enter into agreements with the Representatives in the form set forth in Exhibit C to the effect that they will not, for a period of 150 days after the commencement of the public offering of the Shares, without the prior written consent of PaineWebber Incorporated, sell, contract to sell or otherwise dispose of any shares of Common Stock or rights to acquire such shares (other than pursuant to employee stock option plans or in connection with other employee incentive compensation arrangements). (n) The Selling Shareholders will not, for a period of 150 days after the commencement of the public 20 offering of the Shares, without the prior written consent of PaineWebber Incorporated, sell, contract to sell or otherwise dispose of any shares of Common Stock, other than pursuant to bona fide gifts to persons who agree in writing with PaineWebber Incorporated to be bound by the provisions of this Section 5(n). (o) The Selling Shareholders will not, without the prior written consent of PaineWebber Incorporated, make any bid for or purchase any shares of Common Stock during the [120]-day period following the date hereof. (p) As soon as any Selling Shareholder is advised thereof, such Selling Shareholder will advise PaineWebber Incorporated and confirm such advice in writing, (1) of receipt by such Selling Shareholder, or by any representative of such Selling Shareholder, of any communication from the Commission relating to the Registration Statement, the Prospectus or any preliminary prospectus, or any notice or order of the Commission relating to the Company or any of the Selling Shareholders in connection with the transactions contemplated by this Agreement and (2) of the happening of any event during the period from and after the Effective Date that in the judgment of such Selling Shareholder makes any statement made in the Registration Statement or the Prospectus untrue or that requires the making of any changes in the Registration Statement or the Prospectus in order to make the statements therein, in light of the circumstances in which they were made, not misleading. (q) The Selling Shareholders will deliver to PaineWebber Incorporated and the Managers prior to or on the Effective Date a properly completed and executed United States Treasury Department Form W-9 (or other applicable form or statement specified by Treasury Department regulations in lieu thereof). 6. Conditions of the Obligations of the Underwriters. In ------------------------------------------------- addition to the execution and delivery of the Price Determination Agreement, the obligations of each Underwriter hereunder are subject to the following conditions: (a) Notification that the Registration Statement has become effective shall be received by PaineWebber Incorporated not later than 5:00 p.m., New York 21 City time, on the date of this Agreement or at such later date and time as shall be consented to in writing by PaineWebber Incorporated and all filings required by Rule 424 of the Rules and Regulations and Rule 430A shall have been made. (b) (i) No stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall be pending or threatened by the Commission, (ii) no order suspending the effectiveness of the Registration Statement or the qualifi- cation or registration of the Shares under the securities or Blue Sky laws of any jurisdiction shall be in effect and no proceeding for such purpose shall be pending before or threatened or contemplated by the Commission or the authorities of any such jurisdiction, (iii) any request for additional information on the part of the staff of the Commission or any such authorities shall have been complied with to the satisfaction of the staff of the Commission or such authorities and (iv) after the date hereof no amendment or supplement to the Registration Statement or the Prospectus shall have been filed unless a copy thereof was first submitted to PaineWebber Incorporated and PaineWebber Incorporated did not object thereto in good faith, and PaineWebber Incorporated shall have received certificates, dated the Closing Date and the Option Closing Date and signed by the Chief Executive Officer or the Chairman of the Board of Directors of the Company and the Chief Financial Officer of the Company (who may, as to proceedings threatened, rely upon the best of their information and belief), to the effect of clauses (i), (ii) and (iii). (c) Since the respective dates as of which information is given in the Registration Statement and the Prospectus, (i) there shall not have been a material adverse change in the general affairs, business, business prospects, properties, management, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries, taken as a whole, whether or not arising from transactions in the ordinary course of business, in each case other than as set forth in or contemplated by the Registration Statement and the Prospectus and (ii) neither the Company nor any of its Subsidiaries shall have sustained any material loss or interference with its business or properties from fire, explosion, flood or other casualty, whether or not covered by insurance, or from any labor dispute or any court or legislative or other governmental action, order or decree, which is not set forth in the Registration State- 22 ment and the Prospectus, if in the judgment of PaineWebber Incorporated any such development makes it impracticable or inadvisable to consummate the sale and delivery of the Shares by the Underwriters at the initial public offering price. (d) Since the respective dates as of which information is given in the Registration Statement and the Prospectus, there shall have been no litigation or other proceeding instituted against the Company or any of its Subsidiaries or any of their respective officers or directors in their capacities as such, before or by any Federal, state or local court, commission, regulatory body, administrative agency or other governmental body, domestic or foreign, in which litigation or proceeding an unfavorable ruling, decision or finding would materially and adversely affect the business, properties, business prospects, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries taken as a whole. (e) Each of the representations and warranties of the Company and the Selling Shareholders contained herein shall be true and correct in all material respects at the Closing Date and, with respect to the Option Shares, at the Option Closing Date, as if made at the Closing Date and, with respect to the Option Shares, at the Option Closing Date, and all covenants and agreements herein contained to be performed on the part of the Company and the Selling Shareholders and all conditions herein contained to be fulfilled or complied with by the Company and the Selling Shareholders at or prior to the Closing Date and, with respect to the Option Shares, at or prior to the Option Closing Date, shall have been duly performed, fulfilled or complied with. (f) PaineWebber Incorporated shall have received opinions, each dated the Closing Date and, with respect to the Option Shares, the Option Closing Date, and satisfactory in form and substance to counsel for the Underwriters, from Kramer, Levin, Naftalis, Nessen, Kamin & Frankel, counsel to the Company, to the effect set forth in Exhibit D and from _______________, counsel to the Selling Shareholders, to the effect set forth in Exhibit E. (g) PaineWebber Incorporated shall have received an opinion, dated the Closing Date and the Option Closing Date, from Paul, Weiss, Rifkind, Wharton & Garrison, counsel to the Underwriters, with respect to the Registra 23 tion Statement, the Prospectus and this Agreement, which opinion shall be satisfactory in all respects to PaineWebber Incorporated. (h) On the date of the Prospectus, the Accountants shall have furnished to PaineWebber Incorporated a letter, dated the date of its delivery, addressed to PaineWebber Incorporated and in form and substance satisfactory to PaineWebber Incorporated, confirming that they are independent accountants with respect to the Company as required by the Act and the Rules and Regulations and with respect to the financial and other statistical and numerical information contained in the Registration Statement. At the Closing Date and, as to the Option Shares, the Option Closing Date, the Accountants shall have furnished to PaineWebber Incorporated a letter, dated the date of its delivery, which shall confirm, on the basis of a review in accordance with the procedures set forth in the letter from the Accountants, that nothing has come to their attention during the period from the date of the letter referred to in the prior sentence to a date (specified in the letter) not more than five days prior to the Closing Date and the Option Closing Date which would require any change in their letter dated the date of the Prospectus, if it were required to be dated and delivered at the Closing Date and the Option Closing Date. (i) At the Closing Date and, as to the Option Shares, the Option Closing Date, there shall be furnished to PaineWebber Incorporated an accurate certificate, dated the date of its delivery, signed by each of the Chief Executive Officer and the Chief Financial Officer of the Company, in form and substance satisfactory to PaineWebber Incorporated, to the effect that: (i) Each signer of such certificate has carefully examined the Registration Statement and the Prospectus and (A) as of the date of such certificate, such documents are true and correct in all material respects and do not omit to state a material fact required to be stated therein or necessary in order to make the statements therein not untrue or misleading and (B) since the Effective Date, no event has occurred as a result of which it is necessary to amend or supplement the Prospectus in order to make the statements therein not untrue or misleading in any material respect. 24 (ii) Each of the representations and warranties of the Company contained in this Agreement were, when originally made, and are, at the time such certificate is delivered, true and correct in all material respects. (iii) Each of the covenants required herein to be performed by the Company on or prior to the date of such certificate has been duly, timely and fully performed and each condition herein required to be complied with by the Company on or prior to the delivery of such certificate has been duly, timely and fully complied with. (j) At the Closing Date and, as to the Option Shares, the Option Closing Date, there shall have been furnished to PaineWebber Incorporated an accurate certificate, dated the date of its delivery, signed by the Committee on behalf of each of the Selling Shareholders, in form and substance satisfactory to PaineWebber Incorporated, to the effect that the representations and warranties of each of the Selling Shareholders contained herein are true and correct in all material respects on and as of the date of such certificate as if made on and as of the date of such certificate, and each of the covenants and conditions required herein to be performed or complied with by the Selling Shareholders on or prior to the date of such certificate has been duly, timely and fully performed or complied with. (k) On or prior to the Closing Date, PaineWebber Incorporated shall have received the executed agreements referred to in Section 5(m). (l) The Shares shall be qualified for sale in such states as PaineWebber Incorporated may reasonably request, each such qualification shall be in effect and not subject to any stop order or other proceeding on the Closing Date and the Option Closing Date. (m) Prior to the Closing Date, the Shares shall have been duly authorized for listing by the [Nasdaq National Market] upon official notice of issuance. (n) The Company and the Selling Shareholders shall have furnished to PaineWebber Incorporated such certificates, in addition to those specifically mentioned herein, as PaineWebber Incorporated may have reasonably 25 requested as to the accuracy and completeness at the Closing Date and the Option Closing Date of any statement in the Registration Statement or the Prospectus as to the accuracy at the Closing Date and the Option Closing Date of the representations and warranties of the Company and the Selling Shareholders herein, as to the performance by the Company and the Selling Shareholders of its and their respective obligations hereunder, or as to the fulfillment of the conditions concurrent and precedent to the obligations hereunder of PaineWebber Incorporated. 7. Indemnification. --------------- (a) Each of the Company and the Selling Shareholders, jointly and severally, will indemnify and hold harmless each Underwriter, the directors, officers, employees and agents of each Underwriter and each person, if any, who controls each Underwriter within the meaning of Sec- tion 15 of the Act or Section 20 of the Exchange Act from and against any and all losses, claims, liabilities, expenses and damages (including any and all investigative, legal and other expenses reasonably incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding between any of the indemnified parties and any indemnifying parties or between any indemnified party and any third party, or otherwise, or any claim asserted), to which they, or any of them, may become subject under the Act, the Exchange Act or other Federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, liabilities, expenses or damages arise out of or are based on any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus, the Registration Statement or the Prospectus or any amendment or supplement to the Registration Statement or the Prospectus or the omission or alleged omission to state in such document a material fact required to be stated in it or necessary to make the statements in it not misleading, provided that the Company and the Selling Shareholders will not be liable to the extent that such loss, claim, liability, expense or damage arises from the sale of the Shares in the public offering to any person by an Underwriter and is based on an untrue statement or omission or alleged untrue statement or omission made in reliance on and in conformity with information relating to any Underwriter furnished in writing to the Company by PaineWebber Incorporated on behalf of any Underwriter expressly for inclusion in the Registration Statement, any preliminary prospectus or the Prospectus. This indemnity 26 agreement will be in addition to any liability that the Company or any Selling Shareholder might otherwise have. (b) Each Underwriter will indemnify and hold harmless the Company, the Selling Shareholders, each person, if any, who controls the Company or the Selling Shareholders within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, each director of the Company and each officer of the Company who signs the Registration Statement to the same extent as the foregoing indemnity from the Company and the Selling Shareholders to each Underwriter, but only insofar as losses, claims, liabilities, expenses or damages arise out of or are based on any untrue statement or omission or alleged untrue statement or omission made in reliance on and in conformity with information relating to any Underwriter furnished in writing to the Company by PaineWebber Incorporated on behalf of such Underwriter expressly for use in the Registration Statement, any preliminary prospectus or the Prospectus. This indemnity will be in addition to any liability that each Underwriter might otherwise have. (c) Any party that proposes to assert the right to be indemnified under this Section 7 will, promptly after receipt of notice of commencement of any action against such party in respect of which a claim is to be made against an indemnifying party or parties under this Sec- tion 7, notify each such indemnifying party of the commencement of such action, enclosing a copy of all papers served, but the omission so to notify such indemnifying party will not relieve it from any liability that it may have to any indemnified party under the foregoing provisions of this Section 7 unless, and only to the extent that, such omission results in the forfeiture of substantive rights or defenses by the indemnifying party. If any such action is brought against any indemnified party and it notifies the indemnifying party of its commencement, the indemnifying party will be entitled to participate in and, to the extent that it elects by delivering written notice to the indemnified party promptly after receiving notice of the commencement of the action from the indemnified party, jointly with any other indemnifying party similarly notified, to assume the defense of the action, with counsel satisfactory to the indemnified party, and after notice from the indemnifying party to the indemnified party of its election to assume the defense, the indemnifying party will not be liable to the indemnified party for any legal or other expenses except as provided below and except for the reasonable costs of inves- 27 tigation subsequently incurred by the indemnified party in connection with the defense. The indemnified party will have the right to employ its own counsel in any such action, but the fees, expenses and other charges of such counsel will be at the expense of such indemnified party unless (1) the employment of counsel by the indemnified party has been authorized in writing by the indemnifying party, (2) the indemnified party has reason- ably concluded (based on advice of counsel) that there may be legal defenses available to it or other indemnified parties that are different from or in addition to those available to the indemnifying party, (3) a conflict or potential conflict exists (based on advice of counsel to the indemnified party) between the indemnified party and the indemnifying party (in which case the indemnifying party will not have the right to direct the defense of such action on behalf of the indemnified party) or (4) the indemnifying party has not in fact employed counsel to assume the defense of such action within a reasonable time after receiving notice of the com- mencement of the action, in each of which cases the reasonable fees, disbursements and other charges of counsel will be at the expense of the indemnifying party or parties. It is understood that the indemnifying party or parties shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees, disbursements and other charges of more than one separate firm admitted to practice in such jurisdiction at any one time for all such indemnified party or parties. All such fees, disbursements and other charges will be reimbursed by the indemnifying party promptly as they are incurred. An indemnifying party will not be liable for any settlement of any action or claim effected without its written consent (which consent will not be unreasonably withheld). No indemnifying party shall, without the prior written consent of each indemnified party, settle or compromise or consent to the entry of any judgment in any pending or threatened claim, action or proceeding relating to the matters contemplated by this Section 7 (whether or not any indemnified party is a party thereto), unless such settlement, compromise or consent includes an unconditional release of each indemnified party from all liability arising or that may arise out of such claim, action or proceeding. (d) In order to provide for just and equitable contribution in circumstances in which the indemnification provided for in the foregoing paragraphs of this Section 7 is applicable in accordance with its terms but for any reason is held to be unavailable from the 28 Company, the Selling Shareholders or the Underwriters, the Company, the Selling Shareholders and the Underwriters will contribute to the total losses, claims, liabilities, expenses and damages (including any investigative, legal and other expenses reasonably incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding or any claim asserted, but after deducting any contribution received by the Company or the Selling Shareholders from persons other than the Under- writers, such as persons who control the Company or the Selling Shareholders within the meaning of the Act, officers of the Company who signed the Registration Statement and directors of the Company, who also may be liable for contribution) to which the Company or the Selling Shareholders and any one or more of the Underwriters may be subject in such proportion as shall be appropriate to reflect the relative benefits received by the Company and Selling Shareholders on the one hand and the Underwriters on the other. The relative benefits received by the Company and the Selling Shareholders on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company and the Selling Shareholders bear to the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover page of the Prospectus. If, but only if, the allocation provided by the foregoing sentence is not permitted by applicable law, the allocation of contribution shall be made in such pro- portion as is appropriate to reflect not only the relative benefits referred to in the foregoing sentence but also the relative fault of the Company and the Selling Shareholders, on the one hand, and the Under- writers, on the other, with respect to the statements or omissions which resulted in such loss, claim, liability, expense or damage, or action in respect thereof, as well as any other relevant equitable considerations with respect to such offering. Such relative fault shall be determined by reference to whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company or PaineWebber Incorporated on behalf of the Underwriters, the intent of the parties and their relative knowl- edge, access to information and opportunity to correct or prevent such statement or omission. The Company, the Selling Shareholders and the Underwriters agree that it would not be just and equitable if contributions pursuant to this Section 7(d) were to be determined by pro rata allocation (even if the Underwriters were treated as one entity for 29 such purpose) or by any other method of allocation which does not take into account the equitable considerations referred to herein. The amount paid or payable by an indemnified party as a result of the loss, claim, liability, expense or damage, or action in respect thereof, referred to above in this Section 7(d) shall be deemed to include, for purpose of this Section 7(d), any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 7(d), no Underwriter shall be required to contribute any amount in excess of the underwriting discounts received by it, and no person found guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) will be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations to contribute as provided in this Section 7(d) are several in proportion to their respective underwriting obligations and not joint. For purposes of this Section 7(d), any person who controls a party to this Agreement within the meaning of the Act will have the same rights to contribution as that party, and each officer of the Company who signed the Registration Statement will have the same rights to contribution as the Company, subject in each case to the provisions hereof. Any party entitled to contribution, promptly after receipt of notice of commencement of any action against such party in respect of which a claim for contribution may be made under this Section 7(d), will notify any such party or parties from whom contribution may be sought, but the omission so to notify will not relieve the party or parties from whom contribution may be sought from any other obligation it or they may have under this Section 7(d). No party will be liable for contribution with respect to any action or claim settled without its written consent (which consent will not be unreasonably withheld). (e) The indemnity and contribution agreements contained in this Section 7 and the representations and warranties of the Company and the Selling Shareholders contained in this Agreement shall remain operative and in full force and effect regardless of (i) any investigation made by or on behalf of the Underwriters, (ii) acceptance of any of the Shares and payment therefor or (iii) any termination of this Agreement. 8. Termination. The obligations of the several Underwriters ----------- under this Agreement may be terminated at any time prior to the Closing Date (or, with respect to the 30 Option Shares, on or prior to the Option Closing Date), by notice to the Company from PaineWebber Incorporated, without liability on the part of any Underwriter to the Company or any Selling Shareholder, if, prior to delivery and payment for the Shares (or the Option Shares, as the case may be), in the sole judgment of PaineWebber Incorporated, (i) trading in any of the equity securities of the Company shall have been suspended by the Commission, by an exchange that lists the Shares or by the Nasdaq Stock Market, (ii) trading in securities generally on the New York Stock Exchange shall have been suspended or limited or minimum or maximum prices shall have been generally established on such exchange, or additional material governmental restrictions, not in force on the date of this Agreement, shall have been imposed upon trading in securities generally by such exchange or by order of the Commission or any court or other governmental authority, (iii) a general banking moratorium shall have been declared by either Federal or New York State authorities or (iv) any material adverse change in the financial or securities markets in the United States or in political, financial or economic conditions in the United States or any outbreak or material escalation of hostilities or declaration by the United States of a national emergency or war or other calamity or crisis shall have occurred, the effect of any of which is such as to make it, in the sole judgment of PaineWebber Incorporated, impracticable or inadvisable to market the Shares on the terms and in the manner contemplated by the Prospectus. 9. Substitution of Underwriters. If any one or more of the ---------------------------- Underwriters shall fail or refuse to purchase any of the Firm Shares which it or they have agreed to purchase hereunder, and the aggregate number of Firm Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase is not more than one-tenth of the aggregate number of Firm Shares, the other Underwriters shall be obligated, severally, to purchase the Firm Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase, in the proportions which the number of Firm Shares which they have respectively agreed to purchase pursuant to Section 1 bears to the aggregate number of Firm Shares which all such non-defaulting Underwriters have so agreed to purchase, or in such other proportions as PaineWebber Incorporated may specify; provided that in no event shall the maximum number of Firm Shares which any Under- writer has become obligated to purchase pursuant to Section 1 be increased pursuant to this Section 9 by more than one-ninth of the number of Firm Shares agreed to be 31 purchased by such Underwriter without the prior written consent of such Underwriter. If any Underwriter or Underwriters shall fail or refuse to purchase any Firm Shares and the aggregate number of Firm Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase exceeds one-tenth of the aggregate number of the Firm Shares and arrangements satisfactory to PaineWebber Incorporated, the Company and the Committee for the purchase of such Firm Shares are not made within 48 hours after such default, this Agreement will terminate without liability on the part of any non-defaulting Underwriter, or the Company or any Selling Shareholder for the purchase or sale of any Shares under this Agreement. In any such case either PaineWebber Incorporated or the Company and the Committee shall have the right to postpone the Closing Date, but in no event for longer than seven days, in order that the required changes, if any, in the Registration Statement and in the Prospectus or in any other documents or arrangements may be effected. Any action taken pursuant to this Section 9 shall not relieve any defaulting Underwriter from liability in respect of any default of such Underwriter under this Agreement. 10. Miscellaneous. Notice given pursuant to any of the ------------- provisions of this Agreement shall be in writing and, unless otherwise specified, shall be mailed or delivered (a) if to the Company, at the office of the Company, 105 Price Parkway, Farmingdale New York 11735, Attention: Stewart Katz, (b) if to any Selling Shareholder, [_______________________], or (c) if to the Underwriters, to PaineWebber Incorporated at the offices of PaineWebber Incorporated, 1285 Avenue of the Americas, New York, New York 10019, Attention: Corporate Finance Depart- ment. Any such notice shall be effective only upon receipt. Any notice under Section 8 or 9 may be made by telex or telephone, but if so made shall be subsequently confirmed in writing. This Agreement has been and is made solely for the benefit of the several Underwriters, the Company and the Selling Shareholders and of the controlling persons, directors and officers referred to in Section 7, and their respective successors and assigns, and no other person shall acquire or have any right under or by virtue of this Agreement. The term "successors and assigns" as used in this Agreement shall not include a purchaser, as such purchaser, of Shares from any of the several Underwriters. 32 With respect to any obligation of the Company and the Selling Shareholders hereunder to make any payment, to indemnify for any liability or to reimburse for any expense, notwithstanding the fact that such obligation is a joint and several obligation of the Company and the Selling Shareholders, the Underwriters (or any other person to whom such payment, indemnification or reimbursement is owed) may pursue the Company with respect thereto prior to pursuing any Selling Shareholder. All representations, warranties and agreements of the Company and the Selling Shareholders contained herein or in certificates or other instruments delivered pursuant hereto, shall remain operative and in full force and effect regardless of any investigation made by or on behalf of any Underwriter or any of their controlling persons and shall survive delivery of and payment for the Shares hereunder. Any action required or permitted to be taken by the Representatives under this Agreement may be taken by them jointly or by PaineWebber Incorporated. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICT OF LAWS PRINCIPLES OF SUCH STATE. This Agreement may be signed in two or more counterparts with the same effect as if the signatures thereto and hereto were upon the same instrument. In case any provision in this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. The Company, the Selling Shareholders and the Underwriters each hereby irrevocably waive any right they may have to a trial by jury in respect of any claim based upon or arising out of this Agreement or the transactions contemplated hereby. This Agreement may not be amended or otherwise modified or any provision hereof waived except by an instrument in writing signed by PaineWebber Incorporated and the Company. 33 Please confirm that the foregoing correctly sets forth the agreement among the Company, the Selling Shareholders and the several Underwriters. Very truly yours, NOODLE KIDOODLE, INC. By: ------------------------- Title: THE SELLING SHAREHOLDERS NAMED IN SCHEDULE I ATTACHED HERETO By: The Committee By: ------------------------- 34 Confirmed as of the date first above mentioned: PAINEWEBBER INCORPORATED RODMAN & RENSHAW, INC. Acting on behalf of themselves and as the Representatives of the other several Underwriters named in Schedule II hereof. By: PAINEWEBBER INCORPORATED By: ------------------------ Title: By: RODMAN & RENSHAW, INC. By: ------------------------ Title: 35 SCHEDULE I SELLING SHAREHOLDERS Total Name of Number of Selling Firm Shares Shareholder to be Sold - ----------- ----------- [100,000] [Phyllis Greenman] SCHEDULE II UNDERWRITERS Number of Names of Firm Shares Underwriters to be Purchased ------------ --------------- PaineWebber Incorporated Rodman & Renshaw Total . . . . . . . . . . . . . . . . . [2,100,000] =========== EXHIBIT A NOODLE KIDOODLE, INC. _____________________ PRICE DETERMINATION AGREEMENT ----------------------------- [Date] PAINEWEBBER INCORPORATED RODMAN & RENSHAW, INC. As Representatives of the several Underwriters c/o PaineWebber Incorporated 1285 Avenue of the Americas New York, New York 10019 Dear Ladies and Gentlemen: Reference is made to the Underwriting Agreement, dated ______, 199___ (the "Underwriting Agreement"), among Noodle Kidoodle, Inc., a [Delaware] corporation (the "Company"), the Selling Shareholders named in Schedule I thereto or hereto (the "Selling Shareholders"), and the several Underwriters named in Schedule II thereto or hereto (the "Underwriters"), for whom PaineWebber Incorporated and Rodman & Renshaw, Inc. are acting as Representatives (the "Representatives"). The Underwriting Agreement provides for the purchase by the Underwriters from the Company and the Selling Shareholders, subject to the terms and conditions set forth therein, of an aggregate of 2,100,000 shares (the "Firm Shares") of the Company's common stock, par value [$.001] per share. This Agreement is the Price Determination Agreement referred to in the Underwriting Agreement. Pursuant to Section 1 of the Underwriting Agreement, the undersigned agree with the Representatives as follows: 1. The public offering price per share for the ___ Shares shall be $_______. 2. The purchase price per share for the Firm Shares to be paid by the several Underwriters shall be $_______ representing an amount equal to the public offering price set forth above, less $______ per share. The Company represents and warrants to each of the Underwriters that the representations and warranties of 2 the Company set forth in Section 3 of the Underwriting Agreement are accurate as though expressly made at and as of the date hereof. The Selling Shareholders represent and warrant to each of the Underwriters that the representations and warranties of the Selling Shareholders set forth in Section 4 of the Underwriting Agreement are accurate as though expressly made at and as of the date hereof. As contemplated by the Underwriting Agreement, attached as Schedule II is a completed list of the several Underwriters, which shall be a part of this Agreement and the Underwriting Agreement. This Agreement shall be governed by the law of the State of New York without regard to the conflict of laws principles of such State. If the foregoing is in accordance with your understanding of the agreement among the Underwriters, the Company and the Selling Shareholders, please sign and return to the Company a counterpart hereof, whereupon this instrument along with all counterparts and together with the Underwriting Agreement shall be a binding agreement among the Underwriters, the Company and the Selling Shareholders in accordance with its terms and the terms of the Underwriting Agreement. Very truly yours, NOODLE KIDOODLE, INC. By: ------------------------- Title: 3 THE SELLING SHAREHOLDERS NAMED IN SCHEDULE I TO THE UNDERWRITING AGREEMENT By: The Committee By: ---------------------- Confirmed as of the date first above mentioned: PAINEWEBBER INCORPORATED RODMAN & RENSHAW, INC. Acting on behalf of themselves and as the Representatives of the other several Underwriters named in Schedule II hereof. By: PAINEWEBBER INCORPORATED By: ------------------------ Title: BY: RODMAN & RENSHAW, INC. By: ------------------------ EXHIBIT B POWER OF ATTORNEY NOODLE KIDOODLE, INC. Common Stock [Names and Addresses of Committee] Dear Ladies and Gentlemen: The undersigned understands that Noodle Kidoodle, Inc., a [New York] corporation (the "Company"), intends to file a registration statement (the "Registration Statement") under the Securities Act of 1933, as amended (the "Act"), in connection with the proposed public offering and sale by the Company, the undersigned (the "Selling Shareholder") and certain other Selling Shareholders of the Company's Common Stock, par value [$.001] per share (the "Common Stock"). The Selling Shareholder desires to sell certain shares of Common Stock and to include such shares among the shares covered by the Registration Statement. The number of shares of Common Stock which the undersigned desires to sell (the "Shares") are set forth beneath the signature of the Selling Shareholder below. Concurrently with the execution and delivery of this Power of Attorney, the undersigned is delivering to you, or requesting the Company to deliver to you, certificates for the Shares, which you are authorized to deposit with ____________, as custodian (the "Custodian"), pursuant to a custody agreement in the form attached as Attachment A hereto (the "Custody Agreement"). 1. In connection with the foregoing, the Selling Shareholder hereby makes, constitutes and appoints you collectively, and each of you, individually (a "Member") and each of your respective substitutes under Section 3, the true and lawful attorneys-in-fact of the undersigned (the Members or any of them or their respective substitutes, being herein referred to collectively as the "Committee"), with full power and authority, in the name and on behalf of the Selling Shareholder: (a) To enter into the Custody Agreement and deposit with the Custodian pursuant thereto the certificates 2 for the Shares delivered to the Committee concurrently herewith; (b) For the purpose of effecting the sale of the Shares, to execute and deliver (i) an Underwriting Agreement (the "Underwriting Agreement"), by and among the Company, the other Selling Shareholders and the Representatives (the "Representatives"), selected by the Company, of the several Underwriters (the "Underwriters") and (ii) a Price Determination Agreement (as defined in the Underwriting Agreement), by and among the Company, the other Selling Shareholders and the Representatives of the several Underwriters; (c) To endorse, transfer and deliver certificates for the Shares to or on the order of the Representatives or to their nominee or nominees, and to give such orders and instructions to the Custodian as the Committee may in its sole discretion determine with respect to (i) the transfer on the books of the Company of the Shares in order to effect such sale (including the names in which new certificates for such Shares are to be issued and the denominations thereof); (ii) the delivery to or for the account of the Representatives of the certificates for the Shares against receipt by the Custodian of the full purchase price to be paid therefor; (iii) the remittance to the Selling Shareholder of the Selling Share- holder's share of the proceeds, after payment of expenses described in the Underwriting Agreement, from any sale of Shares; and (iv) the return to the Selling Shareholder of certificates representing the number of Shares (if any) deposited with the Custodian but not sold by the Selling Shareholder under the Registration Statement for any reason; (d) To retain ____________________[(who are also counsel to the Company)] as legal counsel for the Selling Shareholders in connection with any and all matters referred to herein; (e) To take for the Selling Shareholder all steps deemed necessary or advisable by the Committee in connection with the registration of the Shares under the Act, including without limitation filing amendments to the Registration Statement, requesting acceleration of effectiveness of the Registration Statement, advising the Securities and Exchange Commission that the reason the Selling Shareholder is offering the Shares for sale is to diversify the Selling Shareholder's investments and to assist the Company in enlarging the public market for the Common Stock, informing said Commission that the Selling Shareholder has no knowledge of any material adverse information with regard to the current and prospective operations of the Company which is not stated in the 3 Registration Statement, and such other steps as the Committee may in its absolute discretion deem necessary or advisable; (f) To make, acknowledge, verify and file on behalf of the Selling Shareholder applications, consents to service of process and such other undertakings or reports as may be required by law with state commissioners or officers administering state securities or Blue Sky laws and to take any other action required to facilitate the qualification of the Shares under the securities or Blue Sky laws of the jurisdictions in which the Shares are to be offered; (g) If necessary, to endorse (in blank or otherwise) on behalf of the Selling Shareholder the certificate or certificates representing the Shares, or a stock power or powers attached to such certificate or certificates; and (h) To make, execute, acknowledge and deliver all such other contracts, orders, receipts, notices, requests, instructions, certificates, letters and other writings and, in general, to do all things and to take all action which the Committee in its sole discretion may consider necessary or proper in connection with or to carry out the aforesaid sale of Shares, as fully as could the Selling Shareholder if personally present and acting. 2. This Power of Attorney and all authority conferred hereby is granted and conferred subject to and in consideration of the interests of the Company, the Representatives, the Underwriters and the other Selling Shareholders and, for the purpose of completing the transactions contem- plated by this Power of Attorney, this Power of Attorney and all authority conferred hereby shall be irrevocable and shall not be terminated by any act of the Selling Shareholder or by operation of law, whether by the death, disability, incapacity or liquidation of the Selling Shareholder or by the occurrence of any other event or events (including without limita- tion the termination of any trust or estate for which the Selling Shareholder is acting as a fiduciary or fiduciaries), and if, after the execution hereof, the Selling Shareholder shall die or become disabled or incapacitated or is liquidated, or if any other such event or events shall occur before the completion of the transactions contemplated by this Power of Attorney, the Committee shall nevertheless be authorized and directed to complete all such transactions as if such death, disability, incapacity, liquidation or other event or events had not occurred and regardless of notice thereof. 3. Each Member shall have full power to make and substitute any person in the place and stead of such Member, 4 and the Selling Shareholder hereby ratifies and confirms all that each Member or substitute or substitutes shall do by virtue of these presents. All actions hereunder may be taken by any one Member or his substitute. In the event of the death, disability or incapacity of any Member, the remaining Member or Members shall appoint a substitute therefor. 4. The Selling Shareholder hereby represents, warrants and covenants that: (a) All information furnished to the Company by or on behalf of the Selling Shareholder for use in connection with the preparation of the Registration Statement is and will be true and correct in all material respects and does not and will not omit any material fact necessary to make such information not misleading; (b) The Selling Shareholder, having full right, power and authority to do so, has duly executed and delivered this Power of Attorney; (c) The Selling Shareholder has carefully reviewed the Registration Statement and will carefully review each amendment thereto immediately upon receipt thereof from the Company and will promptly advise the Company in writing if: (i) The name and address of the Selling Shareholder is not properly set forth in each preliminary prospectus (collectively, the "Preliminary Prospectus") contained in the Registration Statement and the prospectuses (collectively, the "Prospectus") contained in the Registration Statement at the time it becomes effective; (ii) The Selling Shareholder has reason to believe that (A) any information furnished to the Company by or on behalf of the Selling Shareholder for use in connection with the Registration Statement or the Prospectus or any Preliminary Prospectus is not true and complete; and (B) any Preliminary Prospectus, the Prospectus and any supplements thereto contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; (iii) The Selling Shareholder knows of any material adverse information with regard to the current or prospective operations of the Company or any of its subsidiaries which is not disclosed in any Pre- 5 liminary Prospectus, the Prospectus or the Registration Statement; or (iv) Except as indicated in the Prospectus, the Selling Shareholder knows of any arrangements made or to be made by any person, or of any transaction already effected, (A) to limit or restrict the sale of shares of the Common Stock during the period of the public distribution, (B) to stabilize the market for the Common Stock or (C) for withholding commissions, or otherwise to hold any other person responsible for the distribution of the Selling Shareholder's participation; (d) In connection with the offering of the Shares, the Selling Shareholder has not taken and will not take, directly or indirectly, any action intended to, or which might reasonably be expected to, cause or result in stabilization or manipulation of the price of the Shares to facilitate the sale or resale of the Shares; (e) The Selling Shareholder has not distributed and will not distribute any prospectus or other offering material in connection with the offering and sale of the Shares other than a Preliminary Prospectus, a Prospectus or other material permitted by the Act; (f) The Selling Shareholder will notify the Company in writing immediately of any changes in the foregoing information which should be made as a result of developments occurring after the date hereof and prior to the Closing Date under the Underwriting Agreement, and the Committee may consider that there has not been any such development unless advised to the contrary; (g) The Selling Shareholder has, and at the time of delivery of the Shares to the Representatives and the Managers it will have, full power and authority to enter into this Power of Attorney, to carry out the terms and provisions hereof and to make all the representations, warranties and covenants contained herein; and (h) This Power of Attorney is the valid and binding agreement of the Selling Shareholder and is enforceable against the Selling Shareholder in accordance with its terms. 5. The representations, warranties and covenants of the Selling Shareholder in this Power of Attorney are made for the benefit of, and may be relied upon by, [the other Selling Shareholders,] the Committee, the Company and its counsel, and their representatives, agents and counsel, the Custodian, the Underwriters and the Representatives. 6 6. The Committee shall be entitled to act and rely upon any statement, request, notice or instructions respecting this Power of Attorney given to it by the Selling Shareholder, not only as to the authorization, validity and effectiveness thereof, but also as to the truth and acceptability of any information therein contained. It is understood that the Committee assumes no responsibility or liability to any person other than to deal with the Shares deposited with it and the proceeds from the sale of the Shares in accordance with the provisions hereof. The Committee makes no representations with respect to and shall have no responsibility for the Registration Statement, the Prospectus or any Preliminary Prospectus nor, except as herein expressly provided, for any aspect of the offering of Common Stock, and it shall not be liable for any error of judgment or for any act done or omitted or for any mistake of fact or law except for its own negligence or bad faith. The Selling Shareholder agrees to indemnify the Committee for and to hold the Committee harmless against any loss, claim, damage or liability incurred on its part arising out of or in connection with it acting as the Committee under this Power of Attorney, as well as the cost and expense of investigating and defending against any such loss, claim, damage or liability, except to the extent such loss, claim, damage or liability is due to the negligence or bad faith of the Member seeking indemnification. The Selling Shareholder agrees that the Committee may consult with counsel of its own choice (who may be counsel for the Company) and it shall have full and complete authorization and protection for any action taken or suffered by it hereunder in good faith and in accordance with the opinion of such counsel. It is understood that the Committee may, without breaching any express or implied obligation to the Selling Shareholder hereunder, release, amend or modify any other Power of Attorney granted by any other Selling Shareholder. 7. It is understood that the Committee shall serve entirely without compensation. 8. This Power of Attorney shall be governed by the laws of the State of New York without regard to the conflict of laws principles of such State. This Power of Attorney may be signed in two or more counterparts with the same effect as if the signature thereto and hereto were upon the same instrument. In case any provision in this Power of Attorney shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 7 This Power of Attorney shall be binding upon the Committee and the Selling Shareholder and the heirs, legal representatives, distributees, successors and assigns of the Selling Shareholder. Dated: __________, 19__ Very truly yours, _____________________________*/ _____________________________*/ Signature(s) of Selling Shareholder(s) _____________________________ (Address) SHARES TO BE SOLD: _____ shares of Common Stock ACKNOWLEDGED AND ACCEPTED: THE COMMITTEE: ______________________________ ______________________________ ______________________________ ______________________________ - -------------------- */1 To be signed in exactly the same manner as the shares are registered. NOTE: SIGNATURES MUST BE NOTARIZED Selling Shareholders should use the appropriate form for the state in which they are located. Attachment A CUSTODY AGREEMENT ----------------- CUSTODY AGREEMENT, dated ________, 19__, among ___________________________, as Custodian (the "Custodian"), and the person[s] listed on Annex I hereto ([each] a "Selling Shareholder" [and collectively the "Selling Shareholders"]). Noodle Kadoodle, Inc., a Delaware corporation (the "Company"), intends to file a Registration Statement (the "Registration Statement") with the Securities and Exchange Commission to register for sale to the public under the Securities Act of 1933, as amended (the "Act"), shares of the Company's common stock, [$.001] par value per share (the "Common Stock"). The shares to be covered by the Registration Statement shall consist of (a) up to ________ shares of Common Stock to be sold by the Company and (b) up to ________ shares of Common Stock (the "Shares") to be sold by the Selling Shareholders. [Each of] the Selling Shareholder[s] has executed and delivered a Power of Attorney (the "Power of Attorney") naming _____________, ____________ and _______________, and each of them, as his attorney-in-fact (the "Committee"), for certain purposes, including the execution, delivery and performance of this Agreement in his name, place and stead, in connection with the proposed sale by each Selling Shareholder of the number of Shares set forth opposite such Selling Shareholder's name in Annex I. 1. A custody arrangement is hereby established by the Selling Shareholders with the Custodian with respect to the Shares, and the Custodian is hereby instructed to act in accordance with this Agreement and any amendments or supplements hereto authorized by the Committee. 2. There are herewith delivered to the Custodian, and the Custodian hereby acknowledges receipt of, certificates representing the Shares, which certificates have been endorsed in blank or are accompanied by duly executed stock powers, in each case with all signatures guaranteed by a commercial bank or trust company or by a member firm of the New York Stock Exchange, Inc., the American Stock Exchange, Inc. or a member of the National Association of Securities Dealers, Inc. Such certificates are to be held by the Custodian for the account of the Selling Shareholders and are to be disposed of by the Custodian in accordance with this Agreement. 2 3. The Custodian is authorized and directed by the Selling Shareholder[s]: (a) To hold the certificates representing the Shares delivered by the Selling Shareholder[s] in its custody; (b) On or immediately prior to the settlement date for any Shares sold pursuant to the Registration Statement (the "Closing Date"), to cause such Shares to be transferred on the books of the Company into such names as the Custodian shall have been instructed by the Representatives (the "Representatives") of the several Underwriters (the "Underwriters"); to cause to be issued, against surrender of the certificates for the Shares, a new certificate or certificates for such Shares, free of any restrictive legend, registered in such name or names; to deliver such new certificates representing such Shares to the Representatives, as instructed by the Representatives on the Closing Date for their account or accounts against full payment therefor; and to give receipt for such payment; (c) To disburse such payments in the following manner: (i) to itself, as agent for the Selling Shareholder[s], a reserve amount to be designated in writing by the Committee from which amount the Custodian shall pay, as soon as reasonably practicable, (A) the Selling Shareholders' proportionate share of all expenses of the offering and sale of the Shares as provided in the Underwriting Agreement by and among the Company, the Selling Shareholder[s] and the Representatives, (B) its reasonable [charges and] disbursements for acting hereunder with respect to the sale of the Shares and (C) any applicable stock transfer taxes; and (ii) to [each] Selling Shareholder, pursuant to the written instructions of the Committee, (A) on the Closing Date, a sum equal to the share of the proceeds to which such Selling Shareholder is entitled, as determined by the Committee, less the reserve amount designated by any Committee, and (B) promptly after all proper charges, disbursements, costs and expenses shall have been paid, any remaining balance of the amount reserved under clause (i) above. Before making any payment from the amount reserved under clause (i) above, except payments made pursuant to subclause (B) of clause (ii) above, the Custodian shall request and receive the written approval of the Committee. To the extent the expenses referred to in subclause (A) of clause (i) above exceed the amount reserved, the Selling Shareholders shall remain liable for their proportionate share of such expenses. 4. Subject in each case to the indemnification obligations set forth in Section 7, in the event Shares of any Selling Shareholder are not sold [prior to ____________, 3 19__], the Custodian shall deliver to such Selling Shareholder as soon as practicable after [such date] termination of the offering of the Shares, certificates representing such Shares deposited by such Selling Share- holder. Certificates returned to any Selling Shareholder shall be returned with any related stock powers, and any new certificates issued to the Selling Shareholders with respect to such Shares shall bear any appropriate legend reflecting the unregistered status thereof under the Act. 5. This Agreement is for the express benefit of the Company and the Selling Shareholders, the Underwriters and the Representatives. The obligations and authorizations of the Selling Shareholders hereunder are irrevocable and shall not be terminated by any act of any Selling Share- holder or by operation of law, whether by the death, disability, incapacity or liquidation of any Selling Shareholder or by the occurrence of any other event or events (including without limitation the termination of any trust or estate for which any Selling Shareholder is acting as a fiduciary or fiduciaries), and if after the execution hereof any Selling Shareholder shall die or become disabled or incapacitated or is liquidated, or if any other event or events shall occur before the delivery of such Selling Shareholder's Shares hereunder to the Representatives, such Shares shall be delivered to the Representatives in accordance with the terms and condi- tions of this Agreement, as if such event had not occurred, regardless of whether or not the Custodian shall have received notice of such event. 6. Until payment of the purchase price for the Shares has been made to the Selling Shareholders or to the Custodian, the Selling Shareholders shall remain the owner of (and shall retain the right to receive dividends and distributions on, and to vote) the number of Shares delivered by each of them to the Custodian hereunder. Until such payment in full has been made or until the offering of Shares has been terminated, each Selling Shareholder agrees that it will not give, sell, pledge, hypothecate, grant any lien on, transfer, deal with or contract with respect to the Shares and any interests therein. 7. The Custodian shall assume no responsibility to any person other than to deal with the certificates for the Shares and the proceeds from the sale of the Shares represented thereby in accordance with the provisions hereof, and the Selling Shareholders, severally and not jointly, hereby agree to indemnify the Custodian for and to hold the Custodian harmless against any and all losses, claims, damages or liabilities incurred on its part arising out of or in connection with it acting as the Custodian pursuant hereto, as well as the cost and expenses of investigating and defending any such losses, claims, damages 4 or liabilities, except to the extent such losses, claims, damages or liabilities are due to the negligence or bad faith of the Custodian. The Selling Shareholders agree that the Custodian may consult with counsel of its own choice (who may be counsel for the Company), and the Custodian shall have full and complete authorization and protection for any action taken or suffered by the Custodian hereunder in good faith and in accordance with the opinion of such counsel. 8. Each of the Selling Shareholders, jointly and not severally, hereby represents and warrants that: (a) it has, and at the time of delivery of its Shares to the Representatives it will have, full power and authority to enter into this Agreement and the Power of Attorney, to carry out the terms and provisions hereof and thereof and to make all of the representations, warranties and agreements contained herein and therein; and (b) this Agreement and the Power of Attorney are the valid and binding agreements of such Selling Shareholder and are enforceable against such Selling Shareholder in accordance with their respective terms. 9. The Custodian's acceptance of this Agreement by the execution hereof shall constitute an acknowledgement by the Custodian of the authorization herein conferred and shall evidence the Custodian's agreement to carry out and perform this Agreement in accordance with its terms. 10. The Custodian shall be entitled to act and rely upon any statement, request, notice or instruction with respect to this Agreement given to it on behalf of each of the Selling Shareholders if the same shall be made or given to the Custodian by the Committee, not only as to the authorization, validity and effectiveness thereof, but also as to the truth and acceptability of any information therein contained. 11. This Agreement may be executed in two or more counterparts with the same effect as if the signatures thereto and hereto were upon the same instrument. Execution by the Custodian of one counterpart hereof and its delivery thereof to the Committee shall constitute the valid execution of this Agreement by the Custodian. 12. This Agreement shall be binding upon the Custodian, each of the Selling Shareholders and the respective heirs, legal representatives, distributees, successors and assigns of the Selling Shareholders. 13. This Agreement shall be governed by the laws of the State of New York without regard to the conflict of laws principles of such State. 5 14. Any notice given pursuant to this Agreement shall be deemed given if in writing and delivered in person, or if given by telephone or telegraph if subsequently confirmed by letter: (i) if to a Selling Shareholder, to his address set forth in Annex I; and (ii) if to the Custodian, to it at ___________________. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. ------------------------- -------------------------, as Custodian THE SELLING SHAREHOLDERS LISTED IN ANNEX I HERETO: By: The Committee By: ---------------------- Annex I ------- Names and Addresses of Selling Shareholders Shares to be Sold ---------------------- ----------------- __________________ Total . . . . . . . . . . . . . . . ================== Exhibit C [DATE] PAINEWEBBER INCORPORATED RODMAN & RENSHAW, INC. As Representatives of the several Underwriters c/o PaineWebber Incorporated 1285 Avenue of the Americas New York, New York 10019 Dear Ladies and Gentlemen: In consideration of the agreement of the several Underwriters, for which PaineWebber Incorporated and Rodman & Renshaw, Inc. (the "Representatives") intend to act as representatives, to underwrite a proposed public offering (the "Offering") of 2,100,000 shares of Common Stock, par value $.001 per share (the "Common Stock") of Noodle Kidoodle, Inc., a New York corporation, as contemplated by a registration statement with respect to such shares filed with the Securities and Exchange Commission on Form S-1, the undersigned hereby agrees that the undersigned will not, for a period of 150 days after the commencement of the public offering of such shares, without the prior written consent of PaineWebber Incorporated, offer to sell, sell, contract to sell, grant any option to sell, or otherwise dispose of, or require the Company to file with the Securities and Exchange Commission a registration statement under the Securities Act of 1933 to register, any shares of Common Stock or securities convertible into or exchangeable for Common Stock or warrants or other rights to acquire shares of Common Stock of which the undersigned is now, or may in the future become, the beneficial owner (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934) (other than pursuant to employee stock option plans or in connection with other employee incentive compensation arrangements). Very truly yours, By:________________________ Print Name: ________________________ EXHIBIT D Form of Opinion of Counsel to the Company ---------------------- 1. The Company and each of its Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has full corporate power and authority to conduct all the activities conducted by it, to own or lease all the assets owned or leased by it and to conduct its business as described in the Registration Statement and the Prospectus. The Company is the sole record owner and, to our knowledge, the sole beneficial owner of all of the capital stock of each of its Subsidiaries. 2. All of the outstanding shares of Common Stock have been, and the Shares, when paid for by the Underwriters in accordance with the terms of the Agreement, will be, duly authorized, validly issued, fully paid and nonassessable and will not be subject to any preemptive or similar right under (i) the statutes, judicial and administrative decisions, and the rules and regulations of the governmental agencies of the State of [Delaware], (ii) the Company's certificate of incorporation or by-laws or (iii) any instrument, document, contract or other agreement referred to in the Registration Statement or any instrument, document, contract or agreement filed as an exhibit to the Registration Statement. Except as described in the Registration Statement or the Prospectus, to the best of our knowledge, there is no commitment or arrangement to issue, and there are no outstanding options, warrants or other rights calling for the issuance of, any share of capital stock of the Company or any Subsidiary to any person or any security or other instrument that by its terms is convertible into, exercisable for or exchangeable for capital stock of the Company. 3. No consent, approval, authorization or order of, or any filing or declaration with, any court or governmental agency or body is required in connection with the authorization, issuance, transfer, sale or delivery of the Shares by the Company, in connection with the execution, delivery and performance of the Agreement1/ by the Company or in - connection with the taking by the Company of any action contemplated thereby [or, if so required, all such consents, approvals, authorizations and orders, [specifying the same] have been obtained and are in full force and effect], except such as have been obtained under the Act and - -------------------- 1/ All references in this opinion to the Agreement shall include the - - Price Determination Agreement. 2 the Rules and Regulations and such as may be required under state securities or "Blue Sky" laws or by the by-laws and rules of the NASD in connection with the purchase and distribution by the Underwriters of the Shares to be sold by the Company. 4. The authorized, issued and outstanding capital stock of the Company is as set forth in the Registration Statement and the Prospectus under the caption "Capitalization." The description of the Common Stock contained in the Prospectus is complete and accurate in all material respects. The form of certificate used to evidence the Common Stock is in due and proper form and complies with all applicable statutory requirements. 5. The Registration Statement and the Prospectus comply in all material respects as to form with the requirements of the Act and the Rules and Regulations (except that we express no opinion as to financial state- ments, schedules and other financial data contained in the Registration Statement or the Prospectus). 6. To the best of our knowledge, any instrument, document, lease, license, contract or other agreement (collectively, "Documents") required to be described or referred to in the Registration Statement or the Prospectus has been properly described or referred to therein and any Document required to be filed as an exhibit to the Registration Statement has been filed as an exhibit thereto or has been incorporated as an exhibit by reference in the Registration Statement; and no default exists in the due performance or observance of any material obligation, agreement, covenant or condition contained in any Document filed or required to be filed as an exhibit to the Registration Statement. 7. To the best of our knowledge, except as disclosed in the Registration Statement or the Prospectus, no person or entity has the right to require the registration under the Act of shares of Common Stock or other securities of the Company by reason of the filing or effectiveness of the Registration Statement. 8. To the best of our knowledge, the Company is not in violation of, or in default with respect to, any law, rule, regulation, order, judgment or decree, except as may be described in the Prospectus or such as in the aggregate do not now have and will not in the future have a material adverse effect upon the operations, business or assets of the Company and the Subsidiaries, taken as a whole. 9. All descriptions in the Prospectus of statutes, regulations or legal or governmental proceedings are 3 accurate and fairly present the information required to be shown. 10. The Company has full corporate power and authority to enter into the Agreement, and the Agreement has been duly authorized, executed and delivered by the Company, is a valid and binding agreement of the Company and, except for the indemnification and contribution provisions thereof, as to which we express no opinion, is enforceable against the Company in accordance with the terms thereof. 11. The execution and delivery by the Company of, and the performance by the Company of its agreements in, the Agreement do not and will not (i) violate the certificate of incorporation or by-laws of the Company, (ii) breach or result in a default under, cause the time for performance of any obligation to be accelerated under, or result in the creation or imposition of any lien, charge or encumbrance upon any of the assets of the Company or any of its Subsidiaries pursuant to the terms of, (x) any indenture, mortgage, deed of trust, loan agreement, bond, deben- ture, note agreement, capital lease or other evidence of indebtedness of which we have knowledge, (y) any voting trust arrangement or any contract or other agreement to which the Company is a party that restricts the ability of the Company to issue securities and of which we have knowledge or (z) any Document filed as an exhibit to the Registration Statement, (iii) breach or otherwise violate any existing obligation of the Company under any court or administrative order, judgment or decree of which we have knowledge or (iv) violate applicable provisions of the [General Corporation Law of the State of Delaware or] any statute or regulation [of the State of New York] or of the United States. 12. Delivery of certificates for the Shares will transfer valid and marketable title thereto to each Underwriter that has purchased such Shares in good faith and without notice of any adverse claim with respect thereto. 13. The Company is not an "investment company" or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company," as such terms are defined in the Investment Company Act of 1940, as amended. 14. The Shares have been duly authorized for [inclusion on the Nasdaq National Market]. 15. The disclosures in the Prospectus concerning the effects of federal, state and local statutes and regulations and legal or governmental proceedings on the Company's business as currently conducted and as 4 contemplated are correct in all material respects and fairly present the information required to be disclosed therein. 16. We hereby confirm to you that we have been advised by the Commission that the Registration Statement has become effective under the Act and that no order suspending the effectiveness of the Registration Statement has been issued and no proceeding for that purpose has been instituted or is pending, threatened or contemplated. 17. We hereby further confirm to you that there are no actions, suits, proceedings or investigations pending or, to our knowledge, overtly threatened in writing against the Company or any of its Subsidiaries, or any of their respective officers or directors in their capacities as such, before or by any court, governmental agency or arbitrator which (i) seek to challenge the legality or enforceability of the Agreement, (ii) seek to challenge the legality or enforceability of any of the Documents filed, or required to be filed, as exhibits to the Registration Statement, (iii) seek damages or other remedies with respect to any of the Documents filed, or required to be filed, as exhibits to the Registration Statement, (iv) except as set forth in or contemplated by the Registration Statement and the Prospectus, seek money damages in excess of $100,000 or seek to impose criminal penalties upon the Company, any of its Subsidiaries or any of their respective officers or directors in their capacities as such and of which we have knowledge or (v) seek to enjoin any of the business activities of the Company or any of its Subsidiaries or the transactions described in the Prospectus and of which we have knowledge. We have participated in the preparation of the Registration Statement and the Prospectus and, without assuming any responsibility for the accuracy, completeness or fairness of the statements contained in the Registration Statement or the Prospectus or in any amendment or supplement thereto, nothing has come to our attention that causes us to believe that, both as of the Effective Date and as of the Closing Date and the Option Closing Date, the Registration Statement or any amendment thereto contained or contains any untrue statement of a material fact or omitted or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that any Prospectus or any amendment or supplement thereto, at the time such Prospectus was issued, at the time any such amended or supplemented Prospectus was issued, at the Closing Date and the Option Closing Date, contained or contains any untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances in which they were made, not misleading 5 (except that we express no opinion as to financial statements, schedules and other financial data contained in the Registration Statement or the Prospectus. The foregoing opinion is subject to the qualification that the enforceability of the Agreement may be: (i) subject to bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally; and (ii) subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding at law or in equity) including principles of commercial reasonableness or conscionability and an implied covenant of good faith and fair dealing. This letter is furnished by us solely for your benefit in connection with the transactions referred to in the Agreement and may not be circulated to, or relied upon by, any other person, except that this letter may be relied upon by your counsel in connection with the opinion letter to be delivered to you pursuant to Section 5(f) of the Agreement. EXHIBIT E Form of Opinion of Counsel to the Selling Shareholders -------------------- 1. Each of the Selling Shareholders has full power and authority to enter into the Agreement and the Agreement and Power of Attorney and to sell, transfer and deliver such Shares pursuant to the Agreement and the Agreement and Power of Attorney. All authorizations and consents necessary for the execution and delivery of the Agreement and the Agreement and Power of Attorney on behalf of each of the Selling Shareholders has been given. The delivery of the Shares on behalf of the Selling Shareholders pursuant to the terms of the Agreement and payment therefor by the Underwriters will transfer good and marketable title to the Shares to the several Underwriters purchasing the Shares, free and clear of all liens, encumbrance and claims whatsoever. 2. Each of the Agreement and the Agreement and Power of Attor- ney has been duly authorized, executed and delivered by or on behalf of each of the Selling Shareholders, is a valid and binding agreement of each Selling Shareholder and, except for the indemnification and contribution provisions of the Agreement, the Agreement and the Agreement and Power of Attorney are enforceable against the Selling Shareholders in accordance with the terms thereof. 3. No consent, approval, authorization or order of, or any filing or declaration with, any court or governmental agency or body is required in connection with the authorization, issuance, transfer, sale or delivery of the Shares by or on behalf of the Selling Shareholders, in connection with the execution, delivery and performance of the Agreement1/ and the Agreement and Power of Attorney by or on behalf of - the Selling Shareholders or in connection with the taking by or on behalf of the Selling Shareholders of any action contemplated thereby [or, if so required, all such consents, approvals, authorizations and orders [speci- fying the same] have been obtained and are in full force and effect], except such as have been obtained under the Act or the Rules and Regulations and such as may be required under state securities or "Blue Sky" laws or by the by-laws and rules of the NASD in connection with the purchase and distribution by the Underwriters of the Shares to be sold by the Selling Shareholders. - -------------------- 1/ All refere1nces in this opinion to the Agreement shall include the - - Price Determination Agreement. 2 4. The execution and delivery by the Selling Shareholders of, and the performance by the Selling Shareholders of their agreements in, the Agreement and the Agreement and Power of Attorney, do not and will not (i) violate the certificate of incorporation or by-laws of any corporate Selling Shareholder, (ii) breach or result in a default under, cause the time for performance of any obligation to be accelerated under, or result in the creation or imposition of any lien, charge or encumbrance upon any of the assets of any Selling Shareholder pursuant to the terms of, (x) any indenture, mortgage, deed of trust, loan agreement, bond, debenture, note agreement, capital lease or other evidence of indebtedness of which we have knowledge, (y) any voting trust arrangement or any contract or other agreement to which any Selling Shareholder is a party that restricts the ability of any such Selling Shareholder to issue securities and of which we have knowledge or (2) any other contract or other agreement of which we have knowledge, (iii) breach or otherwise violate any existing obligation of any Selling Shareholder under any court or administrative order, judgment or decree of which we have knowledge or (iv) violate applicable provisions of any statute or regulation in the States of [Delaware and New York or of the United States. 5. There are no transfer or similar taxes payable in connection with the sale and delivery of the Shares by the Selling Shareholders to the several Underwriters, except as specified in such opinion. The foregoing opinion is subject to the qualification that the enforceability of the Agreement and the Agreement and Power of Attorney may be: (i) subject to bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally; and (ii) subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding at law or in equity), including principles of commercial reasonableness or conscionability and an implied covenant of good faith and fair dealing. This letter is furnished by us solely for your benefit in connection with the transactions referred to in the Agreement and may not be circulated to, or relied upon by, any other person, except that this letter may be relied upon by your counsel in connection with the opinion letter to be delivered to you pursuant to Section 6(g) of the Agreement. EX-10.6 3 Exhibit 10.6 OFFICER'S CERTIFICATE OF GREENMAN BROS. INC. ------------------------------ The undersigned, William A. Johnson, Jr. on behalf of Greenman Bros. Inc., a New York corporation (the "Company"), does hereby certify as follows: 1. I am the Vice President, Chief Financial Officer and Secretary of the Company. 2. Attached hereto as Exhibit A is a complete and accurate copy of certain resolutions of the Board of Directors of the Company (the "Board") which were unanimously adopted by the Board on October 26, 1995 and approved by the Company's stockholders at a special meeting of stockholders on December 11, 1995, and which remain in full force and effect. IN WITNESS WHEREOF, the undersigned has affixed his signature this 13th day of December, 1995. /s/ William A. Johnson, Jr. ---------------------------- William A. Johnson, Jr. Vice President, Chief Financial Officer and Secretary Exhibit A --------- RESOLUTIONS OF THE BOARD OF DIRECTORS OF GREENMAN BROS. INC. WHEREAS the Board of Directors deems it desirable and in the best interests of the Company and its stockholders that the Company's 1994 Outside Directors' Stock Option Plan (the "Plan") be amended to increase the total number of Plan shares and to increase the number of shares automatically granted under the Plan; NOW, THEREFORE, it is RESOLVED, that Section 3 (a) of the Plan be, and it hereby is, amended to read as follows: "Shares of common stock of the Company ("Common Stock") transferred upon the exercise of options granted under the Plan shall be authorized and unissued or treasury shares. Subject to Section 3(b), the aggregate number of shares of Common Stock which may be transferred pursuant to the Plan shall be 125,000 shares. Any shares of Common Stock that are subject to a stock option under the Plan and that have not been transferred at the time such option is cancelled or terminated shall again be available for awards under the Plan;" and it is further, RESOLVED, that Section 5 (c) of the Plan be, and it hereby is, amended to read as follows: "As of April 26, 1996, and each April 26 thereafter, each person who is then an Eligi- ble Director and who has been an Eligible Director for at least six months shall be granted an option to purchase 4,000 shares of Common Stock." EX-23.1 4 Exhibit 23.1 INDEPENDENT AUDITORS' REPORT To the Stockholders and Board of Directors of Noodle Kidoodle, Inc. (formerly Greenman Bros. Inc.) We consent to the use of our report included herein and to the reference to our firm under the heading "Experts" in the prospectus. /s/ JANOVER RUBINROIT, LLC JANOVER RUBINROIT, LLC New York, New York December 13, 1995 -----END PRIVACY-ENHANCED MESSAGE-----