As filed with the Securities and Exchange Commission on January 8, 1997
Registration No. 333-_______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------
KIDS STUFF, INC.
(Name of small business issuer in its charter)
DELAWARE 5961 34-1843520
-------- ---- ----------
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of organization) Classification Code No.) Identification No.)
4450 Belden Village Street, N.W., Suite 406
Canton, Ohio 44718
(330) 492-8090
(Address and telephone number of principal executive offices and
principal place of business.)
William L. Miller, Chief Executive Officer
Kids Stuff, Inc.
4450 Belden Village Street, N.W., Suite 406
Canton, Ohio 44718
(330) 492-8090
(Name, address and telephone number of agent for service)
Copies to:
Michael T. Greif, Esq. Steven F. Wasserman, Esq.
Hornsby, Sacher, Zelman, Bernstein & Wasserman, LLP
Stanton, Paul & Beiley, P.A. 950 Third Avenue
1401 Brickell Avenue, Suite 700 New York, New York 10022
Miami, Florida 33131 (212) 826-0730
(305) 371-8797 (212) 371-4730 (Fax)
(305) 374-2605 (Fax)
Approximate date of commencement of proposed sale to public:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis, pursuant to Rule 415 under the
Securities Act of 1933, check the following box: [ x ]
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: [_]
<PAGE>
<TABLE>
<CAPTION>
Calculation of Registration Fee
================================================================================================================================
Title of Each Amount Proposed Proposed Maximum Amount of
Class of Securities to be Maximum Offering Aggregate Offering Registration
Being Registered Registered Price Per Unit Price(1) Fee
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Units, each consisting of two shares of Common 345,000 $10.00 per Unit $3,450,000 $1,045
Stock, $.001 par value per share, and one Class A
Warrant to purchase one share of Common Stock(2)
Shares of Common Stock included in the Units 690,000 - - -
Class A Warrants included in the Units 345,000 - - -
Shares of Common Stock underlying Class A 345,000 $5.00 per share $1,725,000 523
Warrants(3)
Class A Warrants of Selling Securityholders 1,500,000 - - (4)
Common Stock underlying Class A Warrants of 1,500,000 $5.00 per share $7,500,000 2,273
Securityholders(5)
Underwriter's Unit Purchase Option
("Underwriter's Option"), each Unit consistent of
two shares of Common Stock, and one Class A
Warrant to purchase one share of Common Stock 30,000 $12.00 per Unit $360,000 $109
Shares of Common Stock included in the
Underwriter's Option 60,000 - - -
Class A Warrants included in the Underwriter's
Option 30,000 $8.25 - $75
Shares of Common Stock underlying Class A
Warrants included in the Underwriter's Option(6) 30,000 - - -
------
Total Registration Fee $4,025
================================================================================================================================
<FN>
(1) Estimated solely for purposes of determining the registration fee pursuant
to Rule 457 under the Securities Act of 1933.
(2) Includes 45,000 Units which the Underwriter has the option to purchase from
the Registrant to cover over-allotments, if any.
(3) Issuable upon the exercise of Class A Warrants to be offered to the public.
(4) No fee is required under Rule 457(g).
(5) Issuable upon the exercise of the Class A Warrants of Securityholders.
(6) Issuable upon the exercise of the Class A Warrants included in the 30,000
Units included in the Underwriter's Option.
</FN>
</TABLE>
----------
The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
EXPLANATORY NOTE
This registration statement (the "Registration Statement") contains two
prospectuses: one relating to the offering by Kids Stuff, Inc. (the "Company")
of 345,000 Units (including 45,000 Units to cover over-allotments, if any), each
Unit consisting of two shares of Common Stock and one Class A Warrant (the
"Company's Prospectus"); and, one relating to the offering by three bridge
lenders (the "Selling Securityholders") of up to 1,500,000 Class A Warrants held
by them (the "Selling Securityholders' Prospectus"). Following the Company's
Prospectus are certain substitute pages of the Selling Securityholders'
Prospectus, including alternate front outside and back cover pages, an alternate
"The Offering" section of the "Prospectus Summary" and sections entitled
"Concurrent Offering" and "Selling Securityholders; Plan of Distribution." Each
of the alternate pages for the Selling Securityholders' Prospectus included
herein is labeled "Alternate Page for Selling Securityholders' Prospectus." All
other sections of the Company's Prospectus, other than "Selling Securityholders"
and "Underwriting", are to be used in the Selling Securityholders' Prospectus.
In addition, cross-references in the Company's Prospectus will be adjusted in
the Selling Securityholders' Prospectus to refer to the appropriate sections,
and references to "the Offering" or "this Offering" in the Company's Prospectus
will be referenced in the Selling Securityholders' Prospectus as "the Concurrent
Offering" where appropriate.
<PAGE>
<TABLE>
<CAPTION>
KIDS STUFF, INC.
Cross-Reference Sheet
Showing Location in Prospectus of
Information Required by Items in Part I of Form SB-2
REGISTRATION STATEMENT
ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS
----------------------- ----------------------
<S> <C> <C>
1. Front of Registration Statement and
Outside Front Cover of Prospectus....... Outside Front Cover Page of Prospectus
2. Inside Front and Outside Bank
Cover Pages of Prospectus............... Inside Front and Outside Bank Cover Pages of
Prospectus; Additional Information
3. Summary Information and Risk Prospectus Summary; Risk Factors
Factors.................................
4. Use of Proceeds......................... Use of Proceeds
5. Determination of Offering Price......... Outside Front Cover Page of Prospectus;
Underwriting
6. Dilution................................ Dilution
7. Selling Securityholders................. Selling Securityholders
8. Plan of Distribution.................... Outside Front Cover Page of Prospectus; Selling
Securityholders; Underwriting
9. Legal Proceedings....................... Business - Legal Proceedings
10. Directors, Executive Officers,
Promoters and Control Persons........... Management
11. Security Ownership of Certain
Beneficial Owners and Management........ Principal Stockholders
12. Description of Securities............... Description of Securities; Dividends
13. Interest of Named Experts and Legal Matters
Counsel.................................
14. Disclosure of Commission Position
on Indemnification for Securities Underwriting
Act Liabilities.........................
15. Organization Within Last Five The Company and its Parent
Years...................................
16. Description of Business................. Prospectus Summary; The Company and its Parent;
Business
17. Management's Discussion and
Analysis or Plan of Operation........... Management's Discussion and Analysis of Financial
Condition and Results of Operations
18. Description of Property................. Business
19. Certain Relationships and Related Certain Transactions
Transactions............................
20. Market for Common Equity and Risk Factors; Unregistered Shares Eligible for
Related Stockholder Matters............. Immediate and Future Sale; Description of Securities
21. Executive Compensation.................. Management - Executive Compensation
22. Financial Statements.................... Financial Statements
23. Changes in and Disagreements with
Accountants on Accounting and Not Applicable
Financial Disclosure....................
</TABLE>
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JANUARY 8, 1997
PROSPECTUS
KIDS STUFF, INC.
300,000 UNITS
Each Unit Consisting of Two Shares of Common Stock
and One Common Stock Class A Purchase Warrant
Kids Stuff, Inc. (the "Company") is offering for sale 300,000 units
(the "Units"), each Unit consisting of two shares of common stock, $.001 par
value (the "Common Stock") and one redeemable Class A warrant (the "Warrant") to
purchase one share of Common Stock. The Common Stock and the Warrants are
immediately separately transferable as of the date of this Prospectus. Each
Warrant entitles the holder to purchase one share of Common Stock at a price of
$5.00 for a period of four years commencing one year after the date of this
Prospectus. The Company may redeem the Warrants at a price of $.05 per Warrant,
at any time after they become exercisable, upon not less than 30 days' prior
written notice, if the closing bid price of the Common Stock has been at least
$12.00 per share for 20 consecutive trading days ending on the 5th day prior to
the date on which the notice of redemption is given. See "DESCRIPTION OF
SECURITIES."
The registration statement of which this Prospectus forms a part also
contains a separate Prospectus for the sale by three selling bridge lenders (the
"Selling Securityholders") of up to 1,500,000 Warrants. No proceeds from the
sale of any such securities by the Selling Securityholders will be received by
the Company. These Warrants may be sold from time to time directly by the
Selling Securityholders or, alternatively, through underwriters, dealers or
agents. The distribution of the Warrants by the Selling Securityholders may be
effected in one or more transactions or through sales to one or more
broker-dealers for resale of such Warrants as principals, at prices prevailing
at the time of such sales, at prices related to such prevailing market price or
at negotiated prices. The sale of the Warrants by the Selling Securityholders
are subject to Prospectus delivery and other requirements of the Security Act of
1933. Sales of the Warrants by the Selling Securityholders or even the potential
of such sales may have an adverse affect on the market price of the Company's
securities should a public trading market develop. See "SELLING
SECURITYHOLDERS."
Prior to this Offering, there has been no public market for the Units
and there can be no assurance that any such market will develop. For information
regarding the factors considered in determining the initial public offering
price of the Units and the exercise price of the Warrants, see "UNDERWRITING."
The Units, Common Stock and Warrants are expected to be approved for quotation
on the OTC Bulletin Board under the symbols "KIDSU," "KIDS," and "KIDW,"
respectively. See "RISK FACTORS -- Certain Implications of Trading
Over-The-Counter; `Penny Stock' Regulations." The Company anticipates that the
securities offered hereby will be qualified for sale by the Company in a limited
number of states. See "RISK FACTORS - Limits on Secondary Trading; Current
Prospectus and State Sky Registration Required to Exercise Warrants."
----------
AN INVESTMENT IN THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. AND SHOULD BE CONSIDERED ONLY BY PERSONS WHO CAN AFFORD
THE LOSS OF THEIR ENTIRE INVESTMENT. See "RISK FACTORS" AND "DILUTION."
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
<TABLE>
<CAPTION>
=============================================================================================================================
Price Underwriting Proceeds
to Discounts and to
Public Commissions(1) Company(2)
------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Unit...................................... $10.00 $1.00 $9.00
Total(3)...................................... $3,000,000 $300,000 $2,700,000
=============================================================================================================================
<FN>
(1) Does not include additional compensation to be received by the Underwriter
in the form of a non-accountable expense allowance equal to 3% of the
public offering price of the Units, the value of a non-redeemable option
granted to the Underwriter to purchase up to 30,000 Units at an exercise
price of $12.00 per Unit, or a three year financial consulting agreement at
a cost to the Company of $100,000 payable in advance at the Closing of this
Offering. The Company has also agreed to indemnify the Underwriter against
certain liabilities, including liabilities under the Securities Act of
1933, as amended. See "UNDERWRITING."
(2) Before deducting expenses of the Offering payable by the Company, estimated
at $453,371, including the non-accountable expense allowance in the amount
of $90,000 ($103,500 if the Underwriter's over-allotment option is
exercised in full), and the financial consulting fee referenced in note
(1).
(3) The Company has granted the Underwriter an option, exercisable within 30
days from the date of this Prospectus, to purchase up to 45,000 additional
Units, solely to cover over-allotments, if any. If such over-allotment
option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be approximately
$3,450,000 and $345,000 and $3,105,000, respectively. See "UNDERWRITING."
</FN>
</TABLE>
The Units being offered for sale by the Company are being offered on a
"firm commitment" basis, subject to prior sale, when, as and if delivered to and
accepted by the Underwriter. The Underwriter reserves the right to withdraw,
cancel or modify the offering and to reject any order in whole or in part. It is
expected that delivery of certificates representing the Units will be made
against payment therefor on or about _______________, 1997. The Underwriter has
no agreement with any of the Selling Securityholders with respect to the sale of
the 1,500,000 Warrants being offered for sale by the Selling Securityholders.
VTR CAPITAL, INC.
The date of this Prospectus is __________, 1997.
<PAGE>
[INSIDE FRONT COVER]
[COLOR PHOTO]
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON
STOCK OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE OVER-THE-COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
A SIGNIFICANT AMOUNT OF THE UNITS TO BE SOLD IN THE OFFERING MAY BE
SOLD TO CUSTOMERS OF THE UNDERWRITER. SUCH CUSTOMERS SUBSEQUENTLY MAY ENGAGE IN
TRANSACTIONS FOR THE SALE OR PURCHASE OF THE UNITS AND/OR THE SECURITIES
INCLUDED THEREIN WITH OR THROUGH THE UNDERWRITER.
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFERING
DESCRIBED HEREIN OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, ANY SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR ANY OTHER PERSON. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OTHER THAN THE SECURITIES TO WHICH IT RELATES, NOR DOES IT CONSTITUTE ANY OFFER
OF SUCH SECURITIES TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER IS
UNLAWFUL. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, AND
SHOULD BE READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND THE
FINANCIAL STATEMENTS (INCLUDING THE NOTES THERETO) APPEARING ELSEWHERE IN THIS
PROSPECTUS. EACH PROSPECTIVE INVESTOR IS URGED TO READ THIS PROSPECTUS IN ITS
ENTIRETY. UNLESS OTHERWISE INDICATED, ALL REFERENCES IN THIS PROSPECTUS TO THE
COMPANY INCLUDE THE COMPANY AND ITS PREDECESSOR, PERFECTLY SAFE, INC.
THE COMPANY
The Company is a specialty direct marketer which currently publishes
two catalogs with an emphasis on children's hardgood products (i.e., products
not primarily made from fabrics) from prenatal to age three. The Company's first
catalog, "Perfectly Safe, The Catalog For Parents Who Care/Registered
trademark/" is the nation's only catalog devoted to child safety, child-proofing
the home and safety-related products for the family. The Company has published
Perfectly Safe since 1990, and has circulated over 15 million catalogs and
helped to childproof over 300,000 homes to date.
In 1995, the Company introduced its "Jeannie's Kids Club" catalog to
broaden its market and to introduce a new direct marketing concept in children's
products. Jeannie's Kids Club offers parents of young children who become
members the opportunity of saving up to 60% compared to the price charged for
the same products in other popular children's catalogs. The current annual
membership fee is $18.00 per year.
Upon the completion of the Offering, the Company intends to acquire The
Natural Baby Catalog, which specializes in alternative children's hardgood and
softgood products from prenatal to age three, and consolidate its operations
with the operations of the Company. On a pro forma basis, the consolidated
operations of the Company and The Natural Baby Catalog would have resulted in
revenues of $9,162,141 and pre-tax profit of $464,601 for the nine months ended
September 30, 1996, and revenues of $10,952,806 and a pre-tax profit of $667,693
for the year ended December 31, 1995.
The Company believes that its expertise in the marketing and
merchandising of children's products, the recent introduction of its Jeannie's
Kids Club concept, and the intended acquisition of The Natural Baby Catalog will
provide the basis for future growth by the use of the following strategies:
CONSOLIDATION OF THE NATURAL BABY'S OPERATIONS. The Company plans to
consolidate the warehouse, telemarketing, data processing and administrative
functions of The Natural Baby Catalog into the operations of the Company. On a
pro forma basis, the pre-tax consolidation savings resulting therefrom would
have been $364,210 for the nine months ended September 30, 1996, and $655,292
for the year ended December 31, 1995.
EXPAND JEANNIE'S KIDS CLUB. Because Jeannie's Kids Club offers popular
children's products for up to 60% less than other children's catalogs, the
Company believes that there is substantial opportunity to increase the
membership of Jeannie's Kids Club, which went from inception in July 1995 to
over 30,000 current members.
MAINTAIN THE GROWTH OF THE NATURAL BABY CATALOG. Revenues of The
Natural Baby Catalog have increased from $1.7 million in 1992 to $5.2 million in
1995. Revenues increased from $3.4 million for the nine months ended September
30, 1995 to $4.3 million for the nine months ended September 30, 1996. The
Company is satisfied with the performance of The Natural Baby Catalog and will
endeavor to maintain continuity in the merchandising and marketing of the
catalog.
NEW CUSTOMER ACQUISITION PROGRAMS. Historically, the Company has relied
upon catalog circulation as the sole method to acquire new customers. Because of
the relatively short life of the acquired customer (prenatal to age three) and
the increasing costs of catalog mailings, the Company intends to pursue the
development of less costly alternative customer acquisition programs, such as
magazine solicitations, promotional inserts, and marketing joint ventures with
mass marketers of baby formula, baby food and health care products.
- 1 -
<PAGE>
REFINE CATALOG MAILING STRATEGIES. The Company's catalog circulation is
determined by statistical models and analysis which targets prospective buyers
and timing of purchasers. The Company's statistical modeling systems are
outdated. The Company intends to acquire current state-of-the-art statistical
modeling systems which it believes will enable it to increase its catalog
response rates and lower its cost per catalog mailed.
CATALOG ACQUISITIONS. Any catalog acquisitions subsequent to The
Natural Baby Catalog will depend upon the Company's ability to obtain suitable
financing. Although the Company believes that there may be additional
opportunities to acquire other children's niche catalogs, it does not intend to
pursue any other such opportunities in the near future.
The Company is a subsidiary of Duncan Hill Co., Ltd. ("Duncan Hill").
Duncan Hill also operates a pipe, tobacco and cigar mail order catalog called
"Carey's Smoke Shop," through two other wholly owned subsidiaries, E.A. Carey of
Ohio, Inc. and Highland Pipe Company. The Company succeeded to the Jeannie's
Kids Club and Perfectly Safe Catalog business of Perfectly Safe, Inc., another
subsidiary of Duncan Hill, as a result of a reorganization in which The Company
acquired the assets and liabilities of Perfectly Safe, Inc. and Perfectly Safe,
Inc. was dissolved. This reorganization was effective June 30, 1996. See "THE
COMPANY AND ITS PARENT."
The executive offices of the Company are located at 4450 Belden Village
Street, N.W., Suite 406, Canton, OH 44718, and the Company's telephone number is
(330) 492-8090.
<TABLE>
<CAPTION>
THE OFFERING
<S> <C>
Securities Offered 300,000 Units, each Unit consisting of two shares of Common Stock and
by the Company...................... one Class A warrant (the "Warrants"). The Common Stock and Warrants are
immediately separately transferable as of the date of this Prospectus.
Each Warrant entitles the holder to purchase one share of Common Stock
at an exercise price of $5.00 for a period of four years commencing one
year after the date of this Prospectus. The Company may redeem the
Warrants at a price of $.05 per Warrant at any time after they become
exercisable upon not less than 30 days' prior written notice if the
closing bid price of the Common Stock has been at least $12.00 per share
for the 20 consecutive trading days ending on the 5th day prior to the
date on which the notice of redemption is given. See "DESCRIPTION OF
SECURITIES."
Common Stock Outstanding
Prior to this Offering.............. 3,700,000 Shares
Common Stock to be Outstanding
after this Offering(1).............. 4,300,000 Shares
Additional Securities
Being Registered.................... 1,500,000 Warrants held by the Selling Securityholders, and 1,500,000
shares of Common Stock underlying these Warrants. See "SELLING
SECURITYHOLDERS."
Proposed OTC
Symbols
Units.......................... KIDSU
Common Stock................... KIDS
Warrants....................... KIDW
<FN>
- ----------
(1) Does not include: up to 90,000 shares of Common Stock subject to the
Underwriter's over-allotment option; up to 300,000 shares of Common Stock
issuable upon the exercise of the Warrants attributable to the 300,000
Units offered hereby; up to 45,000 shares of Common Stock issuable upon the
exercise of the Warrants attributable to the Underwriter's over-allotment
option; up to 90,000 shares of Common Stock subject to the non-redeemable
option granted to the Underwriter to purchase up to 30,000 Units; and, up
to 1,500,000 shares of Common Stock issuable upon the exercise of the
1,500,000 Warrants held by the Selling Securityholders. See "UNDERWRITING."
</FN>
</TABLE>
- 2 -
<PAGE>
USE OF PROCEEDS
The Company intends to apply the net proceeds of this Offering primarily
for the acquisition of The Natural Baby Catalog, the repayment of debt and for
working capital and general corporate purposes. See "USE OF PROCEEDS."
RISK FACTORS
The securities offered hereby are speculative, involve a high degree of
risk and should not be purchased by investors who cannot afford the loss of
their investment. See "RISK FACTORS."
SUMMARY FINANCIAL DATA
The summary financial data is derived from the historical financial
statements of the Company, and the pro forma combined financial statements of
the Company which assumes that the acquisition of The Natural Baby Catalog
occurred prior to the date of the Prospectus. The financial statements of the
Company include the financial statements of its predecessor, Perfectly Safe,
Inc. The summary financial data should be read in conjunction with "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" as
well as the Company's historical financial statements and the related notes
thereto, and the Company's pro forma combined financial statements and the
related notes thereto, included elsewhere in the Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
----------------------- -------------------------------
Statement of Operational Data: PRO FORMA(2) PRO FORMA
1994 1995 1995 1995 1996 1996(2)
---- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Total Revenue $5,002,519 $5,724,337 $10,952,806 $4,267,649 $4,816,950 $9,162,141
Income (Loss) from Operations 84,385 (208,942) 660,143 (108,077) (95,090) 536,499
Net Income (Loss) 74,250 (163,232) 440,677 (82,868) (94,427) 306,637
Net Income (Loss) per common $ 0.03 ($0.07) $0.10 ($0.03) ($0.04) $0.07
share
Weighted average shares outstanding 2,400,000 2,400,000 4,300,000 2,400,000 2,400,000 4,300,000
during the period(1)
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
------------------------------------------------------------------
ACTUAL AS ADJUSTED(3) PRO FORMA(3)(4)
------ -------------- ---------------
<S> <C> <C> <C>
Balance Sheet Data:
Total Assets $2,522,281 $2,884,781 $5,111,262
Working Capital (deficit) (740,054) (577,544) 833,425
Total Liabilities 2,240,437 2,440,437 2,429,213
Stockholder's Equity 281,844 444,344 2,682,049
<FN>
- ----------
(1) Reflects the Company's Common Stock owned by the parent at inception of the
Company.
(2) Assumes that the Company acquired The Natural Baby Catalog as of January 1,
1995.
(3) Gives effect to the receipt of $200,000 of proceeds from the Bridge Loan.
See "CERTAIN TRANSACTIONS - Bridge Loan." Also gives effect to the receipt
of $162,500 for the sale of 1,300,000 shares of the Company's Common Stock
to private investors. See "CERTAIN TRANSACTIONS - Rule 504 Shares."
(4) Gives effect to the sale of 300,000 Units offered hereby and the
application of the net proceeds therefrom in the amount $2,246,629. Also
gives effect to the conversion of $75,000 of the principal amount of the
Bridge Loan into 1,500,000 Warrants. See "CERTAIN TRANSACTIONS - Bridge
Loan." Also assumes that the Company acquired The Natural Baby Catalog as
of September 30, 1996.
</FN>
</TABLE>
- 3 -
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY IS SPECULATIVE AND INVOLVE A
HIGH DEGREE OF RISK AND SUBSTANTIAL DILUTION AND SHOULD ONLY BE PURCHASED BY
INVESTORS WHO CAN AFFORD TO LOSE THEIR ENTIRE INVESTMENT. EACH PROSPECTIVE
INVESTOR SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS INHERENT IN, AND
AFFECTING THE BUSINESS OF, THE COMPANY AND THIS OFFERING, TOGETHER WITH THE
OTHER INFORMATION IN HIS PROSPECTUS, BEFORE MAKING AN INVESTMENT DECISION.
1. DEPENDENCE ON OFFERING PROCEEDS. The Company experienced significant
losses for the year ended December 31, 1995 and for the nine month period ended
September 30, 1996. For the year ended December 31, 1995 the Company incurred a
net loss of $163,232 or 2.9% of revenues compared with a net income of $74,250
or 1.5% of revenues for the year ended December 31, 1994. For the nine months
ended September 30, 1996 revenues increased 12.9% to $4,816,950 with operating
losses of $94,427 or 2% of revenues. A substantial portion of these losses are
associated with the establishment and development of the Jeannie's Kids Club
Catalog beginning in July, 1995. See "MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION." As a result of its operating
losses and lack of capital, the Company is in arrears to many of its trade
creditors and needs the proceeds of this Offering to continue its operations as
well as finance its planned acquisition of The Natural Baby Catalog. See "USE OF
PROCEEDS."
2. INTEGRATION AND CONSOLIDATION OF THE NATURAL BABY CATALOG BUSINESS;
ADEQUACY OF FINANCING. The pro forma combination of the Company and The Natural
Baby Catalog shows combined net income of $440,677 and $306,637, for the year
ended December 31, 1995, and for the first nine months of 1996, respectively.
See the Company's pro forma combined financial statements and notes thereto
included elsewhere in the Prospectus. Based on these historical trends, the
Company believes that the consolidation savings anticipated from the
consolidation of the operations of The Natural Baby Catalog, together with the
working capital provided from the Company's institutional credit facility and
the net proceeds of this Offering, will be sufficient to operate the Company on
a profitable basis and to enable the Company to pursue its short-term growth
strategies. In the event, however, that the Company is unable to achieve the
anticipated consolidation savings or is otherwise unable to operate the Company
profitably, and/or the Company's institutional credit facility is terminated,
the Company may find it necessary to seek additional financing. The Company's
parent, Duncan Hill Co., Ltd. ("Duncan Hill"), does not have the financial
resources to provide the Company with additional financing if needed. Thus,
there is no assurance that the Company will be able to obtain additional
financing, if needed, on terms favorable to the Company, or at all.
Upon the acquisition of The Natural Baby Catalog, the Company intends to
consolidate the telemarketing, fulfillment, data processing and administrative
functions with the Company's current operations in Canton, Ohio. The Company
will endeavor to complete the integration and consolidation of The Natural Baby
Catalog within ninety days of the consummation of the acquisition. To the
extent, however, that the Company is unable to timely complete such integration
and consolidation or there is a competitive reaction to the Company's
acquisition of The Natural Baby Catalog (see "RISK FACTORS - Competition"), the
Company's anticipated consolidation savings and profitability will not be
realized short-term resulting in the possibility that the Company may need
additional financing (which there is no assurance that it will be able to
obtain) within twelve months from the date of the Prospectus.
3. FUTURE OPERATING RESULTS. The Company's revenue growth and future
profitability will depend on its ability to increase catalog sales, to expand
the membership of Jeannie's Kids Club and to effectively monitor and control
costs. See "BUSINESS - Strategies; and Marketing." Accordingly, there can be no
assurance that the Company will operate profitably in the future. Furthermore,
future operating results depend upon many factors, including general economic
conditions, the level of competition and the ability of the Company to continue
to attract and retain customers successfully.
4. COSTS INCREASES IN POSTAGE AND PAPER. Postal rates and paper costs
affect the cost of the Company's order fulfillment and catalog and promotional
mailings. The Company relies heavily on the rate structure of the United States
Postal Service ("USPS") and strives for discounts for bulk mailings. Like others
in the catalog industry, the Company passes along a significant portion of its
shipping and handling expense, but does
- 4 -
<PAGE>
not pass along costs of preparing and mailing catalogs and other promotional
materials. In recent years, the USPS has increased its rate for both the mailing
of catalogs and packages. In January 1995, the USPS increased the postage rate
paid by the Company by 14%. United Parcel Service has also increased its rates,
with increases occurring in February of 1994, 1995 and 1996. The price of paper
is dependent upon supply and demand in the marketplace. From January 1993
through December 1995, the price of paper available to the Company increased
95%, resulting in increased catalog production costs and contributing to
operating loses in 1995. Any future significant increases in postal rates or
paper costs could have a material adverse effect on the Company's business,
financial condition and results of operation.
5. FLUCTUATIONS IN OPERATING RESULTS. The Company's operating results may
vary significantly from period to period depending on changes in the circulation
plans of the Company's catalogs. See "BUSINESS - Marketing."
6. COMPETITION. The mail order catalog business is highly competitive. The
Company's catalogs compete with other mail order catalogs and retail stores,
including department stores, specialty stores, discount stores and mass
merchants. Many of the Company's competitors have greater financial,
distribution and marketing resources than the Company. Three can be no assurance
that the Company will be able to compete effectively with existing or potential
competitors. See "BUSINESS - Competition."
Upon its introduction of Jeannie's Kids Club Catalog in July, 1995, the
Company experienced a competitive reaction which resulted in three other
children's catalogs refusing to exchange with, or rent their mailing lists to,
the Company. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION." A similar reaction is not anticipated with the
Company's acquisition of The Natural Baby Catalog because Jeannie's Kids Club is
not, in the Company's opinion, a substantial competitor of the children's
catalogs from which The Natural Baby Catalog rents mailing lists. There can be
no assurance, however, that such a competitive reaction will not occur, or that
such an occurrence would not have an adverse effect upon the profitability of
The Natural Baby Catalog.
7. DEPENDENCE UPON KEY PERSONNEL; NEED FOR ADDITIONAL PERSONNEL. The
success of the Company is highly dependent upon the continued services of
William L. Miller, the Company's Chairman of the Board and Chief Executive
Officer, and Jeanne E. Miller, the Company's Executive Vice President. Mr.
Miller, one of the co-founders of the Company's parent, is principally
responsible for the strategic planning and development of the Company. Mrs.
Miller, the other co-founder of the Company's parent, is primarily responsible
for the merchandise selection, design and production of the catalog. Both Mr.
and Mrs. Miller will enter into a five-year employment agreement with the
Company. However, if the employment by the Company of either Mr. or Mrs. Miller
is either terminated or not renewed, or if either of them is unable to perform
his or her duties, there could be a material adverse effect upon the business of
the Company until a suitable replacement was found. The Company will attempt to
obtain a $1 million key man life insurance policy on each of Mr. and Mrs.
Miller, who are husband and wife.
The Natural Baby Catalog was founded by Jane Martin and reflects her
beliefs and philosophy. Mrs. Martin will continue to be primarily responsible
for the merchandise selection, design and production of The Natural Baby Catalog
pursuant to a two year consulting agreement with the Company. If her consulting
engagement with the Company is either terminated or not renewed, or if she is
unable to perform her duties, there could be a material adverse effect upon the
business of the Company until a suitable replacement was found. See "MANAGEMENT
- - Employment Agreements."
The success of the Company's future growth and profitability will depend,
in part, on the Company's ability to recruit and retain additional qualified
personnel over time, including a suitable candidate to succeed Mr. Miller, who
is 60 years of age, as Chief Executive Officer. There can be no assurance,
however, that the Company will be able to retain such additional qualified
personnel, once recruited, or recruit other qualified personnel.
8. LACK OF INDEPENDENT APPRAISER. The Company did not engage an independent
appraiser in connection with its intended acquisition of The Natural Baby
Catalog. Since independent valuations of such business was not conducted, the
Company may pay upon the closing of the acquisition of The Natural Baby Catalog
a
- 5 -
<PAGE>
purchase price in excess of its fair value. See "CERTAIN TRANSACTIONS -
Acquisition of The Natural Baby Catalog."
9. POTENTIAL PRODUCT LIABILITY. While the Company endeavors to sell safe
products, there is a possibility that someone could claim personal injury or
property damage resulting from the use of products purchased from the Company.
Although the Company does not manufacture its products, as a seller of products,
the Company is exposed to potential liability. Since 1990, the Company's parent,
Duncan Hill, has maintained, for itself and its subsidiaries, product liability
insurance. Currently, the amount of coverage is $1 million per occurrence, $2
million in the aggregate and a $2 million umbrella. The Company intends to
attempt to procure the same coverages in its name, alone, after the completion
of this Offering. Although the Company believes that its present insurance
coverage is sufficient for its current level of business operations, there is no
assurance that such insurance will be sufficient to cover potential claims, or
that adequate, affordable insurance coverage will be available to the Company in
the future. A partially or completely uninsured successful claim against the
Company or a successful claim in excess of the liability limits or relating to
an injury excluded under the policy could have a material adverse effect on the
Company.
10. COMPANY'S COMMITMENT TO PROVIDE MANAGEMENT AND ADMINISTRATIVE SERVICE
TO PARENT. William L. Miller, is a co-founder of the Company's parent, Duncan
Hill, which has other operating subsidiaries. See "THE COMPANY AND ITS PARENT."
Mr. Miller is currently the President of Duncan and its other subsidiaries, as
well as Chairman of the Board of Directors and Chief Executive Officer of the
Company. Mr. Miller's employment agreement with the Company will provide that he
shall be permitted to allocate his time among the various Duncan Hill entities
as he deems appropriate, providing however, that he devotes at least 80% of his
working time to the affairs of The Company. Accordingly, Mr. Miller will not be
devoting his full-time attention to managing the operations of the Company. See
"MANAGEMENT - Employment Agreements."
11. CONTROL BY PARENT AND PARENT'S CONTROLLING STOCKHOLDERS. Upon
completion of this Offering, Duncan Hill, the Company's parent, will own
approximately 55.8% of the Company's outstanding Common Stock (approximately
54.7% if the Underwriters over-allotment option is exercised in full) and 100%
of the Company's outstanding Series A Preferred Stock (5,000,000 shares) which
has the same voting privileges as the Common Stock. As a result, Duncan Hill
will remain in a position to effectively elect all of the directors of the
Company and control its affairs and policies. William L. Miller and Jeanne E.
Miller, his wife, the Company's respective Chief Executive Officer and Executive
Vice President, each respectively own 53.9% and 9.7% of the shares of the
outstanding common stock of Duncan Hill, and thus are in a position to exercise
effective control over the affairs of the Company through their effective
control over the affairs of Duncan Hill. See "PRINCIPAL SHAREHOLDERS." Ultimate
voting control by the Millers may discourage certain types of transactions
involving an actual or potential control of the Company, including transactions
in which the public holders of the Common Stock might receive a premium for
their shares over prevailing market prices.
12. MANAGEMENT INFORMATION SYSTEMS. The Company's ability to effectively
promote products, manage inventory, efficiently purchase, sell and ship
products, and maintain cost-effective operations are each dependent upon the
accuracy, capability and proper utilization of the Company's management
information systems, including its telephone system. The Company will need to
enhance the capacity and capabilities of these systems from time to time to
support its anticipated growth and remain competitive. The Company's
telemarketing, customer service and management information systems functions are
housed in a single facility located at its headquarters. The Company has a
disaster recovery program through its computer and telephone systems vendors,
and it creates a back-up tape for off-site storage of its customer list and
computer systems or any significant damage to the Company's headquarters could
have a material adverse effect on the Company's business.
13. TECHNOLOGICAL CHANGES. The direct marketing industry may be affected by
ongoing technological developments in distribution and marketing methods such as
on-line catalogs and Internet shopping. As a result, the Company's future
success will depend on its ability to keep pace with technological developments
and respond to new customer requirements. There can be no assurance that the
Company's current marketing methods will remain competitive in light of future
technological innovations.
- 6 -
<PAGE>
14. ANTI-TAKEOVER MEASURES. The Company is subject to a Delaware statute
regulating business combinations that may serve to hinder or delay a change in
control of the Company, in addition to those matters relating to control of the
Company discussed immediately, above. Also, pursuant to the Company's
certificate of incorporation, the Company's Board of Directors may from time to
time authorize the issuance of up to an additional 5,000,000 shares preferred
stock in one or more series having such preferences, rights and other provisions
as the Board of Directors may decide. Any such issuances of preferred stock
could, under certain circumstances, have the effect of delaying or preventing a
change in control of the Company and may adversely affect the rights of the
holders of the Company's Common Stock and the market for those shares. There are
no other provisions, however, in the Company's certificate of incorporation or
bylaws which would serve to delay, defer, or prevent a takeover of the Company.
15. DILUTION TO PUBLIC INVESTORS. This offering will result in an immediate
and substantial dilution of the public's investment in the Company because the
adjusted net tangible book value per share of the Common Stock upon the
completion of this offering ($.41) will be substantially less than the $5.00 per
share offering price of the two shares of Common Stock comprising a $10.00 Unit
(assumes no value is attributed to the Warrant included in a Unit). See
"DILUTION."
16. NO CASH DIVIDENDS. The Company has never paid cash dividends on its
Common Stock and does not anticipate paying cash dividends in the foreseeable
future. The Company intends to retain future earnings, if any, to finance its
growth. See "DIVIDEND POLICY."
17. STATE SALES TAX. Under current law, catalog retailers are permitted to
make sales in states where they do not have a physical presence (e.g. offices)
without collecting sales tax. Congress, however, has the power to change these
laws. Should Congress pass legislation which would permit states to require
sales tax collection by mail order companies, most states could be expected to
require such collection. This would increase the cost of purchasing the
Company's products in those states and eliminate whatever competitive advantage
that the Company may currently enjoy with respect to in-state competitors in
terms of sales taxation, as well as increasing the administrative and overhead
costs to the company in connection with the collection of such sales tax.
18. DETERMINATION OF OFFERING PRICE. The initial public offering price of
the Units and the exercise price and other terms of the Warrants have been
arbitrarily determined by the Company and the Underwriter and do not necessary
bear any relationship to the assets, book value or net worth of the Company or
any other recognized criteria of value. Accordingly, such prices should not be
considered an indication of the Company's actual value. See "UNDERWRITING."
19. NO PRIOR PUBLIC MARKET; MARKET VOLATILITY. Prior to this Offering,
there has been no public market for the Company's Units, Common Stock or
Warrants. There is no assurance that following the Offering an active public
trading market will develop or be sustained or that the Units, Common Stock or
Warrants will be resold at or above the initial public offering price.
Additionally, the market price of the Company's securities may trade below the
initial public offering price in response to changes in the general condition of
the economy or the retail and catalog business, as a whole, as well as the
Company's periodic financial results which may fluctuate quarterly as a result
of several factors, including the timing of catalog mailings and changes in the
selection of merchandise offered and sold.
20. CERTAIN IMPLICATIONS OF TRADING-OVER-THE-COUNTER; "PENNY STOCK"
REGULATIONS. The Company expects to receive approval for the quotation of its
Units, Common Stock and Warrants over-the-counter on the NASD OTC Electronic
Bulletin Board. An investor may find it more difficult to dispose of, or to
obtain quotations as to the price of, the Company's securities trading
over-the-counter than had the Company sought approval for its securities to be
listed for quotation on national securities exchange. In addition, the Company's
securities will become subject to rules that impose additional sales practice
requirements on broker-dealers who sell such securities to persons other than
established customers and accredited investors (generally institutions with
assets in excess of $5,000,000 or individuals with net worth in excess of
$1,000,000 or annual income exceeding $200,000, or $300,000 together with their
spouse). For transactions covered by these rules,the broker-dealer must make a
special
- 7 -
<PAGE>
suitability determination for the purchase of such securities and have received
the purchaser's written consent to the transaction prior to the purchase.
The Securities and Exchange Commission has adopted "penny stock"
regulations which applies to securities traded over-the-counter. These
regulations generally define "penny stock" to be any equity security that has a
market price of less than $5.00 per share or an exercise price of less than
$5.00 per share, subject to certain exceptions. For any transaction involving a
"penny stock," the rules require the delivery, prior to the transaction, of a
disclosure schedule prepared by the Commission relating to the penny stock
market. The broker-dealer also must disclose the commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and, if the broker-dealer is the sole market-maker, the broker-dealer
must disclose this fact and the broker-dealer's presumed control
over-the-market. Finally, monthly statements must be sent disclosing recent
price information for the penny stock held in the account and information on the
limited market in penny stocks. Consequently, the "penny stock" rules may
restrict the ability of broker-dealers to sell the Company's securities and may
affect the ability of purchasers in the Offering to sell the Company's
securities in the secondary market.
21. UNDERWRITER'S INFLUENCE ON THE MARKET; RESTRICTIONS ON MARKET MAKING
ACTIVITIES DURING WARRANT SOLICITATION. The Underwriter intends to make a market
in the Company's Units, Common Stock and Warrants following this Offering,
although it is not obligated to do so. The Underwriter has advised the Company
that it anticipates that other securities dealers also will make a market in the
Company's securities, although no assurance can be given that this will be the
case. To the extent that the Underwriter acts as market maker in the Company's
securities there may be dominating influences in that market. The price and
liquidity of the securities may be affected by the degree, if any, of the
underwriters participation in the market, because a significant portion of those
securities may be sold to customers of the Underwriter. Such customers may
subsequently engage in transactions for the sale or purchase of the Company's
securities through or with the Underwriter. In the event that market making
activities are commenced by the Underwriter, there is no obligation for it to
continue those activities.
The Underwriter has the right to act as the Company's sole agent in
connection with any future solicitation of warrantholders to exercise their
Warrants. Unless granted an exemption by the Securities and Exchange Commission
from Rule 10b-6 promulgated under the Securities Exchange Act of 1934, as
amended, the Underwriter will be prohibited from engaging in any market-making
activities with regard to the Company's securities until the later of the
termination of such solicitation activity or the termination (by waiver or
otherwise) of any right that the Underwriter may have to receive a fee for
soliciting the exercise of the Warrants. Such limitation could impair the
liquidity and market prices of the Common Stock and Warrants. See
"UNDERWRITING."
22. LIMITS ON SECONDARY TRADING. The Company will make application to
register or has or will seek to obtain an exception from registration to offer
the Units and intends to conduct its selling efforts in California, Colorado,
Connecticut, Delaware, District of Columbia, Florida, Georgia, Hawaii, Illinois,
Kansas, Louisiana, Maryland, Nevada, New York, Rhode Island, Utah and Virginia
(the "Primary Distribution States"). Purchasers of the Units in this Offering
must be residents of such jurisdictions. In addition, the Units, Common Stock
and Warrants will be immediately eligible for resale in the secondary market in
each of the Primary Distribution States and in the states of Iowa and
Pennsylvania. Purchasers of any of these securities in any secondary trading
market which may develop must be residents of such jurisdictions. Several
additional states will permit secondary market sales of these securities (i)
once or after certain financial and other information with respect to the
Company is published in a recognized securities manual such as Standard & Poor's
Records Corporation; (ii) after a certain period has elapsed from the date
hereof; or (iii) pursuant to exemptions applicable to certain institutional
investors. The Company intends to apply for listing in a recognized securities
manual on or about the date of this Prospectus. Purchasers in this Offering and
future purchasers of the Company's securities in the secondary market may be
restricted or prohibited from re-selling the securities in particular states as
a result of applicable blue sky laws. These restrictions may reduce the
liquidity of the securities and including their market price.
23. UNDERWRITERS' PURCHASE OPTION. In connection with this Offering, the
Company will sell the Underwriters an option to purchase an aggregate of up to
30,000 Units (the "Underwriters' Purchase Option"). The Underwriters' Purchase
Option will be exercisable commencing one year from the date of this Prospectus
and for four years thereafter at an exercise price of $12.00 per Unit. For the
life of the Underwriters' Purchase Option,
- 8 -
<PAGE>
the holders thereof will have the opportunity to profit from a rise in the
market price of the Units, Common Stock and/or the Warrants without assuming the
risk of ownership. The Company may find it more difficult to raise additional
capital if it should be needed for the business of the Company while the
Underwriters Purchase Option is outstanding. At any time when the holders
thereof might be expected to exercise them, the Company would probably be able
to obtain additional capital on terms more favorable than those provided by the
Underwriters' Purchase Option. See "UNDERWRITING."
The Company has also agreed to register the Underwriters' Purchase Option
and/or the underlying securities covered thereunder in any future registration
statement that the Company may file during the life of the Underwriters'
Purchase Option. This obligation could interfere with the Company's ability to
obtain financing under any future registration statement filing. See
"UNDERWRITING."
24. POTENTIAL ADVERSE EFFECT OF REDEMPTION OR EXERCISE OF WARRANTS. The
Warrants may be redeemed by the Company under certain circumstances. Should the
Company provide a notice of redemption of the Warrants, the holders thereof
would be forced to either exercise the Warrants at a time when it may be
disadvantageous for them to do so, sell the Warrants at the then current market
price, or accept the redemption price, which will likely be substantially less
than the market value of the Warrants. In addition, the exercise of the
Warrants, may have an adverse effect on the market price of the Company's
securities should a public trading market develop. Also, while the Warrants are
outstanding, the Company may find it more difficult to raise additional capital
upon favorable terms because of the potential for the exercise of the Warrants
to be dilutive to future investors. See "DESCRIPTION OF SECURITIES - Warrants."
25. UNREGISTERED SHARES ELIGIBLE FOR IMMEDIATE AND FOR FUTURE SALE. In
connection with obtaining equity bridge financing, the Company issued 1,300,000
shares of Common Stock under Rule 504 (the "Rule 504 Shares") of the Securities
Act of 1933, as amended (the "1933 Act"). 100,000 of the Rule 504 Shares are
subject to an underwriter's "lock-up" and cannot be sold or transferred within
24 months of the date of the Prospectus, unless otherwise permitted by the
Underwriter, at which time these shares will be freely tradeable without any
necessity for their registration under the 1933 Act. The balance of the Rule 504
Shares, I.E., 1,200,000 shares, are not subject to an underwriter's "lock-up"
and are freely tradeable without any necessity for their registration under the
1933 Act. The sale of the Rule 504 Shares by each of the holders thereof may be
effected in one or more transactions that may take place over-the-counter,
including ordinary broker's transactions, previously negotiated transactions or
through sales to one or more dealers for resale of such shares as principals at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices, or at negotiated prices. Usual and customary or
specifically negotiated brokerage fees or commissions may be paid by the Rule
504 Stockholders in connection with sales of such securities. The holders of the
Rule 504 Shares have paid significantly less for their shares of Common Stock
($.125 per share) than the offering price of each of the two shares of Common
Stock comprising a $10 Unit and may elect to sell their Rule 504 Stock at prices
below the market value of the Common Stock on the date of sale. Such sales (or
the potential therefor) may have an adverse effect on the market price of the
Company's securities.
In addition, the Company's parent, Duncan Hill, holds 2,400,000
unregistered shares of the Company's Common Stock and 5,000,000 unregistered
shares of the Company's Series A Preferred Stock (collectively the "Restricted
Securities"). Those securities held by Duncan Hill are "restricted securities"
as that term is defined by Rule 144 of the 1933 Act, and may only be sold in
compliance with the provision of Rule 144 unless otherwise registered by the
Company. Furthermore, Duncan Hill has agreed with the Underwriter not to sell or
transfer the Restricted Securities within 24 months of the date of this
Prospectus unless earlier permitted by the Underwriter. The possible or actual
future sales of the Restricted Securities under Rule 144 may have an adverse
effect on the market price of the Company's Common Stock should a public trading
market develop for such shares. See "SHARES ELIGIBLE FOR FUTURE SALE."
26. CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION REQUIRED TO EXERCISE
WARRANTS. The Company will be able to issue shares of its Common Stock upon
exercise of the Warrants only if there is then a current prospectus relating to
the shares of Common Stock issuable upon the exercise of the Warrants under an
effective registration statement filed with the Securities and Exchange
Commission, and only if such shares of Common Stock
- 9 -
<PAGE>
are qualified for sale or exempt from qualification under applicable state
securities laws of the jurisdiction in which the various holders of the Warrants
reside. Although the Company has agreed to use its best efforts to meet such
regulatory requirements, there can be no assurance that the Company will be able
to do so. The Warrants may be deprived of any value if a prospectus covering the
shares of Common Stock issuable upon their exercise is not kept effective or
replaced or if such shares of Common Stock are not or cannot be qualified or
exempt from qualification in the jurisdictions in which the holders of the
Warrants reside. See "DESCRIPTION OF SECURITIES - Warrants." As of the date of
this Prospectus, the Company anticipates that its securities will be qualified
for sale or exempt from qualification only in a limited number of states. See
"RISK FACTORS - Limits on Secondary Trading."
27. POTENTIAL ADVERSE EFFECT ON SALES SELLING SECURITYHOLDERS. The Sales of
up 1,500,000 Warrants by the Selling Securityholders, or even the potential of
such sales, may have an adverse effect on the market price of the Company's
securities, should a public trading market develop. See "SELLING
SECURITYHOLDERS."
28. ESCROW CLOSING OF THE ACQUISITION OF THE NATURAL BABY CATALOG. Within
ten business days prior to the date of this Prospectus, the Company will have
closed, in escrow, its acquisition of The Natural Baby Catalog. The only
conditions upon the release of the acquisition from escrow is the Company's
payment of the purchase price to the escrow agent within the earlier of fifteen
business days from the date of this Prospectus or five business days from the
Underwriter's completion of this Offering; but, in no event, later than April
30, 1997. See "CERTAIN TRANSACTIONS - Acquisition of The Natural Baby Catalog."
Should the Company be unable to obtain the release of the acquisition from
escrow subsequent to the Underwriter's completion of this Offering as a result
of some unforeseen action taken by others, a risk which The Company believes is
very remote, the Company will not be able to achieve its business plans as set
forth in this Prospectus.
[THIS SPACE INTENTIONALLY LEFT BLANK]
- 10 -
<PAGE>
USE OF PROCEEDS
The net proceeds to be received from the sale of the 300,000 Units offered
by the Company (after deducting underwriting discounts, a 3% non-accountable
expense allowance and other estimated offering expenses) will be approximately
$2,246,629 ($2,638,129 if the Underwriter's over-allotment option is exercised
in full). The Company intends to use the net proceeds of this Offering
approximately as follows:
APPROXIMATE APPROXIMATE
AMOUNT OF PERCENTAGE OF
NET PROCEEDS NET PROCEEDS
------------ ------------
Acquisition of The Natural Baby
Catalog(1)............................... $1,303,358 58%
Accounts Payable(2)...................... 350,000 16%
Repayment of Indebtedness(3)............. $ 225,782 10%
Consolidation of the Operations
of The Natural Baby Catalog(4)........... $ 100,000 4%
Working Capital(5)....................... $ 267,489 12%
---------- --
TOTAL............................... $2,246,629 100%
- ----------
(1) Represents the remaining cash portion of the purchase price in the amount
of $1,278,358 to be paid to the Seller of The Natural Baby Catalog, I.E.,
The Natural Baby Company, Inc. (the "Seller"), and the repayment to Duncan
Hill of a down payment on the purchase price in the amount of $25,000 made
by Duncan Hill to the Seller. In addition to the cash payment referenced
above, the Company will issue to the Seller a convertible Promissory Note
in the amount of $250,000 and assume the obligation to pay certain
liabilities of the Seller. The purchase price of The Natural Baby Catalog
is subject to adjustment. See "CERTAIN TRANSACTIONS - Acquisition of The
Natural Baby Catalog."
(2) Includes the payment of $300,000 owed to suppliers of inventory purchased
by the Company. At October 1, 1996, the Company estimates that $360,122 of
its accounts payable to trade creditors were over due. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION -
Liquidity and Capital Resources." Also includes the payment of
approximately $50,000 in professional fees incurred in connection with: the
reorganization involving the Company, its parent and Perfectly Safe, Inc.;
and, the Company's intended acquisition of The Natural Baby Catalog.
(3) Includes the repayment of a Bridge Loan in the aggregate principal amount
of $125,000, which bears interest at the rate of 8% per annum and is
payable upon the earlier of October 16, 1996 and the closing of the
Offering. Also includes the payment of accrued interest on the Bridge Loan
through March 31, 1997 in the amount of $4,575. See "CERTAIN TRANSACTIONS -
Bridge Loan." Also includes the payment of the first installment payment
due to the Company's parent, Duncan Hill, in the amount of $96,207, of
which $66,858 constitutes the repayment of principal and $29,349
constitutes accrued interest through June 30, 1997. See "THE COMPANY AND
ITS PARENT - The Reorganization."
(4) Estimated costs associated with the consolidation of the warehouse,
telemarketing and data processing functions of The Natural Baby Catalog
into the operations of the Company. See "CERTAIN TRANSACTIONS - Acquisition
of The Natural Baby Catalog."
(5) The Company intends to use such funds, as well as the consolidation savings
anticipated from the consolidation of the operations of The Natural Baby
Catalog, for general working capital purposes. In that regard, the Company
intends to replace its outdated data processing software and hardware, and
statistical modeling software, at an annualized cost of approximately
$75,000 per year, on a leased basis. The Company also intends to spend up
to $150,000 per year to develop new customer acquisition and other
marketing programs. See "BUSINESS - Strategies." In the event that the
Company is unable to achieve the anticipated consolidation savings from the
consolidation of the operation of The Natural Baby Catalog on a timely
basis, the Company may need additional financing within twelve months from
the date of the Prospectus. See "RISK FACTORS - Integration and
Consolidation of The Natural Baby Catalog Business; Adequacy of Financing."
There is no assurance that the Company will be able to obtain additional
financing, if needed, on terms favorable to the Company or at all.
- 11 -
<PAGE>
DIVIDEND POLICY
The Company currently intends to retain any earnings to finance the
development and expansion of the Company's business and does not anticipate
paying any cash dividends in the foreseeable future. The declaration and payment
of dividends by the Company are subject to the discretion of the Board of
Directors of the Company. Any future determination to pay dividends will depend
on the Company's results of operations, financial condition, capital
requirements, contractual restrictions and other factors deemed relevant at the
time by the Board of Directors.
[THIS SPACE INTENTIONALLY LEFT BLANK]
- 12 -
<PAGE>
DILUTION
The adjusted net tangible book value of the Company as of September 30,
1996 was $251,688 or $.07 per share of Common Stock, after giving effect to the
receipt of $200,000 of borrowings under a Bridge Loan and $162,500 in proceeds
and the issuance of 1,300,000 shares of Common Stock in the Rule 504 equity
bridge financing (See "CERTAIN TRANSACTIONS - Bridge Loan, Rule 504 Shares").
Net tangible book value per share is determined by dividing the tangible net
worth of the Company (tangible assets less all liabilities) by the total number
of outstanding shares of Common Stock (3,700,000 shares as adjusted as of
September 30, 1996). The Company's tangible assets consists of all of its
balance sheet assets except for goodwill. After giving effect to the sale by the
Company of 300,000 Units and the receipt of the net proceeds therefrom, and the
conversion of $75,000 of the Bridge Loan into 1,500,000 Warrants (See "CERTAIN
TRANSACTIONS - Bridge Loan"), the adjusted net tangible book value of the
Company as of September 30, 1996 would have been $1,761,984 or $.41 per share of
Common Stock. This represents an immediate increase in the adjusted net tangible
book value of $.34 per share of Common Stock to existing stockholders and an
immediate dilution (the difference between the price to the public per share of
Common Stock and the adjusted net tangible book value per share of Common Stock
after the Offering) in the adjusted tangible book value of $4.59 per share of
Common Stock to new investors (assuming for this discussion that each of the two
shares of Common Stock comprising a $10.00 Unit is valued at $5.00 per share,
and no value is attributed to the Warrant included in a Unit).
The following table illustrates this per share of Common Stock dilution:
The initial price of a share of Common
Stock paid by new investors $ 5.00
Adjusted net tangible book value
per share of Common Stock before
this Offering........................... $ .07
Increase in adjusted net tangible
book value per share of Common
Stock attributable to new investors..... $ .34
-----
Adjusted net tangible book value per share
of Common Stock after this Offering.............. $ .41
------
Dilution in adjusted net tangible book value
per share of Common Stock to new
investors........................................ $ 4.59
====
[THIS SPACE INTENTIONALLY LEFT BLANK]
- 13 -
<PAGE>
The following table summarizes, as of the completion of this Offering,
the differences between existing stockholders and new investors with respect to
the number of shares of Common Stock purchased from the Company and the total
and average consideration paid per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------- -------------------
AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- ------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders 3,700,000 86% $462,500 13% $ .125
New Investors(1) 600,000 14% $3,000,000 87% $5.00
--------- ------ ---------- ------
Totals 4,300,000 100.0% $3,462,500 100.0% $ .80
========= ====== ========= ======
<FN>
- ----------
(1) Based upon the sale of 300,000 Units.
</FN>
</TABLE>
The foregoing discussions do not give effect to the issuance of any
additional shares of Common Stock upon the exercise of the Underwriter's
over-allotment option, the Underwriter's Purchase Option, the Warrants
underlying each of the foregoing, the Warrants owned by the Selling
Securityholders and the Warrants underlying the sale of 300,000 Units in this
Offering. If shares of Common Stock are issued by the Company pursuant to any or
all of the foregoing when the Company's net tangible book value per share
exceeds the applicable price, then the net tangible book value per share of the
then outstanding shares of Common Stock will be further diluted.
[THIS SPACE INTENTIONALLY LEFT BLANK]
- 14 -
<PAGE>
CAPITALIZATION
The following table sets forth, as of September 30, 1996, (i) the actual
capitalization of the Company; (ii) the capitalization of the Company, as
adjusted to reflect the receipt of $162,500 in proceeds from the sale of
1,300,000 shares of Common Stock in the Rule 504 equity bridge financing (see
"CERTAIN TRANSACTIONS - Rule 504 Shares"), and the receipt of $200,000 from the
Bridge Loan (see "CERTAIN TRANSACTIONS - Bridge Loan"); and (iii) the pro forma
capitalization of the Company, as adjusted to reflect the sale of 300,000 Units
offered hereby and the receipt of the estimated net proceeds therefrom. The
table below should be read in conjunction with the financial statements of the
Company and notes thereto included elsewhere in the Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
----------------------------------------------------------------
ACTUAL AS ADJUSTED PRO FORMA(1)
----------------------------------------------------------------
<S> <C> <C> <C>
Long Term Debt obligations, less current maturities $300,000(2) $500,000(2)(3) $300,000
Stockholder's Equity:
Common Stock, $.001 par value, 35,000,000 shares
authorized, 2,400,000 shares issued and outstanding
actual; 3,700,000 shares issued and outstanding pro
forma; and 4,300,000 issued and outstanding as
adjusted................................................ $ 2,400 $ 3,700 $4,300
Series A Preferred Stock, $.001 par value,
10,000,000 shares authorized, 5,000,000 shares
issued and outstanding.................................. $ 5,000 $ 5,000 $5,000
Warrants, 1,500,000 issued and outstanding as
adjusted(4)............................................. -- -- $75,000
Additional Paid-in-capital.............................. $297,600 $458,800 $2,620,905
Retained Earnings (Accumulated Deficit)................. ($23,156) ($23,156) ($23,156)
Total stockholders' equity (deficit)................. $281,844 $444,344 $2,682,049
-------- -------- ----------
Total Capitalization $581,844 $944,344 $3,232,049
======== ======== ==========
<FN>
- ----------
(1) Does not include: any of the Units which the Underwriter has the option to
purchase to cover over-allotments; or any Common Stock underlying the
Warrants included in the Units, the Selling Securityholders' Warrants or
the Underwriter's Purchase Option.
(2) Includes the promissory note issued by the Company to its parent, Duncan
Hill, as part of the reorganization effective June 30, 1996 in the
principal amount of $391,604 less $91,604 of current maturities. See "THE
COMPANY AND ITS PARENT - The Reorganization."
(3) Includes $200,000 Bridge Loan, $125,000 of which is to be repaid upon the
completion of this Offering and $75,000 of which is convertible upon its
terms into 1,500,000 Warrants on the date of this Prospectus. See "CERTAIN
TRANSACTIONS - Bridge Loan."
(4) Issued upon the conversion of the convertible portion of the Bridge Loan
referenced in Note 3 above.
</FN>
</TABLE>
- 15 -
<PAGE>
SELECTED FINANCIAL DATA
Set forth below are the selected financial data of the Company as of
and for the years ended December 31, 1995 and 1994 and for the nine-month
periods ended September 30, 1996 and 1995. The selected financial data as of and
for the years ended December 31, 1995 and 1994 have been derived from the
historical financial statements of the Company, which include the financial
statements of its predecessor, Perfectly Safe, Inc., and which have been audited
by Hausser + Taylor, whose report with respect to such financial statements
appears elsewhere in the Prospectus. The selected financial data as of and for
the nine months ended September 30, 1996 and 1995 have been derived from the
unaudited books and records of the Company, and include, in the opinion of
management, all adjustments (consisting of normal recurring adjustments)
necessary to present fairly the financial position and results of operations of
the Company for such periods. The results of operations for the nine month
periods are not necessarily an indication of results for a full fiscal year.
Also set forth below are pro forma selected financial data as of and for the
year ended December 31, 1995 and for the nine-month period ended September 30,
1996, which data has been derived from the Company's pro forma combined
financial statements (unaudited), included elsewhere in the Prospectus. The pro
forma combined financial statements assume that the Company acquired The Natural
Baby Catalog at the beginning of the fiscal year ended December 31, 1995 for the
unaudited pro forma combined statements of income and as of September 30, 1996
for the unaudited pro forma combined balance sheet, and include, in the opinion
of management, all adjustments necessary to present fairly the combined results
of the operations of the Company and The Natural Baby Catalog for the periods
contained therein. The pro forma results of operations are not intended to be
indicative of the results which would have occurred on the dates indicated or
which may be realized in the future. The selected financial data should be read
in conjunction with "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS" as well as the Company's historical financial
statements and the related notes thereto and the Company's pro forma combined
financial statements and the related notes thereto, included elsewhere in the
Prospectus.
<TABLE>
<CAPTION>
Statement of Operations Data: YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
------------------------- --------------------------------
PRO FORMA PRO FORMA
1994 1995 1995 1995 1996 1996
------ ------ ----- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
Total Sales $5,002,519 $5,724,337 $10,952,806 $4,267,648 $4,816,950 $9,162,141
Cost of Sales 2,861,361 3,540,487 6,144,879 2,580,791 3,099,124 5,841,623
---------- ---------- ----------- ---------- ---------- ----------
Gross Profit 2,141,158 2,183,850 4,807,927 1,686,858 1,717,826 3,320,518
Selling Expenses 1,590,497 1,754,601 3,419,265 1,358,918 1,275,403 2,178,760
General and Administration Expenses 466,276 638,191 728,519 436,017 537,513 605,259
---------- ---------- ----------- ---------- ---------- ----------
Income (Loss) from Operations 84,385 (208,942) 660,143 (108,077) (95,090) 536,499
Other Income (Expense) 7,785 8,610 7,550 (2,413) (30,812) (71,898)
---------- ---------- ----------- ---------- ---------- ----------
Income (Loss) before Income Taxes 92,170 (200,332) 667,693 (110,490) (125,902) 464,601
Provision (Credit) for Federal
Income Taxes 17,920 (37,100) 227,016 (27,623) (31,476) 157,964
---------- ---------- ----------- ---------- ---------- ----------
Net Income (Loss) $74,250 ($163,232) $440,677 ($82,868) ($94,427) $306,637
======= ========== ======== ========= ========= ========
Net Income (Loss) per common share $0.03 ($0.07) $0.10 ($0.03) ($0.04) $0.07
Weighted average shares outstanding
during the period 2,400,000 2,400,000 4,300,000 2,400,000 2,400,000 4,300,000
</TABLE>
- 16 -
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, 1996
----------------------- ------------------------------------
1994 1995 ACTUAL ADJUSTED(1) ADJUSTED(1)(2)
---- ---- ------ ----------- --------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total Assets $1,674,964 $2,112,573 $2,522,281 $2,884,781 $5,111,262
Working Capital (deficit) (126,184) (753,808) (740,054) (577,554) 833,425
Total Liabilities 897,095 1,736,302 2,240,437 2,440,437 2,429,213
Stockholder's equity (deficit) 539,503 376,271 281,844 444,344 2,682,049
<FN>
- ----------
(1) Gives effect to the receipt of $200,000 of proceeds from the Bridge Loan,
See "CERTAIN TRANSACTION - Bridge Loan." Also gives effect to the receipt
of $162,500 for the sale of 1,300,000 shares of the Company's Common Stock
to private investors. See "CERTAIN TRANSACTIONS - Rule 504 Shares."
(2) Gives effect to the sale of 300,000 Units offered hereby and the
application of the net proceeds therefrom in the amount of $2,246,629. Also
gives effect to the conversion of $75,000 of the principal amount of the
Bridge Loan into 1,500,000 Warrants. See "CERTAIN TRANSACTIONS - Bridge
Loan."
</FN>
</TABLE>
[THIS SPACE INTENTIONALLY LEFT BLANK]
- 17 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
This discussion should be read in conjunction with the information
contained in the financial statements of the Company and notes thereto appearing
elsewhere in this Prospectus.
OVERVIEW
The Company acquired its first catalog, Perfectly Safe in December
1989. From that point on the Perfectly Safe Catalog has relied upon catalog
circulation to acquire new customers and to provide its revenue base. During the
year 1990 the Perfectly Safe Catalog generated $1,473,000 in net sales from
catalog circulation of approximately 900,000 catalogs. Catalog circulation was
increased each year through 1994, when the Company mailed 3.7 million catalogs
and generated $5.0 million in net sales. To reflect the value of the acquired
customer and the mailing list, the Company capitalized certain costs of customer
acquisition during this period, and reflected the capitalized value of the
Perfectly Safe mailing list as "Customer Lists" on the Company's balance sheet.
During the first quarter of 1995 the Company created its Jeannie's Kids
Club's Catalog, which offers popular children's products at discounts of up to
60% of the price charged by other children's catalogs for the same product. To
make a purchase at the discounted price, the customer must become a member of
Jeannie's Kids Club which costs $18 per year. Renewals are billed to a club
member's credit card prior to the membership's expiration. The first Jeannie's
Kids Club Catalog was mailed in July, 1995. In its first six months of operation
(six months ended December 31, 1995), Jeannie's Kids Club generated $1 million
in net sales, or 20% of the Company's net sales for the year 1995. In the first
nine months of 1996, Jeannie's Kids Club net sales were $2.8 million, or 58% of
the Company's total net sales. While membership renewal is subject to a variety
of factors, such as cancellations, expired credit cards, and changes of address,
the Company believes that the renewal rate of $18 per year, with the Company's
cost of renewal at less than 10% of the renewal rate, will favorably impact the
profitability of Jeannie's Kids Club operations.
In the twelve months since its inception, the Company has capitalized
certain costs of development of its Jeannie's Kids Club Catalog. Those costs
include investments in mailing lists, and deferred expenses associated with
creative costs, artwork, photography, film, and market testing of concept and
pricing. At September 30, 1996, the Company reported $253,268 in capitalized
mailing list values and $358,911 of deferred development expense.
RESULT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER, 30, 1995.
Sales for the period increased $549,301, or 12.9%, to $4,816,950
compared with $4,267,649 during the same period in 1995. Catalog circulation was
unchanged at 3,050,000, with gross revenue per catalog mailed increasing 12.9%
to $1.58 per book, versus $1.40 during the comparable 1995 period.
Although catalog circulation remained constant, the Company changed its
mix of catalog mailings; I.E., Jeannie's Kids Club Catalog accounted for 10.7%
of catalogs mailed in the nine months ended September 30, 1995 and 62.5% of
catalogs mailed in the same period in 1996. The Company's Jeannie's Kids Club
Catalog mailings were 327,914 and 1,905,044 in the nine month periods ended
September 30, 1995 and 1996, respectively.
The Company reduced the circulation of its Perfectly Safe Catalog 59.3%
from 2.7 million circulation in the nine-month period ended September 30, 1995
to 1.1 million for the same period in 1996. The reduction in circulation of 1.6
million catalogs was due, in part, to a planned reduction in circulation in
reaction to 1995 cost increases in paper and postage. See "RISK FACTORS - Cost
Increases in Postage and Paper." Additionally, the Company experienced a
competitive reaction caused by the introduction of Jeannie's Kids Club Catalog.
Prior to the introduction of Jeannie's Kids Club Catalog, the Company exchanged
mail lists with three other children's catalogs, which provided approximately
17% of the catalog circulation and resulting sales for the Perfectly Safe
Catalog. When the Company introduced Jeannie's Kids Club Catalog, the three
children's catalogs referenced above
- 18 -
<PAGE>
refused to rent or exchange mailing lists with the Company for competitive
reasons, which reduced Perfectly Safe's Catalog circulation and revenues in this
segment of the business. Although the Company uses statistical modeling and
database techniques for identifying potential customers, the business from these
mailing lists cannot be replaced at past levels of profitability.
Gross profit for the nine months ended September 30, 1996 increased by
$30,968, or 1.8%, to $1,717,826 from $1,686,858 for the first nine months of
1995. Gross profit margins declined slightly to 35.6% from 39.5% compared with
the same period of the prior year, attributable to the shift in the mix of sales
from the Perfectly Safe Catalog to Jeannie's Kids Club Catalog, which sells its
products at a discount. In the third quarter of 1996, the Company experienced an
increase in gross margins to 49.7% from 42.6% in the same period for 1995,
attributable to increased revenues from membership fees over 1995 levels and the
commencement of membership renewals. While there can be no assurance that
efforts to obtain membership fees and renewals will continue to be successful,
the Company believes that the increasing base of members in Jeannie's Kids Club
will increase membership renewals and gross profit margins in the future.
Selling expenses for the nine months ended September 30, 1996 were
$1,275,403, a decrease of 6.1% from $1,358,918 experienced in the comparable
period in the year 1995. The principal component of the decrease was advertising
expense, which declined from 28.1% of sales to 25.2% of sales, reflecting the
higher percentage response rates and higher average order size of Jeannie's Kids
Club Catalog.
General and administrative expense increased by $101,500, or 23.3%, to
$537,500 in the first nine months of 1996 compared with $436,000 during the
comparable period in 1995. The major components of the increase were as follows:
increases in wages and payroll taxes in the amount of $61,800, reflecting
increased overhead expense associated with Jeannie's Kids Club operations;
increased occupancy expense in the amount of $17,900 for additions to warehouse
space to accommodate Jeannie's Kids Club inventory; increased amortization and
depreciation expense of $14,600 to reflect additions to the asset base of
Jeannie's Kids Club mailing lists and development costs. General and
administrative expenses for the periods ended September 30, 1995 and June 30,
1996 were incurred by the Company's parent, Duncan Hill, and allocated to the
Company consistent with past practices. See "THE COMPANY AND ITS PARENT." As a
result of the reorganization in which the Company succeeded to the operations of
Perfectly Safe, Inc., the Company began to handle certain of its own
administrative functions, directly, effective June 30, 1996. See "THE COMPANY
AND ITS PARENT."
Net other income and expense increased to $30,812 in the nine months
ended September 30, 1996 compared with $2,413 for the comparable period in 1995.
The increase was primarily due to interest expense for the Company's working
line of credit.
Net loss for the nine months ended September 30, 1996 was $94,427, or
2.0% of sales, compared with a loss of $82,868, or 1.9% of sales for the period
ended September 30, 1995. The Company believes that its losses were due
principally to three factors: the introduction of Jeannie's Kids Club Catalog
and its related expenses; losses of sales of the Perfectly Safe Catalog due to
the competitive reaction to the introduction of Jeannie's Kids Club discussed
above; and, general and administrative expenses that the Company believes are
high relative to its revenue base. General and administrative expenses for the
nine months ended September 30, 1996 and 1995 were 11.1% and 10.2% of sales,
respectively. While the Company believes that its general and administrative
functions are relatively efficient and cost effective for the work required to
conduct its business, it also believes that its revenue base can be expanded
with the acquisition of The Natural Baby Catalog with less than proportionate
increases in general and administrative expense.
At September 30, 1996 the Company had 147,573 total households
available for purposes of list rental to other catalogs, which are
non-competitive or compete with the Company to a lesser extent. Total households
are defined as those households purchasing from the Company in the past 24
months, and rental selections may be made on the basis of 24, 12, 6, or three
month recency of purchase. List rental rates charged by the Company are $85.00
per thousand households for 24 months buyers, and increase to $100.00 per
thousand households for three month "hotline" buyers. The Company pays a 30%
brokerage commission on published rates. For nine months ended September 30,
1996 and 1995, list rental income was $83,133 and $60,744, respectively. The
increase in revenue
- 19 -
<PAGE>
of 36.9% is generally attributable to easing of paper costs in 1996 resulting in
industry-wide higher catalog circulations than in 1995, along with improved
selling effort by the broker.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO THE YEAR ENDED DECEMBER 31, 1994.
Sales for 1995 increased 14.4% to a total of $5,724,337, compared with
sales of $5,002,519 during the year 1994. Catalog circulation decreased 2.5% to
3.9 million catalogs versus a circulation of 4.0 million catalogs during 1994,
resulting in an increase in revenue per catalog mailed of 16% from $1.25 to
$1.46. The Company introduced Jeannie's Kids Club Catalog in July 1995 and
mailed 708,804 catalogs in the second half of 1995. The Company attributes the
higher revenue per catalog mailed to the relatively higher Jeannie's Kids Club
average order and percentage response rates. The net sales of Kids Club in 1995
of $1,033,806 were partially offset by a decrease in sales of Perfectly Safe
Catalog, which declined $396,081, or 8% of sales, to $4,606,438, compared with
$5,002,519 in 1994. The Company believes that the decrease in sales is
attributable to the competitive reaction, discussed above, which occurred with
the introduction of Jeannie's Kids Club, and resulted in three other children's
catalogs refusing to exchange with, or rent their mailing lists to, the Company.
Cost of sales, as a percentage of net sales, was 61.8% and 57.2% for
1995 and 1994, respectively. The increase was primarily due to increased costs
of merchandise, which rose from 38.8% of net sales to 41.1% in 1995. Merchandise
costs of the Company's Jeannie's Kids Club Catalog are a relatively higher
percentage of net sales, as the customer benefits from lower product prices in
return for paying club membership fees. The Company expects that its merchandise
costs will fluctuate depending upon, among other factors, the percentage of
sales derived from the lower price Jeannie's Kids Club Catalog. In addition to
merchandise cost increases, the Company experienced increases in its cost of
fulfillment equal to 1.1% of net sales, as fulfillment expenses rose from 20.5%
of net sales in 1994 to 21.6% of net sales in 1995. Fulfillment expense consists
of costs of shipping, direct labor, packaging, order entry and 800 line
telephone costs. The Company experienced cost increases in this area primarily
from increases in shipping costs, which rose 13.6% from 1994 to 1995. While
outbound shipping costs fluctuate with the package size, number of shipments per
order, etc., the increase was also affected by the pricing structures of United
Parcel Service, the Company's primary carrier of outbound shipments. UPS
increased prices in February, 1995, and while shipping costs are passed along to
the customer in the form of a shipping and handling surcharge, those costs were
not fully recovered by the Company during 1995.
Selling expenses, as a percentage of net sales, were 30.6% and 31.8%
for 1995 and 1994, respectively. The Company's Perfectly Safe Catalog
experienced an increase in advertising expense of 1% from 28.7% of sales in 1994
to 29.7% in 1995. Jeannie's Kids Club Catalog had no sales in 1994, but recorded
advertising expenses of 14.3% of sales in 1995, its first year of operations.
The lower advertising expense ratio of Jeannie's Kids Club was due to higher
responses from its catalog mailings, limited quantities of selected rental lists
with conservatively chosen criteria, and use of the available Perfectly Safe
in-house lists.
Additionally, the Company conducted research and tests regarding club
membership acceptability and pricing, and capitalized those costs to be
amortized over future Jeannie's Kids Club Catalog mailings. The amounts
capitalized in 1995 were $76,593 and $153,191 and will be amortized over a
period of 4 and 20 years, respectively.
General and administrative expenses were $466,276, or 9.3% of net
sales, in fiscal 1994 and $638,191, or 11.1% of net sales, in fiscal 1995. The
increase was principally due to additional warehouse space leased to accommodate
the addition of the Jeannie's Kids Club Catalog, and from increased depreciation
and amortization charges, primarily as a result of increased amortization of
customer mailing lists. General and administrative expenses for the fiscal years
1994 and 1995 were incurred by the Company's parent, Duncan Hill, and allocated
to the Company consistent with past practices. See "THE COMPANY AND ITS PARENT."
In 1994 and 1995 the Company's allocation was 52% and 69%, respectively, of
Duncan Hill's total general and administrative expense. The increase in the
percentage allocation was due to an increase in the Company's balance sheet
assets as a result of the introduction of its Jeannie's Kids Club Catalog.
Net other income increased to $8,610 in the year ended December 31,
1995 compared with $7,785 for the comparable period in 1994, due to such items
as interest income and miscellaneous sales for the periods involved.
- 20 -
<PAGE>
Net losses for the year ended December 31, 1995 were $163,232, or 2.9%
of sales, compared with net income of $74,250, or 1.5% of sales, for the year
ended December 31, 1994. The Company believes that its losses were due to
reduced gross profit margins, and increased levels of general and administrative
expense. Gross profit margins for the years ended December 31, 1995 and 1994
were 38.2% and 42.8%, respectively. The Company's Jeannie's Kids Club Catalog,
introduced in July 1995, offers reduced pricing and has lessor potential gross
profit margins, which impacted the Company's overall gross margin percentage in
1995 because of the Jeannie's Kids Club mix of sales. While the Company
anticipates that Jeannie's Kids Club's lower gross profit margins will be offset
by corresponding decreases in advertising expense and membership renewals,
profitability in 1995 was adversely affected.
The Company's net list rental income, after brokerage fees, was
$171,511 and $84,053 for the years ended December 31, 1994 and 1995,
respectively. The decline of 51% was due to Perfectly Safe's reduction in sales
of 4.6% from 1994 to 1995, and from reductions in 1995 circulation by list
rental customers in reaction to 1995 increases in paper and postage costs.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1996 the Company had a deficit in retained earnings
of ($23,156), compared with retained earnings at December 31, 1995 and 1994 of
$371,271 and $234,503, respectively. The Company financed this, in part, from a
bank line of credit which had a balance of $650,000 at September 30, 1996, and
balances at December 31, 1995 and 1994 of $430,000 and $175,000, respectively.
Additionally, the Company used extensions of trade credit to finance its
operations during this period. Accounts payable at September 30, 1996 were
$1,052,621, and the Company estimates that approximately $250,000 of this
balance is attributable to financing of operations. This is based upon the
Company's historical experience with accounts payable, whose normal working
balances have been equivalent to 45 days sales.
The Company introduced its Jeannie's Kids Club Catalog in July, 1995,
and in the subsequent twelve months capitalized certain costs of its
development. Capitalized amounts for the year ended December 31, 1995, and for
the nine month period ended September 30, 1996 were $229,784 and $129,127,
respectively. Additionally, the Company capitalized certain costs associated
with development of the Jeannie's Kids Club member mailing list, and reflected
those amounts as "Customer Lists" on its balance sheet. Capitalized amounts for
the year ended December 31, 1995, and for the nine month period ended September
30, 1996 were $129,724 and $62,258, respectively. The Company paid for its
investments in mail lists and capitalized development costs through a line of
credit and through extensions of trade credit as described above.
Effective June 30, 1996, the Company was recapitalized as Kids Stuff,
Inc. by its parent, Duncan Hill, for the purpose of transferring the operating
assets of Duncan Hill to its children's catalog operating subsidiary. At that
time the Company purchased current assets, including inventory and prepaid
advertising costs of catalogs in circulation, operating equipment, goodwill,
mailing lists, and Jeannie's Kids Club development costs. The Company paid for
those assets through the assumption of liabilities, including accounts payable
and bank lines of credit, by a promissory note payable to Duncan Hill and by
preferred and common stock of the Company. See "THE COMPANY AND ITS PARENT - The
Reorganization."
In order to finance its most recent operations, the Company entered
into certain private financing agreements commencing in October, 1996. In that
regard, the Company issued 8% promissory notes in the amount of $125,000 to be
repaid with a portion of the proceeds of this Offering, promissory notes in the
amount of $75,000, convertible upon the date of this Prospectus into Warrants to
purchase 1,500,000 shares of common stock, and 1,300,000 shares of the Company's
Common Stock for $162,500. See "CERTAIN TRANSACTIONS - Bridge Loan - Rule 504
Shares."
The Company has contracted to purchase the catalog business of The
Natural Baby Company, Inc. ("Baby Co."). The purchase price to be paid by the
Company consists of a cash payment in the amount of $1,303,358 (less a $25,000
down payment previously paid to Baby Co. by Duncan Hill) to be paid with a
portion of the proceeds of this Offering, the assumption of Baby Co.'s accounts
payable incurred in the ordinary course of business, which
- 21 -
<PAGE>
is estimated to be approximately $299,401, as of September 30, 1996, assumption
of Baby Co.'s remaining lease obligations in the approximate amount of $35,500,
and a long-term convertible note issued by the Company to Baby Co. in the amount
of $250,000. The Company intends to pay these obligations from The Natural Baby
Catalog's cash flow. The purchase price is also subject to certain adjustments.
See "CERTAIN TRANSACTIONS - Acquisition of The Natural Baby Catalog." The
Company will also repay to Duncan Hill with a portion of the proceeds of this
Offering the $25,000 down payment referenced above.
The Natural Baby Catalog had 1995 revenues of $5,228,469 and operating
pre-tax profits of $212,733. On a combined pro-forma basis, the consolidation of
The Natural Baby Catalog into the operations of the Company, assuming the
consolidation occurred January 1, 1995, in management's estimate, would have
resulted in pre-tax consolidation savings of $655,292 in 1995 and $364,210 for
the first nine months of 1996, through reductions in administrative and direct
labor expenses. The combined pro-forma pre-tax operating profits would have been
$667,693 for 1995 and $464,601 for the first nine months of 1996.
At December 1, 1996 the Company had cash available of $295,373,
consisting of a cash balance of $145,373 and available funds from its line of
credit of $150,000. The Company's trade accounts payable were $1,089,482, or 67
days sales based upon November's sales activity. The Company estimates that
$360,122 of their accounts payable are overdue based upon the Company's
estimates of "normal" accounts payable of 45 days sales. Pending the completion
of this Offering, the Company continues to rely upon its trade creditors for
short-term financing, and may be required to seek additional financing should
the policies of its trade creditors change.
In the event that the Company is unable to achieve the anticipated
consolidated savings from the consolidation of the operations of The Natural
Baby Catalog on a timely basis, the Company may need additional financing within
twelve months of the date of the Prospectus. See "RISK FACTORS - Integration and
Consolidation of The Natural Baby Catalog Business; Adequacy of Financing."
FORWARD LOOKING STATEMENTS AND ASSOCIATED RISKS
This Prospectus contains forward-looking statements, including
statements regarding, among other things, the Company's growth strategies and
anticipated consolidation savings from the consolidation of the operations of
The Natural Baby Catalog. These forward-looking statements are based largely on
the Company's expectations and are subject to a number of risks and
uncertainties, many of which are beyond the Company's control. Actual results
could differ materially from these forward-looking statements as a result of
changes in the trends in the children's mail order catalog industry and the
factors discussed in "RISK FACTORS." In light of these risks and uncertainties,
there can be no assurance that the forward-looking information contained in this
Prospectus will in fact occur.
[THIS SPACE INTENTIONALLY LEFT BLANK]
- 22 -
<PAGE>
THE COMPANY AND ITS PARENT
HISTORY OF DUNCAN HILL
The Company's parent, Duncan Hill, was organized under Ohio law in 1977
for the purpose of developing and marketing a designer line of smoking pipes,
tobacco and accessories. In 1980, a Duncan Hill subsidiary, Highland Pipe
Company, acquired the pipe manufacturing business of the Monarch Pipe Co., of
Bristow, Oklahoma. In 1984, the business of E.A. Carey Co. of Chicago, the
dominant mail order supplier of smoking products, was purchased by Duncan Hill
through its subsidiary, E.A. Carey of Ohio, Inc.
Perfectly Safe, Inc. was formed by Duncan in 1990 under Ohio law for
the purpose of publishing The Perfectly Safe Catalog, which was acquired from
Jeanne E. Miller in January, 1990. Mrs. Miller purchased the Perfectly Safe
Catalog in 1988 from the catalog's creator. In July, 1995, Perfectly Safe, Inc.
began to publish its second catalog, Jeannie's Kids Club.
Prior to June 30, 1996, the telemarketing, order fulfillment, data
processing and administrative function of Perfectly Safe, Inc. were provided by
Duncan Hill, which also provided those services as applicable, to its other
operating subsidiaries. Duncan Hill allocated the cost of its services to its
operating subsidiaries on a direct cost basis, as applicable, or on a pro rata
basis determined by the percentage of total assets of the various operating
subsidiaries, exclusive of the assets of Duncan Hill.
THE REORGANIZATION
Effective June 30, 1996, the Company succeeded to the catalog business
of Jeannie's Kids Club and Perfectly Safe as a result of a reorganization in
which the Company acquired from Duncan Hill the assets and liabilities of
Perfectly Safe, Inc., which was dissolved. The Company was incorporated by
Duncan Hill under Delaware law and had no operations prior the reorganization.
Effective June 30, 1996, the Company also acquired from Duncan Hill the
assets used by Duncan to perform the telemarketing, order fulfillment, data
processing and administrative functions, so that the Company could perform those
functions itself. The Company then entered into a transition period in which
telemarketing, data processing, order fulfillment, and administrative functions
were transferred from Duncan Hill to the Company in a manner consistent with the
operational requirements of the various subsidiaries of Duncan Hill. During this
period certain costs were allocated by Duncan Hill to the Company, and in
return, certain costs were allocated by the Company to Duncan Hill and its other
subsidiaries, depending upon the transition status of the cost area involved. In
either case, the costs were allocated pro rata in a manner consistent with
Duncan Hill's practices in existence prior to June 30, 1996. The Company
anticipates that the transition period will be completed by December 31, 1996.
Subsequent to December 31, 1996, the Company will provide services to
Duncan Hill and Duncan Hill's other subsidiaries, as requested, on an actual
cost basis. Actual costs are those direct costs that can be charged on a per
order or per hour basis, plus fixed costs allocated on a pro rata basis by
dividing the total assets of the operating entity requesting services by the sum
of the total assets of all operating entities of Duncan Hill and the operating
entity requesting services.
The purchase price of the Perfectly Safe and Duncan Hill assets
acquired by the Company is $2,613,404, payable as follows: The Company has
issued Duncan Hill a Promissory Note in the principal amount of $366,858 payable
in four annual installments commencing June 30, 1997 and bearing interest at the
rate of 8% per annum. The principal amount of the first installment is $66,858
and is $100,000 for each ensuing installment. In addition, the Company issued
Duncan 2,400,000 shares of Common Stock valued at $.125 per share and 5,000,000
shares of Series A Preferred Stock valued at $.001 per share. Further, the
Company agreed to assume all of the liabilities of Perfectly Safe, Inc. as of
June 30, 1996 in the amount of $1,291,546, as well as Duncan's outstanding
obligations under its credit facility in the amount of $650,000 as of June 30,
1996. Almost the entirety of the borrowings
- 23 -
<PAGE>
under the credit facility were used to support the Company's operations. See
"BUSINESS - Institutional Credit Facility."
[THIS SPACE INTENTIONALLY LEFT BLANK]
- 24 -
<PAGE>
BUSINESS
GENERAL
The Company is a specialty direct marketer which currently publishes
two catalogs with an emphasis on children's hardgood products from prenatal to
age three. The Company's first catalog, "Perfectly Safe, The Catalog For Parents
Who Care/Registered trademark/" is the nation's only catalog devoted to child
safety, child-proofing the home, and safety-related products for the family. The
Company has published Perfectly Safe since 1990, during which time it has
circulated over 15 million catalogs and helped to childproof over 300,000 homes.
One of the Company's founders authored "The Perfectly Safe Home" published by
Simon & Shuster, and appeared on national television, radio, and magazines in
the name of child safety.
In July, 1995 the Company introduced its "Jeannie's Kids Club" catalog
to broaden its market and to introduce a new direct marketing concept in
children's products. Jeannie's Kids Club offers parents of young children who
become members the opportunity of saving up to 60% compared with the same
products in other popular children's catalogs. The current annual membership fee
is $18.00 per year. Upon the completion of the Offering, the Company intends to
acquire its third catalog, The Natural Baby Catalog, which specializes in
alternative children's hard and softgood products from prenatal to age three.
With the addition of The Natural Baby Catalog, the Company believes
that it will be one of the leading direct marketers of quality children's
products from prenatal to age three, a market which is determined by the overall
birth rate in the United States. The birth rate peaked in the United States in
1989 at 4.1 million births per year, and is estimated by the U.S. Census Bureau
to be 3.8 million births in 1997, which is 100,000 less than its estimate for
1996.
The Company's market for children's goods is also affected by the
historical rise of women in the work force, which has risen to 48% of all
households today compared with 27% in 1960. Current estimates indicate that a
family earning $45,000 today will spend $7,610 or 17% of their income on their
baby during the first year of its life. The Company believes that a birth rate
of 3.8 million births per year and the high percentage of women in the work
force will place a continued emphasis on the convenience and value of shopping
by catalog.
The Company is aware of sixteen other children's hardgood-catalog
businesses which the Company estimates each having a revenue base of less that
$10 million per year. Because of increasing overhead requirements, the Company
believes that it will become more difficult for a consumer catalog business with
revenues of less than $10 million to operate profitably and should result in a
consolidation of some of these businesses in the future.
The Company intends to consolidate the operations of The Natural Baby
Catalog with the operations of the Company and anticipates a consolidation
savings in direct labor expenses as well as overhead. On a pro forma basis, the
combined operations of the Company and The Natural Baby Catalog would have
resulted in revenues of $9,162,141 and a pre-tax profit of $464,601 for the nine
months ended September 30, 1996, and revenues of $10,952,806 and a pre-tax
profit of $667,693 for the year ended December 31, 1995. Thus, the Company
believes that its acquisition and consolidation of The Natural Baby Catalog will
provide the necessary critical mass to operate the Company profitably in the
future.
STRATEGIES
The Company believes that its expertise in the marketing and
merchandising of children's products, the recent introduction of its Jeannie's
Kids Club concept, and the intended acquisition of The Natural Baby catalog will
provide the basis for future growth by the use of the following strategies:
CONSOLIDATION OF THE NATURAL BABY'S CATALOG INTO THE OPERATIONS OF THE
COMPANY. The Company plans to consolidate the warehouse, telemarketing, data
processing and administrative functions of The Natural Baby Catalog into the
operations of the Company. On a pro forma basis, the pre-tax consolidation
savings resulting
- 25 -
<PAGE>
therefrom would have been $364,210 for the nine months ended September 30, 1996
and $655,292 for the year ended December 31, 1995. The Company will endeavor to
complete the consolidation within ninety days of its acquisition of The Natural
Baby Catalog.
EXPAND THE MEMBERSHIP OF JEANNIE'S KIDS CLUB. Because Jeannie's Kids
Club offers popular children's products for up to 60% less than other children's
catalogs, the Company believes that there is a substantial market for this type
of home shopping service and an opportunity to substantially increase the
membership of Jeannie's Kids Club, which went from inception in July 1995 to
over 30,000 current members. Although there are costs associated with acquiring
the initial $18 membership fee, the $18 annual renewal of such membership is
approximately 90% profit to the Company. Under the terms of the Jeannie's Kids
Club membership, renewals are automatically billed to a member's credit card
prior to the expiration of the membership. Because of its potential
profitability, the Company intends to embark upon vigorous marketing efforts to
expand the Jeannie's Kids Club membership. See "BUSINESS - Marketing."
MAINTAIN THE GROWTH OF THE NATURAL BABY CATALOG. Revenues of The
Natural Baby Catalog have increased from $1.7 million in 1992 to $5.2 million in
1995. Revenues increased from $3.4 million for the nine months ended September
30, 1995 to $4.3 million for the nine months ended September 30, 1996. The
Company is satisfied with the performance of The Natural Baby Catalog and will
endeavor to maintain continuity in the merchandising and marketing of the
catalog.
CUSTOMER ACQUISITION PROGRAMS. Historically, the Company has relied
upon catalog circulation as the sole method to acquire new customers. Because of
the relatively short life of the acquired customer (prenatal to age three) and
the increasing costs of catalog mailings, the Company intends to test and
develop new methods of new customer acquisition. See "BUSINESS - Marketing." The
Company believes that its future growth and profitability (apart from the
addition of The Natural Baby Catalog) will be largely dependent upon the
Company's ability to develop alternative customer acquisition programs.
REFINE CATALOG MAILING STRATEGIES. The Company's catalog circulation is
determined by statistical models and analysis which targets prospective buyers
and timing of purchasers. The Company's statistical modeling systems, which was
originally purchased and developed between 1990 and 1993, are outdated. The
Company intends to acquire current state-of-the-art statistical modeling systems
which it believes will enable it to increase its catalog response rates and
lower its cost per catalog mailed. See "BUSINESS - Marketing."
CATALOG ACQUISITION AND JOINT VENTURES. The Company believes that,
because of the cost driven pressures to consolidate, there may be opportunities
to acquire other children's niche catalogs. The Company, however, has no short
term plans to make any such acquisitions other than The Natural Baby Catalog.
Any additional future acquisitions will depend upon the Company's ability to
obtain suitable financing. In the short-term, the Company does intend to pursue
marketing joint ventures. See "BUSINESS - Marketing."
STABILIZE THE PERFORMANCE OF PERFECTLY SAFE. In the past, many of the
safety products carried by the Perfectly Safe Catalog were generally hard to
find and were not well stocked by retail stores. That is no longer the case. See
"BUSINESS - Competition." As a consequence of this competitive impact, and the
inability of the Company to access certain profitable mailing lists following
the Company's introduction of Jeannie's Kids Club, the future performance of the
Perfectly Safe Catalog will be highly dependent upon the Company's ability to
more efficiently obtain new customers through catalog mailings in the immediate
short term and alternative acquisition programs on a long-range basis. In
addition, the Company may consider expanding the product age range by including
more general home safety products, if the Company has sufficient funds to test
market this concept.
MERCHANDISING
Through its Perfectly Safe Catalog, the Company emphasizes quality and
safety and provides full price merchandise tested by the Company and backed by a
full satisfaction warranty. The Perfectly Safe Catalog currently consists of 48
pages containing 235 products, principally hardgoods, approximately 61% of which
directly relates to child safety and child proofing the home, with the balance
consisting of safely tested convenience products
- 26 -
<PAGE>
and toys. Unlike fashion catalogs which change their mix of products offered
based upon trends and seasonality, Perfectly Safe retains proven products. The
merchandising function for Perfectly Safe is handled by one of the Company's
founders, Jeanne E. Miller, the author of "The Perfectly Safe Home."
During the year 1995 the Company used its merchandise expertise in
children's products to launch its Jeannie's Kids Club Catalog. The target market
selected by the Company is upper income parents who want quality, value and
convenience in products for their children. The Jeannie's Kids Club Catalog
selects popular quality hardgoods products from other children's catalogs and
then offers them at discounts of up to 60%.
The Natural Baby Catalog emphasizes alternative hard and softgood
products for babies and their parents. The catalog is eighty pages and contains
approximately 446 products, all of which are natural fiber, non-toxic and
environmentally safe. Approximately 26% of The Natural Baby Catalog product line
is exclusive or private label products. The merchandising function for The
Natural Baby Catalog has been done by the catalog's founder, Jane Martin, since
inception, and is a reflection of her beliefs and philosophy. Mrs. Martin will
continue to handle this function for the Company under a two-year consulting
agreement. See "MANAGEMENT - Employment Agreements."
Inclusive of The Natural Baby Catalog, the ratio between hardgoods to
softgoods contained in the Company's catalogs is approximately 3:1. Exclusive of
The Natural Baby Catalog, over 95% of the products contained in The Perfectly
Safe and Jeannie's Kids Club Catalogs are hardgoods. The Company continually
identifies and tests new product categories that are natural extensions of the
core business of its catalogs. Each product and product category is measured for
its revenue and profitability, with advertising costs allocated to the product
based upon the number of square inches of paper consumed in its presentation.
Products are then rated by performance in profitability, with weaker products
either removed or altered in their presentation. Test products are selected
based upon the data contained in the analysis of similar or related products, or
sales and feature benefits that the Company's merchandising team feels will
appeal to the demographics of the intended catalog customer.
MARKETING
The Company serves the children's market at an age where the child
changes rapidly and many of the products become functionally obsolete within
months of the date of purchase. The Company's market for its catalog is
primarily from prenatal to age three. The Company maintains proprietary mailing
lists of households with an average income in excess of $50,000 per year, a
proven history of mail order purchases and a newborn in the house. The number of
customers who purchased in the last twelve months are 54,829 for Perfectly Safe,
and 40,708 member and non-member buyers for Jeannie's Kids Club, respectively.
The Company also rents mailing lists which meet the Company's criteria from
outside sources, which consist of independent list compilers, as well as
directly from other children's catalogs. The Company's present cost of renting
mailing lists is $.09 per household per use. The Company believes that The
Natural Baby Catalog's mailing list rentals are primarily from certain other
children's catalogs based upon a proven history of recent mail order purchases.
In order to select those households most likely to purchase, the
Company uses a statistical modeling system developed in-house, called REZIP.
REZIP is a compilation of zip codes derived from the zip codes of prior
customers, and has a database of approximately five million names. The REZIP
database is used as a filter to select specific households for catalog mailings.
The Company believes that its REZIP statistical modeling system which it
developed between 1990 and 1993 is outdated and needs to be replaced with
state-of-the-art data bases containing various additional demographic
information, which would enable the Company to more accurately predict
profitable zip codes. At the present time, The Natural Baby Catalog does not use
statistical modeling systems. The Company believes that the application of
statistical modeling systems will increase the rate of percentage response and
profitability of The Natural Baby Catalog.
The Company uses a selling strategy built around two basic selling
seasons: fall/winter and spring/summer. Each season requires changes of products
appropriate to the time period for the life of the catalog. Catalogs are mailed
on a monthly basis in approximately equal quantities, with clearance sales
advertised on wrappers of selected catalog mailings. Monthly mailing quantities,
however, are subject to significant variations due to changes in timing
- 27 -
<PAGE>
and availability of rental mailing lists. In 1995, the catalog mailings for
Perfectly Safe and Jeannie's Kids Club were 3,222,551, and 708,804,
respectively.
The Company believes that The Natural Baby Catalog uses a selling
strategy based upon three basic selling seasons: spring, summer and fall/winter.
While catalogs are mailed monthly, lessor quantities are mailed monthly in the
period February-June, with quantities increasing to the fall/winter season. The
Natural Baby Catalog mailed approximately 2.2 million catalogs in 1995.
Because of a continuing increase in catalog advertising costs and the
relatively short customer life, the Company believes that it can no longer
afford to use catalog mailings as the sole method of customer name acquisition.
Accordingly, the Company intends to pursue a balanced customer acquisition
program, which will include magazine solicitations, promotional inserts, direct
sell campaigns, and joint venture marketing agreements with mass marketers of
baby formula, baby food and health care, as alternative marketing methods for
the acquisition of customer names.
CUSTOMER SERVICE AND TELEMARKETING
The Company derives approximately 80% of its revenue through orders
placed over the telephone and emphasizes superior customer service and
friendliness in its sales representatives. The Company's payment terms have been
major credit cards or checks. The Company is currently testing a credit card
based deferred payment plan. The Company's return policy is unconditional, and
provides that if a customer is not satisfied with his or her purchase for any
reason, it may be returned within 30 days for a full refund or exchange. If a
shipping error has occurred the Company will issue call tags to pick up
merchandise shipped in error and will send a corrected shipment.
The Company's telemarketing facilities are open seven days a week from
8:00 am to 11:00 p.m. and employ the equivalent of approximately 13 full time
telemarketing and customer service representatives. During the year 1996 the
Company handled over 200,000 telephonic customer orders, catalog requests and
service requirements.
The Company is developing a new order taking and customer service
system to improve its efficiency in processing customer requirements. During
October 1996 the Company installed an advanced telephone system for the
monitoring and distribution of telephone calls to its sales representatives.
Additionally, the Company expects to automate its routine catalog requests, and
lower its cost per call in this segment of its telemarketing business.
Upon the Company's acquisition of The Natural Baby Catalog, the Company
anticipates the need to add the equivalent of approximately 10 additional full
time telemarketing and customer service representatives to its current staff.
The Company believes that the Natural Baby Catalog employed approximately 18
full time equivalents to handle its telemarketing and customer service at
December 31, 1996.
FULFILLMENT AND DELIVERY
The Company's fulfillment and delivery objective is to provide
excellent customer service within a low cost structure. Its fulfillment
operations consist of 12,000 square feet of leased facilities in North Canton,
Ohio. The facility is designed to process incoming shipments on a palletized or
boxed basis, and to process outgoing shipments on an individualized cost
effective basis. Orders shipped are individually recorded and posted through the
use of barcode scanners, so that sales records and credit card deposits are
electronically posted. The Company's fulfillment center processed over 150,000
shipments in 1996 and is currently operating at or near capacity from the
standpoint of square footage. Upon the acquisition of The Natural Baby Catalog,
the Company intends to relocate into a larger warehouse facility and move The
Natural Baby Catalog from its current location in Trenton, NJ to the Company's
new facility.
- 28 -
<PAGE>
INVENTORY/PURCHASING
The Company conducts its purchasing operations at its general offices
in Canton, Ohio. Each catalog contains approximately 300 products or stock
keeping units (SKU's). Each product is reviewed weekly through the use of
computerized reports that provide detailed information regarding inventory
value, unit sales, and purchasing delivery times. Products are ordered as
required for "just in time" arrival into the Company's inventory.
The Company believes that its inventory and purchasing efficiency can
be improved through the use of improved systems and working capital management
to minimize out-of-stock conditions. At September 30, 1996, the Company had a
backlog of unshipped orders in excess of $165,000 attributable largely to its
inability to timely pay vendors and re-stock inventory. The Company intends to
use a portion of the proceeds of this Offering to resolve this problem. See "USE
OF PROCEEDS."
PRODUCT SOURCING
The Company acquires products for resale in its catalogs from numerous
domestic vendors. No single source supplied more than 10% of the Company's
products in 1996. The Company believes that no single source likewise supplied
more than 10% of The Natural Baby Catalog products in 1996.
SEASONALITY
Perfectly Safe's revenues are not significantly impacted by seasonal
fluctuations, as compared to many other retail and catalog operations. The
Perfectly Safe customer is believed to be generally the end user of the product
so purchases are spread throughout the year, rather than being concentrated
between October and December, as are traditional gift purchases. The Company's
limited experience does not indicate that Jeannie's Kids Club's revenues are
subject to significant seasonal fluctuation. The Natural Baby Catalog, however,
appears to the Company to have a seasonal increase in the fourth quarter. During
the year 1995, The Natural Baby Catalog sales in the fourth quarter was 35.2% of
total 1995 sales.
INSTITUTIONAL CREDIT FACILITY
Effective June 30, 1996, the Company assumed Duncan Hill's liability
under Duncan Hill's $800,000 working line of credit facility provided by the
United National Bank and Trust Company to the Company (the "Bank"). The Bank
opened a $800,000 line of credit in the Company's name effective December 31,
1996, and simultaneously terminated Duncan Hill's line of credit. The $650,000
amount outstanding under Duncan Hill's line of credit was transferred upon
termination to the line of credit opened in the Company's name. The line of
credit is for an open term, payable upon demand. The facility is secured by the
assets of the Company, as well as the assets of Duncan Hill subsidiary and E.A.
Carey of Ohio, Inc. The repayment of the facility is guaranteed by Mr. Miller.
The amount outstanding under the facility at the date of this Prospectus is
$__________, with interest charged at the rate of 1% over prime.
It is the policy of the Bank to review the credit facility, annually,
and to require that the Company maintain a zero balance on the credit line for a
period of thirty consecutive dates sometime during the course of each year. The
Bank has agreed to waive the "zero balance" required for the 1997 loan year.
DATA PROCESSING
The Company's data processing facilities were installed in June 1991.
The software system is marginally adequate with respect to processing,
inventory, shipping, and financial records. However, the Company believes that
the management information and statistical modeling software is inadequate and
should be upgraded to current state-of-the-art technology. Although the Company
believes that its hardware system is marginally adequate, the hardware is
outdated and costly to maintain. It is the intent of the Company to upgrade or
replace its management information and statistical modeling software, as well as
the hardware, during the year 1997 or, alternatively, outsource this function.
- 29 -
<PAGE>
COMPETITION
The mail order catalog is highly competitive. The Company's catalogs
compete generally with other mail order catalogs and retail stores, including
department stores, specialty stores, discount stores and mass merchants. Many
general and specialty catalog competitors, as well as retail stores, have
substantially greater financial, distribution and marketing resources than the
Company. There are numerous general and specialty catalogs selling infants' and
children's items. However, based upon type of goods offered, the Company
considers its primary hardgood catalog competition, to be "The Right Start
Catalog," "One Step Ahead," "Sensational Beginnings," and "Hand in Hand," of
which "The Right Start" and "One Step Ahead" have substantially larger revenues
than the Company, even with the inclusion of the revenues of The Natural Baby
Catalog with the revenues of the Company.
Other mail order catalogs for children's hardgood products which the
Company believes are competitors to a lesser extent are "Current Children's
Products," "Troll Learn and Play," "Just for Kids," "Childcraft," "Toys to Grow
On," "Hearthsong," "Constructive Playthings," "Music for Little People," "Great
Kids," "The Great Kids Company," "Ultimate Baby Catalog," "San Francisco Music
Box," "Stork Kit/Bundle of Joy," "Play Fair Toys," "Animal Town," "Alvin and the
Chipmunks," "Livonia Catalog," "Plus and Company," "Disney Catalog," "Storybook
Heirlooms," and "F.A.O. Schwartz." Ten of those catalogs have substantially
higher revenues than the Company, even with the inclusion of the revenues of The
Natural Baby with the revenues of the Company.
While competitive catalogs may offer certain items contained in the
Company's catalogs, the Company believes that it is unique at the present time
in having the only catalog devoted to child safety, and the only catalog of
children's quality merchandise discounted on a club membership basis. The
Company also believes that The Natural Baby Catalog is the leading catalog
offering alternative products for children and their parents.
Certain other catalogs, such as "Hanna Andersson" and "Biobottoms,"
compete with The Natural Baby Catalog in selected product areas, but do not
compete across the entire product line. Other mail order catalogs for children's
softgoods products which the Company believes are competitors of The Natural
Baby Catalog to a lessor extent are "Playclothes," "After the Stork," "Talbot's
Kids," "Spiegel Children's Clothing," "Brights Creek," "Gymboree," "Eddie Bauer
Children's Fashions," and "Spiegel Kids." The Company believes that six of these
catalogs have substantially higher revenues than The Natural Baby Catalog.
In the past, many of the safety products carried by the Perfectly Safe
Catalog were generally hard-to-find, lower price items, such as electrical
outlet guards, appliance cord shorteners and appliance door latches. Many of
these items are now stocked by retail stores, discount stores and mass
merchants.
The Company experienced a competitive reaction to its introduction of
Jeannie's Kids Club Catalog which resulted in three other children's catalogs
refusing to exchange with, or rent their mailing lists to, the Company. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION." The Company does not anticipate such a reaction from its acquisition
of The Natural Baby Catalog because the Company does not believe that Jeannie's
Kids Club Catalog is a substantial competitor of the children's catalogs from
which The Natural Baby Catalog rents mailing lists. There can be no assurance,
however, that such a competitive reaction will not occur, or that such an
occurrence would not have an adverse effect upon the profitability of The
Natural Baby Catalog.
TRADEMARKS AND TRADE NAMES
The Company owns two federally registered trademarks, "Perfectly Safe,
The Catalog For Parents Who Care," and the Perfectly Safe Guarantee with its
designed mark. The Company plans to register its mark, "Jeannie's Kids Club," as
a unique identification of its Jeannie's Kids Club Catalog. With the acquisition
of The Natural Baby Catalog, the Company will acquire the ownership of the
trademark "The Natural Baby Catalog" which is a federally registered trademark.
- 30 -
<PAGE>
EMPLOYEES
As of December 1, 1996, the Company had 39.5 full time equivalent
employees. Of this total, eight employees or 20% of total, hold positions of
managers; 30.5 employees or 77% of total, hold hourly paid positions. The
largest single segment of the Company's employment is in direct labor involving
order entry, customer service, and distribution, where 24 employees or 61% of
total Company employment is involved. The work force is non-union, and the
Company does not anticipate a union presence in the foreseeable future.
At the conclusion of the Offering, the Company anticipates that its
acquisition of The Natural Baby Catalog will require an immediate increase in
direct hourly labor with minimal increases in indirect labor. The Company does
not anticipate difficulties in local labor supply for its requirements in this
area.
PROPERTIES
The Company's principal offices and telemarketing center are located in
Canton, Ohio. The facility consist of 5,600 square feet and is leased through
October 1, 1998 with options to renew for a period of two years. The Company's
warehouse and distribution center is located in North Canton, Ohio and consists
of 12,000 square feet of facilities leased currently on a month-to-month basis.
The Company anticipates that, upon the conclusion of the Offering and
acquisition of Natural Baby Catalog, the Company will consolidate its warehouse,
distribution, and telemarketing facilities into one location in the Canton, Ohio
area. All leases are in the name of Duncan Hill and the rent is charged to its
subsidiaries consistent with past practices. See "THE COMPANY AND ITS PARENT."
REGULATORY MATTERS
The Company's business, and the catalog industry in general, is subject
to regulation by a variety of state and federal laws relating to, among other
things, advertising and sales taxes. The Federal Trade Commission regulates the
Company's advertising and trade practices and the Consumer Product Safety
Commission has issued regulations governing the safety of the products the
Company sells in its catalogs. Under current law, catalog retailers are
permitted to make sales in states where they do not have a physical presence
without collecting sales tax. The Company believes that it collects sales in
states where it is required to do so. The Company has no claims or regulatory
matters in process or pending as of the date of this Prospectus. See "RISK
FACTORS -- State Sales Tax."
PRODUCT LIABILITY INSURANCE
Since 1990, the Company's parent, Duncan Hill, has carried product
liability insurance. The current coverage is $1 million per occurrence with an
aggregate limit of $2 million. The policy is supplemented by a $2,000,000
umbrella liability policy. The policies are carried by Duncan Hill, with the
Company and Duncan Hill's other subsidiaries as named insureds. The policies are
issued for a period of one year and are currently in effect through September
17, 1997. The Company intends to attempt to procure the same coverage in its
name, alone, after the completion of this Offering. See "RISK FACTORS -
Potential Product Liability."
LEGAL PROCEEDINGS
In the normal course of business, the Company may be involved in
various legal proceedings from time to time. Presently, however, the Company is
not a party to any litigation, whether routine or incidental to its business, or
otherwise.
- 31 -
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The names and ages of the directors and executive officers of the
Company are set forth below:
NAME AGE POSITION
---- --- --------
William L. Miller....... 60 Chairman of the Board of Directors, Chief
Executive Officer and Principal Financial Officer
Jeanne E. Miller........ 49 Executive Vice President and Director
Clark D. Swisher........ 45 Director
The term of office for each of the Company's directors and executive
officers is one year. William L. Miller and Jeanne E. Miller are husband and
wife.
WILLIAM L. MILLER has been Chairman of the Board of Directors of the
Company, and its Chief Executive Officer, since its recent formation. Prior to
the Reorganization, Mr. Miller had been a director of Perfectly Safe, Inc., and
its Vice President since it was formed by Duncan Hill in 1990. Mr. Miller
founded Duncan Hill in 1977 and has been a director and its President and Chief
Executive Officer since then. He holds a Bachelor's Degree in Mechanical
Engineering from Purdue University and a Master's Degree in Business
Administration from Indiana University. Mr. Miller is also the President and a
director of E.A. Carey of Ohio, and Highland Pipe Company, both of which are
wholly owned subsidiaries of Duncan Hill.
JEANNE E. MILLER has been a director of the Company, and its Executive
Vice President since its recent formation. Prior to the reorganization, Mrs.
Miller had been a director of Perfectly Safe, Inc., and its President since its
formation in 1990. Mrs. Miller co-founded Duncan Hill in 1977 and has been a
director and its Vice President ever since. Between 1974 and 1978, Mrs. Miller
was the owner/operator of Jeanne Eggers, Ltd., an advertising and public
relations firm with offices in Chicago and London. Mrs. Miller is the author of
the child safety book THE PERFECTLY SAFE HOME, published by Simon and Schuster
in 1991 and has appeared on network television to speak on that subject. Mrs.
Miller is also the Vice President and a director of E.A. Carey of Ohio and
Highland Pipe Company, both of which are wholly owned subsidiaries of Duncan
Hill.
CLARK D. SWISHER is a director of the Company since its recent
formation. Mr. Swisher has been Vice President of the Employee Benefits Division
of the Leonard-McCormick Agency, a general insurance agency, since 1984. Mr.
Swisher's professional background includes membership in the National
Association of Life Underwriters and the University of Akron Business Advisory
Council. Mr. Swisher has been a director of Duncan Hill since 1995.
The Company pays its directors who are not also employees of the
Company $100 for each meeting attended and reimburses such directors for travel
and other expenses incurred by them in connection with attending Board of
Directors meetings.
- 32 -
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the total compensation paid to the named
Executive Officers for the fiscal year ended December 31, 1995.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
--------------------------
ANNUAL LONG-TERM
COMPENSATION AWARDS(1) COMPENSATION
---------------------- ------------
(a) (b) (c) (d) (e) (f)
OTHER ANNUAL RESTRICTED STOCK OPTION
NAME AND PRINCIPAL POSITION YEAR SALARY COMPENSATION AWARD GRANTS
- --------------------------- ---- ------ ------------ ----- ------
<S> <C> <C> <C> <C> <C>
William L. Miller 1995 $100,000 - - -
Jeanne E. Miller 1995 $ 65,000 - - -
<FN>
- ----------
(1) Compensation was paid by Duncan Hill which, prior to the reorganization, provided management and general and administrative
services to Perfectly Safe, Inc. Approximately 69% of the compensation paid by Duncan Hill to the named Executive Officers
were expensed to Perfectly Safe, Inc. See "THE COMPANY AND ITS PARENT."
</FN>
</TABLE>
EMPLOYMENT AGREEMENTS
The Company intends to enter into a five-year employment agreement with
William Miller, effective the date of this Prospectus, pursuant to which Mr.
Miller is to serve as Chief Executive Officer of the Company. The agreement will
provide for an annual base salary of $100,000, with bonuses and salary increases
based upon certain established performance criteria. Mr. Miller will also be
granted under the agreement, an option to purchase 100,000 shares of the
Company's Common Stock, which will vest 25% on each of the first four
anniversary dates of the date of this Prospectus and the vested options will be
immediately exercisable. The exercise price of the options shall be $5.00 per
share, subject to downward adjustments in the exercise price if the Company
meets certain performance goals. Mr. Miller will be permitted under his
agreement to devote up to 20% of his working time to managing the affairs of the
various other Duncan Hill entities, and to retain any compensation that he
receives from those entities for providing those services.
The Company intends to enter into a five-year employment agreement with
Jeanne E. Miller, effective the date of this Prospectus, pursuant to which Mrs.
Miller will serve as the Executive Vice President of the Company. The Agreement
provides for an annual base salary of $75,000, with bonuses and salary increases
based upon certain established performance criteria. Mrs. Miller's agreement
also grants to her options to purchase 100,000 shares of the Company's Common
Stock on the same terms applicable to the options granted Mr. Miller. Mrs.
Miller will be permitted under her agreement to devote up to 5% of working time
to the publication of Carey's Smokeshop Catalog published by Duncan subsidiary,
E.A. Carey of Ohio, Inc., and to retain any compensation that she receives for
providing those services.
The Company will enter into a two-year consulting agreement with Jane
Martin, effective the date of the Company's acquisition of The Natural Baby
Catalog, pursuant to which Mrs. Martin will continue to be primarily responsible
for the merchandise selections design and production of The Natural Baby
Catalog. The agreement provides for an annual consulting fee of $65,000.
The Company intends to provide its executive officers and employees
with certain fringe benefits (e.g., health insurance) and may, in the future,
offer stock or cash incentive bonus plans, and other employer benefits on such
amounts and upon such conditions as the Company's Board of Directors may, in its
sole discretion, determine.
- 33 -
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth as of January 3, 1997, certain
information with respect to the beneficial ownership of Common Stock and Series
A Preferred Stock by each person or entity known by the Company to be the
beneficial owner of 5% or more of such shares, each officer and director of the
Company, and all officers and directors of the Company as a group:
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF SHARES
NAME AND ADDRESS OF COMMON STOCK OF PREFERRED STOCK PERCENTAGE (%) OF
OF BENEFICIAL OWNER(1) BENEFICIALLY OWNED BENEFICIALLY OWNED VOTING STOCK(2)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Duncan Hill Co., Ltd. 2,400,000(3) 5,000,000(3) 85%(3)
4450 Belden Village Street, N.W.
Suite 406
Canton, OH 44718
William L. Miller(4) 2,400,000(5) 5,000,000(5) 85%(5)
c/o 4450 Belden Village Street,
N.W.
Suite 406
Canton, OH 44718
Jeanne E. Miller(6) --- --- ---
c/o 4450 Belden Village Street,
N.W., Suite 406
Canton, OH 44718
Clark D. Swisher(7) --- --- ---
c/o 4450 Belden Village Street,
N.W.
Suite 406
Canton, OH 44718
All Officers and Directors as a 2,400,000(5) 5,000,000(5) 85%(5)
Group (3 Persons)
<FN>
- ----------
(1) Beneficial ownership as reported in the table above has been determined in
accordance with Rule 13d-3 of the Securities Exchange Act. Accordingly,
except as noted, all of the Company's securities over which the officers
and directors and nominees named, or as a group, directly or indirectly
have, or share voting or investment power, have been deemed beneficially
owned.
(2) Calculated based upon 3,700,000 shares of Common Stock outstanding, each
share having one vote, and 5,000,000 shares of Series A Preferred Stock
outstanding, each share having one vote.
(3) William L. Miller will be deemed to beneficially own all such shares for
purposes of Rule 13d-3 of the Securities Exchange Act based upon his 53.9%
ownership of Duncan Hill's common stock.
(4) Chief Executive Officer and Director of the Company.
(5) Represents Mr. Miller's deemed beneficial ownership of 2,400,000 shares of
Common Stock and 5,000,000 shares of Series A Preferred Stock, the record
holder of which is Duncan Hill.
(6) Executive Vice President and Director of the Company.
(7) Director of the Company.
</FN>
</TABLE>
- 34 -
<PAGE>
SELLING SECURITYHOLDERS
Up to 1,500,000 Warrants may be offered by three Selling Securityholders
who provided bridge financing to the Company. See "CERTAIN TRANSACTIONS - Bridge
Loan." The Company has agreed to bear all expense (other than underwriting or
selling commissions or any fees or disbursements of such Selling
Securityholders' respective counsel) in connection with the registration of the
resale of the Warrants.
The sale of the Warrants by the Selling Securityholders may be effected
from time to time in transactions (which may include block transactions)
over-the-counter, in negotiated transactions, or a combination of such methods
of sale, at fixed prices which may be changed, at market prices prevailing at
the time of sale or at negotiated prices. The Selling Securityholders may effect
such transactions by selling Warrants directly to purchasers or to or through
broker-dealers which may act as agents or principals. The Underwriter may act as
a broker for such sales. Such broker-dealers may receive compensation in the
form of discounts, concessions or commissions from the Selling Securityholders
and/or the purchasers of the Warrants for which such broker-dealers may act as
agents or to whom they sell as principal, or both (which compensation as to a
particular broker-dealer might be in excess of customary commissions). The
Selling Securityholders and any broker-dealers that act in connection with the
sale of the Warrants might be deemed to be "underwriters" within the meaning of
Section 2(11) of the Act.
[THIS SPACE INTENTIONALLY LEFT BLANK]
- 35 -
<PAGE>
CERTAIN TRANSACTIONS
RULE 504 SHARES
In connection with its initial capitalization, the Company sold, commencing
October 1996, an aggregate of 1,300,000 shares of Common Stock to seven private
investors at a purchase price of $.125 per share. Six of these investors are
customers of the Underwriter. The Company issued those shares under Rule 504 of
the 1933 Act (the "504 Shares") and are freely tradeable except for 100,000 of
the Rule 504 Shares which are subject to a "lock-up" by the Underwriter. See
"Underwriting." Any actual future sales of the Rule 504 Shares (or the potential
thereof) may have an adverse effect on the market price of the Company's
securities, should a public trading market develop. See "RISK FACTORS -
Unregistered Securities Eligible for Immediate and Future Sale."
BRIDGE LOAN
In October 1996, the Company borrowed an aggregate of $200,000 (the "Bridge
Loan") from three private investors, who are customers of the Underwriter. The
Bridge Loan bears interest at the rate of 8% per annum and is payable upon the
earlier of October 1996 and the closing of this Offering.
$75,000 of the aggregate outstanding balance of the Bridge Loan will be
applied by the Bridge Lenders to the purchase of 1,500,000 Warrants, at a
purchase price of $.05 per Warrant, upon the date of the Prospectus. These
Warrants are identical to the Warrants underlying the Units being offered to the
public in this Offering. See "DESCRIPTION OF SECURITIES - Warrants." The
1,500,000 Warrants have been registered for possible resale by the Bridge
Lenders under the Registration Statement of which this Prospectus forms a part.
See "SELLING SECURITYHOLDERS." These Warrants while outstanding may have an
adverse effect upon the market price of the Companies securities, should a
public trading market develop and may also make it more difficult for the
Company to raise additional capital. See "RISK FACTORS - Potential Adverse
Effect of Redemption or Exercise of Warrants."
ACQUISITION OF THE NATURAL BABY CATALOG
In May, 1996, The Natural Baby Company, Inc. ("Baby Co.") contracted to
sell its catalog business, The Natural Baby Catalog, to Duncan Hill, at which
time Duncan Hill paid Baby Co. $25,000 towards the purchase price. The Company
will repay the $25,000 advanced by Duncan Hill upon the closing of this
Offering. Duncan Hill has assigned its rights to acquire The Natural Baby
Catalog to the Company, with Baby Co.'s approval. The remaining purchase price
to be paid by the Company for The Natural Baby Catalog consists of a cash
payment in the amount of $1,278,358 to be made by the Company upon the closing
of the Offering, the assumption by the Company of Baby Co.'s accounts payable
incurred in the ordinary course of business, the assumption of Baby Co.'s
remaining lease obligations in the approximate amount of $35,500, and a
convertible promissory note issued by the Company to Baby Co. in the amount of
$250,000 (the "Convertible Note"). The Company intends to pay the assumed
accounts payable and assumed lease obligations out of The Natural Baby Catalog's
cash flow.
The unpaid balance of the Convertible Note is convertible into unregistered
shares of the Company's Common Stock, at the election of the holder, at a
conversion price of $5.00 per share. The Convertible Note will have an eight
year term and bear interest at 8% per annum. Upon the first three anniversaries
of the execution of the Convertible Note, only accrued interest in arrears will
be payable. Thereafter, five annual payments of $50,000, plus accrued interest,
will be payable on the fourth, fifth, sixth, seventh and eight anniversaries of
the execution of the Convertible Note.
The purchase price is based upon Baby Co.'s tangible net worth at December
31, 1995, and is subject to adjustment in the event that Baby Co.'s tangible net
worth at closing is higher or lower than at year end 1995. Any adjustment in the
purchase price will be made as an adjustment to the Convertible Note.
The Company did not engage an independent appraiser to evaluate whether or
not the Company has agreed to pay a purchase price in excess of The Natural Baby
Catalog's fair value. In addition, because the Company did
- 36 -
<PAGE>
not complete the acquisition on or before January 3, 1997, as initially agreed
to, the Company agreed to pay an additional $350,000 (the "Additional Amount")
for the acquisition in order to obtain an extension until no later than April
30, 1997 to complete the acquisition. $250,000 of the Additional Amount is
reflected in the Convertible Note and $100,000 of the Additional Amount is
reflected in the $1,278,358 cash payment to be made upon the completion of this
Offering. Baby Co.'s demands for the increase in the purchase price was
predicated upon the strong growth of The Natural Baby Catalog's business since
Baby Co. initially agreed to sell its catalog business in May, 1996.
The parties have provided for an escrow closing to take place within ten
business days prior to the date of this Prospectus. Upon payment of the purchase
price, which must occur no later than April 30, 1997, the acquisition will
become final. See "RISK FACTORS - Acquisition Escrow Closing of The Natural Baby
Catalog."
The foregoing is a summary of certain provisions of the Asset Purchase
Agreement, as amended, for the Company's acquisition of The Natural Baby
Catalog. The Asset Purchasing Agreement, as amended, and the Escrow Agreement,
have been filed as an Exhibit to the Registration Statement of which the
Prospectus is a part.
[THIS SPACE INTENTIONALLY LEFT BLANK]
- 37 -
<PAGE>
DESCRIPTION OF SECURITIES
UNITS
The securities that are offered hereby are being offered and will be sold
only in units ("Units"). Each Unit consists of two shares of common stock, $.001
par value (the "Common Stock") and one Class A warrant (the "Warrant"). The
Warrants will be in registered form and immediately separately transferable,
detachable, and exercisable.
COMMON STOCK
The Company has 35,000,000 shares of authorized Common Stock. As of the
date of this Prospectus, 3,700,000 shares of Common Stock were issued and
outstanding.
Holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders. Stockholders do not
have cumulative voting rights. Subject to preferences that may be applicable to
any then outstanding Preferred Stock, holders of Common Stock are entitled to
receive ratably such dividends as may be declared from time to time by the Board
of Directors out of funds legally available therefor. See "DIVIDEND POLICY." In
the event of a dissolution, liquidation or winding-up of the Company, holders of
Common Stock are entitled to share ratably in all assets remaining after payment
of liabilities and the liquidation preference of any then outstanding Preferred
Stock. Holders of Common Stock have no right to convert their Common Stock into
any other securities. The Common Stock has no preemptive or other subscription
rights. There are no redemption or sinking fund provisions applicable to the
Common Stock. All outstanding shares of Common Stock are, and the Common Stock
to be outstanding upon completion of this Offering will be, duly authorized,
validly issued, fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors has the authority, without further action by the
stockholders, to issue up to 10,000,000 shares of Preferred Stock in one or more
series and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences and the number of shares constituting any
series or the designation of such series. The issuance of Preferred Stock could
adversely affect the voting power of holders of Common Stock and could have the
effect of delaying, deferring or preventing a change in control of the Company.
The Company has no present plans to issue any shares of Preferred Stock other
than the Series A Preferred Stock discussed below.
SERIES A PREFERRED STOCK
As of the date of this Prospectus, the Company has issued and outstanding
5,000,000 shares of Series A Preferred Stock, $.001 par value. The holders of
the Series A Preferred Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. As of the date of
this Prospectus, all of the issued and outstanding shares of the Series A
Preferred Stock is held by Duncan Hill. The Series A Preferred Stock and the
Common Stock held by Duncan Hill will enable it and the Millers to maintain
control of the Company subsequent to the completion of this Offering. See "RISK
FACTORS - Control by Parent and Parent's Controlling Stockholders."
The Series A Preferred Stock is not subject to redemption and has no
conversion rights or rights to participate in dividend payments. In the event of
any voluntary or involuntary liquidation, dissolution or winding up of the
affairs of the Company, each share of Series A Preferred Stock has a liquidation
preference of $.001 per share.
WARRANTS
During the four-year period commencing one year from the date of this
Prospectus, each Warrant will entitle the registered holder to purchase one
share of Common Stock at an exercise price of $5.00 per share. Warrants may be
exercised by surrendering to the warrant agent the Warrants and the payment of
the exercise price in United
- 38 -
<PAGE>
States funds by cash or certified or bank check. No fractional shares of Common
Stock will be issued in connection with the exercise of Warrants. Upon exercise,
the Company will pay to the holder the value of any such fractional shares based
upon the market value of the Common Stock at such time. The Company is required
to keep available a sufficient number of authorized shares of Common Stock for
issuance to permit exercise of the Warrants.
The Company may redeem the Warrants at a price of $.05 per Warrant at any
time after they become exercisable and prior to their expiration by giving not
less than 30 days' written notice mailed to the record holders if the closing
bid price of the Common Stock has been at least $12.00 on each of the 20
consecutive trading days ending on the 5th day prior to the date on which the
notice of redemption is given.
The Warrants will expire at 4:00 P.M., New York time, on the sixth
anniversary of the date of this Prospectus. In the event a holder of Warrants
fails to exercise the Warrants prior to their expiration, the Warrants will
expire and the holder thereof will have no further rights with respect to the
Warrants. A holder of Warrants will not have any rights, privileges or
liabilities as a stockholder of the Company. In the event of the liquidation,
dissolution or winding up of the Company, holders of the Warrants are not
entitled to participate in the distribution of the Company's assets.
The exercise price of the Warrants and the number of shares issuable upon
exercise of the Warrants will be subject to adjustment to protect against
dilution in the event of stock dividends, stock splits, combinations,
subdivisions and reclassifications. No assurance can be given that the market
price of the Company's Common Stock will exceed the exercise price of the
Warrants at any time during the exercise period.
Purchasers of the Warrants will have the right to exercise the Warrants to
purchase shares of Common Stock only if a current prospectus relating to such
shares is then in effect and only if the shares are qualified for sale under the
securities laws of the jurisdictions in which the various holders of the
Warrants reside. The Company has undertaken to maintain the effectiveness of the
Registration Statement of which this Prospectus is a part or to file and
maintain the effectiveness of another registration statement so as to permit the
purchase of the Common Stock underlying the Warrants, but there can be no
assurance that the Company will be able to do so. The Warrants may be deprived
of any value if this Prospectus or another prospectus covering the shares
issuable upon the exercise thereof is not kept effective or if such Common Stock
is not qualified or exempt from qualification in the jurisdictions in which the
holders of the Warrants reside.
For the life of the Warrants, a holder thereof is given the opportunity to
profit from a rise in the market price of the Common Stock that may result in a
dilution of the interest of other stockholders. In addition, the Company may
find it more difficult to raise capital if it should be needed for the business
of the Company while the Warrants are outstanding. At any time when the holders
of Warrants might be expected to exercise them, the Company would, in all
likelihood, be able to obtain additional capital on terms more favorable than
those provided in the Warrants.
The foregoing is a summary of certain provisions of Warrant Agreement under
which each Warrant will be issued. The Warrant Agreement has been filed as an
Exhibit to the Registration Statement of which the Prospectus is a part.
UNDERWRITER'S PURCHASE OPTION
In connection with this Offering, the Company has agreed to sell to the
Underwriter, for an aggregate purchase price of $30, the Underwriter's Purchase
Option which entitles the Underwriter to purchase 30,000 Units. See
"UNDERWRITING."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Units, Common Stock,
Warrants and Underwriter's Purchase Option is American Stock Transfer & Trust
Company.
- 39 -
<PAGE>
UNREGISTERED SHARES ELIGIBLE FOR IMMEDIATE AND FUTURE SALE
Upon completion of this Offering, the Company will have outstanding
4,300,000 shares of Common Stock (4,390,000 if the Underwriter's over-allotment
option is exercised in full). Of such shares, 1,900,000 shares of Common Stock
will be freely transferable without restriction or further registration under
the 1933 Act (the "Unrestricted Shares"), other than any of such shares acquired
by persons who are currently "affiliates" of the Company as defined by Rule 144
under the Act, which will be subject to limitations under Rule 144 for so long
as such persons are affiliates. Only 600,000 of the 1,900,000 Unrestricted Share
have been registered in this Offering. The balance (1,300,000 shares) were
issued under Rule 504 of the 1933 Act and are freely tradeable except for
100,000 of the Rule 504 shares which are subject to a "lock-up" by the
Underwriter. See "UNDERWRITING." Any future sales of the Rule 504 Shares (or the
potential therefor) may have an adverse effect on the market price of the
Company's securities, should a public trading market develop. See "RISK FACTORS
- - Unregistered Shares Eligible for Immediate and Future Sale."
The Company's parent, Duncan Hill, holds 2,400,000 unregistered shares of
the Company's Common Stock and 5,000,000 unregistered shares of the Company's
Series A Preferred Stock. These shares of Common and Preferred Stock held by
Duncan Hill are "restricted securities" within the meaning of Rule 144, and may
not be sold in the absence of registration other than in accordance with Rule
144 described below or another exemption from regulation under the Act. These
restricted shares are also subject to a "lock-up" by the Underwriter. See
"UNDERWRITING."
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including persons who may be deemed to be
"affiliates" of the Company as that term is defined under the 1933 Act, is
entitled to sell within any three-month period a number of shares beneficially
owned for at least two years that does not exceed the greater of (i) one percent
of the then-outstanding shares of Common Stock or (ii) the average weekly
trading volume in the Common Stock during the four calendar weeks preceding such
sale. Sales under Rule 144 are also subject to certain requirements as to the
manner of sale, notice and the availability of current public information about
the Company. However, a person who is not an affiliate and has beneficially
owned such shares for at least three years is entitled to sell such shares
without regard to the volume, manner of sale or notice requirements.
No predictions can be made as to the effect, if any, that future sales of
shares under Rule 144 or the availability of shares for sale will have on the
then-prevailing market, if any. Sales of substantial amounts of Common or
Preferred Stock pursuant to Rule 144 may adversely affect the then-prevailing
market price of the Units, Common Stock or the Warrants, should a public trading
market for such securities develop.
UNDERWRITING
VTR Capital, Inc. (the "Underwriter") has agreed, subject to the terms and
conditions of the Underwriting Agreement, to purchase from the Company a total
of 300,000 Units. The Underwriting Agreement provides that the obligations of
the Underwriter to purchase the Units are subject to certain conditions and that
the Underwriter is obligated to purchase all of the 300,000 Units, if any are
purchased. The Underwriter has advised the Company that it proposes to offer the
Units to the public at the offering price set forth on the cover page of this
Prospectus and that it may allow to certain dealers concessions not in excess of
$ _____ per Unit, of which a sum not in excess of $ _______ per Unit may, in
turn, be reallowed by such dealer to other dealers. After the initial public
offering, the offering price, discount and reallowance may be changed.
The Company has granted to the Underwriter an option, exercisable during
the 30-day period from the date of this Prospectus, to purchase from the Company
at the offering price, less the underwriting discount, up to a maximum of 45,000
additional Units for the sole purpose of covering over-allotments, if any.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriter against certain liabilities in connection with
the Registration Statement, including liabilities under the 1933 Act. Insofar as
indemnification for liabilities arising under the 1933 Act may be provided to
officers, directors or persons
- 40 -
<PAGE>
controlling the Company, the Company has been informed that in the opinion of
the Securities and Exchange Commission, such indemnification is against public
policy and is therefore unenforceable.
The Company has agreed to pay the Underwriter an expense allowance on a
non-accountable basis equal to 3% of the gross proceeds from the sale of the
Units offered hereby (including the sale of any Units pursuant to the
Underwriter's over-allotment option), $0 which has been paid to date. The
Company also has agreed to pay all expenses in connection with qualifying the
Units offered hereby for sale under the laws of such states as the Underwriter
may designate, and the fees, costs and disbursements in connection with
registering this Offering with the National Association of Securities Dealers,
Inc. (the "NASD"), including fees and expenses of counsel retained for such
purposes by the Underwriter.
The Company has also agreed to sell to the Underwriter, for an aggregate
purchase price of $30, the Underwriter's Purchase Option, which entitles the
Underwriter to purchase up to 30,000 Units at an exercise price of $12.00 per
Unit. The Underwriter's Purchase Option is exercisable for four years commencing
one year from the date of the Prospectus. The Underwriter's Purchase Option may
not be assigned, transferred, sold or hypothecated by the Underwriter until 12
months after the date of this Prospectus, except to officers or partners of the
Underwriter and selling group members in this Offering. Any profits realized by
the Underwriter upon the sale of the Units issuable upon exercise of the
Underwriter's Purchase Option may be deemed to be additional underwriting
compensation. The exercise price and the number of Units underlying the
Underwriter's Purchase Option are subject to adjustment in certain events to
prevent dilution. For the life of the Underwriter's Purchase Option, the holders
thereof are given, at a nominal cost, the opportunity to profit from a rise in
the market price of the Units and Warrants with a resulting dilution in the
interest of other stockholders. The Company may find it more difficult to raise
capital for its business if the need should arise while the Underwriter's
Purchase Option is outstanding. At any time when the holders of the
Underwriter's Purchase Option might be expected to exercise it, the Company
would probably be able to obtain additional capital on more favorable terms.
The Company has agreed to register, at its expense, under the 1933 Act, on
one occasion, the Underwriter's Purchase Option and/or the underlying securities
covered by the Underwriter's Purchase Option at the request of the holders of
50% of the Underwriter's Purchase Option. Such request may be made at any time
during a period of four years beginning one year from the date of this
Prospectus. The Company has also agreed to certain "piggyback" registration
rights for the holders of the Underwriter's Purchase Option or securities
issuable upon the exercise of the Underwriter's Purchase Option. Any exercise of
such registration rights by the Underwriter or the sale of any Units by the
holders thereof may be dilutive to the then present shareholders and may also
have an adverse effect upon either the Company's ability to obtain additional
capital, or the market price of the Company's securities should a public trading
market develop.
To the extent not inconsistent with the guidelines of the NASD and the
rules and regulations of the Commission, the Company has agreed to pay the
Underwriter a warrant solicitation fee of 4% of the exercise price for each
Warrant exercised (excluding Warrants exercised by the Underwriter) payable upon
the exercise of such Warrant. However, no compensation will be paid to the
Underwriter in connection with the exercise of such Warrants if (a) the market
price of the underlying shares of Common Stock is lower than the exercise price,
(b) the Warrants are held in a discretionary account, (c) the Warrants are
exercised in an unsolicited transaction or (d) the disclosure of such
compensation arrangements has not been made in the documents provided to the
customers both as part of the original offering and at the time of exercise. In
addition, unless granted an exemption by the Securities and Exchange Commission
from Rule 10b-6 under Securities Exchange Act of 1934, the Underwriter will be
prohibited from engaging in any market making activities or solicited brokerage
activities with regard to the Company's securities until the later of the
termination of such solicitation activity or the termination by waiver or
otherwise of any right the Underwriter may have to receive a fee for the
exercise of the Warrants following such solicitations.
If the Company enters into a transaction (including a merger, joint
venture, or the acquisition of another entity) introduced to the Company by the
Underwriter, the Company has agreed to pay the Underwriter a finder's fee equal
to 5% of the first $4,000,000 of consideration involved in the transaction,
ranging in $1,000,000 increments down to 2% of the excess, if any, over
$6,000,000.
- 41 -
<PAGE>
Duncan Hill and the holder of 100,000 Rule 504 Shares have each agreed not
to sell, transfer, or otherwise dispose of any securities of the Company owned
by them within 24 months from the date of this Prospectus, unless released
earlier by the Underwriter.
The Company has agreed to enter into a three-year consulting agreement (the
"Consulting Agreement") with the Underwriter. Such agreement provides that the
Underwriter will render consulting services on investment banking and other
financial matters to be determined by the Company. Such services will be
provided upon dates requested by the Company and reasonably acceptable to the
Underwriter. The aggregate fee due to the Underwriter for such consulting
services will be $100,000 and shall be paid in full in the closing of this
Offering.
The Underwriter has been granted by the Company the option to designate one
individual to serve on the Company's Board of Directors for a period of three
years from the date of this Prospectus. That individual must be reasonably
satisfactory to the Company's Board of Director. As of the date hereof, no such
person has been designated. The Company has been advised by the Underwriter that
any individual appointed by the Underwriter will not be an officer, director or
affiliate of the Underwriter or any member of the NASD. In lieu of nominating a
director, the Underwriter may designate a non-director observer to attend
meetings of the Company's Board of Directors for a period of three years from
the date of the Prospectus.
Prior to this Offering, there has been no public market for any of the
Company's securities. Accordingly, the offering price of the Units offered
hereby and the terms of the Warrants, including the exercise price of the
Warrants, were determined by negotiations between the Company and the
Underwriter and do not necessarily bear any relationship to the Company's
assets, results of operations or other generally accepted criteria of value.
Factors considered in determining such prices and terms, in addition to
prevailing market conditions, include the history of and the prospects of the
industry in which the Company competes, an assessment of the Company's
management, the results of operations of the Company in recent periods, the
prospects of the Company, its capital structure and such other factors as were
deemed relevant.
The offering price set forth on the cover page of this Prospectus should
not be considered an indication of the actual value of the Units. Such price is
subject to change as a result of market conditions and other factors and no
assurance can be given that the Units can be resold at the offering price.
The foregoing is a summary of certain provisions of the Underwriting
Agreement and Underwriter's Purchase Option which have been filed as exhibits to
the Registration Statement of which this Prospectus forms a part.
LEGAL MATTERS
The validity of the Securities being offered hereby will be passed upon for
the Company by Hornsby, Sacher, Zelman, Stanton, Paul & Beiley, P.A., Miami,
Florida. Certain legal matters will be passed upon for the Underwriters by
Bernstein & Wasserman, LLP, New York, New York.
EXPERTS
The financial statements of Kids Stuff, Inc. as of December 31, 1995 and
for the years ended December 31, 1995 and 1994 and the financial statements of
The Natural Baby Company, Inc., as of December 31, 1995 and for the years ended
December 31, 1995 and 1994 appearing in this Prospectus, have been audited by
Hausser + Taylor, independent auditors, and are included herein in reliance upon
the authority of said firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2 under the 1933 Act with
respect to the securities offered hereby. This Prospectus does not contain all
of the information set forth in the Registration Statement, certain portions of
which are omitted as permitted by the rules and regulations of the Commission.
Such additional information may be obtained from the
- 42 -
<PAGE>
Commission's principal office in Washington, D.C. Statements contained in this
Prospectus regarding the contents of any contract or other document referred to
herein or therein 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 such other document, each such statement being
qualified in all respects by such reference.
The Company does not presently file reports or other information with the
Commission. Upon completion of the Offering, the Company will be subject to the
informational requirements of the Securities Exchange Act of 1934, as amended,
and, in accordance therewith, will file reports and other information with the
Commission. Such reports and other information, as well as the Registration
Statement and the exhibits and schedules thereto, may be inspected, without
charge, at the public reference facility maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of
such material may also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates.
The Commission maintains a Web site on the Internet (http://www.sec.gov)
that contains reports, proxy and information statements and other information
regarding issuers which file electronically with the Commission through the
Electronic Data Gathering, Analysis, and Retrieval System (EDGAR). The Company's
Registration Statement on Form SB-2 has been filed through EDGAR.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements examined and reported upon by its
independent certified public accountants, and quarterly reports containing
unaudited financial information for its first three quarters of each year.
[THIS SPACE INTENTIONALLY LEFT BLANK]
- 43 -
<PAGE>
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
PAGE
KIDS STUFF, INC.
<S> <C>
Report of Independent Auditors ............................................ F-3
Balance Sheets as of December 31, 1995
and as of September 30, 1996 (Unaudited)............................... F-4
Statements of Income for the Years ended
December 31, 1994 and 1995 and for the
Nine Months ended September 30, 1995
and 1996 (Unaudited)....................................................F-5
Statements of Cash Flows for the Years
ended December 31, 1994 and 1995 and
for the Nine Months ended September
30, 1995 and 1996 (Unaudited)...........................................F-6
Statements of Stockholders' Equity
for the Years ended December 31, 1994
and 1995 and for the Nine Months ended September
30, 1996 (Unaudited)....................................................F-7
Notes to Financial Statements...............................................F-8-13
THE NATURAL BABY COMPANY, INC.
Report of Independent Auditors..............................................F-14
Balance Sheets as of December 31, 1995
and as of September 30, 1996 (Unaudited)................................F-15
Statements of Income for the Years ended December 31, 1994
and 1995 and for the Nine Months ended September 30, 1996 (Unaudited)...F-16
Statements of Cash Flows for the Years ended December 31, 1994
and 1995 and for the Nine Months ended September 30, 1996 (Unaudited)...F-17
Statements of Stockholders' Equity for the Years ended
December 31, 1994 and 1995 and for the Nine Months ended
September 30, 1996 (Unaudited)..........................................F-18
Note to Financial Statements................................................F-19-21
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
Introduction................................................................P-2
Unaudited Pro Forma Combined Balance Sheets as of September 30, 1996........P-3
Unaudited Pro Forma Combined Statements of Income
for the Year ended December 31, 1995....................................P-4
Unaudited Pro Forma Combined Statements of Income for the
Nine Months ended September 30, 1996....................................P-5
Notes to Unaudited Pro Forma Combined Financial Statements..................P-6-7
F-1
</TABLE>
<PAGE>
Kids Stuff, Inc.
Financial Statements
Years Ended December 31, 1994 and 1995
Nine Months Ended September 30, 1996
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholder and Board of Directors
Kids Stuff, Inc.
North Canton, Ohio
We have audited the accompanying balance sheet of Kids Stuff,
Inc. as of December 31, 1995, and the statements of income,
cash flows, and stockholder's equity for the years ended December
31, 1995 and 1994. These financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Kids Stuff, Inc. as of December 31, 1995, and the results of
its operations and its cash flows for the years ended December
31, 1995 and 1994 in conformity with generally accepted
accounting principles.
As discussed in Note A, Kids Stuff, Inc. was incorporated
during 1996 and prior to June 30, 1996, had no operations.
The financial position, results of operations, and cash flows
prior to June 30, 1996 presented in the accompanying
financial statements are those of the predecessor company,
Perfectly Safe, Inc., and certain assets of Duncan Hill Company,
Ltd., the parent company of both Perfectly Safe, Inc. and Kids
Stuff, Inc.
Canton, Ohio
March 1, 1996
F-3
<PAGE>
KIDS STUFF, INC.
BALANCE SHEETS
(UNAUDITED)
DECEMBER 31 SEPTEMBER 30,
1995 1996
---------- ----------
Current Assets:
Cash $35,719 $28,883
Accounts receivable 73,633 151,474
Inventories 602,017 436,676
Deferred catalog expense 171,525 491,427
Prepaid expenses 0 23,799
---------- ----------
Total Current Assets 882,894 1,132,259
Property and Equipment
Data processing equipment 122,844 152,781
Machinery and equipment 80,731 83,360
Vehicles 5,255 5,255
Furniture and fixtures 98,147 99,014
---------- ----------
306,977 340,410
Less accumulated depreciation 184,834 218,814
---------- ----------
122,143 121,596
Other Assets, Net of Accumulated Amortization
Customer lists 685,876 748,134
Goodwill 196,875 192,656
Rezip data base 6,205 0
Development and catalog costs 218,580 327,636
---------- ----------
1,107,536 1,268,426
---------- ----------
Total Assets $2,112,573 $2,522,281
========== ==========
Current Liabilities:
Accounts payable $749,620 $1,052,621
Current portion of note payable to affiliate 0 66,858
Line of credit 430,000 650,000
Due to affiliates 452,781 102,834
Customer advances and other 4,301 0
---------- ----------
Total Current Liabilities 1,636,702 1,872,313
Note payable to affiliate, net of current portion 0 300,000
Deferred Federal Income Taxes 99,600 68,124
Stockholder's Equity
Common stock 2,400 2,400
Preferred stock 5,000 5,000
Additional paid -in capital 297,600 297,600
Retained earnings 71,271 (23,156)
---------- ----------
Total Stockholder's Equity 376,271 281,844
---------- ----------
Total Liabilities and Stockholder's Equity $2,112,573 $2,522,281
========== ==========
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
KIDS STUFF, INC.
STATEMENTS OF INCOME
(UNAUDITED)
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEP 30,
---------------------- -----------------------
1994 1995 1995 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Sales $5,002,519 $5,724,337 $4,267,649 $4,816,950
Cost of Sales 2,861,361 3,540,487 2,580,791 3,099,124
---------- ---------- ---------- ----------
Gross Profit 2,141,158 2,183,850 1,686,858 1,717,826
Selling Expenses 1,590,497 1,754,601 1,358,918 1,275,403
General and Administrative Expenses 466,276 638,191 457,213 570,645
---------- ---------- ---------- ----------
Income (Loss) from Operations 84,385 (208,942) (129,273) (128,222)
Net Other Income (Expense) 7,785 8,610 18,782 2,319
---------- ---------- ---------- ----------
Income (Loss) Before Income Taxes 92,170 (200,332) (110,491) (125,903)
Provision (Credit) for Federal Income Taxes 17,920 (37,100) (27,623) (31,476)
---------- ---------- ---------- ----------
Net Income (Loss) $74,250 ($163,232) ($82,868) ($94,427)
========== ========== ========== ==========
Net Income (Loss) Per Common Share $0.03 ($0.07) ($0.03) ($0.04)
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
KIDS STUFF, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEP 30,
---------------------- ---------------------
1994 1995 1995 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) $74,250 ($163,232) ($82,868) ($94,427)
Adjustments to reconcile net
income (loss) to net cash provided
(used) by operating activities:
Depreciation and amortization 71,588 87,451 67,750 92,774
(Decrease) increase in deferred
Federal income tax 17,920 (37,100) (27,623) (31,476)
Decrease (increase) in
accounts receivable 27,261 21,705 24,822 (77,841)
(Increase) decrease in inventories (51,410) (237,747) (148,203) 165,341
(Increase) decrease in deferred
catalog expense 32,745 (34,072) (168,129) (319,902)
(Increase) in prepaid expenses 0 0 (11,810) (23,799)
Increase in accounts payable,
customer advances and other 38,106 250,974 149,798 298,700
--------- --------- --------- ---------
Net cash provided (used) by
operating activities 210,460 (112,021) (196,263) 9,370
Cash Flows From Investing Activities:
Investment in Perfectly Safe
customer list (187,321) 0 0 0
Investment in Kid's Club customer list 0 (162,711) 0 (90,557)
Investment in Kid's Club development
and catalog costs 0 (229,784) 0 (129,127)
Proceeds from sale of property
and equipment 675 0 0 0
Investment in property and equipment (27,721) (28,016) (31,549) (33,433)
--------- --------- --------- ---------
Net cash (used) by investing activities (214,367) (420,511) (31,549) (253,117)
Cash Flows From Financing Activities:
Borrowing on line of credit 175,000 255,000 155,000 220,000
Increase (decrease) in due to affiliates (146,809) 276,101 62,866 16,911
--------- --------- --------- ---------
Net cash provided by financing activities 28,191 531,101 217,866 236,911
Net Increase (Decrease) in Cash 24,284 (1,431) (9,946) (6,836)
Cash - Beginning 12,866 37,150 37,150 35,719
--------- --------- --------- ---------
Cash - Ending $37,150 $35,719 $27,204 $28,883
========= ========= ========= =========
Supplemental Disclosure of
Cash Flow Information
Cash paid for interest $29,385 $46,336 $21,196 $33,132
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
KIDS STUFF, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
CAPITAL PREFERRED PAID - IN RETAINED
STOCK STOCK CAPITAL EARNINGS TOTAL
------ ------ -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance - At January 1, 1994 $2,400 $5,000 $297,600 $160,253 $465,253
Addition:
Net income 74,250 74,250
------ ------ -------- -------- --------
Balance - At December 31, 1994 2,400 5,000 297,600 234,503 539,503
Deduction
Net loss (163,232) (163,232)
------ ------ -------- -------- --------
Balance - At December 31, 1995 2,400 5,000 297,600 71,271 376,271
Deductions
Net loss (Unaudited) (94,427) (94,427)
------ ------ -------- -------- --------
Balance - At September 30, 1996 (Unaudited) $2,400 $5,000 $297,600 ($23,156) $281,844
====== ====== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
KIDS STUFF, INC.
NOTES TO FINANCIAL STATEMENTS
Summary of Significant Accounting Policies
A. Kids Stuff, Inc. ("Kids Stuff" or the "Company") was
incorporated during 1996 as a wholly-owned subsidiary of Duncan
Hill Company, Ltd. ("Duncan Hill"). Prior to a reorganization
occurring June 30, 1996, Kids Stuff had no operations. The
operations shown in the accompanying financial statements prior
to June 30, 1996 are those of Perfectly Safe, Inc., which was
dissolved as part of the reorganization and is sometimes
referred to as "Predecessor" in these financial statements.
Perfectly Safe, Inc. was also a wholly-owned subsidiary of
Duncan Hill. Effective June 30, 1996, the assets and liabilities
of Perfectly Safe, Inc., reverted to Duncan Hill, and Perfectly
Safe, Inc. was dissolved. As part of the reorganization, the
Company acquired the assets and liabilities of its' Predecessor.
The Company also acquired, as part of the reorganization,
certain fixed assets formerly belonging to Duncan Hill at a book
value of $122,143 at December 31, 1995. The combination of the
Company's acquisition of the assets of its' Predecessor and the
Company's acquisition of certain assets of Duncan Hill were
accounted for at historical cost as a reorganization of
companies under common control. The operations of the
Predecessor are currently operated as the Perfectly Safe
Division and Jeanne's Kids Club Division of the Company.
B. Business Description - The Company is in the mail order
business and sells to customers throughout the United States.
Perfectly Safe, a division of the Company, primarily sells
children's safety products for use up to age 3. Jeanne's Kids
Club, a division of the Company, sells hardgood products for
children primarily up to the age of 3. Products are purchased
from a variety of vendors.
C. Use of Estimates - The preparation of financial statements
in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates.
D. Fair Value of Financial Instruments- The fair value of cash,
accounts receivable, accounts payable and other short term
obligations approximate their carrying values because of the
short maturities of those financial instruments.
F-8
<PAGE>
KIDS STUFF, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Summary of Significant Accounting Policies (continued)
E. Impairment of Long-Lived Assets- In March 1995, the Financial
Accounting Standards Board issued Statement of Financial
Accounting Standards no. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of" (SFAS 121). SFAS 121 requires the Company
to review long-lived assets and certain identifiable
intangibles, including goodwill, for impairment whenever
events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The assessment
of impairment is based on the estimated undiscounted future cash
flows from operating activities compared with the carrying value of the
assets. If the undiscounted future cash flows of an asset are less than
the carrying value, a write down would be recorded measured by the
amount of the difference between the carrying value of the asset
and the fair value of the asset. The adoption of SFAS 121 did not
have a material effect on the financial statements.
F. The Company is on the allowance method for recognizing bad debts.
No allowance is recorded as of December 31, 1995 or September
30, 1996 (unaudited) as management has determined that any
allowance would have been immaterial.
G. Inventories consist of finished goods held for resale and
are stated at the lower of cost or market with cost being
determined by the first-in, first-out (FIFO) method.
H. Deferred catalog expenses are costs of catalogs mailed
to customers which are deferred and amortized over periods
ranging from four weeks to six months, the estimated length of
time customers utilize catalogs and other mail order mailings
from the Company.
I. Property and equipment are carried at cost and depreciated
using the straight-line method over their estimated useful
lives. Depreciation expense amounted to $26,172 and $20,742 for
the years ended December 31, 1995 and 1994, respectively.
Depreciation expense amounted to $33,980 (unaudited) and $19,629
(unaudited) for the nine month periods ended September 30, 1996
and 1995.
Maintenance, repairs, and minor renewals are charged against
earnings when incurred. Additions and major renewals are
capitalized.
J. The customer list of the Perfectly Safe division was originally
recorded at fair market value, as calculated by management,
which was lower than the actual cost of developing the list. The
Company capitalized additional development costs of $187,321
in 1994. The list is being amortized on a straight-line basis over
a period of 20 years. Accumulated amortization amounted
to $65,387 and $87,585 (unaudited) at December 31, 1995
and September 30, 1996, respectively.
F-9
<PAGE>
KIDS STUFF, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Summary of Significant Accounting Policies (continued)
In 1995, the Company developed Jeanne's Kid's Club. Customers
pay a fee to join the Club and then are able to buy merchandise
at discounted prices. The Company capitalized $76,593 of costs
incurred to create the original Jeanne's Kid's Club catalog.
These costs, which are included in other assets in the accompanying
balance sheet as development and catalog costs, are being
amortized on a straight-line basis over a period of 48 months.
Accumulated amortization amounted to $8,013 at December 31,
1995 and $22,339 (unaudited) at September 30, 1996. An
additional $153,191 of development costs were capitalized
during 1995 and $129,127 (unaudited) during 1996. These
costs are being amortized on a straight-line basis over a
period of 20 years. Accumulated amortization amounted to
$3,191 at December 31, 1995 and to $8,936 (unaudited) at
September 30, 1996. The Company also capitalized $162,711 of
costs incurred to develop a customer list during 1995 and
$90,557 (unaudited) during 1996, which are shown in customer
lists in the accompanying balance sheet. The customer list is
being amortized on a straight-line basis over a period of 20
years. Accumulated amortization amounted to $3,390 at December
31, 1995 and to $9,491 (unaudited) at September 30, 1996.
K. Goodwill is being amortized on a straight-line basis over 40
years. Accumulated amortization was $28,125 and $32,344
(unaudited) at December 31, 1995 and September 30, 1996,
respectively.
L. Rezip database costs are costs associated with a project of
the Company to develop a database of zip codes. The costs are
deferred because future mailing costs will be reduced by
limiting mailings to zip codes which have proven to produce
orders. These costs are amortized using the straight-line
method over four years and are fully amortized by September 30,
1996. Accumulated amortization was $151,783 and $157,988
(unaudited) at December 31, 1995 and September 30 1996,
respectively.
M. Deferred taxes have been recognized to reflect temporary
differences between financial reporting and income tax purposes.
The principal differences are in the treatment of deferred
catalog expense and the amortization of customer lists.
N. Interim Financial Statements- The interim financial statements
included herein have been prepared by management of the
Company without audit. In the opinion of management, all
adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position and results of
operations have been made.
F-10
<PAGE>
KIDS STUFF, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note 1. Income Taxes
Income tax expense includes the following:
(UNAUDITED)
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------- -------------------
1994 1995 1995 1996
------- -------- -------- --------
Current $ - $ $ $ -
Deferred 17,920 (37,100) (27,623) (31,476)
------- -------- -------- --------
$17,920 ($37,100) ($27,623) ($31,476)
======= ======== ======== ========
At December 31,1995, the Company has long-term deferred tax
liabilities of approximately $209,400 relating principally to
the treatment of amortization of customer lists. The Company
has a long-term tax asset of approximately $109,800 relating
to net operating loss carryforwards. This deferred tax asset
will be utilized as the Company's tax returns are filed. The net
amount of $99,600 is shown as a long-term deferred tax liability
on the accompanying balance sheet as of December 31, 1995.
The Company has $488,000 in net operating loss carryforwards
which will expire as follows:
YEAR AMOUNT
---- -------
2008 $82,800
2009 16,200
2010 389,000
Note 2. Parent Corporation.
Prior to June 30, 1996, the telemarketing, order fulfillment, data
processing and administrative function of Perfectly Safe, Inc.
were provided by Duncan Hill, which also provided those
services as applicable, to its other operating subsidiaries.
Duncan Hill allocated the cost of its services, including rent,
to its operating subsidiaries on a direct cost basis, as applicable,
or on a pro rata basis determined by the percentage of total
assets of the various operating subsidiaries, exclusive of
the assets of Duncan Hill.
As of June 30, 1996, the Company purchased from Duncan
Hill, the assets used by Duncan Hill to perform the telemarketing,
order fulfillment, data processing and administrative functions.
The Company commenced the performance of these functions
as of June 30, 1996, except for the payroll and accounting
functions, which Duncan Hill continues to provide. Duncan Hill
will continue to charge the Company for its allocated portion of
these expenses. Amounts due to affiliate are a result of the
unpaid portion of these charges.
F-11
<PAGE>
KIDS STUFF, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note 2. Parent Corporation (continued).
The accounts receivable and inventory of the Company and Duncan Hill's
other subsidiaries are pledged as collateral against an $800,000 line
of credit at Duncan Hill. The balance on the line of credit was
$430,000 and $650,000 (unaudited) at December 31, 1995 and September
30, 1996, respectively. As a part of the reorganization of the Company,
the responsibility for the repayment of the line of credit was assumed
by the Company from Duncan Hill in exchange for a reduction of the
inter-company indebtedness owed by the Company to Duncan Hill.
Effective December 31, 1996 (unaudited), the Company obtained an
$800,000 line of credit in its name and the Duncan Hill line of credit,
with the same institution, was simultaneously terminated and the
outstanding balance of $650,000 at December 31, 1996 was transferred to
the Company's line of credit. All of the assets of the Company have
been pledged to secure the Company's obligation under its' line of
credit. Due to the current nature of the liability, the carrying amount
of the line approximates fair value.
Interest expense was $46,336 and $29,385 for the years
ended December 31, 1995 and 1994, respectively and
$33,132 (unaudited) and $21,196 (unaudited) for the nine
month periods ended September 30, 1996 and 1995, respectively.
Note 3. Capital Stock.
A. Common
Prior to the reorganization, Perfectly Safe, Inc. had common
stock at December 31, 1995 with no par value, 750 shares were
authorized, 100 shares issued and outstanding. After the
reorganization and at September 30, 1996, the Company
has common stock (unaudited) of $.001 par value, 35,000,000
shares authorized 2,400,000 issued and outstanding.
Stockholders' equity reflects the reorganization for all periods
presented. Additionally, earnings per share was calculated
based on the 2,400,000 shares of common stock issued
in the reorganization for all periods presented.
B. Preferred (unaudited)
The Board of Directors has the authority, without further action
by the stockholders, to issue up to 10,000,000 shares of Preferred
Stock in one or more series and to fix the rights, preferences,
privileges and restrictions thereof, including dividend rights,
conversion rights, voting rights, terms of redemption, liquidation
preferences and the number of shares constituting any series or
the designation of such series.
The company has issued and outstanding 5,000,000 shares of
Series A Preferred Stock, $.001 par value. The holders of the
Series A Preferred Stock are entitled to one vote for each share
held of record on all matters submitted to a vote of the stockholders.
The Series A Preferred Stock is not subject to redemption and has
no conversion rights or rights to participate in dividend payments.
In the event of any voluntary or involuntary liquidation, dissolution
or winding up of the affairs of the Company, each share of Series
A Preferred Stock has a liquidation preference of $.001 per share.
Note 4. Note Payable to Affiliate (unaudited).
As of September 30, 1996, the Company has a unsecured Note Payable
to Duncan Hill in the principal amount of $366,858 payable in four
annual installments commencing June 30, 1997 and bearing interest
at a rate of 8% per annum. The principal amount of the first
installment is $66,858 and is $100,000 for each ensuing installment.
F-12
<PAGE>
Note 5. Acquisition of The Natural Baby Catalog. (Unaudited).
In May, 1996, The Natural Baby Company, Inc. ("Baby Co.")
contracted to sell its catalog business, The Natural Baby
Catalog, to Duncan Hill, at which time Duncan Hill paid Baby
Co. $25,000 towards the purchase price. The Company will
repay the $25,000 advanced by Duncan Hill upon the closing
of a public offering. The Company intends to file the registration
statement in January, 1997. Duncan Hill has assigned its rights
to acquire The Natural Baby Catalog to the Company, with Baby
Co.'s approval. The remaining purchase price to be paid by the
Company for The Natural Baby Catalog consists of a cash payment
in the amount of $1,278,358 to be made by the company upon the
closing of a public offering, the assumption by the Company of Baby
Co.'s accounts payable incurred in the ordinary course of business,
assumption of Baby Co.'s remaining lease obligations in the
approximate amount of $35,500 as of December 31, 1996, and
a convertible promissory note issued by the Company to Baby Co.
in the amount of $250,000. The Company intends to pay the
assumed accounts payable and assumed lease obligations out
of The Natural Baby Catalog's cash flow.
Note 6. Recent Sales of Unregistered Securities (unaudited).
The following shares of unregistered securities have been issued
by the Company since its inception. There were no underwriting
discounts and commissions paid in connection with the issuance
of any said securities.
In connection with the reorganization effective June 30, 1996, the
Company issued to its parent, Duncan Hill Co., Ltd. 2,400,000
shares of Common Stock at a value of $.125 per share, and
5,000,000 shares of Series A Preferred Stock at a value of $.001
per share.
Commencing October, 1996, the Company sold an aggregate of
1,300,000 shares of Common Stock to seven private investors
for the aggregate purchase price of $162,500.
In October, 1996, the Company borrowed an aggregate of
$200,000 from three private investors, $75,000 of which is
convertible upon its terms into 1,500,000 Class A Warrants upon
the effective date of the registration statement. The 1,500,000
Warrants, as well as the shares of Common Stock underlying those
warrants are included as securities being registered under the
registration statement.
F-13
<PAGE>
The Natural Baby Company, Inc.
Financial Statements
Years Ended December 31, 1994 and 1995
Nine Months Ended September 30, 1996
F-14
<PAGE>
Independent Auditors' Report
To the Stockholders
The Natural Baby Company, Inc.
Trenton, New Jersey
We have audited the accompanying balance sheet of The Natural
Baby Company, Inc. as of December 31, 1995, and the related
statements of income, cash flows, and stockholders' equity for the
years ended December 31, 1995 and 1994. These financial statements
are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of The Natural Baby Company, Inc. as of December 31, 1995
and the results of its operations and its cash flows for the years
ended December 31, 1995 and 1994 in conformity with generally
accepted accounting principles.
Canton, Ohio
August 5, 1996
F-15
<PAGE>
THE NATURAL BABY COMPANY, INC.
BALANCE SHEETS
(UNAUDITED)
DECEMBER 31 SEPTEMBER 30,
----------- -------------
1995 1996
-------- --------
Current Assets:
Cash $76,047 $83,591
Accounts receivable 29,918 32,584
Inventories 521,253 498,567
Deferred catalogue expense 186,265 269,838
Prepaid expenses 7,300 5,230
-------- --------
Total Current Assets 820,783 889,810
Property and Equipment
Data processing equipment 64,997 69,229
Vehicle 16,936 16,936
Furniture and fixtures 10,053 10,053
-------- --------
91,986 96,218
Less accumulated depreciation 41,511 48,681
-------- --------
50,475 47,537
Other Assets
Deposit 1,779 1,779
-------- --------
Total Assets $873,037 $939,126
======== ========
Current Liabilities:
Accounts payable $296,028 $299,401
Accrued Expenses 29,281 6,232
-------- --------
Total Current Liabilities 325,309 305,633
Long-Term Debt
Notes Payable 197,603 205,229
Stockholders' Equity
Common stock, no par value,
10 shares authorized, issued and
outstanding 100 100
Additional paid -in capital 10,000 10,000
Retained earnings 340,025 418,164
-------- --------
Total Stockholders' Equity 350,125 428,264
-------- --------
Total Liabilities and Stockholders' Equity $873,037 $939,126
======== ========
The accompanying notes are an integral part of these financial statements.
F-16
<PAGE>
<TABLE>
<CAPTION>
THE NATURAL BABY COMPANY, INC.
STATEMENTS OF INCOME
(UNAUDITED)
NINE MONTHS
ENDING
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------- ----------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Sales $4,435,692 $5,228,469 $4,345,191
Cost of Sales 2,169,312 2,828,165 2,892,212
---------- ---------- ----------
Gross Profit 2,266,380 2,400,304 1,452,979
Selling Expenses 1,750,116 1,664,664 903,357
General And Administrative Expenses 427,651 507,348 272,864
---------- ---------- ----------
Income (Loss) From Operations 88,613 228,292 276,758
Net Other Expense (Income) 20,379 15,559 50,465
---------- ---------- ----------
Income (Loss) Before Income Taxes 68,234 212,733 226,293
---------- ---------- ----------
Net Income $68,234 $212,733 $226,293
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-17
<PAGE>
<TABLE>
<CAPTION>
THE NATURAL BABY COMPANY, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS
ENDING
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------- -------------
1994 1995 1996
------- -------- --------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income $68,234 $212,733 $226,293
Adjustments to reconcile net income
(loss) to net cash provided (used)
by operating activities:
Depreciation and amortization 752 9,558 7,170
(Increase) decrease in accounts
receivable (5,684) 5,920 (2,666)
(Increase) decrease in
inventories (68,765) (165,329) 22,686
(Increase) decrease in deferred
catalogue expense (52,773) 72,648 (83,573)
(Increase) decrease in prepaid
expense (16,571) 19,574 2,070
Increase (decrease) in accounts
payable and accrued expenses 89,644 (51,983) (19,676)
------- -------- --------
Net cash provided (used) by
operating activities 14,837 103,121 152,304
Cash Flows From Investing Activities:
Investment in property and equipment (14,840) (40,686) (4,232)
Cash Flows From Financing Activities:
Payment on long term debt 0 (26,648) 0
Proceeds from long-term borrowings 40,000 7,626
Distribution to shareholders 0 0 (148,154)
------- -------- --------
Net cash provided (used) by financing
activities 0 13,352 (140,528)
Net Increase (Decrease) in Cash (3) 75,787 7,544
Cash - Beginning 263 260 76,047
------- -------- --------
Cash - Ending $260 $76,047 $83,591
======= ======== ========
Supplemental Disclosure of
Cash Flow Information:
Cash paid for interest $32,746 $8,744 $9,379
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-18
<PAGE>
<TABLE>
<CAPTION>
THE NATURAL BABY COMPANY, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
CAPITAL PAID - IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
------- ------- -------- --------
<S> <C> <C> <C> <C>
Balance - Beginning January 1, 1994 $100 $10,000 $59,058 $69,158
Addition:
Net income 68,234 68,234
---- ------- -------- --------
Balance - At December 31, 1994 100 10,000 127,292 137,392
Addition:
Net income 212,733 212,733
---- ------- -------- --------
Balance - At December 31, 1995 100 10,000 340,025 350,125
Addition:
Net income (Unaudited) 226,293 226,293
Deduction:
Distribution to shareholders (Unaudited) (148,154) (148,154)
---- ------- -------- --------
Balance - At September 30, 1996 (Unaudited) $100 $10,000 $418,164 $428,264
==== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE>
THE NATURAL BABY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
Summary of Significant Accounting Policies
A. Business Description - The Company is in the mail order
business and sells children's clothes and toys to customers
throughout the United States. Products are purchased from a
variety of vendors.
B. Use of Estimates - The preparation of financial statements
in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates.
C. Accounts Receivable - The Company is on the allowance
method for recognizing bad debts. No allowance is recorded
as of December 31, 1995 or September 30, 1996 (unaudited)
as management has determined that any allowance would
have been immaterial, Bad debt expense was $32,386 and
$6,643 for the years ended December 31, 1995 and 1994,
respectively, and $6,507 (unaudited) for the nine
months ended September 30, 1996.
D. Inventories consist of finished goods held for resale and
are stated at the lower of cost or market with cost being
determined by current purchases applied on an average cost
method.
E. Deferred catalogue expenses are costs of catalogues mailed
to customers which are deferred and amortized over periods
ranging from four weeks to six months, the estimated length of
time customers utilize catalogues and other mail order mailings
from the Company.
F. Property and equipment are carried at cost and depreciated
using straight-line and accelerated methods over their estimated
useful lives, ranging from five to ten years. Depreciation
expense amounted to $9,558 and $752 for the years ended December
31, 1995 and 1994, respectively, and $7,170 (unaudited) for the
nine months ended September 30, 1996.
Maintenance, repairs and minor renewals are charged against
earnings when incurred. Additions and major renewals are
capitalized.
F-20
<PAGE>
THE NATURAL BABY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
Summary of Significant Accounting Policies (continued)
G. The Corporation has elected to be treated as a Subchapter S
corporation. No provision for income taxes is necessary because
any income or loss is includible in the tax returns of the
individual stockholders.
H. Fair Value of Financial Instruments- The fair value of cash,
accounts receivable, accounts payable and other short term
obligations approximate their carrying values because of the
short maturities of those financial instruments.
I. Interim Financial Statements- The interim financial statements
included herein have been prepared by management of the
Company without audit. In the opinion of management, all
adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position and results of
operations have been made.
Note 1. Note Payable - Line of Credit
The Company has a $75,000 line of credit from New Jersey
National Bank at a variable rate (10.34% at December 31, 1995)
which is payable on demand and is collateralized by a mortgage
lien on the owners' personal residence. The line was undrawn as
of December 31, 1995 and September 30, 1996 (unaudited).
Note 2. Long-Term Debt
A. Notes payable totaling $197,603 at December 31, 1995 and
$205,229 (unaudited) at September 30, 1996, consists of amounts
due to several individuals related to the owners. The notes are
unsecured, bear interest at 5%, and have no repayment terms.
B. The loan agreements do not specify payment requirements.
However, it is management's intention not to repay the loans
during 1996. Therefore, the total balance of all loans is
considered long-term as of December 31, 1995 and as of
September 30, 1996 (unaudited).
C. Based on current market rates for notes with similar terms
and average maturities, carrying value approximates fair value.
F-21
<PAGE>
THE NATURAL BABY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
Note 3. Lease Commitments
The Company leases facilities for office and warehouse
operations under noncancelable operating leases. The following
is a schedule of minimum future lease payments under
noncancelable operating leases for the years ending December 31:
1996 $21,344
1997 21,344
1998 14,229
-------
$56,917
=======
Rental expense was $33,775 for the year ended
December 31, 1995, and $23,948 (unaudited)
for the nine months ended September 30, 1996.
Note 4. Subsequent Event (unaudited).
In May, 1996, The Natural Baby Company, Inc. ("Baby Co.")
contracted to sell its catalog business, The Natural Baby
Catalog, to Duncan Hill, at which time Duncan Hill paid Baby Co.
$25,000 towards the purchase price. Duncan Hill has assigned
its rights to acquire The Natural Baby Catalog to Kids Stuff, Inc.,
a subsidiary of Duncan Hill. The remaining purchase price to be
paid by Kids Stuff Inc. for The Natural Baby Catalog
consists of a cash payment in the amount of $1,278,358,
the assumption by Kids Stuff Inc. of Baby Co.'s accounts
payable incurred in the ordinary course of business, assumption
of Baby Co.'s remaining lease obligations in the approximate
amount of $35,500 as of December 31, 1996, and a convertible
promissory note issued by Kids Stuff Inc. to Baby Co. in the
amount of $250,000.
F-22
<PAGE>
Kids Stuff, Inc.
Pro Forma Financial Statements
Fiscal Year 1995
Nine Months Ended September 30, 1996
P-1
<PAGE>
KIDS STUFF, INC.
PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
The following Unaudited Pro Forma Combined Financial Statements of Kids
Stuff, Inc. give effect to (i) the acquisition of The Natural Baby Catalog, (ii)
the sale of 300,000 Units to the public and the application of the net proceeds
and (iii) the sale of common stock and common stock warrants to private
investors and a bridge loan from private investors, all as more fully disclosed
in the notes thereto.
The Unaudited Pro Forma Combined Financial Statements assume that these
transactions occurred at the beginning of the fiscal year ending December 31,
1995 for the Unaudited Pro Forma Combined Statements of Income and as of
September 30, 1996 for the Unaudited Pro Forma Combined Balance Sheet. In the
opinion of management of the Company, all adjustments necessary to present
fairly such Unaudited Pro Forma Combined Financial Statements have been made.
The Unaudited Pro Forma Combined Financial Statements should be read in
conjunction with the historical financial statements and the notes thereto
included elsewhere in this Prospectus. The Unaudited Pro Forma Combined
Statements of Income are not necessarily indicative of what actual results of
operations would have been had these transactions occurred at the beginning of
the respective periods, nor do they purport to indicate the results of future
operations of the Company.
P-2
<PAGE>
KIDS STUFF, INC.
PRO FORMA COMBINED BALANCE SHEETS (UNAUDITED)
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Kids Stuff Natural Baby Pro Forma
Historical Historical Combined Adjustments Pro Forma
---------- ------------ -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Current Assets:
Cash $28,883 $83,591 $112,474 (1,303,358)(1) $734,919
(100,000)(1)
(7,544)(1)
362,500 (2)
2,246,629 (3)
(525,782)(4)
(50,000)(5)
Accounts receivable 151,474 32,584 184,058 184,058
Inventories 436,676 498,567 935,243 935,243
Deferred catalogue expense 491,427 269,838 761,265 761,265
Prepaid other 23,799 5,230 29,029 29,029
---------- -------- ---------- ----------
Total Current Assets 1,132,259 889,810 2,022,069 2,644,514
Property and Equipment, Net of Accumulated
Depreciation 121,596 47,537 169,133 169,133
Other Assets, Net of Accumulated Amortization
Customer lists 748,134 0 748,134 300,000 (1) 1,048,134
Goodwill 192,656 0 192,656 727,409 (1) 920,065
Development and catalogue costs 327,636 0 327,636 327,636
Other 0 1,779 1,779 1,779
---------- -------- ---------- ----------
1,268,426 1,779 1,270,205 2,297,614
---------- -------- ---------- ----------
Total Assets $2,522,281 $939,126 $3,461,407 $5,111,261
========== ======== ========== ==========
Current Liabilities:
Accounts payable $1,052,621 $299,401 $1,352,022 (300,000)(4) $1,052,022
Note Payable 66,858 0 66,858 125,000 (2) 0
(66,858)(4)
(125,000)(4)
Line of Credit 650,000 0 650,000 650,000
Due to affiliates 102,834 0 102,834 102,834
Customer advances and other 0 6,232 6,232 6,232
---------- -------- ---------- ----------
Total Current Liabilities 1,872,313 305,633 2,177,946 1,811,088
Long Term Debt, net of current portion 300,000 205,229 505,229 250,000 (1) 550,000
(205,229)(1)
Deferred Federal Income Taxes 68,124 0 68,124 68,124
Stockholders' Equity
Common stock, $0.001 par value, 25,000,000
shares authorized, 4,300,000 issued and
outstanding 2,400 100 2,500 (100)(1) 4,300
1,300 (2)
600 (3)
Preferred Stock, $0.001 par value, 10,000,000
shares authorized, 5,000,000 issued and
outstanding 5,000 0 5,000 5,000
Additional paid -in capital 297,600 10,000 307,600 (10,000)(1) 2,695,905
236,200 (2)
2,246,029 (3)
(33,924)(4)
(50,000)(5)
Retained earnings (23,156) 418,164 395,008 (418,164)(1) (23,156)
---------- -------- ---------- ----------
Total Stockholders' Equity 281,844 428,264 710,108 2,682,049
---------- -------- ---------- ----------
Total Liabilities and Stockholders' Equity $2,522,281 $939,126 $3,461,407 $5,111,261
========== ======== ========== ==========
</TABLE>
The accompanying notes are an integral part of the Unaudited Pro Forma Combined
Balance Sheet.
P-3
<PAGE>
Kids Stuff, Inc.
Pro Forma Combined Statements of Income (Unaudited)
<TABLE>
<CAPTION>
Fiscal Year Ended December 31, 1995
-------------------------------------------------
Kids Stuff Natural Baby Pro Forma
Historical Historical Adjustments Pro Forma
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Sales $5,724,337 $5,228,469 $10,952,806
Cost of Sales 3,540,487 2,828,165 (223,773)(3) 6,144,879
---------- ---------- -----------
Gross Profit 2,183,850 2,400,304 4,807,927
Selling Expenses 1,754,601 1,664,664 3,419,265
General And Administrative Expenses 638,191 507,348 (417,020)(1) 728,519
---------- ---------- -----------
Income (Loss) From Operations (208,942) 228,292 660,143
Other Income (Expense) 8,610 (15,559) 14,499 (2) 7,550
---------- ---------- -----------
Income (Loss) Before Income Taxes (200,332) 212,733 667,693
Provision (Credit) For Federal Income Taxes (37,100) 0 264,116 (4) 227,016
---------- ---------- -----------
Net (Loss) Income ($163,232) $212,733 $440,677
========== ========== ===========
Pro forma earnings per share amount:
Net income $0.10
===========
The accompanying notes are an integral part of the Unaudited Pro Forma Combined
Statement of Income
P-4
<PAGE>
Kids Stuff, Inc.
Pro Forma Combined Statements of Income (Unaudited)
Nine Months Ended September 31, 1996
----------------------------------------------------
Kids Stuff Natural Baby Pro Forma
Historical Historical Adjustments Pro Forma
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Sales $4,816,950 $4,345,191 $9,162,141
Cost of Sales 3,099,124 2,892,212 (149,713)(3) 5,841,623
---------- ---------- ----------
Gross Profit 1,717,826 1,452,979 3,320,518
Selling Expenses 1,275,403 903,357 2,178,760
General And Administrative Expenses 570,645 272,864 (205,118)(1) 605,259
---------- ---------- ----------
Income (Loss) From Operations (128,222) 276,758 536,499
Other Income (Expense) 2,319 (50,465) 9,379 (2) (71,899)
Income (Loss) Before Income Taxes (125,903) 226,293 464,600
Provision (Credit) For Federal Income Taxes (31,476) 0 189,440 (4) 157,964
---------- ---------- ----------
Net (Loss) Income ($94,427) $226,293 $306,636
========== ========== ==========
Pro forma earnings per share amount:
Net income $0.07
==========
</TABLE>
The accompanying notes are an integral part of the Unaudited Pro Forma Combined
Statement of Income
P-5
<PAGE>
KIDS STUFF, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS (UNAUDITED)
NOTES TO PRO FORMA COMBINED CONDENSED BALANCE SHEET
(1) Adjustment for the acquisition of The Natural Baby Catalog
for $1,553,358, with a cash payment of $1,278,358 and a note
payable of $250,000, along with the Company's assumption of
certain liabilities of the seller, and also includes a cash
payment of $25,000 to Duncan Hill to repay Duncan Hill for a
down payment on the acquisition made by Duncan Hill on behalf of
the Company. The current notes payable and line of credit will
be liquidated at the time of the purchase. This acquisition will
be accounted for using the purchase method, with assets valued
at fair market value and the customer list being valued at
$300,000 as calculated by management. The balance is attributed
to goodwill in the amount of $727,409, and a note payable to the
seller of The Natural Baby Catalog of $250,000 due in equal
annual installments with the first installment due three years
from the date of purchase. Also includes expenses of $100,000
for the consolidation of the operations of The Natural Baby
Catalog and an adjustment to cash per the purchase agreement for
the amount of cash sold to the Company of $76,047 versus the
balance at September 30, 1996 of $83,591 in the amount of
$7,544.
(2) Adjustment for the sale of 1,300,000 shares of common stock
for $162,500, a bridge loan for $125,000, and the sale of
1,500,000 warrants for $75,000.
(3) Adjustment for the sale of 300,000 Units to the public at
$10 per unit, less estimated commissions of $300,000 and less
estimated offering costs of $453,371.
(4) Adjustment for the repayment of bridge loan of $125,000,
plus accrued interest at 8% through March 31, 1997 in the amount
of $ 4,575, payment of $300,000 towards accounts payable, and
payment of note payable to Duncan Hill of $66,858 plus accrued
interest at 8% to be paid on June 30, 1997 in the amount of
$29,349.
(5) Adjustment for the payment of expenses for the reorganization
of Kids Stuff, Inc.
P-6
<PAGE>
NOTES TO PRO FORMA COMBINED STATEMENTS OF INCOME
(1) Adjustment to general and administrative expenses to reflect
the consolidation of Kids Stuff, Inc. with The Natural Baby
Catalog. The management of the Company believes that the
overhead structure of the Company can absorb the overhead of The
Natural Baby Catalog with only incremental increases detailed as
follows:
Fiscal Year Nine Months
Ended Ended
December 31, 1995 September 30, 1996
----------------- ------------------
Hire additional buyer $35,000 $26,250
Amortization 28,904 21,678
Incremental property insurance 2,000 1,500
Additional warehouse space:
5,000 square feet @
$4.00/square foot 20,000 15,000
Incremental utilities on
additional warehouse space 3,000 2,250
Estimated property tax 1,424 1,068
------------ --------------
$90,328 $67,746
Less: Historical general and
administrative expenses (507,348) (272,865)
------------ --------------
Decrease in general and
administrative expenses
from consolidation ($417,020) ($205,118)
============ =============
(2) Adjustment for interest expense paid by The Natural Baby
Company, Inc. on long term debt which will not be assumed by the
Company in the acquisition of $14,499 for the fiscal year ended
December 31, 1995 and $9,379 for the nine months ended September
30, 1996.
(3) Adjustment of direct labor costs of $223,773 for the fiscal
year ended December 31, 1995, and $149,713 for the nine months
ended September 30, 1996. This assumes that the operations of
The Natural Baby Catalog will be moved to Kids Stuff, Inc.'s
facilities, thus utilizing Kids Stuff, Inc.'s lower direct labor
costs. Calculated as follows:
<TABLE>
<CAPTION>
Fiscal Year Nine Months
Ended Ended
December 31, 1995 September 30, 1996
----------------- ------------------
<S> <C> <C>
Natural Baby labor cost per order $7.48 $5.78
Kids Stuff labor cost per order 2.82 2.28
--------- ----------
Difference ($4.67) ($3.51)
Number of orders 79,944 71,111
Savings using Kids Stuff labor cost per order
vs. Natural Baby labor costs per order ($372,955) ($249,521)
========= ==========
Savings at 60% ($223,773) ($149,713)
========= ==========
</TABLE>
Management has decided to use 60% as a basis for the savings due to the
fact that the Natural Baby product line is different and may cause an
incremental increase in Kids Stuff's direct labor cost per order.
(4) Adjustment to income tax provision for the estimated income
tax effect of the Pro Forma Adjustments at a marginal tax rate
of 34%.
Pro Forma net income per common share is based on 4,300,000 shares of common
stock outstanding
Management believes the Company's historical financial statements reflect
its historical costs of doing business. As a public entity the Company will
likely incur additional costs. Such additional costs, estimated to be
approximately $25,000 on a quarterly basis, are not reflected in the Unaudited
Pro Forma Combined Statements of Income.
P-7
<PAGE>
<TABLE>
<S> <C>
====================================================== ================================
No dealer, salesperson or other person is authorized to
give any information or to make any representations in
connection with this Offering other than those contained in
this Prospectus and, if given or made, such information or
representations must not be relied upon as having been
authorized by the Company or the Underwriter. This
Prospectus does not constitute an offer to sell or a solicitation 300,000 UNITS
of an offer to buy the shares of Common Stock and Warrants Each Unit Consisting of Two Shares of
offered hereby by anyone in any jurisdiction in which such Common Stock and One Common Stock
offer or solicitation is not authorized or is unlawful. The Class A Purchase Warrant
delivery of this Prospectus shall not, under any
circumstances, create any implication that the information
herein is correct as of any time subsequent to the date of this
Prospectus.
----------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary.................................. KIDS STUFF, INC.
Risk Factors........................................
Use of Proceeds.....................................
Dividend Policy.....................................
Dilution............................................
Capitalization......................................
Selected Financial Data.............................
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................................
The Company and Its Parent.......................... PROSPECTUS
Business............................................
Management..........................................
Principal Stockholders..............................
Selling Securityholders.............................
Certain Transactions................................
Description of Securities...........................
Unregistered Shares Eligible for Immediate and
Future Sale......................................
Underwriting........................................
Legal Matters....................................... VTR CAPITAL, INC.
Experts.............................................
Available Information...............................
Index to Financial Statements.......................
----------
Until , 1997 (90 days after the date of this Prospectus), all dealers
effecting transactions in the shares of Units, Common Stock and Warrants offered
hereby, whether or not participating in the distribution, may be required to
deliver a Prospectus. This is in addition to the obligation of dealers to
deliver a Prospectus when acting as Underwriters and with respect to their
unsold allotments or subscriptions. __________, 1997
====================================================== ================================
</TABLE>
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS]
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JANUARY 8, 1997
PROSPECTUS
KIDS STUFF, INC.
UP TO 1,500,000 REDEEMABLE CLASS A PURCHASE WARRANTS
Up to 1,500,000 Common Stock Class A Purchase Warrants (the "Warrants") of
Kids Stuff, Inc., a Delaware corporation (the "Company") are being offered for
sale by three bridge lenders of the Company (the "Selling Securityholders") who
were issued the Warrants by the Company in connection with a certain bridge
loan. See "CERTAIN TRANSACTION - Bridge Loan." Each Warrant entitles the holder
to purchase one share of the Company's common stock, $.001 par value (the
"Common Stock") at a price of $5.00 for a period of four years commencing one
year after the date of the Prospectus. The Company may redeem the Warrants at a
price of $.05 per Warrant, at any time after they become exercisable, upon not
less than 30 days' prior written notice, if the closing bid price of the Common
Stock has been at least $12.00 per share for 20 consecutive trading days ending
on the 5th day prior to the date on which the notice of redemption is given. See
"DESCRIPTION OF SECURITIES."
The Warrants being offered hereby may be sold from time to time by the
Selling Securityholders, provided a current registration statement with respect
to such securities is then in effect. The distribution of the Warrants by the
Selling Securityholders may be effected in one or more transactions that may
take place over-the-counter, including ordinary broker's transactions,
privately-negotiated transactions or through sales to one or more dealers for
resale of such securities as principals, at market prices prevailing at the time
of sale, at prices related to such prevailing market prices or negotiated
prices. Usual and customary or specifically negotiated brokerage fees or
commission may be paid by the Selling Securityholders. The Selling
Securityholders and intermediaries through whom such securities are sold may be
deemed "underwriters" within the meaning of the Securities Act of 1933, as
amended (the "Securities Act") with respect to the securities offered, and any
profits realized or commissions received may be deemed underwriting
compensation. See "SELLING SECURITYHOLDERS; PLAN OF DISTRIBUTION."
The Company will not receive any of the proceeds from the sale of the
Warrants by the Selling Securityholders. Expenses of this Offering, other than
fees and expenses of counsel to the Selling Securityholders and selling
commissions, will be paid by the Company. See "SELLING SECURITYHOLDERS; PLAN OF
DISTRIBUTION."
On the date of this Prospectus, a registration statement, filed under the
Securities Act with respect to an underwritten public offering by the Company of
300,000 Units, each Unit consisting of two shares of Common Stock and one
Warrant which is identical to the Warrants being offered by the Selling
Securityholders, and up to 45,000 additional Units to cover over-allotments, if
any, was declared effective by the Securities and Exchange Commission. The
Company will receive net proceeds of approximately $2,246,629 from the sale of
the 300,000 Units included in the underwritten public offering ($2,638,129 if
the over-allotment option is exercised in full) after payment of underwriting
discounts and commissions and estimated expenses of the underwritten public
offering. Sales of the Warrants by the Selling Securityholders or even the
potential of such sales may have an adverse effect on the market price of the
Company's securities, should a public trading market develop.
Prior to this Offering and the Company's public underwritten offering, there
has been no public market for the Company's securities and there can be no
assurance that any such market will develop. The Units, Common Stock and
Warrants are expected to be approved for quotation on the OTC Bulletin Board
under the symbols "KIDSU," "KIDS," and "KIDW," respectively. See "RISK FACTORS
- -- Certain Implications of Trading Over-The-Counter; `Penny Stock' Regulations."
It is anticipated that the securities offered by the Selling Securityholders and
by the Company in its public underwritten offering will be qualified for sale in
a limited number of states. See "RISK FACTORS - Limits on Secondary Trading;
Current Prospectus and State Sky Registration Required to Exercise Warrants."
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS]
----------
AN INVESTMENT IN THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK AND SHOULD BE
CONSIDERED ONLY BY PERSONS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT.
See "RISK FACTORS."
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is _________, 1997.
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS]
THE OFFERING
Securities Offered
by Selling Securityholders ......... 1,500,000 Warrants
Common Stock Outstanding
Prior to this Offering.............. 3,700,000 Shares
Common Stock to be Outstanding
after this Offering(1)(2)........... 4,300,000 Shares
Warrants to be Outstanding after
this Offering(2)(3)................. 1,800,000 Warrants.
Proposed OTC
Symbols
Units.......................... KIDSU
Common Stock................... KIDS
Warrants....................... KIDW
Use of Proceeds........................ None of the proceeds from the Offering
will go to the Company.
Risk Factors........................... The securities offered hereby are
speculative, involving a high degree
of risk and should not be purchased by
investors who cannot afford the loss
of their investment. See "RISK
FACTORS."
- ----------
(1) Assumes that the shares of the Company's Common Stock which are being
offered by the Company in the Company's concurrent underwritten public
offering (the "Concurrent Offering") have been sold.
(2) Does not include the following under the Company's Concurrent Offering: up
to 90,000 shares of Common Stock subject to the Underwriter's
over-allotment option; up to 300,000 shares of Common Stock issuable upon
the exercise of the Warrants attributable to the 300,000 Units offered
therein; up to 45,000 shares of Common Stock issuable upon the exercise of
the Warrants attributable to the Underwriter's over-allotment option; and,
up to 90,000 shares of Common Stock subject to the non-redeemable option
granted to the Underwriter to purchase up to 30,000 Units.
(3) Assumes that the 300,000 Warrants which are being offered by the Company in
the Company's Concurrent Offering have been sold.
[THIS SPACE INTENTIONALLY LEFT BLANK]
Alt - 1
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS]
CONCURRENT OFFERING
On the date of this Prospectus, a registration statement under the
Securities Act with respect to an underwritten public offering by the Company of
300,000 Units and up to an additional 45,000 Units to cover over-allotments, if
any, was declared effective by the Commission. Sales of up to 1,500,000 Warrants
by the Selling Securityholders or upon the potential of such sales may have an
adverse effect on the market price of the Company's securities, should a public
trading market develop.
[THIS SPACE INTENTIONALLY LEFT BLANK]
Alt - 2
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS]
SELLING SECURITYHOLDERS; PLAN OF DISTRIBUTION
Up to 1,500,000 Warrants are offered by three Selling Securityholders who
provided bridge financing to the Company. See "CERTAIN TRANSACTIONS - Bridge
Loan." The Company has agreed to bear all expense (other than underwriting or
selling commissions or any fees or disbursements of counsel to such Selling
Securityholders) in connection with the registration of the resale of the
Warrants.
The following table sets forth certain information with respect to each of
the Selling Securityholders. Except as set forth herein, none of such holders
has held any position or office or has had a material relationship with the
Company or any of its affiliates within the past three years. Except as set
forth below, the Company believes that none of the holders listed below owns any
other securities of the Company. The Company will not receive any of the
proceeds from the sale of the Warrants. Sales of the Warrants by the Selling
Securityholders, or even the potential of such sales, may have an adverse effect
on the market price of the Company's securities, should a public trading market
develop. See "DESCRIPTION OF SECURITIES - Warrants."
<TABLE>
<CAPTION>
WARRANTS
SECURITIES TO BE OWNED
BEING OFFERED AFTER THE OFFERING
---------------------------------------------------------------
NUMBER OF
WARRANTS OWNED
NAME PRIOR TO THE OFFERING NUMBER PERCENT(1)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Clinthill Investments, Ltd. 500,000 ---- ----
Kurt Cambell 15,000 ---- ----
M&M Specialties, Inc. 985,000 ---- ----
<FN>
- ----------
(1) Such percentage assumes that all Warrants offered hereby by such Selling
Securityholder are sold.
</FN>
</TABLE>
The Warrants offered hereby may be sold from time to time directly by
the Selling Securityholders. Alternatively, the Selling Securityholders may from
time to time offer the Warrants through underwriters, dealers or agents. The
distribution of the Warrants may be effected in one or more transactions that
may take place over-the-counter, including ordinary broker's transactions,
privately-negotiated transaction or through sales to one or more broker-dealers
for resale of such Warrants as principals, at market prices prevailing at the
time of sale, at prices related to such prevailing market prices or at
negotiated prices. Usual and customary or specifically negotiated brokerage fees
or commissions may be paid by the Selling Securityholders in connection with
such sales of the Warrants. The Warrants offered by the Selling Securityholders
may be sold by one or more of the following methods, without limitations: (a) a
block trade in which a broker or dealer so engaged will attempt to sell the
shares as agent but may position and resell a portion of the block as principal
and resale by such broker or dealer for its account pursuant to this Prospectus;
(b) ordinary brokerage transactions and transactions in which the broker
solicits purchasers; and (c) face-to-face transactions between sellers and
purchasers without a broker-dealer. In effecting sales, brokers or dealers
engaged by the Selling Securityholders may arrange for other brokers or dealers
to participate. The Selling Securityholders and intermediaries through whom the
Warrants are sold may be deemed "underwriters" within the meaning of the
Securities Act of 1933, as amended (the "Act") with respect to the securities
offered, and any profits realized or commissions received may be deemed
underwriting compensation.
In order to comply with the securities laws of certain states, if
applicable, the Warrants will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
securities may not be sold unless they have been registered or qualified for
sale in the applicable state or an exemption from the
Alt - 3
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS]
registration or qualification requirement is available and is complied with by
the Company and the Selling Securityholders.
The Selling Securityholders and any broker-dealers, agents or
underwriters that participate with the Selling Warrants in the distribution of
the Warrants may be deemed to be "underwriters" within the meaning of Section
2(11) of the Securities Act of 1933, as amended (the "Act") and any Warrants
purchased by them may be deemed to be underwriting commissions or discounts
under the Act.
Under applicable rules and regulations under the Securities Exchange
Act of 1934, as amended ("the Exchange Act"), any person engaged in the
distribution of the securities may not simultaneously engage in
market-making-activities with respect to the securities for a period of two
business days prior to the commencement of such distribution. In addition, and
without limiting the foregoing, each Selling Securityholders will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including without limitation, Rules 10b-6, 10b-6A and 10b-7, which
provisions may limit the timing of the purchases and sales of securities by the
Selling Securityholders.
The Company has agreed to pay all fees and expenses incident to the
registration of the Warrants, except selling commissions and fees and expenses
of counsel or any other professionals or other advisors, if any, to the Selling
Securityholders.
[THIS SPACE INTENTIONALLY LEFT BLANK]
Alt - 4
<PAGE>
<TABLE>
<CAPTION>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS]
====================================================== ================================
<S> <C>
No underwriter, dealer, salesperson or other person is authorized
to give any information or to make any representations in connection
with this Offering other than those contained in this Prospectus and,
if given or made, such information or representations must not be
relied upon as having been authorized by the Company. This Prospectus UP TO 1,500,000
does not constitute an offer to sell or a solicitation of an offer REDEEMABLE CLASS A
to buy the Warrants offered hereby by anyone in any PURCHASE WARRANTS
jurisdiction in which such offer or solicitation is not
authorized or is unlawful. The delivery of this Prospectus
shall not, under any circumstances, create any implication
that the information herein is correct as of any time
subsequent to the date of this Prospectus.
----------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary.................................. KIDS STUFF, INC.
Risk Factors........................................
Concurrent Offering.................................
Plan of Distribution................................
Selling Securityholders.............................
Use of Proceeds.....................................
Dividend Policy.....................................
Dilution............................................
Capitalization......................................
Selected Financial Data.............................
Management's Discussion PROSPECTUS
and Analysis of Financial
Condition and Results
of Operations....................................
The Company and Its Parent..........................
Business............................................
Management..........................................
Principal Stockholders..............................
Certain Transactions................................
Description of Securities...........................
Unregistered Shares Eligible
for Immediate and Future
Sale.............................................
Underwriting........................................
Legal Matters.......................................
Experts.............................................
Available Information...............................
Index to Financial Statements.......................
Until , 1997 (90 days after the date of this Prospectus),
all dealers effecting transactions in the shares of Warrants
offered hereby, may be required to deliver a Prospectus.
_______________, 1997
====================================================== ================================
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General corporation Law, as amended,
provides that a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
action by or in the right of the corporation) by reason of the fact that he is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorney's fees), judgments, fines and
amounts paid in settlement actually and reasonably in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. Section 145 further
provides that a corporation similarly may indemnify any such person serving in
any such capacity who was or is a party or is threatened to be made a party to
any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor, against expenses (including
attorneys' fees) actually and reasonably incurred in connection with the defense
or settlement of such action or suit if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Delaware Court
of Chancery or such other court in which such person shall have been adjudged to
be liable to the corporation unless and only to the extent that the Delaware
Court of chancery or such other court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnify for such expenses which the Court of Chancery
or such other court shall deem proper.
Article VII, Section 7, of the By-Laws of the Company provides for
indemnification of officers, directors, employees and agents to the extent
permitted under the Delaware General Corporation Law.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with this offering, other than
underwriting discounts and commissions, are as follows:
SEC filing fee.................................... $ 4,025
NASD Fees......................................... $ 2,000
Accounting fees and expenses*..................... $ 50,000
Legal fees and expenses*.......................... $ 80,000
Blue Sky fees and expenses*....................... $ 60,000
Printing and engraving*........................... $ 60,000
Miscellaneous expenses*........................... $ 5,346
Transfer Agent*................................... $ 2,000
II-1
<PAGE>
Underwriter's 3% Non-Accountable Expense
Allowance on 300,000 Units........................ $ 90,000
Underwriter's Financial Consulting Fee............ $100,000
TOTAL.................. $453,371
========
- ----------
* Estimated.
The Company will bear all expenses shown above.
[THIS SPACE INTENTIONALLY LEFT BLANK]
II-2
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The following shares of unregistered securities have been issued by the
Registrant since its inception. there were no underwriting discounts and
commissions paid in connection with the issuance of any of said securities.
In connection with the reorganization effective June 30, 1996, the
Company issued to its parent, Duncan Hill Co., Ltd. 2,400,000 shares of Common
Stock at a value of $.125 per share, and 5,000,000 shares of Series A Preferred
Stock at a value of $.001 per share.
Commencing October, 1996, the Company sold an aggregate of 1,300,000
shares of Common Stock to seven private investors for the aggregate purchase
price of $162,500.
In of October, 1996, the Company borrowed an aggregate of $200,000 from
three private investors, $75,000 of which is convertible upon its terms into
1,500,000 Class A Warrants upon the effective date of the Registration
Statement. The 1,500,000 Warrants, as well as the shares of Common Stock
underlying those warrants are included as securities being registered under this
Registration Statement.
In each of the foregoing cases, the Company issued the above securities
without registration in reliance upon the exemption provided by Section 4(2) of
the Securities Act of 1933, as amended, as transactions by an issuer not
involving any public offering. In addition, with respect to the second
transaction listed above, I.E., the issuance of 1,300,000 shares of Common
Stock, the Company relied upon Rule 504 promulgated under the Securities Act of
1933. The Company is not an issuer that is precluded from relying upon Rule 504
under paragraph (a) thereof and, in addition, has satisfied the terms and
conditions of Rules 501 and 502(a) by virtue of the fact that it has not offered
in excess of $1,000,000 of securities within the 12 months before the start of
and during the offering of securities under Rule 504, in reliance on any
exemption under Section 3(b), or in violation of Section 5(a) of the Securities
Act.
[THIS SPACE INTENTIONALLY LEFT BLANK]
II-3
<PAGE>
ITEM 27. EXHIBITS.
1.01 Form of Underwriting Agreement
1.02 Form of Selected Dealers Agreement
1.03 Form of Warrant Exercise Fee Agreement
3.01 Certificate of Incorporation of the Company
3.02 Certificate of Amendment of Certificate of Incorporation of the
Company
3.03 By-Laws of the Company
3.04 Form of Certificate of Designation of Series A Preferred Stock
* 4.01 Specimen Certificate for Shares of Common Stock
* 4.02 Specimen Certificate for Shares of Series A Preferred Stock
4.03 Form of Warrant Agreement
* 4.04 Specimen Certificate for Warrants
4.05 Form of Underwriter's Purchase Option
* 4.06 Form of Underwriter's Lockup Letter
* 5.01 Opinion of Hornsby, Sacher, Zelman, Stanton, Paul & Beiley, P.A.
10.01 Agreement to Acquire the Assets of The Natural Baby Company,
Inc., (the "Acquisition Agreement")
10.02 Addendum to Acquisition Agreement
10.03 Escrow Agreement under the Acquisition Agreement
10.04 Form of Consulting Agreement with Jane Martin
10.05 Asset Purchase Agreement between the Company and its Parent
10.06 Promissory Note from the Company and its Parent
10.07 Form of Bridge Loan Agreement
10.08 Form of Financial Consulting Agreement with VTR Capital, Inc.
* 10.09 Credit Facility with United National Bank and Trust Company
* 10.10 Lease for Company's principal offices and telemarketing center
23.01 Consent of Hausser & Taylor
23.02 Consent of Hornsby, Sacher, Zelman, Stanton, Paul & Beiley, P.A.
[included in Exhibit 5.01]
27.00 Financial Data Schedule
- ----------
* To be filed by amendment.
II-4
<PAGE>
ITEM 28. UNDERTAKINGS.
(a) Rule 415 Offering
The Company will:
1. File, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "1933 Act");
(ii) Reflect in the prospectus any facts or events which,
individually or in the aggregate, represent a fundamental change in the
information set forth in the registration statement;
(iii) Include any additional or changed material information on
the plan of distribution;
2. For determining liability under the 1933 Act, treat each such
post-effective amendment as a new registration statement of the securities
offered, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering.
3. File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
(b) Equity Offerings of Nonreporting Small Business Issuers
The Company will provide to the Underwriter at the closing specified in the
Underwriting Agreement certificates in such denominations and registered in such
names as required by the Underwriter to permit prompt delivery to each
purchaser.
(c) INDEMNIFICATION
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or controlling persons of the Company
pursuant to the provisions referred to in Item 14 of this Registration Statement
or otherwise, the Company has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the 1933 Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Company of expenses incurred or paid by a director, officer or controlling
person of the Company in the successful defense of any action, suite or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the 1933 Act and
will be governed by the final adjudication of such issue.
(d) Rule 430A
The Company will:
1. For determining any liability under the 1933 Act, treat the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in the form of a
prospectus filed by the Company issuer under Rule 424(b)(1) or (4) or 497(h)
under the 1933 Act as part of this Registration Statement as of the time the
Commission declared it effective.
II-5
<PAGE>
2. For any liability under the 1933 Act, treat each post-effective
amendment that contains a form of prospectus as a new registration statement for
the securities offered in the Registration Statement, and the offering of the
securities at that time as the initial bona fide offering of those securities.
[THIS SPACE INTENTIONALLY LEFT BLANK]
II-6
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe that
it meets all the requirements for filing on Form SB-2, and authorized this
Registration Statement to be signed on its behalf by the undersigned, in the
City of Canton, State of Ohio, on this 8th day of January, 1997.
KIDS STUFF, INC.
By:/s/ WILLIAM L. MILLER
--------------------------------------------
William L. Miller, Chairman of the Board and
Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, as
amended, this Registration Statement was signed by the following persons in the
capacities and on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ WILLIAM L. MILLER Chairman of the Board, Chief Executive January 8, 1997
- --------------------- Officer and Treasurer
William L. Miller (Principal Executive and Financial Officer)
/s/ JEANNE E. MILLER Executive Vice President and Director January 8, 1997
- ---------------------
Jeanne E. Miller
/S/ CLARK D. SWISHER Director January 8, 1997
- ---------------------
Clark D. Swisher
</TABLE>
II-7
EXHIBIT 1.01
KIDS STUFF, INC.
4450 BELDEN VILLAGE, N.W.
SUITE 406
CANTON, OH 44718
UNDERWRITING AGREEMENT
VTR Capital Inc. __________, 1997
99 Wall Street
New York, NY 10005
Gentlemen:
Kids Stuff, Inc., a Delaware corporation (the "Company"), proposes to
issue and sell to VTR Capital Inc. ("VTR" or the "Representative") and to each
of the other underwriters named in Schedule I hereto (the "Underwriters"), for
each of whom you are acting as Representative, an aggregate of 300,000 Units
(the "Units"), each Unit consisting of two (2) shares of Common Stock, par value
$.001 ("Common Stock"), and one (1) Redeemable Class A Common Stock Purchase
Warrant (the "Warrants") of the Company at a public offering price of $10.00 per
Unit.
Each Warrant shall entitle the holder to purchase one share of Common
Stock for a four year period commencing one year from the Effective Date
(hereinafter defined) at a price of $5.00 per share. The Unit Warrants will be
immediately detachable from the Common Stock on the Effective Date. The Warrants
may be called by the Company commencing one year from the Effective Date upon at
least thirty days prior written notice at a price of $.05 per Warrant at any
time provided the closing bid for the Common Stock is at least $12.00 during
each day of the twenty (20) trading day period ending on the fifth day preceding
the date of the written notice. The Warrant Agreement will provide that no such
notice will be given until there is a current Registration Statement and
Prospectus on file with the Securities and Exchange Commission at the time such
notice is given to Warrant Holders and that the notice may not be mailed to
Warrant Holders during the aforesaid one-year period from the Effective Date.
The Units are hereinafter sometimes referred to as the "Firm Units." Upon the
request of the Representative, and as provided in Section 3 hereof, the Company
will also issue and sell to the Underwriters up to a maximum of an additional
45,000 Units for the purpose of covering over-allotments. Such additional Units
are hereinafter sometimes referred to as the "Optional Units." Both the Firm
Units and the Optional Units are sometimes collectively referred to herein as
the "Units." All of the securities which are the subject of this Agreement are
more fully described in the Prospectus of the Company described below. In the
event that the Representative does not form an underwriting group but decides to
act as the sole Underwriter, then all references to VTR herein as Representative
shall be deemed to be to it as such sole Underwriter and Section 14 hereof shall
be deemed deleted in its entirety.
1
<PAGE>
The Company understands that the Underwriters propose to make a public
offering of the Units as soon as the Representative deems advisable after the
Registration Statement hereinafter referred to becomes effective. The Company
hereby confirms its agreement with the Representative and the other Underwriters
as follows:
SECTION 1. DESCRIPTION OF SECURITIES. The Company's authorized and
outstanding capitalization when the public offering of securities contemplated
hereby is permitted to commence, under the Securities Act of 1933, as amended
(the "Act"), and at the Closing Date (hereinafter defined) and the terms of the
Warrants and other securities will be as set forth in the Prospectus
(hereinafter defined).
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents and warrants to, and agrees with, the Underwriters as follows:
(a) A Registration Statement on Form SB-2 and amendments
thereto (No. 333-____) with respect to the Units, including a form of prospectus
relating thereto, copies of which have been previously delivered to you, have
been prepared by the Company in conformity with the requirements of the Act, and
the rules and regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder, and has been filed with the
Commission under the Act. The Company, subject to the provisions of Section 6(a)
hereof, may file one or more amendments to such Registration Statement and
Prospectus. The Underwriters will receive copies of each such amendment.
The date on which such Registration Statement is
declared effective under the Act and the public offering of the Units as
contemplated by this Agreement is therefore authorized to commence, is herein
called the "Effective Date." The Registration Statement and Prospectus, as
finally amended and revised immediately prior to the Effective Date, are herein
called respectively the "Registration Statement" and the "Prospectus." If,
however, a prospectus is filed by the Company pursuant to Rule 424(b) of the
Rules and Regulations which differs from the Prospectus, the term "Prospectus"
shall also include the prospectus filed pursuant to Rule 424(b).
(b) The Registration Statement (and Prospectus), at the time
it becomes effective under the Act, (as thereafter amended or as supplemented if
the Company shall have filed with the Commission an amendment or supplement),
and, with respect to all such documents, on the Closing Date (hereinafter
defined), will in all material respects comply with the provisions of the Act
and the Rules and Regulations, and will not contain an untrue statement of a
material fact and will not omit to state a 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; provided, however,
that none of the representations and warranties contained in this subsection (b)
shall extend to the Underwriters in respect of any statements in or omissions
from the Registration Statement and/or the Prospectus, based upon information
furnished in writing to the Company by the
2
<PAGE>
Underwriters specifically for use in connection with the preparation thereof.
(c) The Company has been duly incorporated and is now, and on
the Closing Date will be, validly existing as a corporation in good standing
under the laws of the State of Delaware, having all required corporate power and
authority to own its properties and conduct its business as described in the
Prospectus. The Company is now, and on the Closing Date will be, duly qualified
to do business as a foreign corporation in good standing in all of the
jurisdictions in which the conducts of its business or the character or location
of its properties requires such qualifications except where the failure to so
qualify would not materially adversely affect the Company's business, properties
or financial condition. The Company has no subsidiaries, except as are set forth
in the Prospectus.
(d) The financial statements of the Company (audited and
unaudited) included in the Registration Statement and Prospectus present fairly
the financial position and results of operations and changes in financial
condition of the Company at the respective dates and for the respective periods
to which they apply; and such financial statements have been prepared in
conformity with generally accepted accounting principles, consistently applied
throughout the periods involved, and are in accordance with the books and
records of the Company.
(e) To the best of the Company's knowledge, Hausser & Taylor,
independent auditors, who have given their report on certain financial
statements which are included as a part of the Registration Statement and the
Prospectus are independent public accountants as required under the Act and the
Rules and Regulations.
(f) Subsequent to the respective dates as of which information
is given in the Prospectus and prior to the Closing Date and, except as set
forth in or contemplated in the Prospectus, (i) the Company has not incurred,
nor will it incur, any material liabilities or obligations, direct or
contingent, nor has it, nor will it have entered into any material transactions,
in each case not in the ordinary course of business; (ii) there has not been,
and will not have been, any material change in the Company's Certificate of
Incorporation or in its capital stock or funded debt; and (iii) there has not
been, and will not have been, any material adverse change in the business, net
worth or properties or condition (financial or otherwise) of the Company whether
or not arising from transactions in the ordinary course of business.
(g) Except as otherwise set forth in the Prospectus, the real
and personal properties of the Company as shown in the Prospectus and
Registration Statement to be owned by the Company are owned by the Company by
good and marketable title free and clear of all liens and encumbrances, except
those specifically referred to in the Prospectus, and except those which do not
materially adversely affect the use or value of such assets and except the lien
for current taxes not now due, or are held by the Company by valid leases, none
of which is in default. Except as
3
<PAGE>
disclosed in the Prospectus and Registration Statement, the Company in all
material respects has full right and licenses, permits and governmental
authorizations required to maintain and operate its business and properties as
the same are now operated and, to its best knowledge, none of the activities or
business of the Company is in material violation of, or causes the Company to
violate any laws, ordinances and regulations applicable thereto, the violation
of which would have a material adverse impact on the condition (financial or
otherwise), business, properties or net worth of the Company.
(h) The Company has no material contingent obligations, nor
are its properties or business subject to any material risks, which may be
reasonably anticipated, which are not disclosed in the Prospectus.
(i) Except as disclosed in the Prospectus and Registration
Statement, there are no material actions, suits or proceedings at law or in
equity of a material nature pending, or to the Company's knowledge, threatened
against the Company which are not adequately covered by insurance, which might
result in a material adverse change in the condition (financial or otherwise),
properties or net worth of the Company, and there are no proceedings pending or,
to the knowledge of the Company, threatened against the Company before or by any
Federal or State Commission, regulatory body, or administrative agency or other
governmental body, wherein an unfavorable ruling, decision or finding would
materially adversely affect the business, properties or net worth or financial
condition or income of the Company, which are not disclosed in the Prospectus.
(j) All of the outstanding shares of Common Stock and Series A
Preferred Stock are duly authorized and validly issued and outstanding, fully
paid, and non-assessable, and are free of preemptive rights (the "Preferred
Stock"). The Common Stock and the shares of Common Stock issuable upon exercise
of the Warrants, when paid for, issued and delivered in accordance with this
Agreement and the Warrant Agreement between the Company and American Stock
Transfer & Trust Company, dated as of _______________, will be duly authorized,
validly issued, fully paid and non-assessable and will not be issued in
violation of any preemptive rights. The Underwriters will receive good and
marketable title to the Units purchased by them from the Company, free and clear
of all liens, encumbrances, claims, security interests, restrictions,
stockholders' agreements and voting trusts whatsoever. Except as set forth in
the Prospectus, there are no outstanding options, warrants, or other rights,
providing for the issuance of, and no commitments, plans or arrangements to
issue, any shares of any class of capital stock of the Company, or any security
convertible into, or exchangeable for, any shares of any class of capital stock
of the Company. All of the securities of the Company to which this Agreement
relates conform to the statements relating to them that are contained in the
Registration Statement and Prospectus.
4
<PAGE>
(k) The certificate or certificates required to be
furnished to the Underwriters pursuant to the provisions of Section
11 hereof will be true and correct.
(l) The execution and delivery by the Company of this
Agreement has been duly authorized by all necessary corporate action and it is a
valid and binding obligation of the Company, enforceable against it in
accordance with its terms except as the enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other laws pertaining to
creditors rights generally.
(m) No default exists, and no event has occurred which, with
notice or lapse of time, or both, would constitute a default in the due
performance and observance of any material term, covenant or condition by the
Company or any other party, of any material indenture, mortgage, deed of trust,
note or any other material agreement or instrument to which the Company is a
party or by which it or its business or its properties may be bound or affected,
except (i) as disclosed in the Prospectus, (ii) such defaults as have been
waived by all parties who would otherwise have a remedy or right with respect
thereto or (iii) such defaults which will not cause any material adverse change
in the business, net worth, properties or conditions (financial or otherwise),
of the Company. The Company has full power and lawful authority to authorize,
issue and sell the Units to be sold by it hereunder on the terms and conditions
set forth herein and in the Registration Statement and in the Prospectus. No
consent, approval, authorization or other order of any regulatory authority is
required for such authorization, issue or sale, except as may be required under
the Act or State securities laws. The execution and delivery of this Agreement,
the consummation of the transactions herein contemplated, and compliance with
the terms hereof will not conflict with, or constitute a default under any
indenture, mortgage, deed of trust, note or any other agreement or instrument to
which the Company is now a party or by which it or its business or its
properties may be bound or affected; the Certificate of Incorporation and any
amendments thereto; the by-laws of the Company, as amended; or any law, order,
rule or regulation, writ, injunction or decree of any government, governmental
instrumentality, or court, domestic or foreign, having jurisdiction over the
Company or its business or properties.
(n) No officer or director of the Company has taken, and each
officer and director has agreed that he will not take, directly or indirectly,
any action designed to stabilize or manipulate the price of the Units, the
Common Stock or the Warrants in the open market following the Closing Date or
any other type of action designed to, or that may reasonably be expected to
cause or result in such stabilization or manipulation, or that may reasonably be
expected to facilitate the initial sale, or resale, of any of the securities
which are the subject of this Agreement.
(o) The Warrants to be issued to the Representative (the
"Underwriters' Unit Purchase Option") hereunder will be, when issued, duly and
validly authorized and executed by the Company and will constitute valid and
binding obligations of the Company, legally enforceable in accordance with their
terms (except as
5
<PAGE>
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws pertaining to creditors rights
generally), and the Company will have duly authorized, reserved and set aside
the shares of its Common Stock issuable upon exercise of the Underwriters' Unit
Purchase Option, and such stock, when issued and paid for upon exercise of the
Underwriters' Unit Purchase Option in accordance with the provisions thereof,
will be duly authorized and validly issued, fully-paid and non-assessable.
(p) All of the aforesaid representations, agreements,
and warranties shall survive delivery of, and payment for, the Units.
SECTION 3. ISSUANCE, SALE AND DELIVERY OF THE FIRM UNITS, THE OPTIONAL
UNITS AND THE UNDERWRITERS' UNIT PURCHASE OPTION.
(a) Upon the basis of the representations, warranties,
covenants and agreements of the Company herein contained, but subject to the
terms and conditions herein set forth, the Company agrees to issue and sell the
Units, and the Underwriters, severally and not jointly, agree to purchase from
the Company, the number of the Firm Units set forth opposite the respective
names of the Underwriters in Schedule I hereto, plus any additional Units which
such Underwriter may become obligated to purchase pursuant to the provisions of
Section 14 hereof.
The purchase price of the Units to be paid by the
several Underwriters shall be $9.00 per Unit ($10.00 per Unit less a ten percent
discount equal to $1.00 per Unit).
In addition, and upon the same basis, and subject to
the same terms and conditions, the Company hereby grants an option to you to
purchase, but only for the purpose of covering over-allotments, upon not less
than two days' notice from the Representative, the Optional Units, or any
portion thereof, at the same price per Unit as that set forth in the preceding
sentence; and each Underwriter agrees, severally and not jointly, to purchase
Optional Units in the same proportion in which it has agreed to purchase Firm
Units. Notwithstanding anything contained herein to the contrary, you
individually and not as Representative may purchase all or any part of the
Optional Units and are not obligated to offer the Optional Units to the other
Underwriters. The Optional Units may be exercised at any time, and from time to
time, thereafter within a period of 30 calendar days following the Effective
Date. The time(s) and date(s) (if any) so designated for delivery and payment
for the Optional Units shall be set forth in the notice to the Company. Such
dates are herein defined as the Additional Closing Date(s).
(b) Payment for the Firm Units shall be made by certified or
official bank checks in New York Clearing House funds, payable to the order of
the Company, at the offices of the Representative, or its clearing agent, or at
such other place as shall be agreed upon by the Representative and the Company,
upon delivery of the Firm Units to the Representative for the respective
accounts of the Underwriters. In making payment to the Company with respect to
the Units, the Representative may first deduct all sums due to it for the
balance of the non-accountable expense
6
<PAGE>
allowance and under the Financial Consulting Agreement (as hereinafter defined).
Such delivery and payment shall be made at 9:30 A.M., New York City Time on the
third business day after the Effective Date which may be extended by the
Representative to not later than the fifth business day, following the Effective
Date (unless postponed in accordance with the provisions of Section 14 hereof)
or at such other time as shall be agreed upon by the Representative and the
Company. The time and date of such delivery and payment are hereby defined as
the Closing Date. It is understood that each Underwriter has authorized the
Representative, for the account of such Underwriter, to accept delivery of,
receipt for, and make payment of the purchase price for, the Firm Units which it
has agreed to purchase. You, individually, and not as Representative may (but
shall not be obligated to) make payment of the purchase price for the Firm Units
to be purchased by any Underwriter whose check shall not have been received by
the Closing Date, for the account of such Underwriter, but any such payment
shall not relieve such Underwriter from its obligations hereunder.
(c) Payment for the Optional Units shall be made at the
offices of the Representative, or its clearing agent or at such other place as
shall be agreed upon by the Representative and the Company, in accordance with
the notice delivered pursuant to Section 3(a) which shall be no later than seven
business days from the expiration of the 30-day option period.
(d) Certificates for the Firm Units and for the Optional Units
shall be registered in such name or names and in such authorized denominations
as the Representative may request in writing at least two business days prior to
the Closing Date, and the Additional Closing Date(s) (if any). The Company shall
permit the Representative to examine and package said certificates for delivery
at least one full business day prior to the Closing Date and prior to the
Additional Closing Date(s). The Company shall not be obligated to sell or
deliver any of the Firm Units except upon tender of payment by the Underwriters
for all of the Firm Units agreed to be purchased by them hereunder. The
Representative, however, shall have the sole discretion to determine the number
of Optional Units, if any, to be purchased.
(e) At the time of making payment for the Firm Units, the
Company also hereby agrees to sell to the Representative, Warrants to purchase
30,000 Units for an aggregate purchase price of $30 (hereinafter referred to as
the "Underwriters' Unit Purchase Option"). The 30,000 Units underlying the
Underwriters' Unit Purchase Option shall be identical to the Units sold to the
public. Each Underwriters' Warrant shall entitle the owner thereof to purchase
one Unit of the Company at an exercise price of $12.00 per Unit. Such
Underwriters' Unit Purchase Option are to become exercisable one year from the
Effective Date, and shall remain exercisable for a period of four years
thereafter. From the Effective Date and until one (1) year thereafter, such
warrants may be transferred only to officers or partners of the Underwriters and
selling group members and their officers or partners.
7
<PAGE>
The Underwriters' Unit Purchase Option shall contain
customary clauses protecting the holders thereof in the event the Company pays
stock dividends, effects stock splits, or effects a sale of assets, merger or
consolidation.
(f) On and subject to the Closing Date, the Company will give
irrevocable instructions to its transfer agent and Depository Trust Company to
deliver to the Representative (at the Company's expense) for a period of five
years from the Closing Date, daily transfer sheets showing any transfers of the
Securities and in the case of the transfer agent, from time to time during the
aforesaid period a complete stockholders' list will be promptly furnished by the
Company when requested by the Representative on not more than two occasions per
year.
SECTION 4. PUBLIC OFFERING. The several Underwriters agree, subject to
the terms and provisions of this Agreement, to offer the Units to the public as
soon as practicable after the Effective Date, at the initial offering price of
$10.00 per Unit and upon the terms described in the Prospectus. The
Representative may, from time to time, decrease the public offering price, after
the initial public offering, to such extent as the Representative may determine,
however, such decreases will not affect the price payable to the Company
hereunder.
SECTION 5. REGISTRATION STATEMENT AND PROSPECTUS. The Company will
furnish the Representative, without charge, two signed copies of the
Registration Statement and of each amendment thereto, including all exhibits
thereto and such amount of conformed copies of the Registration Statement and
Amendments as may be reasonably requested by the Representative for distribution
to each of the Underwriters and Selected Dealers.
The Company will furnish, at its expense, as many
printed copies of a Preliminary Prospectus and of the Prospectus as the
Representative may request for the purposes contemplated by this Agreement. If,
while the Prospectus is required to be delivered under the Act or the Rules and
Regulations, any event known to the Company relating to or affecting the Company
shall occur which should be set forth in a supplement to or an amendment of the
Prospectus in order to comply with the Act (or other applicable law) or with the
Rules and Regulations, the Company will forthwith prepare, furnish and deliver
to the Representative and to each of the other Underwriters and to others whose
names and addresses are designated by the Representative, in each case at the
Company's expense, a reasonable number of copies of such supplement or
supplements to or amendment or amendments of, the Prospectus.
The Company authorizes the Underwriters and the
selected dealers, if any, in connection with the distribution of the Units and
all dealers to whom any of the Units may be sold by the Underwriters, or by any
Selected Dealer, to use the Prospectus, as from time to time amended or
supplemented, in connection with the offering and sale of the Units and in
accordance with the applicable provisions of the Act and the applicable Rules
and Regulations and applicable State Securities Laws.
8
<PAGE>
SECTION 6. COVENANTS OF THE COMPANY. The Company covenants and agrees
with each Underwriter that:
(a) After the date hereof, the Company will not at any time,
whether before or after the Effective Date, file any amendment to the
Registration Statement or the Prospectus, or any supplement to the Prospectus,
of which the Representative shall not previously have been advised and furnished
with a copy, or to which the Representative or the Underwriters' counsel shall
have reasonably objected in writing on the ground that it is not in compliance
with the Act or the Rules and Regulations.
(b) The Company will use its best efforts to cause the
Registration Statement to become effective (provided, however, the Company shall
not cause the Registration Statement to become effective without the written
consent of VTR) and will advise the Representative, (i) when the Registration
Statement shall have become effective and when any amendment thereto shall have
become effective, and when any amendment of or supplement to the Prospectus
shall be filed with the Commission, (ii) when the Commission shall make request
or suggestion for any amendment to the Registration Statement or the Prospectus
or for additional information and the nature and substance thereof, and (iii) of
the issuance by the Commission of an order suspending the effectiveness of the
Registration Statement or of the initiation of any proceedings for that purpose,
and will use its best efforts to prevent the issuance of such an order, or if
such an order shall be issued, to obtain the withdrawal thereof at the earliest
possible moment.
(c) The Company will prepare and file with the Commission,
promptly upon the request of the Representative, such amendments, or supplements
to the Registration Statement or Prospectus, in form and substance satisfactory
to counsel to the Company, as in the reasonable opinion of Bernstein &
Wasserman, LLP, as counsel to the Underwriters, may be necessary or advisable in
connection with the offering or distribution of the Units, and will diligently
use its best efforts to cause the same to become effective.
(d) The Company will, at its expense, when and as requested by
the Representative, supply all necessary documents, exhibits and information,
and execute all such applications, instruments and papers as may be required, in
the opinion of the Underwriters' counsel, to qualify the Units or such part
thereof as the Representative may determine, for sale under the so-called "Blue
Sky" Laws of such states as the Representative shall designate, and to continue
such qualification in effect so long as required for the purposes of the
distribution of the Units, provided, however, that the Company shall not be
required to qualify as a foreign corporation or dealer in securities or to file
a consent to service of process in any state in any action other than one
arising out of the offering or sale of the Units.
9
<PAGE>
(e) The Company will, at its own expense, file and provide,
and continue to file and provide, such reports, financial statements and other
information as may be required by the Commission, or the proper public bodies of
the States in which the Units may be qualified for sale, for so long as required
by applicable law, rule or regulation and will provide the Representative with
copies of all such registrations, filings and reports on a timely basis.
(f) During the period of five years from the Effective Date,
the Company will deliver to the Underwriter a copy of each annual report of the
Company, and will deliver to the Underwriter (i) within 50 days after the end of
each of the Company's first three quarter-yearly fiscal periods, a balance sheet
of the Company as at the end of such quarter-yearly period, together with a
statement of its income and a statement of changes in its cash flow for such
period (Form 10-Q or 10-QSB), all in reasonable detail, signed by its principal
financial or accounting officer, (ii) within 105 days after the end of each
fiscal year, a balance sheet of the Company as at the end of such fiscal year,
together with a statement of its income and statement of cash flow for such
fiscal year (Form 10-K or 10-KSB), such balance sheet and statement of cash flow
for such fiscal year to be in reasonable detail and to be accompanied by a
certificate or report of independent public accountants, (who may be the regular
accountants for the Company), (iii) as soon as available a copy of every other
report (financial or other) mailed to the stockholders, and (iv) as soon as
available a copy of every non-confidential report and financial statement
furnished to or filed with the Commission or with any securities exchange
pursuant to requirements by or agreement with such exchange or the Commission
pursuant to the Securities Exchange Act of 1934, as amended (the "1934 Act"), or
any regulations of the Commission thereunder. If and for so long as the Company
has one or more active subsidiaries, the financial statements required by (i)
and (ii) above shall be furnished on a consolidated basis in respect of the
Company and all of the Company's subsidiaries. The financial statements referred
to in (ii) shall also be furnished to all of the stockholders of the Company as
soon as practicable after the 105 days referred to therein.
(g) The Company represents that with respect to the Warrants
and the shares of Common Stock, it will prepare and file a Registration
Statement with the Commission pursuant to Section 12 of the 1934 Act, prior to
the Effective Date with a request that such Registration Statement will become
effective on the Effective Date. The Company understands that, to register, it
must prepare and file with the Securities and Exchange Commission a General Form
of Registration of Securities (Form 8-A or Form 10). In addition, the Company
agrees to qualify its Units, Common Stock and the Warrants for listing on the
OTC Bulletin Board on the Effective Date and will take all reasonable and
necessary and appropriate action so that the securities continue to be listed
for trading on the OTC Bulletin Board for at least ten years from the Effective
Date provided the Company otherwise complies with the prevailing maintenance
requirements. In addition, at such time as the Company
10
<PAGE>
qualifies for listing its securities on the National Market System of NASDAQ,
the Company will use its best efforts to have the Company's Units and components
thereof listed on the National Market System of NASDAQ in lieu of both listing
as Small-Cap Issues on NASDAQ and on the _________ Exchange. For so long as the
Company is a reporting company under the 1934 Act, the Company shall comply with
all periodic reporting and proxy solicitation requirements imposed by the
Commission pursuant to the 1934 Act.
(h) The Company will make generally available to its security
holders, as soon as practicable, but in no event later than 15 months after the
Effective Date, an earnings statement of the Company (which need not be audited)
in reasonable detail, covering a period of at least twelve months beginning
after the Effective Date, which earnings statement shall satisfy the provisions
of Section 11(a) of the Act.
(i) The Company will, on or about the Effective Date, apply
for listing in Standard and Poor's Corporation Records and Standard & Poor's
Monthly Stock Guide and shall use its best efforts to have the Company listed in
such reports for a period of not less than ten (10) years from the Closing Date.
The Company will request accelerated treatment in the Daily News Supplement of
Standard and Poor's Corporation Records.
(j) The Company shall cause the Board of Directors to meet, at
least quarterly, upon proper notice; and, the Representative shall receive
notice of any regular or special meetings of the Company's Board of Directors
concurrently with the sending of such notice to the Company's directors and
shall have the right to have a representative attend such meeting as an
observer, but this right shall be suspended (i) three years after the Effective
Date or (ii) at any time a designee of the Underwriter is a member of or advisor
to the Company's Board of Directors as more fully set forth in Section 17 below.
(k) The Company shall employ the services of an auditing firm
acceptable to the Representative in connection with the preparation of the
financial statements required to be included in the Registration Statement and
shall continue to appoint such auditors or such other auditors as are reasonably
acceptable to the Representative for a period of five (5) years following the
Effective Date of the Registration Statement. Said financial statements shall be
prepared in accordance with Regulation S-X under the Rules and Regulations. The
Company shall appoint American Stock Transfer & Trust Co., New York, New York as
transfer agent for the Common Stock (the "Transfer Agent") and as warrant agent
for the Warrants.
(l) Prior to the Effective Date, the Company will enter
into employment contracts with William L. Miller and Jeanne E.
Miller satisfactory to the Representative.
11
<PAGE>
(m) Within ninety (90) days subsequent to the Effective Date,
the Company will furnish "Key Man" Life Insurance in the amount of $1,000,000 on
the lives of William L. Miller with the Company as the beneficiary thereof and
the Company shall pay the annual premiums, therefore, for a period of not less
than five years from the Effective Date.
(n) The Company will for a period of five years:
(i) Furnish to the Representative and to the
Company's shareholders annual audited financial statements contained in an
annual report and unaudited financial statements contained in quarterly reports
for each of the Company's first three quarters.
(ii) [intentionally deleted]
(iii) At its expense, shall cause its regularly
engaged independent certified public accountants to examine (but not audit) the
Company's financial statements for each of the first three (3) fiscal quarters
prior to the announcement of quarterly financial information, the filing of the
Company's Form 10-Q or 10-QSB quarterly report and the mailing of quarterly
financial information to security holders.
(o) Until such time as the securities of the Company are
listed on the New York Stock Exchange, the American Stock Exchange or
NASDAQ/NMS, the Company shall cause its legal counsel to provide the
Representative with a survey, to be updated at least annually, of those states
in which the securities of the Company may be traded in non-issuer transactions
under the Blue Sky laws of the states and the basis for such authority. At
closing, the first such survey shall be delivered by the Underwriter's legal
counsel, Bernstein & Wasserman, LLP.
(p) As soon as practicable after the Closing Date, the Company
will deliver to the Representative and its counsel a total of three bound
volumes of copies of all documents relating to the public offering which is the
subject of this Agreement.
(q) The Company, for a period of at least three years
following the public offering, shall retain the services of a financial public
relations firm(s) satisfactory to the Representative, said agreement(s) to
commence no later than 30 days after the Closing of the public offering.
(r) Stock certificates and Warrant certificates shall be first
submitted to the Representative for approval prior to printing. The Company
shall, as promptly as possible, after filing the Registration Statement with the
Commission, obtain a CUSIP number for the Units, shares and Unit Warrants and
have each of the securities eligible for closing through Depository Trust
Company.
12
<PAGE>
(s) The Company will not issue and sell any of its securities
not contemplated by the Registration Statement for twenty four months from the
date of this agreement.
SECTION 7. EXPENSES OF THE COMPANY.
The Company shall be responsible for and shall bear all expenses
directly and necessarily incurred in connection with the proposed financing,
including: (i) the preparation, printing and filing of the Offering Documents
and amendments thereto, including NASD, SEC, filing and/or application fees,
preliminary and final Prospectus and the printing of the Underwriting Agreement,
the Agreement Among Underwriters and the Selected Dealers' Agreement, a Blue Sky
Memorandum, material to be circulated to the Underwriters by us and other
incidental material; (ii) the issuance and delivery of certificates representing
the shares and Unit Warrants, including original issue and transfer taxes, if
any; (iii) the qualifications of the Company's Units $60,000.00(covered by the
"firm commitment" offering) under State Securities or Blue Sky Laws, including
counsel fees of the Representative relating thereto in the sum of $35,000.00
Dollars ($25,000.00 of which has been paid prior to the Effective Date),
together with appropriate state filing fees) plus disbursements relating to, but
not limited to, long-distance telephone calls, photocopying, messengers, excess
postage, overnight mail and courier services; and (iv) the fees and
disbursements of counsel for the Company and the accountants for the Company.
The $60,000.00 payment shall not include fees of special counsel if same is
required to be incurred in a merit review state which may require local counsel.
After closing of the public offering, the Company shall bear the costs
of tombstone announcements not to exceed $______________.
SECTION 8. PAYMENT OF UNDERWRITERS' EXPENSES.
(a) On the Closing Date and Additional Closing Date(s) (if
any) the Company will pay to VTR an expense allowance equal to three (3%)
percent of the total gross proceeds derived from the sale of the 300,000 Units
and Optional Units, for the fees and disbursements of counsel to the
Underwriters and for costs of otherwise unreimbursed advertising, traveling,
postage, telephone and telegraph expenses and other miscellaneous expenses
incurred by or on behalf of the Representative and the Underwriters in
preparation for, or in connection with the offering and sale and distribution of
the Units; and VTR shall not be obligated to account to the Company for such
disbursements and expenses. In the event, however, that the Representative
terminates this Agreement pursuant to the provisions of Section 12 hereof, the
Representative shall be obligated to account for expenditures of any advance
payment to VTR and to refund to the Company any portion of the advance not
expended. In the event that the Representative terminates this agreement
pursuant to the provisions of Section 12(b), the Representative shall be
entitled to reimbursement of expenses on an accountable basis.
13
<PAGE>
(b) On the Effective Date, the Company will enter into an
agreement retaining VTR, as a management and financial consultant for a
three-year period, commencing as of the Effective Date at a fee equal to
$100,000 payable in full in advance on the Closing Date.
SECTION 9. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act against any
and all losses, claims, damages and liabilities, joint or several (including any
reasonable investigation, legal and other expenses incurred in connection with,
and any amount paid in settlement of, any action, suit or proceeding 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 law or regulation, at common law
or otherwise, insofar as such losses, claims, damages or liabilities arise out
of or are based upon any untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus, the Registration
Statement or the statement of a material fact contained in any preliminary
prospectus, the Registration Statement or the Prospectus or any amendment
thereof or supplement thereto, or arise out of or are based upon any omission or
alleged omission to state therein such fact required to be stated therein or
necessary to make such statements therein not misleading. Such indemnity shall
not inure to the benefit of any Underwriter (or any person controlling such
Underwriter) on account of any losses, claims, damages or liabilities arising
from the sale of the Units to any person by such Underwriter if such untrue
statement or alleged untrue statement or omission was made in such preliminary
prospectus, the Registration Statement or the Prospectus, or such amendment or
supplement, in reliance upon and in conformity with information furnished in
writing to the Company by the Representatives on behalf of any Underwriter
specifically for use therein. In no event shall the indemnification agreement
contained in this Section 9(a) inure to the benefit of any Underwriter on
account of any losses, claims, damages, liabilities or actions arising from the
sale of the Units upon the public offering to any person by such Underwriter if
such losses, claims, damages, liabilities or actions arise out of, or are based
upon, a statement or omission or alleged omission in a preliminary prospectus
and if, in respect to such statement, omission or alleged omission, the
Prospectus differs in a material respect from such preliminary prospectus and a
copy of the Prospectus has not been sent or given to such person at or prior to
the confirmation of such sale to such person. This indemnity agreement will be
in addition to any liability which the Company may otherwise have.
(b) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, each person, if any, who controls the
Company 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
14
<PAGE>
Company to each Underwriter, but only insofar as such losses, claims, damages or
liabilities arise out of or are based upon any untrue statement or omission or
alleged untrue statement or omission which was made in any Preliminary
Prospectus, any Rule 430A Prospectus, the Registration Statement or the
Prospectus, or any amendment thereof or supplement thereto, which were made in
reliance upon and in conformity with information furnished in writing to the
Company by the Representatives on behalf of any Underwriter for specific use
therein; provided, however, that the obligation of each Underwriter to indemnify
the Company (including any controlling person, director or officer thereof)
shall be limited to the net proceeds received by the Company from such
Underwriter. For all purposes of this Agreement, the amounts of the selling
concession and reallowance set forth in the Prospectus constitute the only
information furnished in writing by or on behalf of any Underwriter expressly
for inclusion in any Preliminary Prospectus, any Rule 430A Prospectus, the
Registration Statement or the Prospectus or any amendment or supplement thereto.
(c) Any party that proposes to assert the right to be
indemnified under this Section will, promptly after receipt of notice of
commencement of any action, suit or proceeding against such party in respect of
which a claim is to be made against an indemnifying party or parties under this
Section, notify each such indemnifying party of the commencement of such action,
suit or proceeding, enclosing a copy of all papers served. No indemnification
provided for in Section 9(a) or 9(b) shall be available to any party who shall
fail to give notice as provided in this Section 9(c) if the party to whom notice
was not given was unaware of the proceeding to which such notice would have
related and was prejudiced by the failure to give such notice but the omission
so to notify such indemnifying party of any such action, suit or proceeding
shall not relieve it from any liability that it may have to any indemnified
party for contribution or otherwise than under this Section. In case any such
action, suit or proceeding shall be brought against any indemnified party and it
shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in, and, to the extent that
it shall wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof and the
approval by the indemnified party of such counsel, the indemnifying party shall
not be liable to such indemnified party for any legal or other expenses, except
as provided below and except for the reasonable costs of investigation
subsequently incurred by such indemnified party in connection with the defense
thereof. The indemnified party shall have the right to employ its counsel in any
such action, but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless (i) the employment of counsel by such
indemnified party has been authorized in writing by the indemnifying parties,
(ii) the indemnified party shall have reasonably concluded that there may be a
conflict of interest between the indemnifying parties and the indemnified party
in the
15
<PAGE>
conduct of the defense of such action (in which case the indemnifying parties
shall not have the right to direct the defense of such action on behalf of the
indemnified party, or (iii) the indemnifying parties shall not have employed
counsel to assume the defense of such action within a reasonable time after
notice of the commencement thereof, in each of which cases the reasonable fees
and expenses of counsel shall be at the expense of the indemnifying parties. An
indemnifying party shall not be liable for any settlement of any action, suit,
proceeding or claim effected without its written consent.
(d) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in Sections 9(a) and (b)
is due in accordance with its terms but for any reason is held to be unavailable
from the Company, or the Underwriters, the Company, and the Underwriters shall
contribute to the aggregate losses, claims, damages and liabilities (including
any investigation, legal and other expenses reasonably incurred in connection
with, and any amount paid in settlement of, any action, suit or proceeding or
any claims asserted, but after deducting any contribution received by the
Company from persons other than the Underwriters, persons who control the
company within the meaning of the Act, officers of the Company who signed the
Registration Statement and directors of the Company, who may also be liable for
contribution) to which the Company and one or more of the Underwriters may be
subject in such proportion as is appropriate to reflect the relative benefits
received by the Company on the one hand and the Underwriters on the other from
the offering of the Units or, if such allocation is not permitted by applicable
law or indemnification is not available as a result of the indemnifying party
not having received notice as provided herein in such proportion as is
appropriate to reflect not only the relative benefits referred to above but also
the relative fault of the Company on the one hand and the Underwriters on the
other in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or expenses, as well as any other relevant
omissions which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant omissions which resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits received by the Company, and the
Underwriters shall be deemed to be in the same proportion as (x) the total
proceeds from the Offering (net of underwriting discounts but before deducting
expenses) received by the Company or from the sale of the Units, as set forth in
the table on the cover page of the Prospectus (but not taking into account the
use of the proceeds of such sale of Units by the Company), bear to (y) the
underwriting discount received by the Underwriters, as set forth in the table on
the cover page of the Prospectus. The relative fault of the Company, and the
Underwriters shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact related to information
supplied by the Company, or the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company, and the
16
<PAGE>
Underwriters agree that it would not be just and equitable if contribution
pursuant to this Section 9 were determined by pro rata allocation (even if the
Underwriters were treated as one entity for such purpose) or by any other method
of allocation which does not take account of the equitable consideration
referred to above. Notwithstanding the provisions of this Section 9, in no case
shall any Underwriter (except as may be provided in the Agreement Among
Underwriters) be liable or responsible for any amount in excess of the
underwriting discount applicable to the Units purchased by such Underwriter
hereunder. For purposes of this Section 9, each person, if any, who controls an
Underwriter within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act shall have the same rights to contribution as such Underwriter, and
each person, if any, who controls the Company within the meaning of Section 15
of the Act or Section 20(a) of the Exchange Act, each officer of the Company who
shall have signed the Registration Statement and each director of the Company
shall have the same rights to contribution as the Company, subject to the
immediately preceding sentence of this Section 9. Any party entitled to
contribution will, promptly after receipt of notice of commencement of any
action, suit or proceeding against such party in respect of which a claim for
contribution may be made against another party or parties under this Section,
notify such party or parties from whom contribution may be sought, but the
omission so to notify such party or parties from whom contribution may be sought
shall not relieve the party or parties from whom contribution may be sought from
any other obligation it or they may have hereunder or otherwise than under this
Section. No party shall be liable for contribution with respect to any action,
suit, proceeding or claim settled without its written consent. The Underwriters'
obligations to contribute pursuant to this Section 9 are several in proportion
to their respective underwriting commitments and not joint.
SECTION 10. EFFECTIVENESS OF AGREEMENT. This Agreement shall become
effective (i) at 10:00 A.M., New York Time, on the first full business day after
the Effective Date, or (ii) at the time of the initial public offering by the
Underwriters of the Units, whichever shall first occur. The time of the initial
public offering by the Underwriters of the Units for the purposes of this
Section 10, shall mean the time, after the Registration Statement becomes
effective, of the release by the Representative for publication of the first
newspaper advertisement which is subsequently published relating to the Units,
or the time, after the Registration Statement becomes effective, when the Units
are first released by the Representative for offering by the Underwriters or
dealers by letter or telegram, whichever shall first occur. The Representative
agrees to notify the Company immediately after it shall have taken any action,
by release or otherwise, whereby this Agreement shall have become effective.
This Agreement shall, nevertheless, become effective at such time earlier than
the time specified above, after the Effective Date, as the Representative may
determine by notice to the Company.
17
<PAGE>
SECTION 11. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The
obligations of the several Underwriters to purchase and pay for the Units which
the Underwriters have agreed to purchase hereunder are subject to: the accuracy,
as of the date hereof and as of the Closing Dates, of all of the representations
and warranties of the Company and contained in this Agreement; the Company's
compliance with, or performance of, all of its covenants, undertakings and
agreements contained in this Agreement that are required to be complied with or
performed on or prior to each of the Closing Dates and to the following
additional conditions:
(a) On or prior to the Closing Date, no order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceeding for that purpose shall have been instituted or be pending or, to the
knowledge of the Company, shall be threatened by the Commission; any request for
additional information on the part of the Commission (to be included in the
Registration Statement or the Prospectus or otherwise) shall have been complied
with to the satisfaction of the Commission; and neither the Registration
Statement nor any amendment thereto shall have been filed to which counsel to
the Underwriters shall have reasonably objected, in writing.
(b) The Representative shall not have disclosed in writing to
the Company that the Registration Statement or Prospectus or any amendment or
supplement thereto contained, as of the date thereof, an untrue statement of a
fact which, in the opinion of counsel to the Underwriters, is material, or omits
to state a fact which, in the opinion of such counsel, is material and is
required to be stated therein, or is necessary to make the statements therein
not materially misleading.
(c) Between the date hereof and the Closing Date, the Company
shall not have sustained any loss on account of fire, explosion, flood,
accident, calamity or other cause, of such character as materially adversely
affects its business or property, whether or not such loss is covered by
insurance.
(d) Between the date hereof and the Closing Date, there shall
be no litigation instituted or threatened against the Company, and there shall
be no proceeding instituted or threatened against the Company before or by any
federal or state commission, regulatory body or administrative agency or other
governmental body, domestic or foreign, wherein an unfavorable ruling, decision
or finding would materially adversely affect the business, licenses, permits,
operations or financial condition or income of the Company.
(e) Except as contemplated herein or as set forth in the
Registration Statement and Prospectus, during the period subsequent to the
Effective Date and prior to the Closing Date, (A) the Company shall have
conducted its business in the usual and ordinary manner as the same was being
conducted on the date of the filing of the initial Registration Statement and
(B) except in the ordinary course of its business, the Company shall not have
incurred any
18
<PAGE>
material liabilities or obligations (direct or contingent), or disposed of any
of its assets, or entered into any material transaction, and (C) the Company
shall not have suffered or experienced any material adverse change in its
business, affairs or in its condition, financial or otherwise. On the Closing
Date, the capital stock and surplus accounts of the Company shall be
substantially as great as at its last financial report without considering the
proceeds from the sale of the Units except to the extent that any decrease is
disclosed in or contemplated by the Prospectus.
(f) The authorization of the Units, the Common Stock and the
Warrants, the Registration Statement, the Prospectus and all corporate
proceedings and other legal matters incident thereto and to this Agreement,
shall be reasonably satisfactory in all respects to counsel to the Underwriters.
(g) The Company shall have furnished to the Representative the
opinions, dated the Closing Date, and Additional Closing Date(s), addressed to
you, of Hornsby, Sacher, Zelman, Stanton, Paul & Beiley, P.A., counsel for the
Company, that:
(i) The Company has been duly incorporated and is a validly
existing corporation in good standing under the laws of the State of Delaware
with full corporate power and authority to own and operate its properties and to
carry on its business as set forth in the Registration Statement and Prospectus;
it has authorized and outstanding capital as set forth in the Registration
Statement and Prospectus; and the Company is duly licensed or qualified as a
foreign corporation in all jurisdictions in which the ownership or leasing of
its properties requires such qualification or license, except where failure to
be so qualified or licensed would have no material adverse effect on the
business of the Company.
(ii) The Company has an authorized, issued and outstanding
capital stock as set forth under the caption "Capitalization" in the Prospectus.
All of the outstanding shares of Common Stock and Preferred Stock are duly
authorized, validly issued, fully paid, and non-assessable, and do not have any
preemptive rights. The Company will have duly authorized, reserved and set aside
shares of Common Stock issuable upon exercise of the Warrants and any other
outstanding options, warrants or stock option plans and when issued in
accordance with the terms contained therein against payment therefor, will be
duly and validly issued, fully paid and non-assessable.
(iii) The Common Stock, Warrants and the Underwriters' Warrant
conform to descriptions thereof under "Description of Securities" contained in
the Prospectus.
(iv) The Underwriters will receive good and marketable title
to the Units purchased by them from the Company in accordance with the terms and
provisions of this Agreement, to the best of such counsel's knowledge, free and
clear of all liens,
19
<PAGE>
encumbrances, claims, security interests, restrictions, stockholders' agreements
and voting trusts whatsoever.
(v) Except as set forth in the Prospectus, there
are no outstanding options, warrants, or other rights, providing for the
issuance of, and, to the best of the knowledge of such counsel, no commitments,
plans or arrangements to issue, any shares of any class of capital stock of the
Company, or any security convertible into, or exchangeable for, any shares of
any class of capital stock of the Company.
(vi) To the best of such counsel's knowledge, no
consents, approvals, authorizations or orders of agencies, officers or other
regulatory authorities are necessary for the valid authorization, issue or sale
of the Units hereunder, except such as may be required under the Act or state
securities or Blue Sky Laws.
(vii) The Registration Statement has become effective
under the Act and, to the best of the knowledge of such counsel, no order
suspending the effectiveness of the Registration Statement is in effect and no
proceedings for that purpose have been instituted or are pending before or
threatened by, the Commission;
(viii) To the best of such counsel's knowledge and
based upon the investigation described below, the Registration Statement and
Prospectus, and each amendment thereof and supplement thereto, comply as to form
in all material respects with the applicable requirements of the Act and the
Rules and Regulations (except that no opinion need be expressed as to financial
statements, notes thereto, and financial data contained in the Registration
Statement or Prospectus). Such counsel has participated in conferences with
officers and representatives of the Company and with its certified public
accountants in the preparation of the Registration Statement and the Prospectus.
At such conferences counsel has made inquiries of such officers, representatives
and accountants, and discussed the contents of the Registration Statement and
the Prospectus. Such counsel has not independently verified, and, accordingly,
does not assume any responsibility for, the accuracy, completeness or fairness
of the information contained in the Registration Statement or the Prospectus,
other than as set forth the Prospectus insofar as such statements relate to the
contents of particular documents therein described, except for documents
prepared by counsel for Underwriter. On the basis of the foregoing, nothing has
come to the attention of such counsel to cause such counsel to believe that the
Registration Statement, the Prospectus or any amendment or supplement thereto
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make statements therein, in light of the
circumstances under which they were made, not misleading (except, in the case of
both the Registration Statement and any amendment thereto and the Prospectus and
any supplement thereto, for the financial statements, notes thereto and other
financial and statistical data and schedules contained therein, as to which such
counsel need express no opinion); and such counsel is familiar with all
contracts referred
20
<PAGE>
to in the Registration Statement or in the Prospectus and such contracts are
sufficiently summarized or disclosed therein, except for contracts prepared on
behalf of the Underwriter, or filed as exhibits thereto, as required, and such
counsel does not know of any other contracts required to be summarized or
disclosed or filed; and such counsel does not know of any legal or governmental
proceedings to which the Company is a party, or in which property of the Company
is the subject, of a character required to be disclosed in the Registration
Statement or the Prospectus which are not so disclosed therein.
(ix) The statements in the Registration Statement
under the caption "Business" have been reviewed by such counsel and insofar as
they refer to descriptions of agreements, statutes, licenses, certifications,
rules or regulations or legal conclusions, are correct in all material respects.
(x) This Agreement has been duly authorized and
executed by the Company and is a valid and binding agreement of the Company
enforceable in accordance with its terms subject to bankruptcy, insolvency,
reorganization, moratorium and other laws affecting creditors rights generally
and except that no opinion need be given with regard to the enforceability of
Section 9 hereof or the availability of equitable relief.
(xi) To the best knowledge of such counsel: (a) no
default exists, and no event has occurred which, with notice or lapse of time,
or both, would constitute a default in the due performance and observance of any
material term, covenant or condition by the Company of any indenture, mortgage,
deed of trust, note or any other agreement or instrument to which the Company is
a party or by which it or its business or its properties may be bound or
affected, except where such default would not have a material adverse effect on
the business of the Company and except as disclosed in the Prospectus; (b) the
Company has full power and lawful authority to authorize, issue and sell the
Units on the terms and conditions set forth herein and in the Registration
Statement and in the Prospectus; (c) no consent, approval, authorization or
other order of any regulatory authority is required for such authorization,
issue or sale, except as may be required under the Act or State securities laws,
clearance with the NASD and such other consent, approval, authorization or order
as has been obtained and is in full force and effect; and (d) the execution and
delivery of this Agreement, the consummation of the transactions herein
contemplated, and compliance with the terms hereof will not conflict with, or
constitute a default under, any material indenture, mortgage, deed of trust,
note or any other agreement or instrument to which the Company is now a party or
by which it or its business or its properties may be bound or affected, the
Certificate of Incorporation and any amendments thereto, the by-laws of the
Company or any order, rule or regulation, writ, injunction or decree of any
government, governmental instrumentality, or court, domestic or foreign, having
jurisdiction over the Company or its business or properties, except
21
<PAGE>
for the SEC's position on indemnification of officers and
directors.
(xi) Except as disclosed in the Registration
Statement and Prospectus, to the best knowledge of such counsel, there are no
material actions, suits or proceedings at law or in equity of a material nature
pending, or to such counsel's knowledge, threatened against the Company which
are not adequately covered by insurance and there are no proceedings pending or,
to the knowledge of such counsel, threatened against the Company before or by
any Federal or State Commission, regulatory body, or administrative agency or
other governmental body, wherein an unfavorable ruling, decision or finding
would materially and adversely affect the business, operation or condition
(financial or otherwise) of the Company, which are not disclosed in the
Prospectus.
(xii) The Underwriters' Unit Purchase Option to be
issued to the Representative hereunder will be, when issued, duly and validly
authorized and executed by the Company and will constitute valid and binding
obligations of the Company, legally enforceable in accordance with their terms
except as enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other laws pertaining to creditors rights
generally and the Company will have duly authorized, reserved and set aside the
shares of its Common Stock issuable upon exercise of the Underwriters' Unit
Purchase Option and such stock, when issued and paid for upon exercise of the
Underwriters' Unit Purchase Option in accordance with the provisions thereof,
will be duly and validly issued, fully-paid and non-assessable.
Such opinion shall also cover such other matters incident to
the transactions contemplated by this Agreement as the Representative shall
reasonably request. In rendering such opinion, such counsel may rely upon
certificates of any officer of the Company or public officials as to matters of
fact.
(h) The Company shall have furnished to the Representative
certificates of the Chief Executive Officer and an Executive Vice-President of
the Company, dated as of the Closing Date, and Additional Closing Date(s), to
the effect that:
(i) Each of the representations and warranties
of the Company contained in Section 2 hereof is true and correct in all material
respects at and as of such Closing Date, and the Company has performed or
complied with all of its agreements, covenants and undertakings contained in
this Agreement and has performed or satisfied all the conditions contained in
this Agreement on its part to be performed or satisfied at the Closing Date;
(ii) The Registration Statement has become
effective and no order suspending the effectiveness of the Registration
Statement has been issued, and, to the best of the knowledge of the
22
<PAGE>
respective signers, no proceeding for that purpose has been
initiated or is threatened by the Commission;
(iii) The respective signers have each carefully
examined the Registration Statement and the Prospectus and any amendments and
supplements thereto, and to the best of their knowledge the Registration
Statement and the Prospectus and any amendments and supplements thereto and all
statements contained therein are true and correct in all material respects, and
neither the Registration Statement nor the Prospectus nor any amendment or
supplement thereto includes any untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading and, since the effective date of the
Registration Statement, there has occurred no event required to be set forth in
an amended or supplemented Prospectus which has not been so set forth except
changes which the Registration Statement and Prospectus indicate might occur.
(iv) Except as set forth or contemplated in the
Registration Statement and Prospectus, since the respective dates as of which,
or periods for which, information is given in the Registration Statement and
Prospectus and prior to the date of such certificate (A) there has not been any
material adverse change, financial or otherwise, in the business, business
prospects, earnings, general affairs or condition (financial or otherwise), of
the Company (in each case whether or not arising in the ordinary course of
business), and (B) the Company has not incurred any material liabilities, direct
or contingent, or entered into any material transactions, otherwise than in the
ordinary course of business other than as referred to in the Registration
Statement or Prospectus and except changes which the Registration Statement and
Prospectus indicate might occur.
(i) The Company shall have furnished to the Representative on
the Closing Date, such other certificates of executive officers of the Company
additional to those specifically mentioned herein, as the Representative may
have reasonably requested, as to: the accuracy and completeness of any statement
in the Registration Statement or the Prospectus, or in any amendment or
supplement thereto; the representations and warranties of the Company herein;
the performance by the Company of its obligations hereunder; or the fulfillment
of the conditions concurrent and precedent to the obligations of the
Underwriters hereunder, which are required to be performed or fulfilled on or
prior to the Closing Date.
(j) At the time this Agreement is executed, and on each
Closing Date you shall have received a letter from Hausser & Taylor, addressed
to the Representative, as Representative of the Underwriters, and dated,
respectively, as of the date of this Agreement and as of each Closing Date in
form and substance reasonably satisfactory to the Representative, to the effect
that:
23
<PAGE>
(i) They are independent public accountants
within the meaning of the Act and the applicable published Rules and
Regulations of the Commission;
(ii) In their opinion, the financial statements and
related schedules of the Company included in the Registration Statement and
Prospectus and covered by their reports comply as to form in all material
respects with the applicable accounting requirements of the Act and the
published Rules and Regulations of the Commission issued thereunder;
(iii) On the basis of LIMITED PROCEDURES in
accordance with standards established by the American Institute of Certified
Public Accountants, including (1) a reading of the latest available financial
statements of the Company (a copy of which shall be attached to such letter),
(2) a reading of the latest available minutes of the meetings of the
stockholders and the Board of Directors of the Company as set forth in the
minute books of the Company, officials of the Company having advised you and
them that the minutes of all such meetings through that date were set forth
therein, (3) consultations with officials of the Company responsible for
financial and accounting matters of the Company, which procedures do not
constitute an examination in accordance with generally accepted accounting
standards, and would not necessarily reveal material adverse changes in the
financial position or results of operations or inconsistencies in the
application of generally accepted accounting principles, nothing has come to
their attention which in their judgment would lead them to believe that (a) the
unaudited financial statements and related schedules of the Company included in
the Registration Statement and Prospectus do not comply as to form in all
material respects with the applicable accounting requirements of the Act and the
published Rules and Regulations of the Commission issued thereunder, or were not
prepared in accordance with generally accepted accounting principles and
practices consistent in all material respects with those followed in the
preparation of the comparable financial statements and schedules covered by
their reports included in the Registration Statement and Prospectus, or would
require any material adjustments for a fair presentation of the information
purported to be shown thereby or (b) during the period from the date of the
Capitalization table included in the Prospectus to a specified date not more
than four business days prior to the date of such letter, there has been any
material change in the capital stock or debt of the Company, or (c) during the
period from the date of the latest balance sheet and related statements of
operations, changes in stockholders' equity and changes in financial position
included in the Prospectus and covered by their reports contained therein to the
date of the letter, there has been any material adverse change in the financial
condition, or results of operations, of the Company; and
(iv) In addition to the examination referred to in
their reports included in the Registration Statement and the Prospectus and the
limited procedures referred to in clause (iii) above, they have carried out
certain specified procedures, not
24
<PAGE>
constituting an audit, with respect to certain amounts, percentages and
financial information which are derived from the general accounting records of
the Company which appear in the Prospectus under the captions "Capitalization",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", "Executive Compensation", "Certain Transactions", "Selected
Financial Data," "Dilution," and "Risk Factors," as well as such other financial
information as may be specified by the Representative, and that they have
compared such amounts, percentages and financial information with the accounting
records of the Company and have found them to be in agreement.
(k) All the opinions, letters, certificates and evidence mentioned
above or elsewhere in this Agreement shall be deemed to be in compliance with
the provisions hereof only if they are in form and substance reasonably
satisfactory to counsel to the Underwriters, whose approval shall not be
reasonably withheld, conditioned or delayed.
If any of the conditions specified in this Section shall not
have been fulfilled when and as required by this Agreement and all obligations
of the Underwriters hereunder may be terminated and canceled by the
Representative by notifying the Company of such termination and cancellation in
writing or by telegram at any time prior to, or on, the Closing Date and any
such termination and cancellation shall be without liability of any party hereto
any other party, except with respect to the provisions of Sections 7 and 8
hereof. The Representative may, of course, waive, in writing, any conditions
which have not been fulfilled or extend the time for their fulfillment.
SECTION 12. TERMINATION.
(a) This Agreement may be terminated by the Representative by
written or telegraphic notice to the Company at any time before it becomes
effective pursuant to Section 10.
(b) This Agreement may be terminated by the Representative by
written or telegraphic notice to the Company, at any time after it becomes
effective, in the event that the Company, after notice from the Representative
and an opportunity to cure, shall have failed or been unable to comply with any
of the terms, conditions or provisions of this Agreement on the part of the
Company to be performed, complied with or fulfilled within the respective times
herein provided for, including without limitation Section 6(g) hereof, unless
compliance therewith or performance or satisfaction thereof shall have been
expressly waived by the Representative in writing. This Agreement may also be
terminated if (i) qualifications are received or provided by the Company's
independent public accountants or attorneys to the effect of either inabilities
in furnishing certifications as to material items including, without limitation,
information contained within the footnotes to the financial statements, or as
affecting matters incident to the issuance and sale of the securities
contemplated or as to corporate proceedings or other matters or (ii) there is
any
25
<PAGE>
action, suit or proceeding, threatened or pending, at law or equity against the
Company, or by any Federal, State or other commission, board or agency wherein
any unfavorable result or decision could materially adversely affect the
business, property, or financial condition of the Company which was not
disclosed in the Prospectus.
(c) This Agreement may be terminated by the Representative by
written or telegraphic notice to the Company at any time after it becomes
effective, if the offering of, or the sale of, or the payment for, or the
delivery of, the Units is rendered impracticable or inadvisable because (i)
additional material governmental restriction, not in force and effect on the
date hereof, shall have been imposed upon trading in securities generally or
minimum or maximum prices shall have been generally established on the New York
Stock Exchange or trading in securities generally on such exchange shall have
been suspended or a general banking moratorium shall have been established by
Federal or New York State authorities or (ii) a war or other national calamity
shall have occurred involving the United States or (iii) the condition of the
market for securities in general shall have materially and adversely changed, or
(iv) the condition of any matter materially affecting the Company or its
business or business prospects, is such that it would be undesirable,
impractical or inadvisable to proceed with, or consummate, this Agreement or the
public offering of the Units.
(d) Any termination of this Agreement pursuant to this Section
12 shall be without liability of any character (including, but not limited to,
loss of anticipated profits or consequential damages) on the part of any party
hereto, except that the Company shall remain obligated to pay the costs and
expenses provided to be paid by it specified in Sections 6, 7 and 8, to the
extent therein provided. In addition, the Underwriter shall account to the
Company for any advance and shall reimburse the Company for any portion of the
advance not expended for actual out-of-pocket expenses. In the event that the
Representative terminates this agreement pursuant to the provisions of Section
12(b), the Representative shall be entitled to reimbursement of expenses on an
accountable basis.
SECTION 13. FINDER. The Company, and the Underwriters mutually
represent that they know of no person who rendered any service in connection
with the introduction of the Company to the Underwriters and that they know of
no outstanding claim by anyone for a "finder's fee" or similar type of fee, in
connection with the public offering which is the subject of this Agreement. Each
party hereby indemnifies the other against any such claims by any person known
to it, and not known to the other party hereto, who shall claim to have rendered
services in connection with the introduction of the Company to the Underwriters
and/or to have such a claim.
SECTION 14. SUBSTITUTION OF UNDERWRITERS.
26
<PAGE>
(a) If one or more Underwriters default in its or their
obligations to purchase and pay for Units hereunder and if the aggregate amount
of such Units which all Underwriters so defaulting have agreed to purchase does
not exceed 10% of the aggregate number of Units constituting the Units, the
non-defaulting Underwriters shall have the right and shall be obligated
severally to purchase and pay for (in addition to the Units set forth opposite
their names in Schedule I) the full amount of the Units agreed to be purchased
by all such defaulting Underwriters and not so purchased, in proportion to their
respective commitments hereunder. In such event the Representative, for the
accounts of the several non-defaulting Underwriters, may take up and pay for all
or any part of such additional Units to be purchased by each such Underwriter
under this subsection (a), and may postpone the Closing Date for seven business
days; or
(b) If one or more Underwriters (other than the
Representative) default in its or their obligations to purchase and pay for the
Units hereunder and if the aggregate amount of such Units which all Underwriters
so defaulting shall have agreed to purchase shall exceed 10% of the aggregate
number of Units, or if one or more Underwriters for any reason permitted
hereunder cancel its or their obligations to purchase and pay for Units
hereunder, the non-canceling and non-defaulting Underwriters (hereinafter called
the "Remaining Underwriters") shall have the right, but shall not be obligated
to purchase such Units in such proportion as may be agreed among them, at the
Closing Date. If the Remaining Underwriters do not purchase and pay for such
Units at such Closing Date, the Closing Date shall be postponed for one business
day and the remaining Underwriters shall have the right to purchase such Units,
or to substitute another person or persons to purchase the same or both, at such
postponed Closing Date. If purchasers shall not have been found for such Units
by such postponed Closing Date, the Closing Date shall be postponed for a
further two business days and the Company shall have the right to substitute
another person or persons, satisfactory to you to purchase such Units at such
second postponed Closing Date. If the Company shall not have found such
purchasers for such Units by such second postponed Closing Date, then this
Agreement shall automatically terminate and neither the Company nor the
remaining Underwriters (including the Representative) shall be under any
obligation under this Agreement (except that the Company shall remain liable to
the extent provided in Paragraph 7 hereof). As used in this Agreement, the term
"Underwriter" includes any person substituted for an Underwriter under this
Section 14. Nothing in this subparagraph (b) will relieve a defaulting
Underwriter from its liability, if any, to the other Underwriters or the Company
for damages occasioned by its default hereunder (and such damages shall be
deemed to include, without limitation, all expenses reasonably incurred by each
Underwriter in connection with the proposed purchase and sale of the Units) or
obligate any Underwriter to purchase or find purchasers for any Units in excess
of those agreed to be purchased by such Underwriter under the terms of Sections
3 and 14 hereof.
27
<PAGE>
SECTION 15. REGISTRATION OF THE WARRANTS AND/OR SECURITIES
UNDERLYING THE UNDERWRITERS' UNIT PURCHASE OPTION. The Company agrees that it
will, upon request by the Representative or the holders of a majority of the
Underwriters' Unit Purchase Option and Underlying Securities within the period
commencing one year after the Effective Date, and for a period of five years
from the Effective Date, on one occasion only at the Company's sole expense,
cause the Underwriters' Unit Purchase Option and/or the Underlying Securities
issuable upon exercise of the Underwriters' Unit Purchase Option, to be the
subject of a post-effective amendment, a new Registration Statement, if
appropriate (hereinafter referred to as the "demand Registration Statement"), so
as to enable the Representative and/or its assigns to offer publicly the
Underwriters' Unit Purchase Option and/or the underlying securities. The Company
agrees to register such securities expeditiously and, where possible, within
forty-five (45) business days after receipt of such requests. The Company agrees
to use its "best efforts" to cause the post-effective amendment, new
Registration Statement to become effective and for a period of nine (9) months
thereafter to reflect in the post-effective amendment, new Registration
Statement, financial statements which are prepared in accordance with Section
10(a)(3) of the Act and any facts or events arising which, individually or in
the aggregate, represent a fundamental and/or material change in the information
set forth in such post-effective amendment or new Registration Statement. The
holders of the Underwriters' Unit Purchase Option may demand registration
without exercising such Warrants and, in fact, are never required to exercise
same.
The Company understands and will agree that if, at
any time within the period commencing one year after the Effective Date and
ending seven years after the Effective Date of the Company's Registration
Statement, it should file a Registration Statement with the Securities and
Exchange Commission pursuant to the Securities Act, regardless of whether some
of the holders of the Underwriters' Unit Purchase Option and Underlying
Securities shall have theretofore availed themselves of the right provided
above, the Company, at its own expense, will offer to said holders the
opportunity to register the Underwriters' Unit Purchase Option and Underlying
Securities. This paragraph is not applicable to a Registration Statement filed
by the Company with the SEC on Form S-8 or any other inappropriate form.
In addition to the rights above provided, the
Company will cooperate with the then majority holders of the Underwriters' Unit
Purchase Option and Underlying Securities in preparing and signing a
Registration Statement, on one occasion only in addition to the Registration
Statements discussed above, required in order to sell or transfer the aforesaid
Underwriters' Unit Purchase Option and underlying securities and will supply all
information required therefor, but such additional Registration Statement shall
be at the then holders' cost and expense unless the Company elects to register
additional shares of the Company's Common Stock in which case the cost and
expense of such Registration Statement will be prorated between the Company and
the
28
<PAGE>
holders of the Underwriters' Unit Purchase Option and underlying securities
according to the aggregate sales price of the securities being issued. The
holders of the Underwriters' Unit Purchase Option may include such Warrants in
any such filing without exercising the Underwriters' Unit Purchase Option, and
in fact, are never required to exercise same. The Company can, at any time for
any reason, withdraw any such registration except in connection with a
Registration Statement filed pursuant to the Company's demand Registration
Statement.
SECTION 16. WARRANT EXERCISE FEE AGREEMENT. Commencing twelve
months after the Effective Date, the Company will pay VTR an amount equal to
four (4%) percent of the aggregate exercise price of each Warrant exercised
(except for those Warrants exercised by an Underwriter)of which a portion may be
allowed to the dealer who solicited the exercise (which may also be VTR);
provided: (1) the market price of the Common Stock on the date the Warrant was
exercised was greater than the Warrant exercise price on that date; (2) exercise
of the Warrant was solicited by a member of the NASD; (3) the Warrant was not
held in a discretionary account; (4) disclosure of compensation arrangements was
made both at the time of the offering and at the time of exercise of the
Warrant; and (5) the solicitation of the exercise of the Warrant was not in
violation of Rule 10b-6 promulgated under the Securities Exchange Act of 1934.
The Warrant Exercise Fee shall be paid in accordance with the provisions of this
paragraph and the Warrant Exercise Fee Agreement filed as an exhibit to the
Registration Statement (the "Warrant Exercise Fee Agreement"). The Company also
agrees to execute and deliver the Warrant Exercise Fee Agreement to VTR on the
Closing Date.
SECTION 17. DESIGNATION OF A DIRECTOR OR NON-VOTING ADVISOR TO THE
BOARD: Unless waived by us, we shall have the right to designate a director or a
non-voting advisor to the Board, such person being reasonably acceptable to the
Company, for a period of five years after the Effective Date. Said designee,
shall attend meetings of the Board and receive no more or less compensation than
is paid to other non-management directors of the Company and shall be entitled
to receive reimbursement for all reasonable costs incurred in attending such
meetings, including but not limited to, food, lodging and transportation.
Moreover, to the extent permitted by law, the Company will agree to indemnify
the Representative and its designee for the actions of such designee as director
or as an advisor of the Company. In the event the Underwriter designates a
director, then the Company will utilize its best efforts to obtain officer and
director liability insurance of at least $1,000,000 dollars prior to such person
serving as a director and if obtained, to maintain such policy in effect until
five years from the Effective Date. To the extent permitted under the policy, it
will also include each of the Representative and its designee as an insured
under such policy.
SECTION 18. FINDER'S FEE: If the Company shall within five (5) years
from the Effective Date, enter into any agreement or understanding with any
person or entity introduced by the
29
<PAGE>
Representative involving (i) the sale of all or substantially all of the assets
and properties of the Company, (ii) the merger or consolidation of the Company
(other than a merger or consolidation effected for the purpose of changing the
Company's domicile) or (iii) the acquisition by the Company of the assets or
stock of another business entity, which agreement or understanding is thereafter
consummated, whether or not during such five (5) year period, the Company, upon
such consummation, shall pay to the Representative an amount equal to the
following percentages of the consideration paid by the Company in connection
with such transaction:
5% of the first $4,000,000 or portion thereof, of such
consideration;
4% of the next $1,000,000 or portion thereof, of such
consideration;
3% of the next $1,000,000 or portion thereof of such
consideration; and
2% of such consideration in excess of the first
$6,000,000 of such consideration.
The fee payable to the Representative will be in the same form of
consideration and payable at the same time as that paid by or to the Company, as
the case may be, in any such transactions.
SECTION 19. RESTRICTION ON SECURITIES All officers and directors, as of
the Effective Date, have agreed not to sell, transfer, hypothecate or convey any
capital stock or derivative securities (except for those securities acquired
pursuant to the Company's Regulation D, Rule 504 offering, which shall remain
free of any restrictions, subject to compliance with applicable securities
laws)by registration or otherwise for a "Lock-Up" period of two years from the
Effective Date without the prior written consent of the Representative (except
that, subject to compliance with applicable securities laws, any such officer,
director or stockholder may transfer his or her stock to a member of his family
or in the event of death, by will or operation of law, provided that any such
transferee shall agree, as a condition to such transfer, to be bound by the
restrictions set forth herein). An appropriate legend shall be marked on the
face of stock certificates representing all of such securities.
SECTION 20. OTHER AGREEMENTS The Alternate Prospectus included in the
Registration Statement covers the sale of 1,500,000 Class A Warrants and
1,500,000 shares of Common Stock issuable upon exercise of the Class A Warrants.
The aforesaid securities are not underwritten by the Underwriters and are not
covered by this Underwriting Agreement.
SECTION 21. NOTICE. Except as otherwise expressly provided in this
Agreement, (A) whenever notice is required by the provisions hereof to be given
to the Company, such notice shall be given in writing, by certified mail, return
receipt requested, addressed to the Company at 4450 Belden Village Street, N.W.,
Canton, OH, 44718, and copy to Michael T. Greif, Esq., Hornsby,
30
<PAGE>
Sacher, Zelman, Stanton, Paul & Beiley, P.A., 1401 Brickell Ave., Suite 700,
Miami, FL 33131, and (B) whenever notice is required by the provisions hereof to
be given to the Underwriters, such notice shall be in writing addressed to the
Representative at 99 Wall Street, New York, NY 10005, copy to Steve Wasserman,
Esq., Bernstein & Wasserman, LLP, 950 Third Avenue, New York, NY 10022. Any
party may change the address for notices to be sent by giving written notice to
the other persons.
SECTION 22. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. Except
as the context otherwise requires, all representations, warranties, covenants,
and agreements contained in this Agreement shall be deemed to be
representations, warranties, covenants, and agreements as at the date hereof and
as at the Closing Date and the Additional Closing Date(s), and all
representations, warranties, covenants, and agreements of the several
Underwriters and the Company, shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any of the
Underwriters or the Company or any of their respective controlling persons, and
shall survive any termination of this Agreement (whensoever made) and/or
delivery of the Firm Units and the Optional Units to the several Underwriters.
SECTION 23. MISCELLANEOUS. This Agreement is made solely for the
benefit of the Underwriters and the Company 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 "successor" or the term "successors and assigns" as
used in this Agreement shall not include any purchaser, as such, of any of the
Units.
This Agreement shall not be assignable by any party
without the other party's prior written consent. This Agreement shall be binding
upon, and shall inure to the benefit of, our respective successors and permitted
assigns. The foregoing represents the sole and entire agreement between us with
respect to the subject matter hereof and supersedes any prior agreements between
us with respect thereto. This Agreement may not be modified, amended or waived
except by a written instrument signed by the party to be charged. The validity,
interpretation and construction of this Agreement, and of each part hereof,
shall be governed by the internal laws of the State of New York, without giving
effect to the conflict of laws provisions thereof.
This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original, but all of which together shall be deemed to
be one and the same instrument.
If a party signs this Agreement and transmits an electronic facsimile
of the signature page to the other party, the party who receives the
transmission may rely upon the electronic facsimile as a signed original of this
Agreement.
31
<PAGE>
If the foregoing is in accordance with your
understanding of our agreement, kindly sign and return to us a counterpart
hereof, whereupon this instrument along with all counterparts will become a
binding agreement between the Company and the Underwriters in accordance with
its terms.
Very truly yours,
KIDS STUFF, INC.
By:
--------------------------------------
William L. Miller, Chief Executive Officer
CONFIRMED AND ACCEPTED, as of the
date first above written:
VTR CAPITAL, INC.
By:
-----------------------------------------------
For itself and as the Representative of the
other Underwriters named in Schedule I hereto.
32
<PAGE>
SCHEDULE I
NUMBER OF UNITS TO BE
UNDERWRITERS PURCHASED
------------ ---------------------
VTR Capital Inc.
-------
Total 300,000
=======
33
EXHIBIT 1.02
VTR CAPITAL INC.
99 WALL STREET
NEW YORK, NY 10005
KIDS STUFF, INC.
300,000 UNITS
SELECTED DEALER AGREEMENT
Dear Sirs: ____________, 1997
We, as the Underwriter named in the below referred to Prospectus (the
"Underwriter") have agreed, subject to the terms and conditions of the
Underwriting Agreement dated this date (the "Underwriting Agreement") to
purchase from Kids Stuff, Inc. (the "Company"), at the price set forth on the
cover of such Prospectus, 300,000 Units and up to an additional 45,000 Units
from the Company (being called the "Units"). The Units and certain of the terms
on which they are being purchased and offered are more fully described in the
enclosed Prospectus (the "Prospectus"). Additional copies of the Prospectus will
be supplied to you, in reasonable quantities upon request.
We, as the Underwriter, are offering to certain dealers ("Selected
Dealers"), among whom we are pleased to include you, part of the Units, at the
public offering price less a concession of $___ per Unit. The offering to
Selected Dealers is made subject to the issuance and delivery of the Units to us
and their acceptance by us, to the approval of legal matters by our counsel, and
to the terms and conditions hereof, and may be made by us on the basis of the
reservation of Units or an allotment against subscription, or otherwise in our
discretion.
The initial public offering price of the Units is set forth in the
Prospectus. With our consent, Selected Dealers may allow a discount of not in
excess of $___ per Unit in selling the Units to other dealers meeting the
requirements of the specifications set forth in the affirmation of dealers
contained in the attached Acceptance and Order. Upon our request, you will
notify us of the identity of any dealer to whom you allow such a discount and
any Selected Dealer from whom you receive such a discount.
All orders will be strictly subject to confirmation and we reserve the
right in our uncontrolled discretion to reject any order in whole or in part, to
accept or reject orders in the order of their receipt or otherwise, and to
allot. You are not authorized to give any information or make any representation
other than as set forth in the Prospectus in connection with the sale of any of
the Units. No dealer is authorized to act as agent for the Underwriter, or for
the Company, when offering any of the Units. Nothing contained herein shall
constitute the Selected Dealers partners with us or with one another.
1
<PAGE>
Upon release by us, you may offer the Units at the public offering
price, subject to the terms and conditions hereof. We may, and the Selected
Dealers may, with our consent, purchase Units from and sell Units to each other
at the public offering price less a concession not in excess of the concession
to Selected Dealers.
Payment for Units purchased by you is to be made at our office (or at
such other place as instructed) at the public offering price, on such date as we
may advise, on one day's notice to you, by certified or official bank check in
New York Clearing House funds payable to our order. Delivery to you of
certificates for Units will be made as soon as is practicable thereafter. Unless
specifically authorized by us, payment by you may not be deferred until delivery
of certificates to you. The concession payable to you will be paid as soon as
practicable after the closing.
This Agreement shall terminate at the close of business on the 45th day
after the effective date of the Registration Statement. We may terminate this
Agreement at any time prior thereto by notice to you. Notwithstanding the
termination of this Agreement, you shall remain liable for your proportionate
share of any transfer tax or any liability which may be asserted or assessed
against us or Selected Dealers based upon the claim that the Underwriter and the
Selected Dealers, or any of them, constitute a partnership, association,
unincorporated business or other entity, including in each case your
proportionate share of expenses incurred in defending against any such claim or
liability.
In the event that, prior to the termination of this Agreement we
purchase in the open market or otherwise any Units delivered to you, you agree
to repay to us for the account of the Underwriter the amount of the above
concession to Selected Dealers plus brokerage commissions and any transfer taxes
paid in connection with such purchase; which amounts can be withheld from the
concession otherwise payable to you hereunder. Certificates for Units delivered
on any such purchase need not be the identical certificates originally issued to
you.
At any time prior to the termination of this Agreement, you will, upon
our request, report to us the number of Units purchased by you under this
Agreement which then remain unsold and will, upon our request, sell to us for
the account of the Underwriter the number of such unsold Units that we may
designate, at the public offering price less an amount to be determined by us
not in excess of the concession allowed you.
We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the offering, including,
without limitation, stabilization and over-allotment. We shall be under no
liability to you except for our lack of good faith and for obligations assumed
by us in this Agreement, except that you do not waive any rights that you may
have under the Securities Act of 1933 (the "1933 Act") or the rules and
regulations thereunder.
2
<PAGE>
Upon application to us, we will inform you of the states and other
jurisdictions of the United States in which it is believed that the Units are
qualified for sale under, or are exempt from the requirements of, their
respective securities laws, but we assume no responsibility with respect to your
right to sell Units in any jurisdiction. We have filed a Further State Notice
with respect to the Units with the Department of State of the State of New York.
You confirm that you are familiar with Rule 15c2-8 under the Securities
Exchange Act of 1934 (the "1934 Act"), relating to the distribution of
preliminary and final prospectuses, and confirm that you have complied and will
comply therewith (whether or not the Company is subject to the reporting
requirements of Section 13 or 15(d) of the 1934 Act). We will make available to
you, to the extent made available to us by the Company such number of copies of
the Prospectus as you may reasonably request for purposes contemplated by the
1933 Act, the 1934 Act, and the rules and regulations thereunder.
Your attention is directed to Rule 10b-6 under the 1934 Act, which
contains certain prohibitions against trading by a person interested in a
distribution until such person has completed its participation in the
distribution. You confirm that you will at all times comply with the provisions
of such Rule in connection with this offering.
Any notice from us shall be deemed to have been duly given if
telephoned, and subsequently mailed or transmitted by any standard form of
written tele-communication to you at the address to which this Agreement is
mailed, or if so mailed or transmitted in the first instance.
Please advise us promptly by telephone or any standard form of written
tele-communication of the principal amount of Units ordered by you and confirm
your agreement hereto by signing the Acceptance and Order on the enclosed
duplicate hereof and returning promptly such signed duplicate copy to VTR
Capital Inc., 99 Wall Street, New York, NY 10005. Upon receipt thereof, this
instrument and such signed duplicate copy will evidence the agreement between
us.
Very truly yours,
VTR CAPITAL INC.
By:_________________________________
3
<PAGE>
ACCEPTANCE AND ORDER
VTR Capital Inc.
99 Wall Street
New York, NY 10005
Dear Sirs:
We hereby enter our order for ______ Units of Kids Stuff, Inc. under the
terms and conditions of the foregoing Agreement.
We agree to all the terms and conditions stated in the foregoing
Agreement. We acknowledge receipt of the Prospectus relating to the above Units
and we further state that in entering this order we have relied upon said
Prospectus and no other statements whatsoever, written or oral. We affirm that
we are either (i) a member in good standing of the National Association of
Securities Dealers, Inc. (the "NASD") or (ii) a dealer with its principal place
of business located outside the United States, its territories, or possessions
and not registered under the Securities Exchange Act of 1934 and not eligible
for membership in the NASD, who hereby agrees to make no sales within the United
States, its territories or its possessions or to persons who are nationals
thereof or residents therein, and in making any sales, to comply with the NASD's
interpretation with respect to free-riding and withholding, as well as all other
pertinent interpretations of the NASD that may be applicable to us. We also
affirm and agree that we will promptly re-offer any Units purchased by us in
conformity with the terms of the offering and in conformity with the Rules of
Fair Practice of the NASD, (including, without limitation, Sections 8, 24, 25
and 36 Article III thereof) and all applicable Rules and Regulations promulgated
under the Securities Exchange Act of 1934.
Date: , 1997
____________________________________
(Name of Selected Dealer)
BY:
_________________________________
(Authorized Signature)
ADDRESS: __________________________
__________________________
4
EXHIBIT 1.03
WARRANT EXERCISE FEE AGREEMENT
AGREEMENT dated as of the ____ day of _________, 1997, by and among VTC
Capital, Inc. ("VTR"), Kids Stuff, Inc. (the "Company") and American Stock
Transfer & Trust Co. (the "Warrant Agent").
W I T N E S S E T H:
WHEREAS, in connection with a public offering of 300,000 Units, (a
maximum of 345,000 Units including the over-allotment option), each Unit
consisting of two shares of the Company's Common Stock ("Common Stock"), and one
Class A Common Stock Purchase Warrant (the "Warrants"), the Company proposes to
issue, in accordance with an agreement dated as of __________, 1997 by and
between the Company and the Warrant Agent (the "Warrant Agreement"), Warrants to
purchase shares of Common Stock; and
WHEREAS, the Company also will be issuing an additional 1,500,000 Class
A Warrants to certain Selling Securityholders; and
WHEREAS, the parties hereto wish to provide VTR, a member of the
National Association of Securities Dealers, Inc. ("NASD") with certain rights on
an exclusive basis in connection with the exercise of the Warrants.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth, the parties hereto agree as follows:
Section 1. DESCRIPTION OF THE WARRANTS. The Company's Warrants may be
exercised on or after ___________, 1998 and expire at 5:00 p.m. New York time on
__________, 2002 (the "Expiration Date"), subject to (i) the Company's right to
extend the Expiration Date, at which time all rights evidenced by the Warrants
shall cease and the Warrants shall become void and (ii) certain redemption
rights commencing on or after ____________, 1998. In accordance with the
provisions of the Warrant Agreement, the holder of each Warrant shall have the
right to purchase from the Company, and the Company shall issue and sell to such
holders of Warrants, one fully paid and non-assessable share of the Company's
Common Stock for every Warrant exercised at an Exercise Price of $5.00 per
share, subject to adjustment as provided in the Warrant Agreement.
Section 2. NOTIFICATION OF EXERCISE. Within five (5) days of the last
day of each month commencing __________, 1998 (one year from the date of the
Company's Prospectus), the Warrant Agent or the Company will notify VTR of each
Warrant certificate which has been properly completed and delivered for exercise
by holders of Warrants during each such month, the determination of the proper
completion to be in the sole and absolute reasonable discretion of the Company
and the Warrant Agent. The Company or the Warrant
<PAGE>
Agent will provide VTR with such information, in connection with the exercise
of each Warrant, as VTR shall reasonably request.
Section 3. PAYMENT TO VTR. The Company hereby agrees to pay to VTR an
amount equal to four (4%) percent of the exercise price (i.e. $.20 per share
based on the initial exercise price of the Warrants which is $5.00 per share)
for each Warrant exercised, except for those Warrants exercised by VTR (the
"Exercise Fee") a portion of which may be allowed by VTR to the dealer who
solicited the exercise (which may also be VTR) provided that:
(a) such Warrant is exercised on or after __________, 1998, which
represents one year from the effective date of the Company's Registration
Statement;
(b) at the time of exercise, the market price of the Company's Common
Stock is higher than the applicable Exercise Price of the Warrant being
exercised;
(c) the holders of Warrants being exercised have indicated in writing,
either in the Form of Election contained on the specimen Warrant Certificate
attached hereto as Exhibit A, or by written documents signed and dated by the
holders and specifically stating that the exercise of such Warrants were
solicited by VTR or another member of the NASD; and
(d) VTR, and/or the member of the NASD which solicited the exercise of
Warrants delivers a certificate to the Company within five (5) business days of
receipt of information relating to such exercised Warrants from the Company or
the Warrant Agent in the form attached hereto as Exhibit B, stating that:
(1) the Warrants exercised were not held in a discretionary
account;
(2) VTR or the member of the NASD which solicited the
exercise of Warrants did not, (unless granted an exemption by the Securities and
Exchange Commission from the provisions thereof), within the applicable number
of business days under Rule 10b-6 immediately preceding the date of exercise of
the Warrant bid for or purchase the Common Stock of the Company or any
securities of the Company immediately convertible into or exchangeable for the
Common Stock (including the Warrants) or otherwise engage in any activity that
would be prohibited by Rule 10b-6 under the Securities Exchange Act of 1934, as
amended, with one engaged in a distribution of the Company's securities; and
(3) in connection with the solicitation, it disclosed the
compensation it would receive upon exercise of the Warrant.
Section 4. PAYMENT OF THE EXERCISE FEE. The Company hereby agrees to pay
over to VTR within two (2) business days after receipt by the Company of the
certificate described in Section 3(d) above, the Exercise Fee out of the
proceeds it received from the
2
<PAGE>
applicable Exercise Price paid for the Warrants to which the certificate
relates.
Section 5. INSPECTION OF RECORDS. VTR may at any time during business
hours, at its expense, examine the records of the Company and the Warrant Agent
which relate to the exercise of the Warrants.
Section 6. TERMINATION. VTR shall be entitled to terminate this
Agreement prior to the exercise of all Warrants at any time upon five (5)
business days' prior notice to the Company and the Warrant Agent.
Notwithstanding any such termination notice, VTR shall be entitled to receive an
Exercise Fee for the exercise of any Warrant for which it has already delivered
to the Company prior to any such termination the certificate required by Section
3(d) of this Agreement.
Section 7. NOTICES. Any notice or other communication required or
permitted to be given pursuant to this Agreement shall be in writing and shall
be deemed sufficiently given if sent by first class certified mail, return
receipt requested, postage prepaid, addressed as follows: if to the Company at
4450 Belden Village Street, N.W., Suite 406, Canton, OH 44718, copy to Michael
T. Greif, Esq., Hornsby, Sacher, Zelman, Stanton, Paul & Beiley, P.A., 1401
Brickell Avenue, Suite 700, Miami, FL 33131; if to VTR at 99 Wall Street, New
York, NY 10005; and if to the Warrant Agent at American Transfer & Trust
Company, 40 Wall Street, New York, New York 10005 or such other address as such
party shall have given notice to other parties hereto in accordance with this
Section. All such notices or other communications shall be deemed given three
(3) business days after mailing, as aforesaid.
Section 8. SUPPLEMENTS AND AMENDMENTS. The Company, the Warrant Agent
and VTR may from time-to-time supplement or amend this Agreement by a written
instrument signed by the party to be charged, without the approval of any
holders of Warrants in order to cure any ambiguity or to correct or supplement
any provisions contained herein or to make any other provisions in regard to
matters or questions arising hereunder which the Company, the Warrant Agent and
VTR may deem necessary or desirable and which do not adversely affect the
interests of the holders of Warrants.
Section 9. ASSIGNMENT. This Agreement may not be assigned by any party
without the express written approval of all other parties, except that VTR may
assign this Agreement to its successors.
Section 10. GOVERNING LAW. This Agreement will be deemed made under the
laws of the State of New York with respect to matters of contract law and for
all purposes shall be governed by and construed in accordance with the internal
laws of said State, without regard to the conflicts of laws provisions thereof.
Section 11. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall
be construed to give any person or corporation
3
<PAGE>
other than the Company, the Warrant Agent and VTR any legal or equitable right,
remedy or claim under this Agreement; and this Agreement shall be for the sole
and exclusive benefit of, and be binding upon, the Company, the Warrant Agent
and VTR and their respective successors and permitted assigns.
Section 12. DESCRIPTIVE HEADINGS. The descriptive headings of the
sections of this Agreement are inserted for convenience only and shall not
control or affect the meanings or construction of any of the provisions hereof.
Section 13. SUPERSEDING AGREEMENT. This Agreement supersedes any and all
prior agreements between the parties with respect to the subject matter hereof.
Section 14. EXCLUSIVE AGREEMENT. It is understood that this agreement is
on an exclusive basis to solicit the exercise of the Warrants and that the
Company may not engage other broker-dealers to solicit the exercise of Warrants
without the consent of VTR.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
KIDS STUFF, INC.
By:_______________________________________
VTR CAPITAL, INC.
By:_______________________________________
AMERICAN STOCK TRANSFER & TRUST CO.
By:_______________________________________
4
<PAGE>
CERTIFICATE
The undersigned, being the ________________ of VTR Capital, Inc. ("VTR")
pursuant to Section 3(d) of the Warrant Exercise Fee Agreement relating to the
exercise of Warrants dated ____________, 1997 between Kids Stuff, Inc. (the
"Company") and American Stock Transfer & Trust Co. (the "Warrant Agent") hereby
certifies that:
1. The Company or the Warrant Agent has notified VTR that ______________
Warrants (as defined in the Agreement) have been exercised during _____________,
199___.
2. The exercise of ______________ of such Warrants was solicited by
VTR.
3. Such Warrants were not held in a discretionary account.
4. ______________ did not, within _____ business days immediately
preceding _______________ 199___, bid for or purchase the Common Stock of the
Company or any securities of the Company immediately convertible into or
exchangeable for the Common Stock (including Warrants) or otherwise engage in
any activity that would be prohibited by Rule 10b-6 under the Securities
Exchange Act of 1934, as amended, to one engaged in a distribution of the
Company's securities.
5. In connection with the solicitation of the exercise of the
Warrants, _____________ disclosed the compensation it will receive to holders
of the Warrants.
DATED: __________________, 199___
VTR CAPITAL, INC.
By:_______________________________________
5
EXHIBIT 3.01
PAGE 1
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF "KIDS STUFF, INC.", FILED IN THIS OFFICE ON THE TWENTY-FOURTH
DAY OF JULY, A.D. 1996, AT 10 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS FOR RECORDING.
[GREAT SEAL OF THE STATE OF DELAWARE]
[1793-1847-1907]
/s/ Edward J. Freel
-----------------------------
Edward J. Freel, Secretary of State
2646548 8100 AUTHENTICATION: 8040428
960215263 DATE: 07-25-96
<PAGE>
CERTIFICATE OF INCORPORATION
OF KIDS STUFF, INC.
1. The name of the Corporation shall be Kids Stuff, Inc.
2. The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
3. The nature of the business to be conducted or promoted and
the purposes of the Corporation are:
To engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of Delaware.
To manufacture, purchase or otherwise acquire, invest in, own,
mortgage, pledge, sell, assign and transfer or otherwise dispose of, trade, deal
in and deal with goods, wares and merchandise and personal property of every
class and description.
To acquire, and pay for in cash, stock or bonds of this corporation or
otherwise, the good will, rights, assets and property, and to undertake or
assume the whole or any part of the obligations or liabilities of any person,
firm, association or corporation.
To acquire, hold, use, sell, assign, lease, grant licenses in respect
of, mortgage or otherwise dispose of letters patent of the United States or any
foreign country, patent rights, licenses and privileges, inventions,
improvements and processes, copyrights, trademarks and trade names, relating to
or useful in connection with any business of this corporation.
To acquire by purchase, subscription or otherwise, and to receive,
hold, own, guarantee, sell, assign, exchange, transfer, mortgage, pledge or
otherwise dispose of or deal in and with any of the shares of the capital stock,
or any voting stock certificates in respect of the shares of capital stock,
scrip, warrants, rights, bonds, debentures, notes, trust receipts, and other
securities, obligations, chooses in action and evidences of indebtedness or
interest issued or created by any corporations, joint stock companies,
syndicates, associations, firms, trusts or persons, public or private, or by the
government of the United States of America, or by any foreign government, or by
any state, territory, province, municipality or other political subdivision or
by any governmental agency, and as owner thereof to possess and exercise all the
rights, powers and privileges of ownership, including the right to execute
consents and vote thereon, and to do any and all acts and things necessary or
advisable for the preservation, protection, improvement and enhancement in value
thereof.
<PAGE>
To borrow or raise money for any of the purposes of the corporation
and, from time to time without limit as to amount, to draw, make, accept,
endorse, execute and issue promissory notes, drafts, bills of exchange,
warrants, bonds, debentures and other negotiable or non-negotiable instruments
and evidences of indebtedness, and to secure the payment of any thereof and of
the interest thereon by mortgage upon or pledge, conveyance or assignment in
trust of the whole or any part of the property of the corporation, whether at
the time owned or thereafter acquired, and to sell, pledge or otherwise dispose
of such bonds or other obligations of the corporation for its corporate
purposes.
To purchase, receive, take by grant, gift, devise, bequest or
otherwise, lease, or otherwise acquire, own, hold, improve, employ, use and
otherwise deal in and with real or personal property, or any interest therein,
wherever situated, and to sell, convey, lease, exchange, transfer or otherwise
dispose of, or mortgage or pledge, all or any of the corporation's property and
assets, or any interest therein, wherever situated.
In general, to possess and exercise all the powers and privileges
granted by the General Corporation Law of Delaware or by any other law of
Delaware or by this Certificate of Incorporation together with any powers
incidental thereto, so far as such powers and privileges are necessary or
convenient to the conduct, promotion or attainment of the business or purposes
of the corporation.
The business and purposes specified in the foregoing clauses shall,
except where otherwise expressed, be in nowise limited or restricted by
reference to, or inference from, the terms of any other clause in this
Certificate of Incorporation, but the business and purposes specified in each of
the foregoing clauses of this article shall be regarded as independent business
and purposes.
4. The total number of shares of all classes of capital stock which the
Corporation has the authority to issue is Twenty Million (20,000,000) shares
consisting of the following classes:
(a) Ten Million (10,000,000) shares of serial Preference Stock,
$.001 par value, issuable in series, hereinafter called "Series
Preference Stock"; and
2
<PAGE>
(b) Ten Million (10,000,000) common shares, $.001 par value.
The designations, voting powers, preferences and relative priority,
participating, option or other special rights, and qualifications, limitations
or restrictions of the above classes of stock are as follows:
DIVISION A
EXPRESS TERMS OF THE
SERIAL PREFERENCE STOCK
SECTION 1. The Serial Preference Stock may be issued from time to time
in one or more series. All shares of Serial Preference Stock shall be of equal
rank and shall be identical, except in respect of the matters that may be fixed
by the Board of Directors as hereinafter provided, and each share of each series
shall be identical with all other shares of such series, except as to the date
from which dividends are cumulative. Subject to the provisions of Sections 2 to
8, both inclusive, of this Division, which provisions shall apply to all Serial
Preference Stock, the Board of Directors hereby is authorized to cause such
shares to be issued in one or more series and with respect to each such series
prior to the issuance thereof to fix:
(a) The designation of the series, which may be by distinguishing
number, letter or title;
(b) The number of shares of the series, which number the Board of
Directors may (except where otherwise provided in the creation of the series)
increase and decrease (but not below the number of shares thereof then
outstanding);
(c) The annual dividend rate of the series and the date from which
dividends shall be cumulative;
(d) The dates which dividends, if declared, shall be payable;
(e) The redemption rights and price or prices, if any, for shares
of the series;
(f) The terms and amount of any sinking fund provided for the
purchase or redemption of shares of the series;
(g) The amounts payable on shares of the series in the event of
any voluntary or involuntary dissolution, liquidation or winding up of the
business and affairs of the corporation;
3
<PAGE>
(h) Whether the shares of a series are convertible into the shares of
any other series or other class of shares, and, if so, the conversion price or
prices, any adjustments thereof, and all other terms and conditions upon which
such conversion may be made;
(i) Restrictions on the issuance of shares of the same series or
any other class or series;
(j) The voting rights of any shares in any series.
The Board of Directors is authorized to adopt, from time to time,
amendments to the Articles of Incorporation fixing, with respect to each such
series, the matters described in clauses (a) through (j), inclusive of this
Section 1.
SECTION 2. Nothing in clause (a) through (i), inclusive, of Section 1
above, shall be construed to require the Board of Directors to fix any
particular terms with respect to a series of shares.
SECTION 3. The Holders of Serial Preference Stock of each series, in
preference to the holders of Common Stock, shall be entitled to receive out of
any funds legally available, and when and as declared by the Board of Directors,
dividends in cash or property at the rate for such series fixed in accordance
with the provisions of Section 1 of this Division and no more, payable on the
dates fixed for such series. No dividends may be paid upon or declared or set
apart for any of the Serial Preference Stock for any dividend period, unless at
the same time a like proportionate dividend for the same dividend period, in
proportion to the respective dividend rates fixed therefor, shall be paid upon
or declared or set apart for all Serial Preference Stock of all series then
issued and outstanding and entitled to receive such dividends.
SECTION 4. In no event so long as any Serial Preference stock shall be
outstanding shall any dividends in excess of $.05 per share per year, except
payable in Common Stock or other shares ranking junior to the Serial Preference
Stock, be paid or declared or any distribution be made except as aforesaid on
the Common Stock or any other shares ranking junior to the Serial Preference
Stock, nor shall any Common Stock or any other shares ranking junior to the
Serial Preference Stock be purchased, retired or otherwise required by the
corporation (except out of the proceeds of the sale of Common stock or other
shares ranking junior to the Serial Preference Stock received by the
Corporation):
(a) Unless all accrued and unpaid dividends on Serial Preference stock,
including the full dividends for the current quarterly dividend period, shall
have been declared and paid or a sum sufficient for payment thereof set apart;
and
(b) Unless there shall be no arrearages with respect to the redemption
of Serial Preference stock of any series or any sinking fund provided for shares
of such series in accordance with the provisions of Section 1 of this Division.
4
<PAGE>
SECTION 5. (a) Subject to the express terms of each series and to the
provisions of Section 7(b)(iv) of this Division, the corporation may from time
to time redeem all or any part of the Serial Preference Stock of any series at
the time outstanding (i) at the option of the Board of Directors at the
applicable redemption price for such series fixed in accordance with the
provisions of Section 1 of this Division, or (ii) in fulfillment of the
requirements of any sinking fund provided for shares of such series at the
applicable sinking fund redemption price fixed in accordance with the provisions
of Section 1 of this Division; together in each case with an amount equal to all
dividends accrued and unpaid thereon (whether or not such dividends shall have
been earned or declared) to the redemption date.
(b) Notice of every such redemption shall be mailed, postage prepaid to
the holders of record of the Serial Preference Stock to be redeemed at their
respective addresses then appearing on the books of the corporation, not less
than thirty (30) days nor more than sixty (60) days prior to the date fixed for
such redemption. At any time before or after notice has been given as above
provided the corporation may segregate on its books an amount equal to the
aggregate redemption price of the shares of Serial Preference Stock to be
redeemed for the purpose of such redemption. Upon the making of such segregation
such holders shall cease to be shareholders with respect to such shares, and
after such notice shall have been given and such deposit shall have been made,
such holders shall have no interest in or claim against the corporation with
respect to such shares except only to receive such money without interest or the
right to exercise, before the redemption date, any unexpired privileges of
conversion. In case less than all of the outstanding shares of Serial Preference
Stock are to be redeemed, the corporation shall select pro rata or by lot the
shares so to be redeemed in such manner as shall be prescribed by its Board of
Directors.
If the holders of shares of Serial Preference Stock which shall have
been called for redemption shall not, within six years after such segregation,
claim the amount due for the redemption thereof, the corporation shall be
relieved of all responsibility in respect thereof and to such holders.
(c) Any shares of Serial Preference Stock which are redeemed by the
corporation pursuant to the provisions of this Section 5 and any shares of
Serial Preference Stock which are purchased and delivered in satisfaction of any
sinking fund requirements provided for shares of such series and any shares of
Serial Preference Stock which are converted in accordance with the express terms
thereof shall be deemed retired.
SECTION 6. (a) The holders of Serial Preference Stock of all
outstanding series shall, in case of voluntary liquidation, dissolution or
winding up of the business and affairs of the corporation, be entitled to
receive in full, out of the assets of the corporation, including capital, before
any amount shall be paid or
5
<PAGE>
distributed among the holders of any other shares ranking junior to the Serial
Preference Stock, the amounts fixed with respect to the shares in accordance
with Section 1 of this Division. In case the net assets of the corporation
legally available therefor are insufficient to permit the payment upon all
outstanding shares of Serial Preference Stock of the full preferential amount to
which they are respectively entitled, then such net assets shall be distributed
ratably upon outstanding shares of Serial Preference Stock in proportion to the
full preferential amount to which each such share is entitled.
After payment to holders of Serial Preference Stock of the full
preferential amounts as aforesaid, holders of Serial Preference Stock as such
shall have no right or claim to any of the remaining assets of the corporation.
In case of involuntary liquidation, involuntary dissolution or
involuntary winding up of the affairs of the corporation, the holders of Serial
Preference Stock shall, as such holders, (except with respect to any series as
to which the Board of Directors shall have otherwise provided pursuant to
Section 1(g) of this Division, and solely to the extent of such provisions)
receive distribution of the assets of the corporation ratably with the holders
of shares of all other classes share for share, without distinction by reason of
class.
(b) The merger or consolidation of the corporation into or with any
other corporation, or the merger of any other corporation into it, or the sale,
lease or conveyance of all or substantially all of the property or business of
the corporation, shall not be deemed to be a dissolution, liquidation or winding
up, voluntary or involuntary, for the purposes of this Section 6.
SECTION 7. The holders of Serial Preference Stock shall be entitled to
one vote for each share of such stock on all matters presented to the
shareholders, except as otherwise provided herein or required by law.
SECTION 8. For the purpose of this Division B:
Whenever reference is made to shares "ranking prior to the Serial
Preference Stock" or "on a parity with the Serial Preference Stock," such
reference shall mean and include all shares of the corporation in respect of
which the rights of the holders thereof as to the payment of dividends or as to
distributions in the event of a voluntary liquidation, dissolution, or winding
up of the affairs of the corporation are given preference over or rank equally
with (as the case may be) the rights of the holders of Serial Preference Stock;
and whenever reference is made to shares "ranking junior to the Serial
Preference Stock," such reference shall mean and include all shares of the
corporation in respect of which the rights of the holders hereof as to the
payment of dividends and as to distributions in the event of a voluntary
liquidation, dissolution, or winding up of the affairs of the corporation are
junior and subordinate to the rights of the holders of Serial
6
<PAGE>
Preference Stock.
DIVISION B
EXPRESS TERMS OF THE COMMON STOCK
The Common Stock shall be subject to the express terms of the Serial
Preference Stock, and each series thereof. Each share of Common Stock shall be
equal to every other share of Common Stock. The holders of shares of Common
Stock shall be entitled to one vote for each share of such stock upon all
matters presented to the shareholders.
5. The name and mailing address of each incorporator is as
follows:
NAME MAILING ADDRESS
---- ---------------
David G. LeGrand 175 South Third Street
Columbus, Ohio 43215
The name and mailing address of each person who is to serve as a
director until the first annual meeting of the stockholders or until a successor
is elected and qualified, is as follows:
NAME MAILING ADDRESS
---- ---------------
William L. Miller 7245 Whipple Ave.,N.W.
North Canton, Ohio 44720
Jeannie Miller 7245 Whipple Ave., N.W.
North Canton, Ohio 44720
Clark Swisher 7245 Whipple Ave., N.W.
North Canton, Ohio 44720
6. The corporation is to have perpetual existence.
7. In furtherance and not in limitation of the powers conferred
by statute, the board of directors is expressly authorized:
To make, alter or repeal the by-laws of the corporation.
To authorize and cause to be executed mortgages and liens upon
the real and personal property of the corporation.
To set apart out of any of the funds in the corporation
available for dividends a reserve or reserves for any proper purpose and to
abolish any such reserve in the manner in
7
<PAGE>
which it was created.
By a majority of the whole board, to designate one or more
committees, each committee to consist of one or more of the directors of the
corporation. The board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. The by-laws may provide that in the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the board of
directors to act at the meeting in the place of any such absent or disqualified
member. Any such committee, to the extent provided in the resolution of the
board of directors, or in the by-laws of the corporation, shall have and may
exercise all the powers and authority of the board of directors in the
management of the business and affairs of the corporation, and may authorize the
seal of the corporation to be affixed to all papers which may require it; but no
such committee shall have the power or authority in reference to amending the
Certificate of Incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the corporation's property and assets, recommending to the
stockholders a dissolution of the corporation or a revocation of a dissolution,
or amending the by-laws of the corporation; and, unless the resolution or
by-laws expressly so provide, no such committee shall have the power or
authority to declare a dividend or to authorize the issuance of stock.
When and as authorized by the stockholders in accordance with
law, to sell, lease or exchange all or substantially all of the property and
assets of the corporation, including its good will and its corporate franchises,
upon such terms and conditions and for such consideration, which may consist in
whole or in part of money or property including shares of stock in, and/or other
securities of, any other corporation or corporations, as its board of directors
shall deem expedient and for the best interests of the corporation.
8. Elections of directors need not be by written ballot unless
the by-laws of the corporation shall so provide.
Meetings of stockholders may be held within or without the
State of Delaware, as the by-laws may provide. The books of the corporation may
be kept (subject to any provisions contained in the statutes) outside the State
of Delaware at such place or places as may be designated from time to time by
the board of directors or in the by-laws of the corporation.
Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
8
<PAGE>
the stockholders or class of stockholders of this corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and said reorganization shall,
if sanctioned by the court to which the said application has been made, be
binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this corporation, as the case may be,
and also on this corporation.
9. The corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
10. A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omission not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived any improper
personal benefit.
WE, THE UNDERSIGNED, being the incorporators hereinbefore named, for
the purpose of forming a corporation pursuant to the General Corporation Law of
the State of Delaware, do make this Certificate, hereby declaring and certifying
that this is our act and deed and the facts herein stated are true, and
accordingly have hereunto set our hands this 24th day of July, 1996.
/S/ DAVID G. LEGRAND, INCORPORATOR
- ----------------------------------
David G. LeGrand, Incorporator
/S/ JAMES J. VINCH, INCORPORATOR
- --------------------------------
James J. Vinch, Incorporator
9
EXHIBIT 3.02
PAGE 1
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "KIDS STUFF, INC.", FILED IN THIS OFFICE ON THE TWENTY-SECOND
DAY OF AUGUST, A.D. 1996, AT 3 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS FOR RECORDING.
[GREAT SEAL OF THE STATE OF DELAWARE]
[1793-1847-1907]
/s/ Edward J. Freel
-----------------------------
Edward J. Freel, Secretary of State
2646548 8100 AUTHENTICATION: 8081552
960246383 DATE: 08-26-96
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
BEFORE PAYMENT OF CAPITAL
OF
KIDS STUFF, INC.
We, the undersigned, being all of the directors of Kids Stuff, Inc., a
corporation organized and existing under and by virtue of the General
Corporation Law of the State of Delaware,
DO HEREBY CERTIFY:
FIRST: That Article Fourth of the Certificate of Incorporation be and it
hereby is amended to read as follows:
The total number of shares of all classes of capital stock which the
Corporation has the authority to issue is Thirty Five Million (35,000,000)
shares consisting of the following classes:
(a) Ten Million (10,000,000) shares of serial Preference Stock, $.001
par value, issuable in series, hereinafter called "Series Preference
Stock"; and
(b) Twenty Five Million (25,000,000) common shares, $.001 par value.
The designations, voting powers, preferences and relative priority,
participating, option or other special rights, and qualifications, limitations
or restrictions of the above classes of stock are as follows:
DIVISION A
EXPRESS TERMS OF THE
SERIAL PREFERENCE STOCK
SECTION 1. The Serial Preference Stock may be issued from time to time
in one or more series. All shares of Serial Preference Stock shall be of equal
rank and shall be identical, except in respect of the matters that may be fixed
by the Board of Directors as hereinafter provided, and each share of each series
shall be identical with all other shares of such series, except as to the date
from which dividends are cumulative. Subject to the provisions of Sections 2 to
8, both inclusive, of this Division, which provisions shall apply to all Serial
Preference Stock, the Board of Directors hereby is authorized to cause such
shares to be issued in one or more series and with respect to each such series
prior to the issuance thereof to fix:
(a) The designation of the series, which may be by distinguishing
number, letter or title;
(b) The number of shares of the series, which number the Board of
<PAGE>
Directors may (except where otherwise provided in the creation of the
series) increase and decrease (but not below the number of shares thereof
then outstanding);
(c) The annual dividend rate of the series and the date from which
dividends shall be cumulative;
(d) The dates which dividends, if declared, shall be payable;
(e) The redemption rights and price or prices, if any, for shares of the
series;
(f) The terms and amount of any sinking fund provided for the purchase
or redemption of shares of the series;
(g) The amounts payable on shares of the series in the event of any
voluntary or involuntary dissolution, liquidation or winding up of the
business and affairs of the corporation;
(h) Whether the shares of a series are convertible into the shares of
any other series or other class of shares, and, if so, the conversion price
or prices, any adjustments thereof, and all other terms and conditions upon
which such conversion may be made;
(i) Restrictions on the issuance of shares of the same series or any
other class or series;
(j) The voting rights of any shares in any series.
The Board of Directors is authorized to adopt, from time to time,
amendments to the Articles of Incorporation fixing, with respect to each such
series, the matters described in clauses (a) through (j), inclusive of this
Section 1.
SECTION 2. Nothing in clause (a) through (i), inclusive, of Section 1
above, shall be construed to require the Board of Directors to fix any
particular terms with respect to a series of shares.
SECTION 3. The Holders of Serial Preference Stock of each series, in
preference to the holders of Common Stock, shall be entitled to receive out of
any funds legally available, and when and as declared by the Board of Directors,
dividends in cash or property at the rate for such series fixed in accordance
with the provisions of Section 1 of this Division and no more, payable on the
dates fixed for such series. No dividends may be paid upon or declared or set
apart for any of the Serial Preference Stock for any dividend period, unless at
the same time a like proportionate dividend for the same dividend period, in
proportion to the respective dividend rates fixed therefor, shall be paid upon
or declared or set apart for all Serial Preference Stock of all series then
issued and outstanding and entitled to receive such dividends.
<PAGE>
SECTION 4. In no event so long as any Serial Preference stock shall be
outstanding shall any dividends in excess of $.05 per share per year, except
payable in Common Stock or other shares ranking junior to the Serial Preference
Stock, be paid or declared or any distribution be made except as aforesaid on
the Common Stock or any other shares ranking junior to the Serial Preference
Stock, nor shall any Common Stock or any other shares ranking junior to the
Serial Preference Stock be purchased, retired or otherwise required by the
corporation (except out of the proceeds of the sale of Common stock or other
shares ranking junior to the Serial Preference Stock received by the
Corporation):
(a) Unless all accrued and unpaid dividends on Serial Preference stock,
including the full dividends for the current quarterly dividend period,
shall have been declared and paid or a sum sufficient for payment thereof
set apart; and
(b) Unless there shall be no arrearages with respect to the redemption
of Serial Preference stock of any series or any sinking fund provided for
shares of such series in accordance with the provisions of Section 1 of this
Division.
SECTION 5. (a) Subject to the express terms of each series and to the
provisions of Section 7(b)(iv) of this Division, the corporation may from
time to time redeem all or any part of the Serial Preference Stock of any
series at the time outstanding (i) at the option of the Board of Directors
at the applicable redemption price for such series fixed in accordance with
the provisions of Section 1 of this Division, or (ii) in fulfillment of the
requirements of any sinking fund provided for shares of such series at the
applicable sinking fund redemption price fixed in accordance with the
provisions of Section 1 of this Division; together in each case with an
amount equal to all dividends accrued and unpaid thereon (whether or not
such dividends shall have been earned or declared) to the redemption date.
(b) Notice of every such redemption shall be mailed, postage prepaid to
the holders of record of the Serial Preference Stock to be redeemed at their
respective addresses then appearing on the books of the corporation, not
less than thirty (30) days nor more than sixty (60) days prior to the date
fixed for such redemption. At any time before or after notice has been given
as above provided the corporation may segregate on its books an amount equal
to the aggregate redemption price of the shares of Serial Preference Stock
to be redeemed for the purpose of such redemption. Upon the making of such
segregation such holders shall cease to be shareholders with respect to such
shares, and after such notice shall have been given and such deposit shall
have been made, such holders shall have no interest in or claim against the
corporation with respect to such shares except only to receive such money
without interest or the right to exercise, before the redemption date, any
unexpired privileges of conversion. In case less than all of the outstanding
shares of Serial Preference Stock are to be redeemed, the corporation shall
select pro rata or by lot the shares so to be redeemed in such manner as
shall be prescribed by its Board of Directors.
If the holders of shares of Serial Preference Stock which shall have
been
<PAGE>
called for redemption shall not, within six years after such segregation,
claim the amount due for the redemption thereof, the corporation shall be
relieved of all responsibility in respect thereof and to such holders.
(c) Any shares of Serial Preference Stock which are redeemed by the
corporation pursuant to the provisions of this Section 5 and any shares of
Serial Preference Stock which are purchased and delivered in satisfaction of
any sinking fund requirements provided for shares of such series and any
shares of Serial Preference Stock which are converted in accordance with the
express terms thereof shall be deemed retired.
SECTION 6. (a) The holders of Serial Preference Stock of all outstanding
series shall, in case of voluntary liquidation, dissolution or winding up of
the business and affairs of the corporation, be entitled to receive in full,
out of the assets of the corporation, including capital, before any amount
shall be paid or distributed among the holders of any other shares ranking
junior to the Serial Preference Stock, the amounts fixed with respect to the
shares in accordance with Section 1 of this Division. In case the net assets
of the corporation legally available therefor are insufficient to permit the
payment upon all outstanding shares of Serial Preference Stock of the full
preferential amount to which they are respectively entitled, then such net
assets shall be distributed ratably upon outstanding shares of Serial
Preference Stock in proportion to the full preferential amount to which each
such share is entitled.
After payment to holders of Serial Preference Stock of the full
preferential amounts as aforesaid, holders of Serial Preference Stock as
such shall have no right or claim to any of the remaining assets of the
corporation.
In case of involuntary liquidation, involuntary dissolution or
involuntary winding up of the affairs of the corporation, the holders of
Serial Preference Stock shall, as such holders, (except with respect to any
series as to which the Board of Directors shall have otherwise provided
pursuant to Section 1(g) of this Division, and solely to the extent of such
provisions) receive distribution of the assets of the corporation ratably
with the holders of shares of all other classes share for share, without
distinction by reason of class.
(b) The merger or consolidation of the corporation into or with any
other corporation, or the merger of any other corporation into it, or the
sale, lease or conveyance of all or substantially all of the property or
business of the corporation, shall not be deemed to be a dissolution,
liquidation or winding up, voluntary or involuntary, for the purposes of
this Section 6.
SECTION 7. The holders of Serial Preference Stock shall be entitled to
one vote for each share of such stock on all matters presented to the
shareholders,
<PAGE>
except as otherwise provided herein or required by law.
SECTION 8. For the purpose of this Division B:
Whenever reference is made to shares "ranking prior to the Serial
Preference Stock" or "on a parity with the Serial Preference Stock," such
reference shall mean and include all shares of the corporation in respect of
which the rights of the holders thereof as to the payment of dividends or as to
distributions in the event of a voluntary liquidation, dissolution, or winding
up of the affairs of the corporation are given preference over or rank equally
with (as the case may be) the rights of the holders of Serial Preference Stock;
and whenever reference is made to shares "ranking junior to the Serial
Preference Stock," such reference shall mean and include all shares of the
corporation in respect of which the rights of the holders hereof as to the
payment of dividends and as to distributions in the event of a voluntary
liquidation, dissolution, or winding up of the affairs of the corporation are
junior and subordinate to the rights of the holders of Serial Preference Stock.
DIVISION B
EXPRESS TERMS OF THE COMMON STOCK
The Common Stock shall be subject to the express terms of the Serial
Preference Stock, and each series thereof. Each share of Common Stock shall be
equal to every other share of Common Stock. The holders of shares of Common
Stock shall be entitled to one vote for each share of such stock upon all
matters presented to the shareholders.
SECOND: That the corporation has not received any payment for any of its
stock.
THIRD: That the amendment was duly adopted in accordance with the
provisions of section 241 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, we have signed this certificate this 21st day of
August, 1996.
/S/ WILLIAM L. MILLER
----------------------------
William L. Miller
/S/ JEANNIE MILLER
----------------------------
Jeannie Miller
/S/ CLARK SWISHER
----------------------------
Clark Swisher
EXHIBIT 3.03
KIDS STUFF, INC.
B Y L A W S
ARTICLE I
OFFICES
Section 1. The registered office shall be in the City of Wilmington,
County of New Castle, State of Delaware.
Section 2. The corporation may also have offices at such other places both
within and without the State of Delaware as the board of directors may from time
to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of directors shall
be held in the City of Columbus, State of Ohio, at such place as may be fixed
from time to time by the board of directors, or at such other place either
within or without the State of Delaware as shall be designated from time to time
by the board of directors and stated in the notice of the meeting. Meetings of
stockholders for any other purpose may be held at such time and place, within or
without the State of Delaware, as shall be stated in the notice of the meeting
or in a duly executed waiver of notice thereof.
Section 2. Annual meetings of stockholders, commencing with the uear 1997,
shall be held on the 20th day of June, if not a legal holiday, and if a legal
holiday, then on the next secular day following, at 10:00 A.M., or at such other
date and time as shall
<PAGE>
be designated from time to time by the board of directors and stated in the
notice of the meeting, at which they shall elect by a plurality vote a board of
directors, and transact such other business as may properly be brought before
the meeting.
Section 3. Written notice of the annual meeting stating the place, date
and hou of the meeting shall be given to each stockholder entitled to vote at
such meeting not less than 10 nor more than 60 days before the date of the
meeting.
Section 4. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in th name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
Section 5. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, ma be called by the president and shall be called by the
president or secretary at the request in writing of a majority of the board of
directors, or at the request in writing of stockholders owning a majority in
amount of the entire capital stock of the corporation issued and outstanding and
entitled to vote. Such request shall state the purpose or purposes of the
proposed meeting.
2
<PAGE>
Section 6. Business transacted at any special meeting of stockholders
shall be l mited to the purposes stated in the notice.
Section 7. The holders of a majority of the stock issued and outstanding
and entitled to vote thereat, present IN person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum shall not be present or represented at
any meeting of the stockholders, the stockholde s entitled to vote thereat,
present in person or represented by proxy, shall have power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted which might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
Section 8. When a quorum IS present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provis on of the statutes or of
the certificate of incorporation, a different vote is required 'n which case
such express provision shall govern and control the decision of such question.
Section 9. Unless otherwise provided in the certificate of incorporation
each stockholder shall at every eeting of the stockholders be entitled to one
vote in person or by proxy for each share of the capital stock having voting
power held by such
3
<PAGE>
stockholder, but no proxy shall be voted on after three years from its date,
unless the proxy provides for a longer period.
Section 10. Unless otherwise provided in the certificate of incorporation,
any action required to be taken at any annual or special meeting of stockholders
of the corporation, or any action which may be taken at any annual or special
meeting of such stockholders, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted. Prompt notice of the taking of the corporate action without a meeting
by less than unanimous written consent shall be given to those stockholders who
have not consented in writing.
ARTICLE III
DIRECTORS
Section 1. The number of directors which shall constitute the whole board
shall be not less than 2 nor more than 7. The first board shall consist of 3
directors. Thereafter, within the limits above specified, the number of
directors sh ll be determined by resolution of the board of directors or by the
stockholders at the annual meeting. The directors shall be elected at the annual
meeting of the stockholders, except as provided in Section 2 of this Article,
and each director elected shall hold office until his successor is elected and
qualified. Directors need not be stockholders.
Section 2. Vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then
4
<PAGE>
in office, though less than a quorum, or by a sole remaining director, and the
directors so chosen shall hold office until the next annual election and until
their successors are duly elected and shall qualify, unless sooner displaced. If
there are no directors in office, then an election of directors may be held in
the manner provided by statute. If, at the time of filling any vacancy or any
newly created directorship, the directors then in office shall constitute less
than a majority of the whole board (as constituted immediately prior to any such
increase), the Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten percent of the total number of the shares at
the time outstanding having the right to vote for such directors, summarily
order an election to be held to fill any such vacancies or newly created
directorships, or to replace the directors chosen by the directors then in
office.
Section 3. The business of the corporation shall be managed by or under
the direction of its board of directors which may exercise all such powers of
the corporation and do all such lawful acts and things as are not by statute or
by the certificate of incorporation or by these bylaws directed or required to
be exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 4. The board of directors of the corporation may hold meetings,
both regular and special, either within or without the State of Delaware.
Section 5. The first meeting of each newly elected board of directors
shall be eld at such time and place as shall be fixed by the vote of the
stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure of the
stockholders to fix the time or place of such first meeting of the newly elected
board of
5
<PAGE>
directors, or in the event such meeting is not held at the time and
place so fixed by the stockholders, the meeting may be held at such time and
place as shall be specified in a notice given as hereinafter provided for
special meetings of the board of directors, or as shall be specified in a
written waiver signed by all of the directors.
Section 6. Regular meetings of the board of directors may be held without
notice at such time and at such place as shall from time to time be determined
by the board.
Section 7. Special meetings of the board may be called by the president o
I days' notice to each director, either personally or by mail or by facsimile
communication; special meetings shall be called by the president or secretary in
like manner and on like notice on the written request of two directors unless
the board consists of only one director; in which case special meetings shall be
called by the president or secretary in like manner and on like notice on the
written request of the sole director.
Section 8. At all meetings of the board, a majority of directors shall
constitute a quorum for the transaction of business and the act of a majority of
the directors present at any meeting at which there is a quorum shall be the act
of the board of directors, except as may be otherwise specifically provided by
statute or by the certificate of incorporation. If a quorum shall not be present
at any meeting of the board of directors the directors present thereat may
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present.
Section 9. Unless otherwise restricted by the certificate of incorporation
or these bylaws, any action required or permitted to be taken at any meeting of
the board of directors or of any committee thereof may be taken without a
meeting, if all members of the board r committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the board or committee.
6
<PAGE>
Section 10. Unless otherwise restricted by the certificate of
incorporation or these bylaws, members of the board of directors, or any
committee designated by the board of directors, may participate in a meeting of
the board of directors, or any committee, by means of conference telephone or
similar communications equipment by means of w ich all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
COMMITTEES OF DIRECTORS
Section II. The board of directors may, by resolution passed by a majority
of the whole board, designate one or more committees, each committee to consist
of one or more of the directors of the co poration. The board may designate one
or more directors as alternate members of any committee, who may replace any
absent or disqualified member at any meeting of the committee.
In the absence or disqualification of a member of a committee, the member
or members thereof present at any meeting and not disqualified from voting,
whether or not he or they constitute a quorum, may unanimously appoint another
member of the board of directors to act at the meeting in the place of any such
absent or isqualified member.
Any such committee, to the extent provided in the resolution of the board
of directors, shall have and may exercise all the powers and authority of the
board of directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to amending the certificate of incorporation, (except
that a
7
<PAGE>
committee may, o the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the board of directors
as provided in Section 15 1 (a) of the General Corporation Law of Delaware fix
any of the preferences or rights of such shares relating to dividends,
redemption, dissolution, any distribution of assets of the corporation or the
conversion into, or the exchange of such shares for, shares of any other class
or classes or any other series of the same or any other class or classes of
stock of the corporation) adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the corporation's property and assets, recommending to the
stockholders a dissolution of the corporation or a revocation of a dissolution,
or amending the bylaws of the corporation; and, unless the resolution or the
certificate of incorporation expressly so provides, no such committee shall have
the power or authority to declare a dividend or to authorize the issuance of
stock or to adopt a certificate of ownership and merger. Such committee or
committees shall have such name or names as may be determined from time to time
by resolution adopted by the board of directors.
Section 12. Each committee shall keep regular minutes of its meetings and
report the same to the board of directors when required.
COMPENSATION OF DIRECTORS
Section 13. Unless otherwise restricted by the certificate of
incorporation or these bylaws, the board of directors shall have the authority
to fix the compensation of directors. The directors may be paid their expenses,
if any, of attendance at each meeting of the board of directors and may be paid
a fixed sum for attendance at each meeting of the board of directors
8
<PAGE>
or a stated salary as director. No such payment shall preclude any director
from serving the corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
REMOVAL OF DIRECTORS
Section 14. Unless otherwise restricted by the certificate of
incorporation or by law, any director or the entire board of directors may be
removed, with or without cause, by the holders of a majority of shares entitled
to vote at an election of directors.
ARTICLE IV
NOTICES
Section 1. Whenever, under the provisions of the statutes or of the
certificate of incorporation or of these bylaws, notice is required to be given
to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder, at his address as IT appears on the records of the
corporation, with postage there n prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to directors may also be given by facsimile telecommunication.
Section 2. Whenever any notice is required to be given under the
provisions of the statutes or of the certificate of incorporation or of these
bylaws, a waiver thereof in writing, signed by the person or persons entitled to
said notice, whether before or after the time stated therein, shall be deeme
equivalent thereto.
9
<PAGE>
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be chosen by the board of
directors and shall be a president, a vice-president, a secretary and a
treasurer. The board of direc ors may also choose additional vice-presidents,
and one or more assistant vice presidents, assistant secretaries and assistant
treasurers. Any number of offices may be held by the same person, unless the
certificate of incorporation or these bylaws otherwise provide.
Section 2. The board of directors at its first meeting after each annual
meeting of stockholders shall choose a president, one or more vice-presidents, a
secretary and a treasurer.
Sec ion 3. The board of directors may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the board.
Section 4. The salaries of all officers and agents of the corporation
shall be fixed by the board of directors.
Section 5. The officers of the corporation shall hold office until their
successors are chosen and qualify. Any office elected or appointed by the board
of directors may be removed at any time by the affirmative vote of a majority of
the board of directors. Any vacancy occurring IN any office of the corporation
shall be filled by the board of directors.
THE PRESIDENT OR CHIEF EXECUTIVE OFFICER
Section 6. The president, or in the alternative, the chief executive
officer, shall be the chief executive officer of the corporation, shall preside
at all meetings of the stockholders and the board of directors, shall have
general and active management of the business of the corporation and shall see
that all orders and resolutions of the board of directors are carried
10
<PAGE>
into effect. In the event the Directors designate a chief execut ve officer, he
shall have all of the rights, duties, privileges and obligations set forth
herein as if he were titled "president".
Section 7. He shall execute bonds, mortgages and other contracts requiring
a seal, under the seal of the corporation, except where required or permitted by
law to be otherwise signed and executed and except where the signing and
execution thereof shall be expressly delegated by the board of directors to some
other officer or ag nt of the corporation.
THE VICE-PRESIDENTS
Section 8. In the absence of the president or in the event of his
inability or refusal to act, the vice-president (or in the event there be more
than one vice-president, the vice-presidents in the order designated by the
directors, or in the absence of any designation, then in the order of their
election) shall perform the duties of the president, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
president. The vice-presidents shall perform such other duties and have such
other powers as the board of directors may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARY
Section 9. The secretary shall attend all meetings of the board of
directors and all meetings of the stockholders and record all the proceedings of
the meetings of the corporation and of the board of directors in a book to be
kept for that purpose an shall perform like duties for the standing committees
when required. He shall give, or cause to be given, notice
11
<PAGE>
of all meetings of the stockholders and special meetings of the board of
directors, and shall perform such other duties as may be prescribed by the board
of directors or president, under whose supervision he shall be. He shall have
custody of the corporate seal of the corporation and he, or an assistant
secretary, shall have authority to affix the same to any instrument requiring it
and when so affixed, it may be attested by his signature or by the signature of
such assistant secretary. The board of directors may give general authority to
any other officer to affix the seal of the corporation and to attest the
affixing by his signature.
Section 10. The assistant secretary, or if there be more than one, the
assistant secretaries in the order determined by the board of directors (or if
there be no such determination, then in the order of their electi n) shall, in
the absence of the secretary or in the event of his inability or refusal to act,
perform the duties and exercise the powers of the secretary and shall perform
such other duties and have such other powers as the board of directors may from
time to time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
Section II. The treasurer shall have the custody of the corporate funds
and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the board of directors.
Section 12. He shall disburse the funds o the corporation as may be
ordered by the board of directors, taking proper vouchers for such
disbursements, and shall render to the president and the board of directors, at
its regular meetings, or when the board of directors so requires, an account of
all his transactions as treasurer and of the financial condition of the
corporation.
12
<PAGE>
Section 13. If required by the board of directors, he shall give the
corporation a bond (which shall be renewed every six years) in such sum and with
such sur ty or sureties as shall be satisfactory to the board of directors for
the faithful performance of the duties of his office and for the restoration to
the corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the corporation.
Section 14. The assistant treasurer, or if there shall be more than one,
the assistant treasurers in the order determined by the board of directors (or
if there be no such determination, then in the order of their election) shall,
in the absence of the treasurer or IN the event of his inability or refusal to
act, perform the duties and exercise the powers of the treasurer and shall
perform such other duties and have such other powers as the board of directors
may from time to time prescribe.
ARTICLE VI
CERTIFICATES FOR SHARES
Section 1. The shares of the corporation shall be represented by a
certificate or shall be uncertificated. Certificates shall be assigned by, or in
the name of the corporation by, the chairman or vice-chairman of the board of
directors, or the president or a vice-president, and by the treasurer or an
assistant treasurer, or the secretary or an assistant secretary of the
corporation.
13
<PAGE>
Section 2. Any of or all the signatures on a certificate may be facsimile.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the corporation with the same effect as if he were such
officer, transfer agent or registrar at the date of issue.
LOST CERTIFICATES
Section 3. The board of directors may direct a new certificate or certificates
or uncertificated shares to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates or uncertificated
shares, the board of directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate or certificates, or his legal representative, to advertise
the same in such manner as it shall require and/or to give the corporation a
bond in such sum as it may direct as indemnity against any claim that may be
made against the corporation with respect to the certificate alleged to have
been lost, stolen or destroyed.
TRANSFER OF STOCK
14
<PAGE>
Section 4. Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Upon receipt of proper transfer instructions from the registered owner of
uncertificated shares such uncertificated shares shall be canceled and issuance
of new equivalent uncertificated shares or certificated shares shall be made to
the person entitled thereto and the transaction shall be recorded upon the books
of the corporation.
FIXING RECORD DATE
Section 5. In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of tockholders or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the board of directors may FIX, in advance, a record date,
which shall not be more than sixty nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting: provided,
15
<PAGE>
however, that the board of directors may FIX a new record date for the adjourned
meeting.
REGISTERED STOCKHOLDERS
Section 6. The corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the corporation, subject to
the provisions of the certificate of incorporation, if any, may be declared by
the board of directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the certificate of incorporation.
Section 2. Before payment of any dividend, there may be set aside out of
any funds of the corporation available for dividends such sum or sums as the
directors from time to
16
<PAGE>
time, in their absolute discretion, think proper as a reserve or reserves to
meet contingencies, or for equalizing dividends, or for repairing or maintaining
any property of the corporation, or for such other purpose as th directors shall
think conducive to the interest of the corporation, and the directors may modify
or abolish any such reserve in the manner in which IT was created.
ANNUAL STATEMENT
Section 3. The board of directors shall present at each annual meeting,
and at any special meeting of the stockholders when called for by vote of the
stockholders, a full and clear statement of the business and condition of the
corporation.
CHECKS
Section 4. All checks or demands for money and notes of the corporation
shall be signed by such OFFICER or officers or such other person or persons as
the board of directors may from time o time designate.
FISCAL YEAR
Section 5. The fiscal year of the corporation shall be fixed by
resolution of the board of directors.
SEAL
17
<PAGE>
Section 6. The corporate seal shall have inscribed hereon the name of the
corporation, the year of its organization and the words "Corporate Seal,
Delaware". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
INDEMNIFICATION
Section 7. The corporation shall indemnify its officers, directors,
employees and agents to the extent permitted by the General Corporation Law of
Delaware.
ARTICLE VIII
AMENDMENTS
Section 1. These bylaws may be altered, amended or repealed or new bylaws
may be adopted by the stockholders or by the board of directors, when such power
is conferred upon the board of directors by the certificate of incorporation at
any regular meeting of the stockholders or of the board of directors or at any
special meeting of the stockholders or of the board of directors if notice of
such alteration, amendment, repeal or adoption of new bylaws be contained in the
notice of such special meeting. If the power to adopt, amend or repeal bylaws is
conferred upon the board of directors by the certificate of incorporation it
shall not divest or limit the power of the stockholders to adopt, amend or
repeal bylaws.
18
EXHIBIT 3.04
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES A PREFERRED STOCK
OF
KIDS STUFF, INC.,
a corporation organized and existing under the General Corporation Law of the
State of Delaware,
DOES HEREBY CERTIFY:
That, pursuant to authority conferred upon the Board of Directors by the
Certificate of incorporation (as amended) of said corporation, and pursuant to
the provisions of Section 151 of Title 8 of the Delaware Code of 1953, said
Board of Directors, by the unanimous written consent of its members, filed with
the minutes of the Board, adopted a resolution providing for the issuance of a
series of Five Million (5,000,000) shares of Preferred Stock, which resolution
is as follows: RESOLVED, that the Corporation's Serial Preference Stock (the
"Stock") be subject to the following terms and conditions:
(a) the Stock shall be designated as Series A Preferred Stock;
(b) the Corporation shall issue and have outstanding 5,000,000 shares
of Series A Preferred Stock;
(c) the Series A Preferred Stock has no preferential dividend payment
rights and is not participating;
(d) the Series A Preferred Stock is not subject to redemption;
(e) in the event of a voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, each
share of Series A Preferred Stock has a liquidation preference of
$.001;
(f) the Series A Preferred Stock is not convertible into shares of
Common Stock;
(g) the holders of the Series A Preferred Stock are entitled to one
vote for each share held of record on all matters submitted to a
vote of the shareholders.
IN WITNESS WHEREOF, said Kids Stuff, Inc. has caused this Certificate to be
signed by William L. Miller, its Chairman, this 2nd day January, 1997.
/S/ WILLIAM L. MILLER
---------------------
By: William L. Miller
Chairman of the Board
---------------------
(Title)
EXHIBIT 4.03
WARRANT AGREEMENT
AGREEMENT, dated as of this ____ day of _______ 1997, by and between
KIDS STUFF, INC., a Delaware corporation ("Company"), and American Stock
Transfer & Trust Company, as Warrant Agent (the "Warrant Agent").
WITNESSETH:
WHEREAS, in connection with the offering of up to 345,000 Units
("Units"), each Unit consisting of two (2) shares of Common Stock, $.001 par
value per share, and one (1) Class A Redeemable Common Stock Purchase Warrant
(the "Class A Warrant" or the "Warrant") pursuant to an Underwriting Agreement
(the "Underwriting Agreement") dated _______, 1997 between the Company and VTR
Capital, Inc. ("VTR"), and the issuance to VTR or its designees of a Unit
Purchase Option to purchase 30,000 additional Units (the "Unit Purchase Option")
and the offering of 1,500,000 warrants for resale by certain warrant holders(the
"Warrant Holders"), the Company will issue up to 1,875,000 Warrants;
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer, exchange and redemption of the Warrants, the
issuance of certificates representing the Warrants, the exercise of the
Warrants, and the rights of the holders thereof;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth and for the purpose of defining the terms and
provisions of the Warrants and the certificates representing the Warrants and
the respective rights and obligations thereunder of the Company, the holders of
certificates representing the Warrants and the Warrant Agent, the parties hereto
agree as follows:
1. DEFINITIONS. As used herein, the following terms shall
have the following meanings, unless the context shall otherwise require:
(a) "Common Stock" shall mean the common stock of the Company of
which at the date hereof consists of 35,000,000 authorized shares, $.001 par
value, and shall also include any capital stock of any class of the Company
thereafter authorized which shall not be limited to a fixed sum or percentage in
respect to the rights of the holders thereof to participate in dividends and in
the distribution of assets upon the voluntary liquidation, dissolution or
winding up of the Company; provided, however, that
<PAGE>
the shares issuable upon exercise of the Warrants shall include (i) only shares
of such class designated in the Company's Certificate of Incorporation as Common
Stock on the date of the original issue of the Warrants, or (ii) in the case of
any reclassification, change, consolidation, merger, sale or conveyance of the
character referred to in Section 9(c) hereof, the stock, securities or property
provided for in such section; or (iii) in the case of any reclassification or
change in the outstanding shares of Common Stock issuable upon exercise of the
Warrants as a result of a subdivision or combination or a change in par value,
or from par value to no par value, or from no par value to par value, such
shares of Common Stock as so reclassified or changed.
(b) "Corporate Office" shall mean the office of the Warrant Agent
(or its successor) at which at any particular time its principal business shall
be administered, which office is located at the date hereof at 40 Wall Street,
New York, NY 10005.
(c) "Exercise Date" shall mean, as to any Warrant, the date on
which the Warrant Agent shall have received both (a) the Warrant Certificate
representing such Warrant, with the exercise form thereon duly executed by the
Registered Holder (as defined below) thereof or his attorney duly authorized in
writing, and (b) payment in cash, or by official bank or certified check made
payable to the Company, of an amount in lawful money of the United States of
America equal to the applicable Purchase Price (as defined below).
(d) "Initial Warrant Exercise Date" shall mean _______
__, 1998.
(e) "Purchase Price" shall mean the purchase price per share to
be paid upon exercise of each Warrant in accordance with the terms hereof, which
price shall be $5.00 per share for the Warrants, subject to adjustment from time
to time pursuant to the provisions of Section 9 hereof, and subject to the
Company's right, in its sole discretion, upon thirty (30) days' written notice,
to reduce the Purchase Price upon notice to all warrantholders.
(f) "Redemption Price" shall mean the price at which the Company
may, at its option, redeem the Warrants, in accordance with the terms hereof,
which price shall be $0.05 per Warrant.
(g) "Registered Holder" shall mean as to any Warrant and as of
any particular date, the person in whose name the certificate representing the
Warrant shall be registered on that date on the books maintained by the Warrant
Agent pursuant to Section 6.
(h) "Transfer Agent" shall mean American Stock Transfer & Trust
Company, as the Company's transfer agent, or its authorized successor, as such.
2
<PAGE>
(i) "Warrant Expiration Date" shall mean 5:00 P.M. (New York
time) on _________ __, 2002 or the Redemption Date as defined in Section 8,
whichever is earlier; provided that if such date shall in the State of New York
be a holiday or a day on which banks are authorized or required to close, then
5:00 P.M. (New York time) on the next following day which in the State of New
York is not a holiday or a day on which banks are authorized or required to
close. Upon thirty (30) days' written notice to all warrantholders, the Company
shall have the right to extend the warrant expiration date.
2. WARRANTS AND ISSUANCE OF WARRANT CERTIFICATES.
(a) A Warrant initially shall entitle the Registered Holder of
the Warrant representing such Warrant to purchase one share of Common Stock upon
the exercise thereof, in accordance with the terms hereof, subject to
modification and adjustment as provided in Section 9.
(b) Upon execution of this Agreement, Warrant Certificates
representing the number of Warrants sold shall be executed by the Company and
delivered to the Warrant Agent. Upon written order of the Company signed by its
Chief Executive Officer or an Executive Vice President and by its Secretary or
an Assistant Secretary, the Warrant Certificates shall be countersigned, issued,
and delivered by the Warrant Agent.
(c) From time to time, up to the Warrant Expiration Date, the
Transfer Agent shall countersign and deliver stock certificates in required
whole number denominations representing up to an aggregate of 1,875,000 shares
of Common Stock, subject to adjustment as described herein, upon the exercise of
Warrants in accordance with this Agreement.
(d) From time to time, up to the Warrant Expiration Date, the
Warrant Agent shall countersign and deliver Warrant Certificates in required
whole number denominations to the persons entitled thereto in connection with
any transfer or exchange permitted under this Agreement; provided that no
Warrant Certificates shall be issued except (i) those initially issued
hereunder, (ii) those issued on or after the Initial Warrant Exercise Date, upon
the exercise of fewer than all Warrants represented by any Warrant Certificate,
to evidence any unexercised warrants held by the exercising Registered Holder,
(iii) those issued upon any transfer or exchange pursuant to Section 6; (iv)
those issued in replacement of lost, stolen, destroyed or mutilated Warrant
Certificates pursuant to Section 7; and (vii) those issued at the option of the
Company, in such form as may be approved by the its Board of Directors, to
reflect any adjustment or change in the Purchase Price, the number of shares of
Common Stock
3
<PAGE>
purchasable upon exercise of the Warrants or the Redemption Price therefor made
pursuant to Section 9 hereof.
3. FORM AND EXECUTION OF WARRANT CERTIFICATES.
(a) The Class A Warrant Certificates shall be substantially in
the forms annexed hereto as Exhibit A (the provisions of which are hereby
incorporated herein) and may have such letters, numbers or other marks of
identification or designation and such legends, summaries or endorsements
printed, lithographed or engraved thereon as the Company may deem appropriate
and as are not inconsistent with the provisions of this Agreement, or as may be
required to comply with any law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange on which the
Warrants may be listed, or to conform to usage or to the requirements of Section
2(b). The Warrant Certificates shall be dated the date of issuance thereof
(whether upon initial issuance, transfer, exchange or in lieu of mutilated,
lost, stolen or destroyed Warrant Certificates) and issued in registered form.
Class A Warrant Certificates shall be numbered serially with the letters WA.
(b) Warrant Certificates shall be executed on behalf of the
Company by its Chief Executive Officer, or any Executive Vice President and by
its Secretary or an Assistant Secretary, by manual signatures or by facsimile
signatures printed thereon, and shall have imprinted thereon a facsimile of the
Company's seal. Warrant Certificates shall be manually countersigned by the
Warrant Agent and shall not be valid for any purpose unless so countersigned. In
case any officer of the Company who shall have signed any of the Warrant
Certificates shall cease to be an officer of the Company or to hold the
particular office referenced in the Warrant Certificate before the date of
issuance of the Warrant Certificates or before countersignature by the Warrant
Agent and issue and delivery thereof, such Warrant Certificates may nevertheless
be countersigned by the Warrant Agent, issued and delivered with the same force
and effect as though the person who signed such Warrant Certificates had not
ceased to be an officer of the Company or to hold such office. After
countersignature by the Warrant Agent, Warrant Certificates shall be delivered
by the Warrant Agent to the Registered Holder without further action by the
Company, except as otherwise provided by Section 4 hereof.
4. EXERCISE. Each Warrant may be exercised by the Registered Holder
thereof at any time on or after the Initial Warrant Exercise Date, but not after
the Warrant Expiration Date, upon the terms and subject to the conditions set
forth herein and in the applicable Warrant Certificate. A Warrant shall be
deemed to have been exercised immediately prior to the close of business on the
Exercise Date and the person entitled to receive the securities deliverable upon
such exercise shall be treated for all purposes as the holder of those
securities upon the exercise of the
4
<PAGE>
Warrant as of the close of business on the Exercise Date. As soon as practicable
on or after the Exercise Date, the Warrant Agent shall deposit the proceeds
received from the exercise of a Warrant and shall notify the Company in writing
of the exercise of the Warrants. Promptly following, and in any event within
five (5) business days after the date of such notice from the Warrant Agent, the
Warrant Agent, on behalf of the Company, shall cause to be issued and delivered
by the Transfer Agent, to the person or persons entitled to receive the same, a
certificate or certificates for the securities deliverable upon such exercise
(plus a certificate for any remaining unexercised Warrants of the Registered
Holder), unless prior to the date of issuance of such certificates the Company
shall instruct the Warrant Agent to refrain from causing such issuance of
certificates pending clearance of checks received in payment of the Purchase
Price pursuant to such Warrants. Upon the exercise of any Warrant and clearance
of the funds received, the Warrant Agent shall promptly remit the payment
received for the Warrant (the "Warrant Proceeds") to the Company or as the
Company may direct in writing.
5. RESERVATION OF SHARES; LISTING; PAYMENT OF TAXES, ETC.
(a) The Company covenants that it will at all times reserve and
keep available out of its authorized Common Stock, solely for the purpose of
issue upon exercise of Warrants, such number of shares of Common Stock as shall
then be issuable upon the exercise of all outstanding Warrants. The Company
covenants that all shares of Common Stock which shall be issuable upon exercise
of the Warrants shall, at the time of delivery, be duly and validly issued,
fully paid, nonassessable and free from all taxes, liens and charges with
respect to the issue thereof (other than those which the Company shall promptly
pay or discharge) and that upon issuance such shares shall be listed on each
national securities exchange or eligible for inclusion in each automated
quotation system, if any, on which the other shares of outstanding Common Stock
of the Company are then listed or eligible for inclusion.
(b) The Company covenants that if any securities to be reserved
for the purpose of exercise of Warrants hereunder require registration with, or
approval of, any governmental authority under any federal securities law before
such securities may be validly issued or delivered upon such exercise, then the
Company will, to the extent the Purchase Price is less than the Market Price (as
hereinafter defined), in good faith and as expeditiously as reasonably possible,
endeavor to secure such registration or approval and will use its reasonable
efforts to obtain appropriate approvals or registrations under state "blue sky"
securities laws. With respect to any such securities, however, Warrants may not
be exercised by, or shares of Common Stock issued to, any Registered Holder in
any state in which such exercise would be unlawful.
(c) The Company shall pay all documentary, stamp or
5
<PAGE>
similar taxes and other governmental charges that may be imposed with respect to
the issuance of Warrants, or the issuance, or delivery of any shares upon
exercise of the Warrants; provided, however, that if the shares of Common Stock
are to be delivered in a name other than the name of the Registered Holder of
the Warrant Certificate representing any Warrant being exercised, then no such
delivery shall be made unless the person requesting the same has paid to the
Warrant Agent the amount of transfer taxes or charges incident thereto, if any.
(d) The Warrant Agent is hereby irrevocably authorized for such
time as it is acting as such to requisition the Company's Transfer Agent from
time to time for certificates representing shares of Common Stock issuable upon
exercise of the Warrants, and the Company will authorize the Transfer Agent to
comply with all such proper requisitions. The Company will file with the Warrant
Agent a statement setting forth the name and address of the Transfer Agent of
the Company for shares of Common Stock issuable upon exercise of the Warrants.
6. EXCHANGE AND REGISTRATION OF TRANSFER.
(a) Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Warrants of the same
class or may be transferred in whole or in part. Warrant Certificates to be
exchanged shall be surrendered to the Warrant Agent at its Corporate Office, and
upon satisfaction of the terms and provisions hereof, the Company shall execute
and the Warrant Agent shall countersign, issue and deliver in exchange therefor
the Warrant Certificate or Certificates which the Registered Holder making the
exchange shall be entitled to receive.
(b) The Warrant Agent shall keep at its office books in which,
subject to such reasonable regulations as it may prescribe, it shall register
Warrant Certificates and the transfer thereof in accordance with its regular
practice. Upon due presentment for registration of transfer of any Warrant
Certificate at such office, the Company shall execute and the Warrant Agent
shall issue and deliver to the transferee or transferees a new Warrant
Certificate or Certificates representing an equal aggregate number of Warrants.
(c) With respect to all Warrant Certificates presented for
registration or transfer, or for exchange or exercise, the subscription form
on the reverse thereof shall be duly endorsed, or be accompanied by a written
instrument or instruments of transfer and subscription, in form satisfactory to
the Company and the Warrant Agent, duly executed by the Registered Holder or his
attorney-in-fact duly authorized in writing.
(d) A service charge may be imposed by the Warrant Agent for any
exchange or registration of transfer of Warrant Certificates. In addition, the
Company may require payment by such
6
<PAGE>
holder of a sum sufficient to cover any tax or other governmental charge that
may be imposed in connection therewith.
(e) All Warrant Certificates surrendered for exercise or for
exchange in case of mutilated Warrant Certificates shall be promptly canceled by
the Warrant Agent and thereafter retained by the Warrant Agent until termination
of this Agreement or resignation as Warrant Agent, or disposed of or destroyed,
at the direction of the Company.
(f) Prior to due presentment for registration of transfer
thereof, the Company and the Warrant Agent may deem and treat the Registered
Holder of any Warrant Certificate as the absolute owner thereof and of each
Warrant represented thereby (notwithstanding any notations of ownership or
writing thereon made by anyone other than a duly authorized officer of the
Company or the Warrant Agent) for all purposes and shall not be affected by any
notice to the contrary. The Warrants which are being publicly offered in Units
with shares of Common Stock pursuant to the Underwriting Agreement will be
immediately detachable from the Common Stock and transferable separately
therefrom.
7. LOSS OR MUTILATION. Upon receipt by the Company and the Warrant Agent
of evidence satisfactory to them of the ownership of and loss, theft,
destruction or mutilation of any Warrant Certificate and (in case of loss, theft
or destruction) of indemnity satisfactory to them, and (in the case of
mutilation) upon surrender and cancellation thereof, the Company shall execute
and the Warrant Agent shall (in the absence of notice to the Company and/or
Warrant Agent that the Warrant Certificate has been acquired by a bona fide
purchaser) countersign and deliver to the Registered Holder in lieu thereof a
new Warrant Certificate of like tenor representing an equal aggregate number of
Warrants. Applicants for a substitute Warrant Certificate shall comply with such
other reasonable regulations and pay such other reasonable charges as the
Warrant Agent may prescribe.
8. REDEMPTION.
(a) Subject to the provision of paragraph 2(e) hereof, on not
less than thirty (30) days' notice given at any time after the Initial Warrant
Exercise Date, the Warrants may be redeemed, at the option of the Company, at a
redemption price of $0.05 per Warrant, provided the market price, as hereinafter
defined, of the Common Stock, equals or exceeds $12.00 per share (the "Class A
Target Price"), subject to adjustment as set forth in Section 8(f) below. Market
Price for the purpose of this Section 8 shall mean (i) the average closing bid
price for any twenty (20) consecutive trading days within a period of thirty
(30) consecutive trading days ending within five (5) days prior to the date of
the notice of redemption, which notice shall be mailed no later than five (5)
days thereafter, of the Common Stock as reported by the National
7
<PAGE>
Association of Securities Dealers, Inc. Automatic Quotation System or OTC
Bulletin Board, or(ii) the last reported sale price, for twenty (20) consecutive
trading days within a period of thirty (30) consecutive trading days ending
within five (5) days of the date of the notice of redemption, which notice shall
be mailed no later than five (5) days thereafter, on the primary exchange on
which the Common Stock is traded, if the Common Stock is traded on a national
securities exchange.
(b) If the conditions set forth in Section 8(a) are met, and the
Company desires to exercise its right to redeem the Warrants, it shall mail a
notice of redemption to each of the Registered Holders of the Warrants to be
redeemed, first class, postage prepaid, not later than the thirtieth day before
the date fixed for redemption, at their last address as shall appear on the
records maintained pursuant to Section 6(b). Any notice mailed in the manner
provided herein shall be conclusively presumed to have been duly given whether
or not the Registered Holder receives such notice.
(c) The notice of redemption shall specify (i) the redemption
price, (ii) the date fixed for redemption, (iii) the place where the Warrant
Certificates shall be delivered and the redemption price paid, and (iv) that the
right to exercise the Warrant shall terminate at 5:00 P.M. (New York time) on
the business day immediately preceding the date fixed for redemption. The date
fixed for the redemption of the Warrant shall be the Redemption Date. No failure
to mail such notice nor any defect therein or in the mailing thereof shall
affect the validity of the proceedings for such redemption except as to a
Registered Holder (a) to whom notice was not mailed or (b) whose notice was
defective and then only to the extent that the Registered Holder is prejudiced
thereby. An affidavit of the Warrant Agent or of the Secretary or an Assistant
Secretary of the Company that notice of redemption has been mailed shall, in the
absence of fraud, be prima facie evidence of the facts stated therein.
(d) Any right to exercise a Warrant shall terminate at 5:00 P.M.
(New York time) on the business day immediately preceding the Redemption Date.
On and after the Redemption Date, Registered Holders of the Warrants shall have
no further rights except to receive, upon surrender of the Warrant, the
Redemption Price.
(e) From and after the Redemption Date specified for, the Company
shall, at the place specified in the notice of redemption, upon presentation and
surrender to the Company by or on behalf of the Registered Holder thereof of one
or more Warrant Certificates evidencing Warrants to be redeemed, deliver or
cause to be delivered to or upon the written order of such Holder a sum in cash
equal to the redemption price of each such Warrant. From and after the
Redemption Date and upon the deposit or setting aside by the Company of a sum
sufficient to redeem all the Warrants
8
<PAGE>
called for redemption, such Warrants shall expire and become void and all rights
hereunder and under the Warrant Certificates, except the right to receive
payment of the redemption price, shall cease.
(f) If the shares of the Company's Common Stock are subdivided or
combined into a greater or smaller number of shares of Common Stock, the Class A
Target Price shall be proportionally adjusted by the ratio which the total
number of shares of Common Stock outstanding immediately prior to such event
bears to the total number of shares of Common Stock to be outstanding
immediately after such event.
9. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES OF
COMMON STOCK OR WARRANTS.
(a) Subject to the exceptions referred to in Section 9(g) below,
in the event the Company shall, at any time or from time to time after the date
hereof, sell any shares of Common Stock for a consideration per share less than
the Market Price of the Common Stock (as defined in Section 8) on the date of
the sale or issue any shares of Common Stock as a stock dividend to the holders
of Common Stock, or subdivide or combine the outstanding shares of Common Stock
into a greater or lesser number of shares (any such sale, issuance, subdivision
or combination being herein called a "Change of Shares"), then, and thereafter
upon each further Change of Shares, the Purchase Price in effect immediately
prior to such Change of Shares shall be changed to a price (including any
applicable fraction of a cent) determined by multiplying the Purchase Price in
effect immediately prior thereto by a fraction, the numerator of which shall be
the sum of the number of shares of Common Stock outstanding immediately prior to
the issuance of such additional shares and the number of shares of Common Stock
which the aggregate consideration received (determined as provided in subsection
9(f) below) for the issuance of such additional shares would purchase at such
current market price per share of Common Stock, and the denominator of which
shall be the sum of the number of shares of Common Stock outstanding immediately
after the issuance of such additional shares. Such adjustment shall be made
successively whenever such an issuance is made.
Upon each adjustment of the Purchase Price pursuant
to this Section 9, the total number of shares of Common Stock purchasable upon
the exercise of each Warrant shall (subject to the provisions contained in
Section 9(b) hereof) be such number of shares (calculated to the nearest tenth)
purchasable at the Purchase Price in effect immediately prior to such adjustment
multiplied by a fraction, the numerator of which shall be the Purchase Price in
effect immediately prior to such adjustment and the denominator of which shall
be the Purchase Price in effect immediately after such adjustment.
(b) The Company may elect, upon any adjustment of the
9
<PAGE>
Purchase Price hereunder, to adjust the number of Warrants outstanding, in lieu
of the adjustment in the number of shares of Common Stock purchasable upon the
exercise of each Warrant as hereinabove provided, so that each Warrant
outstanding after such adjustment shall represent the right to purchase one
share of Common Stock. Each Warrant held of record prior to such adjustment of
the number of Warrants shall become that number of Warrants (calculated to the
nearest tenth) determined by multiplying the number one by a fraction, the
numerator of which shall be the Purchase Price in effect immediately prior to
such adjustment and the denominator of which shall be the Purchase Price in
effect immediately after such adjustment. Upon each adjustment of the number of
Warrants pursuant to this Section 9, the Company shall, as promptly as
practicable, cause to be distributed to each Registered Holder of Warrant
Certificates on the date of such adjustment Warrant Certificates evidencing,
subject to Section 10 hereof, the number of additional Warrants to which such
Holder shall be entitled as a result of such adjustment or, at the option of the
Company, cause to be distributed to such Holder in substitution and replacement
for the Warrant Certificates held by him prior to the date of adjustment (and
upon surrender thereof, if required by the Company) new Warrant Certificates
evidencing the number of Warrants to which such Holder shall be entitled after
such adjustment.
(c) In case of any reclassification, capital reorganization or
other change of outstanding shares of Common Stock, or in case of any
consolidation or merger of the Company with or into another corporation (other
than a consolidation or merger in which the Company is the continuing
corporation and which does not result in any reclassification, capital
reorganization or other change of outstanding shares of Common Stock), or in
case of any sale or conveyance to another corporation of the property of the
Company as, or substantially as, an entirety (other than a sale/leaseback,
mortgage or other financing transaction), the Company shall cause effective
provision to be made so that each holder of a warrant then outstanding shall
have the right thereafter, by exercising such Warrant, to purchase the kind and
number of shares of stock or other securities or property (including cash)
receivable upon such reclassification, capital reorganization or other change,
consolidation, merger, sale or conveyance by a holder of the number of shares of
Common Stock that might have been purchased upon exercise of such Warrant
immediately prior to such reclassification, capital reorganization or other
change, consolidation, merger, sale or conveyance. Any such provision shall
include provision for adjustments that shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 9. The Company shall
not effect any such consolidation, merger or sale unless prior to or
simultaneously with the consummation thereof the successor (if other than the
Company) resulting from such consolidation or merger or the corporation
purchasing assets or other appropriate corporation or
10
<PAGE>
entity shall assume, by written instrument executed and delivered to the Warrant
Agent, the obligation to deliver to the holder of each Warrant such shares of
stock, securities or assets as, in accordance with the foregoing provisions,
such holders may be entitled to purchase and the other obligations under this
Agreement. The foregoing provisions shall similarly apply to successive
reclassification, capital reorganizations and other changes of outstanding
shares of Common Stock and to successive consolidations, mergers, sales or
conveyances.
(d) Irrespective of any adjustments or changes in the Purchase
Price or the number of shares of Common Stock purchasable upon exercise of the
Warrants, the Warrant Certificates theretofore and thereafter issued shall,
unless the Company shall exercise its option to issue new Warrant Certificates
pursuant to Section 2(d) hereof, continue to express the Purchase Price per
share, the number of shares purchasable thereunder and the Redemption Price
therefor as the Purchase Price per share, the number of shares purchasable and
the Redemption Price therefor were expressed in the Warrant Certificates when
the same were originally issued.
(e) After each adjustment of the Purchase Price pursuant to this
Section 9, the Company will promptly prepare a certificate signed by the
President or a Vice President, and by the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary, of the Company setting forth: (i) the
Purchase Price as so adjusted, (ii) the number of shares of Common Stock
purchasable upon exercise of each Warrant after such adjustment, and, if the
Company shall have elected to adjust the number of Warrants, the number of
Warrants to which the registered holder of each Warrant shall then be entitled,
and the adjustment in Redemption Price resulting therefrom, and (iii) a brief
statement of the facts accounting for such adjustment. The Company will promptly
file such certificate with the Warrant Agent and cause a brief summary thereof
to be sent by ordinary first class mail to VTR and to each registered holder of
Warrants at his last address as it shall appear on the registry books of the
Warrant Agent. No failure to mail such notice nor any defect therein or in the
mailing thereof shall affect the validity thereof except as to the holder to
whom the Company failed to mail such notice, or except as to the holder
whose notice was defective. The affidavit of an officer of the Warrant Agent or
the Secretary or an Assistant Secretary of the Company that such notice has been
mailed shall, in the absence of fraud, be prima facie evidence of the facts
stated therein.
(f) For purposes of Section 9(a) and 9(b) hereof, the following
provisions (i) to (vii) shall also be applicable:
(i) The number of shares of Common Stock
outstanding at any given time shall include shares of Common Stock owned or held
by or for the account of the Company and the sale or issuance of such treasury
shares or the distribution of any such
11
<PAGE>
treasury shares shall not be considered a Change of Shares for purposes of said
sections.
(ii) No adjustment of the Purchase Price shall be
made unless such adjustment would require an increase or decrease of at least
$.10 in such price; provided that any adjustments which by reason of this
subsection (ii) are not required to be made shall be carried forward and shall
be made at the time of and together with the next subsequent adjustment which,
together with any adjustment(s) so carried forward, shall require an increase or
decrease of at least $.10 in the Purchase Price then in effect hereunder.
(iii) In case of (1) the sale by the Company for
cash of any rights or warrants to subscribe for or purchase, or any options for
the purchase of, Common Stock or any securities convertible into or exchangeable
for Common Stock without the payment of any further consideration other than
cash, if any (such convertible or exchangeable securities being herein called
"Convertible Securities"), or (2) the issuance by the Company, without the
receipt by the Company of any consideration therefor, of any rights or warrants
to subscribe for or purchase, or any options for the purchase of, Common Stock
or Convertible Securities, in each case, if (and only if) the consideration
payable to the Company upon the exercise of such rights, warrants, or options
shall consist of cash, whether or not such rights, warrants or options, or the
right to convert or exchange such Convertible Securities, are immediately
exercisable, and the price per share for which Common Stock is issuable upon the
exercise of such rights, warrants or options or upon the conversion or exchange
of such Convertible Securities (determined by dividing (x) the minimum aggregate
consideration payable to the Company upon the exercise of such rights, warrants
or options, plus the consideration received by the Company for the issuance or
sale of such rights, warrants or options, plus, in the case of such Convertible
Securities, the minimum aggregate amount of additional consideration, if any,
other than such Convertible Securities, payable upon the conversion or exchange
thereof, by (y) the total maximum number of shares of Common Stock issuable upon
the exercise of such rights, warrants or options or upon the conversion or
exchange of such Convertible Securities issuable upon the exercise of such
rights, warrants or options) is less than the fair market value of the Common
Stock on the date of the issuance or sale of such rights, warrants or options,
then the total maximum number of shares of Common Stock issuable upon the
exercise of such rights, warrants or options or upon the conversion or exchange
of such Convertible Securities (as of the date of the issuance or sale of such
rights, warrants or options) shall be deemed to be outstanding shares of Common
Stock for purposes of Sections 9(a) and 9(b) hereof and shall be deemed to have
been sold for cash in an amount equal to such price per share.
12
<PAGE>
(iv) In case of the sale by the Company for cash
of any Convertible Securities, whether or not the right of conversion or
exchange thereunder is immediately exercisable, and the price per share for
which Common Stock is issuable upon the conversion or exchange of such
Convertible Securities (determined by dividing (x) the total amount of
consideration received by the Company for the sale of such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, other than such Convertible Securities, payable upon the conversion or
exchange thereof, by (y) the total maximum number of shares of Common Stock
issuable upon the conversion or exchange of such Convertible Securities) is less
than the fair market value of the Common Stock on the date of the sale of such
Convertible Securities, then the total maximum number of shares of Common Stock
issuable upon the conversion or exchange of such Convertible Securities (as of
the date of the sale of such Convertible Securities) shall be deemed to be
outstanding shares of Common Stock for purposes of Sections 9(a) and 9(b) hereof
and shall be deemed to have been sold for cash in an amount equal to such price
per share.
(v) In case the Company shall modify the rights
of conversion, exchange or exercise of any of the securities referred to in
subsection (iii) above or any other securities of the Company convertible,
exchangeable, or exercisable for shares of Common Stock, for any reason other
than an event that would require adjustment to prevent dilution, so that the
consideration per share received by the Company after such modification is less
than the market price on the date prior to such modification, the Purchase Price
to be in effect after such modification shall be determined by multiplying the
Purchase Price in effect immediately prior to such event by a fraction, of which
the numerator shall be the number of shares of Common Stock outstanding
multiplied by the market price on the date prior to the modification plus the
number of shares of Common Stock which the aggregate consideration receivable by
the Company for the securities affected by the modification would purchase at
the market price and of which the denominator shall be the number of shares of
Common Stock outstanding on such date plus the number of shares of Common Stock
to be issued upon conversion, exchange, or exercise of the modified securities
at the modified rate. Such adjustment shall become effective as of the date upon
which such modification shall take effect.
(vi) On the expiration of any such right, warrant
or option or the termination of any such right to convert or exchange any such
Convertible Securities, the Purchase Price then in effect hereunder shall
forthwith be readjusted to such Purchase Price as would have obtained (a) had
the adjustments made upon the issuance or sale of such rights, warrants, options
or Convertible Securities been made upon the basis of the issuance of only the
number of shares of Common Stock theretofore actually delivered
13
<PAGE>
(and the total consideration received therefor) upon the exercise of such
rights, warrants, or options or upon the conversion or exchange of such
Convertible Securities and (b) had adjustments been made on the basis of the
Purchase Price as adjusted under clause (a) for all transactions (which would
have affected such adjusted Purchase Price) made after the issuance or sale of
such rights, warrants, options or Convertible Securities.
(vii) In case of the sale for cash of any shares of
Common Stock, any Convertible Securities, any rights or warrants to subscribe
for or purchase, or any options for the purchase of, Common Stock or Convertible
Securities, the consideration received by the Company therefor shall be deemed
to be the gross sales price therefor without deducting therefrom any expense
paid or incurred by the Company or any underwriting discounts or commissions or
concessions paid or allowed by the Company in connection therewith.
(g) No adjustment to the Purchase Price of the Warrants or to the
number of shares of Common Stock purchasable upon the exercise of each Warrant
will be made, however,
(i) upon the sale or exercise of the Warrants,
including without limitation, the sale or exercise of any of the
Warrants or Common Stock comprising the Purchase Option; or
(ii) upon the sale of any shares of Common Stock
in the Company's initial public offering, including, without limitation, shares
sold upon the exercise of any over-allotment option granted to the Underwriters
in connection with such offering; or
(iii) upon the issuance or sale of Common Stock or
Convertible Securities upon the exercise of any rights or warrants to subscribe
for or purchase, or any options for the purchase of, Common Stock or Convertible
Securities, whether or not such rights, warrants or options were outstanding on
the date of the original sale of the Warrants or were thereafter issued or sold;
or
(iv) upon the issuance or sale of Common Stock
upon conversion or exchange of any Convertible Securities, whether or not any
adjustment in the Purchase Price was made or required to be made upon the
issuance or sale of such Convertible Securities and whether or not such
Convertible Securities were outstanding on the date of the original sale of the
Warrants or were thereafter issued or sold; or
(v) upon the issuance or sale of Common Stock or
Convertible Securities in an exempt transaction unless the issuance or sale
price is less than 50% of the fair market value of the Common Stock on the date
of issuance, in which case the adjustment shall only be for the difference
between 50% of the fair market value and the issue or sale price; or
14
<PAGE>
(vi) upon the issuance or sale of Common Stock or
Convertible Securities to shareholders of any corporation which merges and/or
consolidates into or is acquired by the Company or from which the Company
acquires assets and some or all of the consideration consists of equity
securities of the Company, in proportion to their stock holdings of such
corporation immediately prior to the acquisition but only if no adjustment is
required pursuant to any other provision of this Section 9.
(vii) upon the issuance or exercise of options or
upon the issuance or grant of stock awards granted to the Company's directors,
employees or consultants under a plan or plans adopted by the Company's Board of
Directors and approved by its stockholders (but only to the extent that the
aggregate number of shares excluded hereby and issued after the date hereof
shall not exceed ten percent (10%) of the Company's Common Stock at the time of
issuance). For the purposes of determining whether the consideration received by
the Company is less than the Market Price in connection with any issuance of
stock to the Company's directors, employees or consultants under plans adopted
by the Company's Board of Directors and approved by its stockholders, the
consideration received shall be deemed to be the amount of compensation to the
director, employee or consultant reported by the Company in connection with such
issuances.
(viii) upon the issuance of Common Stock to the
Company's directors, employees or consultants under a plan or plans which are
qualified under the Internal Revenue Code; or
(ix) upon the issuance of Common Stock in a bona
fide public offering pursuant to a firm commitment underwriting.
(h) As used in this Section 9, the term "Common Stock" shall mean
and include the Company's Common Stock authorized on the date of the original
issue of the Units and shall also include any capital stock of any class of the
Company thereafter authorized which shall not be limited to a fixed sum or
percentage in respect of the rights of the holders thereof to participate in
dividends and in the distribution of assets upon the voluntary liquidation,
dissolution or winding up of the Company; provided, however, that the shares
issuable upon exercise of the Warrants shall include (i) only shares of such
class designated in the Company's Certificate of Incorporation as Common Stock
on the date of the original issue of the Units or (ii) in the case of any
reclassification, change, consolidation, merger, sale or conveyance of the
character referred to in Section 9(c) hereof, the stock, securities or property
provided for in such section or (iii) in the case of any reclassification or
change in the outstanding shares of Common Stock issuable upon exercise of the
Warrants as a result of a subdivision or combination or a change in par value,
or from par value to no par value, or from no par value to par value, such
shares of Common Stock as so reclassified or changed.
15
<PAGE>
(i) Any determination as to whether an adjustment in the Purchase
Price in effect hereunder is required pursuant to Section 9, or as to the amount
of any such adjustment, if required, shall be binding upon the holders of the
Warrants and the Company if made in good faith by the Board of Directors of the
Company.
(j) If and whenever the Company shall grant to the holders of
Common Stock, as such, rights or warrants to subscribe for or to purchase, or
any options for the purchase of, Common Stock or securities convertible into or
exchangeable for or carrying a right, warrant or option to purchase Common
Stock, the Company shall concurrently therewith grant to each Registered Holder
as of the record date for such transaction of the Warrants then outstanding, the
rights, warrants or options to which each Registered Holder would have been
entitled if, on the record date used to determine the stockholders entitled to
the rights, warrants or options being granted by the Company, the Registered
Holder were the holder of record of the number of whole shares of Common Stock
then issuable upon exercise (assuming, for purposes of this Section 9(j), that
exercise of Warrants is permissible during periods prior to the Initial Warrant
Exercise Date) of his Warrants. Such grant by the Company to the holders of the
Warrants shall be in lieu of any adjustment which otherwise might be called for
pursuant to this Section 9.
10. FRACTIONAL WARRANTS AND FRACTIONAL SHARES.
(a) If the number of shares of Common Stock purchasable upon the
exercise of each Warrant is adjusted pursuant to Section 9 hereof, the Company
nevertheless shall not be required to issue fractions of shares, upon exercise
of the Warrants or otherwise, or to distribute certificates that evidence
fractional shares. In such event, the Company may at its option elect to round
up the number of shares to which the Holder is entitled to the nearest whole
share or to pay cash in respect of fractional shares in accordance with the
following: With respect to any fraction of a share called for upon any exercise
hereof, the Company shall pay to the Holder an amount in cash equal to such
fraction multiplied by the current market value of such fractional share,
determined as follows:
(i) If the Common Stock is listed on a National
Securities Exchange or admitted to unlisted trading privileges on such exchange
or listed for trading on the NASDAQ Quotation System, the current value shall be
the last reported sale price of the Common Stock on such exchange on the last
business day prior to the date of exercise of this Warrant or if no such sale is
made on such day, the average of the closing bid and asked prices for such day
on such exchange; or
(ii) If the Common Stock is not listed or admitted
to unlisted trading privileges, the current value shall be the mean
16
<PAGE>
of the last reported bid and asked prices reported by the National Quotation
Bureau, Inc. on the last business day prior to the date of the exercise of this
Warrant; or
(iii) If the Common Stock is not so listed or
admitted to unlisted trading privileges and bid and asked prices are not so
reported, the current value shall be an amount determined in such reasonable
manner as may be prescribed by the Board of Directors of the Company.
11. WARRANT HOLDERS NOT DEEMED STOCKHOLDERS. No holder of Warrants
shall, as such, be entitled to vote or to receive dividends or be deemed the
holder of Common Stock that may at any time be issuable upon exercise of such
Warrants for any purpose whatsoever, nor shall anything contained herein be
construed to confer upon the holder of Warrants, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action (whether upon any recapitalization,
issue or reclassification of stock, change of par value or change of stock to no
par value, consolidation, merger or conveyance or otherwise), or to receive
notice of meetings, or to receive dividends or subscription rights, until such
Holder shall have exercised such Warrants and been issued shares of Common Stock
in accordance with the provisions hereof.
12. RIGHTS OF ACTION. All rights of action with respect to this
Agreement are vested in the respective Registered Holders of the Warrants, and
any Registered Holder of a Warrant, without consent of the Warrant Agent or of
the holder of any other Warrant, may, in his own behalf and for his own benefit,
enforce against the Company his right to exercise his Warrants for the purchase
of shares of Common Stock in the manner provided in the Warrant Certificate and
this Agreement.
13. AGREEMENT OF WARRANT HOLDERS. Every holder of a Warrant,
by his acceptance thereof, consents and agrees with the Company, the Warrant
Agent and every other holder of a Warrant that:
(a) The Warrants are transferable only on the registry books of
the Warrant Agent by the Registered Holder thereof in person or by his attorney
duly authorized in writing and only if the Warrant Certificates representing
such Warrants are surrendered at the office of the Warrant Agent, duly endorsed
or accompanied by a proper instrument of transfer satisfactory to the Warrant
Agent and the Company in their mutual discretion, together with payment of any
applicable transfer taxes; and
(b) The Company and the Warrant Agent may deem and treat the
person in whose name the Warrant Certificate is registered as the holder and as
the absolute, true and lawful owner of the
17
<PAGE>
Warrants represented thereby for all purposes, and neither the Company nor the
Warrant Agent shall be affected by any notice or knowledge to the contrary,
except as otherwise expressly provided in Section 7 hereof.
14. CANCELLATION OF WARRANT CERTIFICATES. If the Company shall purchase
or acquire any Warrant or Warrants, the Warrant Certificate or Warrant
Certificates evidencing the same shall thereupon be delivered to the Warrant
Agent and canceled by it and retired. The Warrant Agent shall also cancel Common
Stock following exercise of any or all of the Warrants represented thereby or
delivered to it for transfer, split up, combination or exchange.
15. CONCERNING THE WARRANT AGENT. The Warrant Agent acts hereunder as
agent and in a ministerial capacity for the Company, and its duties shall be
determined solely by the provisions hereof. The Warrant Agent shall not, by
issuing and delivering Warrant Certificates or by any other act hereunder be
deemed to make any representations as to the validity, value or authorization of
the Warrant Certificates or the Warrants represented thereby or of any
securities or other property delivered upon exercise of any Warrant or whether
any stock issued upon exercise of any Warrant is fully paid and nonassessable.
The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of Warrant Certificates to make or cause to be made
any adjustment of the Purchase Price or the Redemption Price provided in this
Agreement, or to determine whether any fact exists which may require any such
adjustments, or with respect to the nature or extent of any such adjustment,
when made, or with respect to the method employed in making the same. It shall
not (i) be liable for any recital or statement of facts contained herein or for
any action taken, suffered or omitted by it in reliance on any warrant
Certificate or other document or instrument believed by it in good faith to be
genuine and to have been signed or presented by the proper party or parties,
(ii) be responsible for any failure on the part of the Company to comply with
any of its covenants and obligations contained in this Agreement or in any
Warrant Certificate, or (iii) be liable for any act or omission in connection
with this Agreement except for its own negligence or wilful misconduct.
The Warrant Agent may at any time consult with counsel
satisfactory to it (who may be counsel for the Company) and shall incur no
liability or responsibility for any action taken, suffered or omitted by it in
good faith in accordance with the opinion or advice of such counsel.
Any notice, statement, instruction, request, direction, order or
demand of the Company shall be sufficiently evidenced by an instrument signed by
its President, any Vice President, its
18
<PAGE>
Secretary, or Assistant Secretary, (unless other evidence in respect thereof is
herein specifically prescribed). The Warrant Agent shall not be liable for any
action taken, suffered or omitted by it in accordance with such notice,
statement, instruction, request, direction, order or demand reasonably believed
by it to be genuine.
The Company agrees to pay the Warrant Agent reasonable
compensation for its services hereunder and to reimburse it for its reasonable
expenses hereunder; it further agrees to indemnify the Warrant Agent and save it
harmless against any and all losses, expenses and liabilities, including
judgments, costs and counsel fees, for anything done or omitted by the Warrant
Agent in the execution of its duties and powers hereunder except losses,
expenses and liabilities arising as a result of the Warrant Agent's negligence
or wilful misconduct.
The Warrant Agent may resign its duties and be discharged from
all further duties and liabilities hereunder (except liabilities arising as a
result of the Warrant Agent's own negligence or wilful misconduct), after giving
thirty (30) days' prior written notice to the Company. At least fifteen (15)
days prior to the date such resignation is to become effective, the Warrant
Agent shall cause a copy of such notice of resignation to be mailed to the
Registered Holder of each Warrant Certificate at the Company's expense. Upon
such resignation, or any inability of the Warrant Agent to act as such
hereunder, the Company shall appoint a new warrant agent in writing. If the
Company shall fail to make such appointment within a period of fifteen (15) days
after it has been notified in writing of such resignation by the resigning
Warrant Agent, then the Registered Holder of any Warrant Certificate may apply
to any court of competent jurisdiction in the State of New York for the
appointment of a new warrant agent. Any new warrant agent, whether appointed by
the Company or by such a court, shall be a bank or trust company having a
capital and surplus, as shown by its last published report to its stockholders,
of not less than $10,000,000 or a stock transfer company. After acceptance in
writing of such appointment by the new warrant agent is received by the Company,
such new warrant agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named herein as the Warrant Agent,
without any further assurance, conveyance, act or deed; but if for any reason it
shall be necessary or expedient to execute and deliver any further assurance,
conveyance, act or deed, the same shall be done at the expense of the Company
and shall be legally and validly executed and delivered by the resigning Warrant
Agent. Not later than the effective date of any such appointment the Company
shall file notice thereof with the resigning Warrant Agent and shall forthwith
cause a copy of such notice to be mailed to the Registered Holder of each
Warrant Certificate.
Any corporation into which the Warrant Agent or any new
19
<PAGE>
warrant agent may be converted or merged or any corporation resulting from any
consolidation to which the Warrant Agent or any new warrant agent shall be a
party or any corporation succeeding to the trust business of the Warrant Agent
shall be a successor warrant agent under this Agreement without any further act,
provided that such corporation is eligible for appointment as successor to the
Warrant Agent under the provisions of the preceding paragraph. Any such
successor warrant agent shall promptly cause notice of its succession as warrant
agent to be mailed to the Company and to the Registered Holder of each Warrant
Certificate.
The Warrant Agent, its subsidiaries and affiliates, and any of
its or their officers or directors, may buy and hold or sell Warrants or other
securities of the Company and otherwise deal with the Company in the same manner
and to the same extent and with like effects as though it were not the Warrant
Agent. Nothing herein shall preclude the Warrant Agent from acting in any other
capacity for the Company if so authorized by the Company or for any other legal
entity.
16. MODIFICATION OF AGREEMENT. The Warrant Agent and the Company may by
supplemental agreement make any changes or corrections in this Agreement (i)
that they shall deem appropriate to cure any ambiguity or to correct any
defective or inconsistent provision or manifest mistake or error herein
contained; or (ii) that they may deem necessary or desirable and which shall not
adversely affect the interests of the holders of Warrant Certificates; PROVIDED,
HOWEVER, that this Agreement shall not otherwise be modified, supplemented or
altered in any respect except with the consent in writing of the Registered
Holders of Warrant Certificates representing not less than fifty percent (50%)
of the Warrants then outstanding; and PROVIDED, FURTHER, that no change in the
number or nature of the securities purchasable upon the exercise of any Warrant,
or the Purchase Price therefor, or the acceleration of the Warrant Expiration
Date, shall be made without the consent in writing of the Registered Holder of
the Warrant Certificate representing such Warrant, other than such changes as
are specifically prescribed by this Agreement as originally executed or are made
in compliance with applicable law.
17. NOTICES. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been made when
delivered or mailed first class registered or certified mail, postage prepaid as
follows: if to the Registered Holder of a Warrant Certificate, at the address of
such holder as shown on the registry books maintained by the Warrant Agent; if
to the Company,4450 Belden Village Street, N.W., Suite 406, Canton, OH 44718 or
at such other address as may have been furnished to the Warrant Agent in writing
by the Company; and if to the Warrant Agent, at its corporate office.
20
<PAGE>
18. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York, without reference to
principles of conflict of laws.
19. BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the Company and the Warrant Agent, and their respective
successors and assigns, and the holders from time to time of Warrant
Certificates. Nothing in this Agreement is intended or shall be construed to
confer upon any other person any right, remedy or claim, in equity or at law, or
to impose upon any other person any duty, liability or obligation.
20. TERMINATION. This Agreement shall terminate at the close of business
on the Warrant Expiration Date of all the Warrants or such earlier date upon
which all Warrants have been exercised, except that the Warrant Agent shall
account to the Company for cash held by it and the provisions of Section 15
hereof shall survive such termination.
21. COUNTERPARTS. This Agreement may be executed in several
counterparts, which taken together shall constitute a single document.
21
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
KIDS STUFF, INC.
By: ______________________________
Its
AMERICAN STOCK TRANSFER & TRUST COMPANY
By: ______________________________
Its
Authorized Officer
22
<PAGE>
EXHIBIT A
[Form of Face of Class A Warrant Certificate]
No. WA Class A Warrants
VOID AFTER __________, 2002
STOCK PURCHASE WARRANT CERTIFICATE FOR PURCHASE OF COMMON STOCK
KIDS STUFF, INC.
THIS CERTIFIES THAT FOR VALUE RECEIVED
or registered assigns (the "Registered Holder") is the owner of the number of
Class A Redeemable Common Stock Purchase Warrants ("Warrants") specified above.
Each Warrant initially entitles the Registered Holder to purchase, subject to
the terms and conditions set forth in this Certificate and the Warrant Agreement
(as hereinafter defined), one fully paid and nonassessable share of Common
Stock, $.001 par value ("Common Stock"), of KIDS STUFF, INC., a Delaware
corporation (the "Company"), at any time after ______, 1998 (as herein defined)
and the Expiration Date (as hereinafter defined), upon the presentation and
surrender of this Warrant Certificate with the Subscription Form on the reverse
hereof duly executed, at the corporate office of American Stock Transfer and
Trust Company, as Warrant Agent, or its successor (the "Warrant Agent"),
accompanied by payment of $5.00, times the number of warrants exercised (the
"Purchase Price"), in lawful money of the United States of America in cash or by
official bank or certified check made payable to Kids Stuff, Inc.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement (the "Warrant Agreement") dated _____, 1997, by
and between the Company and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price and/or the number of shares of Common Stock
subject to purchase upon the exercise of each Warrant represented hereby are
subject to modifications or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all the Warrants represented hereby, the
Company shall cancel this Warrant Certificate upon the surrender hereof and
shall execute and deliver a new Warrant Certificate or Warrant Certificates of
like tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
<PAGE>
The term "Expiration Date" shall mean 5:00 p.m. (New York time) on
_______, 2002, or such earlier date as the Warrants shall be redeemed. If such
date shall in the State of New York be a holiday or a day on which the banks are
authorized to close, then the Expiration Date shall mean 5:00 p.m. (New York
time) the next following day which in the State of New York is not a holiday or
a day on which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant to
the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended, with respect to such securities is
effective. The Company has covenanted and agreed that it will file a
registration statement and will use its best efforts to cause the same to become
effective and to keep such registration statement current while any of the
Warrants are outstanding and the exercise price of the Warrants is less than the
market price of the Common Stock. This Warrant shall not be exercisable by a
Registered Holder in any state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by
the Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment with any transfer fee in addition
to any tax or other governmental charge imposed in connection therewith, for
registration of transfer of this Warrant Certificate at such office, a new
Warrant Certificate or Warrant Certificates representing an equal aggregate
number of Warrants will be issued to the transferee in exchange therefor,
subject to the limitations provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a stockholder of the Company,
including, without limitation, the right to vote or to receive dividends or
other distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided in the Warrant Agreement.
This Warrant may be redeemed at the option of the Company, at a
redemption price of $.05 per Warrant, at any time after one (1) year from the
Effective Date, provided the Market Price (as defined in the Warrant Agreement)
for the Common Stock issuable upon exercise of such Warrant shall equal or
exceed $12.00 per share. Notice of redemption shall be given not later than the
thirtieth day before the date fixed for redemption, all as provided in the
Warrant Agreement. On and after the date fixed for redemption, the Registered
Holder shall have no rights with respect to this Warrant except to receive the
$.05 per Warrant upon surrender of this Certificate.
Prior to due presentment for registration of transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and of each Warrant represented
2
<PAGE>
hereby (notwithstanding any notations of ownership or writing hereon made by
anyone other than a duly authorized officer of the Company or the Warrant Agent)
for all purposes and shall not be affected by any notice to the contrary.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York.
This Warrant Certificate is not valid unless countersigned by the
Warrant Agent.
3
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed, manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
KIDS STUFF, INC.
By: ______________________________
Its
Date: ______________________________
[Seal]
COUNTERSIGNED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
- ---------------------------------------
as Warrant Agent
By: ______________________________
Its
Authorized Officer
4
<PAGE>
[Form of Reverse of Class A Warrant Certificate]
SUBSCRIPTION FORM
To Be Executed by the Registered Holder in Order to Exercise Warrants
THE UNDERSIGNED REGISTERED HOLDER hereby irrevocably elects to exercise
_____ Warrants represented by this Warrant Certificate, and to purchase the
securities issuable upon the exercise of such Warrants, and requests that
certificates for such securities shall be issued in the name of
--------------------------------------------
(please insert taxpayer identification or other identifying number)
and be delivered to
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below:
--------------------------------------------
--------------------------------------------
--------------------------------------------
(Address)
---------------------------------
(Date)
---------------------------------
(Taxpayer Identification Number)
SIGNATURE GUARANTEED
ASSIGNMENT
To Be Executed by the Registered Holder in Order to Assign Warrants
FOR VALUE RECEIVED, hereby sells, assigns and transfers unto
<PAGE>
--------------------------------------------
(please insert taxpayer identification or other identifying number)
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
(please print or type name and address)
of the Warrants represented by this Warrant Certificate, and hereby irrevocably
constitutes and appoints _________________________________ Attorney to transfer
this Warrant Certificate on the books of the Company, with full power of
substitution in the premises.
---------------------------------
(Date)
SIGNATURE GUARANTEED
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE
AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE OR
MIDWEST STOCK EXCHANGE.
2
EXHIBIT 4.05
Option to Purchase
30,000 Units
KIDS STUFF, INC.
UNIT PURCHASE OPTION
Dated: , 1997
THIS CERTIFIES that VTR CAPITAL, INC.,99 Wall Street, New York, NY 10005
(hereinafter sometimes referred to as the "Holder"), is entitled to purchase
from KIDS STUFF, INC., a Delaware corporation (hereinafter referred to as the
"Company"), at the prices and during the periods as hereinafter specified, up to
30,000 Units ("Units") consisting of the Company's Common Stock and Warrants to
purchase the Company's Common Stock. Each Unit consists of two (2) shares of the
Company's Common Stock, $.001 par value, as now constituted ("Common Stock"),and
one (1) Class A Redeemable Common Stock Purchase Warrant to purchase one (1)
share of Common Stock as now constituted at an exercise price of $8.25 per share
("Class A Warrants" or "Warrants"). The Class A Warrants are exercisable until
______________, 2002.
The Units have been registered under a Registration Statement on Form
SB-2 (File No. 333-________ ) declared effective by the Securities and Exchange
Commission on __________, 1997 (the "Registration Statement"). This Option (the
"Option") to purchase 30,000 Units (the "Option Units") was originally issued
pursuant to an underwriting agreement between the Company and VTR Capital, Inc.,
as underwriter (the "Underwriter"), in connection with a public offering of up
to 345,000 Units (the "Public Units") through the Underwriter, in consideration
of $.001 per Option Unit.
Except as specifically otherwise provided herein, the Common Stock and
the Warrants issued pursuant to this Option shall bear the same terms and
conditions as described under the caption "Description of Securities" in the
Registration Statement, and the Warrants shall be governed by the terms of the
Warrant Agreement dated as of ______________, 1997 executed in connection with
such public offering (the "Warrant Agreement"), and except that (i) the holder
shall have registration rights under the Securities Act of 1933, as amended (the
"Act"), for the Option, the Common Stock and the Warrants included in the Units,
and the shares of Common Stock underlying the Warrants, as more fully described
in paragraph 6 of this Option, and (ii) the exercise price for the Class A
Warrants included in this Option are $8.25. In the event of any reduction of the
exercise price of the Warrants included in the Public Units,
<PAGE>
the same changes to the Warrants included in the Option Units shall be
simultaneously effected.
1. The rights represented by this Option shall be exercised at the
prices, subject to adjustment in accordance with paragraph 8 of this Option, and
during the periods as follows:
(a) Between _____________, 1998 and ____________, 2002,
inclusive, the Holder shall have the option to purchase Units hereunder at a
price of $12.00 per Unit (subject to adjustment pursuant to paragraph 8 hereof)
(the "Exercise Price").
(b) After _____________, 2002 (five (5) years from the Effective
Date), the Holder shall have no right to purchase any Units hereunder.
2. The rights represented by this Option may be exercised at any time
within the period above specified, in whole or in part, by (i) the surrender of
this Option (with the purchase form at the end hereof properly executed) at the
principal executive office of the Company (or such other office or agency of the
Company as it may designate by notice in writing to the Holder at the address of
the Holder appearing on the books of the Company); (ii) payment to the Company
of the Exercise Price then in effect for the number of Units specified in the
above-mentioned purchase form together with applicable stock transfer taxes, if
any; and (iii) delivery to the Company of a duly executed agreement signed by
the person(s)' designated in the purchase form to the effect that such person(s)
agree(s) to be bound by the provisions of paragraph 6 and subparagraphs (b), (c)
and (d) of paragraph 7 hereof. This Option shall be deemed to have been
exercised, in whole or in part to the extent specified, immediately prior to the
close of business on the date this Option is surrendered and payment is made in
accordance with the foregoing provisions of this paragraph 2, and the person or
persons in whose name or names the certificates for shares of Common Stock and
Warrants shall be issuable upon such exercise shall become the holder or holders
of record of such Common Stock and Warrants at that time and date. The Common
Stock and Warrants and the certificates for the Common Stock and Warrants so
purchased shall be delivered to the Holder within a reasonable time, not
exceeding ten (10) days, after the rights represented by this Option shall have
been so exercised.
3. For a period of one (1) year from the Effective Date, this Option
shall not be transferred, sold, assigned, or hypothecated, except that it may be
transferred to successors of the Holder, and may be assigned in whole or in part
to any person who is an officer of the Holder during such period. Any such
assignment shall be effected by the Holder (i) executing the form of assignment
at the end hereof and (ii) surrendering this Option for cancellation at the
office or agency of the Company referred to in paragraph 2 hereof, accompanied
by a certificate (signed by an
2
<PAGE>
officer of the Holder if the Holder is a corporation), stating that each
transferee is a permitted transferee under this paragraph 3 hereof; whereupon
the Company shall issue, in the name or names specified by the Holder
(including the Holder) a new Option or Options of like tenor and representing in
the aggregate rights to purchase the same number of Units as are purchasable
hereunder.
4. The Company covenants and agrees that all shares of Common Stock
which may be issued as part of the Units purchased hereunder and the Common
Stock which may be issued upon exercise of the Warrants will, upon issuance, be
duly and validly issued, fully paid and nonassessable, and no personal liability
will attach to the holder thereof. The Company further covenants and agrees that
during the periods within which this Option may be exercised, the Company will
at all times have authorized and reserved a sufficient number of shares of its
Common Stock to provide for the exercise of this Option and that it will have
authorized and reserved a sufficient number of shares of Common Stock for
issuance upon exercise of the Warrants included in the Units.
5. This Option shall not entitle the Holder to any voting, dividend, or
other rights as a stockholder of the Company.
6. (a) During the period set forth in paragraph l(a) hereof, the Company
shall advise the Holder or its transferee, whether the Holder holds the Option
or has exercised the Option and holds Units or any of the securities underlying
the Units, by written notice at least 30 days prior to the filing of any
post-effective amendment to the Registration Statement or of any new
registration statement or post-effective amendment thereto under the Act
covering any securities of the Company, for its own account or for the account
of others (other than a registration statement on Form S-4 or S-8 or any
successor forms thereto), and will for a period of seven (7) years from the
effective date of the Registration Statement, upon the request of the Holder,
include in any such post-effective amendment or registration statement, such
information as may be required to permit a public offering of the Option, all or
any of the Units underlying the Option, the Common Stock, or Warrants included
in the Units or the Common Stock issuable upon the exercise of the Warrants (the
"Registrable Securities"). The Company shall supply prospectuses and such other
documents as the Holder may request in order to facilitate the public sale or
other disposition of the Registrable Securities, use its reasonable efforts to
register and qualify any of the Registrable Securities for sale in such states
as such Holder designates provided that the Company shall not be required to
qualify as a foreign corporation or a dealer in securities or execute a general
consent to service of process in any jurisdiction in any action and do any and
all other acts and things which may be reasonably necessary or desirable to
enable such Holders to consummate the public sale or other disposition of the
Registrable Securities, and furnish indemnification in the manner provided in
paragraph 7 hereof. The Holder shall furnish information and indemnification as
set forth in paragraph 7 except that the maximum
3
<PAGE>
amount which may be recovered from the Holder shall be limited to the amount of
proceeds received by the Holder from the sale of the Registrable Securities. The
Company shall use its best efforts to cause the managing underwriter or
underwriters of a proposed underwritten offering to permit the holders of
Registrable Securities requested to be included in the registration to include
such securities in such underwritten offering on the same terms and conditions
as any similar securities of the Company included therein. Notwithstanding the
foregoing, if the managing underwriter or underwriters of such offering advises
the holders of Registrable Securities that the total amount of securities which
they intend to include in such offering is such as to materially and adversely
affect the success of such offering, then the amount of securities to be offered
for the accounts of holders of Registrable Securities shall be eliminated,
reduced, or limited to the extent necessary to reduce the total amount of
securities to be included in such offering to the amount, if any, recommended by
such managing underwriter or underwriters (any such reduction or limitation in
the total amount of Registrable Securities to be included in such offering to be
borne by the holders of Registrable Securities proposed to be included therein
pro rata). The Holder will pay its own legal fees and expenses and any
underwriting discounts and commissions on the securities sold by such Holder and
shall not be responsible for any other expenses of such registration.
(b) If any 50% holder (as defined below) shall give notice to the
Company at any time during the period set forth in paragraph l(a) hereof to the
effect that such holder desires to register under the Act this Option, the
Units, or any of the underlying securities contained in the Units underlying the
Option under such circumstances that a public distribution (within the meaning
of the Act) of any such securities will be involved, then the Company will
promptly, but no later than 45 days after receipt of such notice, file a
post-effective amendment to the current Registration Statement or a new
registration statement pursuant to the Act, to the end that the Option, the
Units and/or any of the securities underlying the Units may be publicly sold
under the Act as promptly as practicable thereafter and the Company will use its
best efforts to cause such registration to become and remain effective for a
period of 120 days (including the taking of such steps as are reasonably
necessary to obtain the removal of any stop order); provided that such holder
shall furnish the Company with appropriate information in connection therewith
as the Company may reasonably request in writing. The 50% holder (which for
purposes hereof shall mean any direct or indirect transferee of such holder)
may, at its option, request the filing of a post-effective amendment to the
current Registration Statement or a new registration statement under the Act
with respect to the Registrable Securities on only one occasion during the term
of this Option. The Holder may at its option request the registration of the
Option and/or any of the securities underlying the Option in a registration
statement made by the Company as contemplated by Section 6(a) or in connection
with a request made pursuant to this
4
<PAGE>
Section 6(b) prior to acquisition of the Units issuable upon exercise of
the Option and even though the Holder has not given notice of exercise of the
Option. The 50% holder may, at its option, request such post-effective amendment
or new registration statement during the described period with respect to the
Option, the Units as a unit, or separately as to the Common Stock and/or
Warrants included in the Units and/or the Common Stock issuable upon the
exercise of the Warrants, and such registration rights may be exercised by the
50% holder prior to or subsequent to the exercise of the Option. Within ten
business days after receiving any such notice pursuant to this subsection (b) of
paragraph 6, the Company shall give notice to the other holders of the Options,
advising that the Company is proceeding with such post-effective amendment or
registration statement and offering to include therein the securities underlying
the Options of the other holders. Each holder electing to include its
Registrable Securities in any such offering shall provide written notice to the
Company within twenty (20) days after receipt of notice from the Company. The
failure to provide such notice to the Company shall be deemed conclusive
evidence of such holder's election not to include its Registrable Securities in
such offering. Each holder electing to include its Registrable Securities shall
furnish the Company with such appropriate information (relating to the
intentions of such holders) in connection therewith as the Company shall
reasonably request in writing. All costs and expenses of the first such
post-effective amendment or new registration statement shall be borne by the
Company, except that the holders shall bear the fees of their own counsel and
any underwriting discounts or commissions applicable to any of the securities
sold by them.
In addition to the rights granted to 50% holders pursuant to this
section 6(b), any holder(s) shall have such rights, however, all expenses shall
be borne by such holder(s).
The Company shall be entitled to postpone the filing of any
registration statement pursuant to this Section 6(b) otherwise required
to be prepared and filed by it if (i) the Company is engaged in a material
acquisition, reorganization, or divestiture, (ii) the Company is currently
engaged in a self-tender or exchange offer and the filing of a registration
statement would cause a violation of Rule 10b-6 under the Securities Exchange
Act of 1934, (iii) the Company is engaged in an underwritten offering and the
managing underwriter has advised the Company in writing that such a registration
statement would have a material adverse effect on the consummation of such
offering or (iv) the Company is subject to an underwriter's lock-up as a result
of an underwritten public offering and such underwriter has refused in writing,
the Company's request to waive such lock-up. In the event of such postponement,
the Company shall be required to file the registration statement pursuant to
this Section 6(b), within 60 days of the consummation of the event requiring
such postponement.
The Company will use its best efforts to maintain such
registration statement or post-effective amendment current
5
<PAGE>
under the Act for a period of at least six months (and for up to an additional
three months if requested by the Holder) from the effective date thereof. The
Company shall supply prospectuses, and such other documents as the Holder may
reasonably request in order to facilitate the public sale or other disposition
of the Registrable Securities, use its best efforts to register and qualify any
of the Registrable Securities for sale in such states as such holder designates,
provided that the Company shall not be required to qualify as a foreign
corporation or a dealer in securities or execute a general consent to service of
process in any jurisdiction in any action and furnish indemnification in the
manner provided in paragraph 7 hereof. The demand registration rights granted
hereunder will expire no later than five (5) years from the effective date of
this offering.
(c) The term "50% holder" as used in this paragraph 6 shall mean
the holder of more than 50% of the Common Stock and the Warrants underlying the
Option (considered in the aggregate) and shall include any owner or combination
of owners of such securities, which ownership shall be calculated by determining
the number of shares of Common Stock held by such owner or owners as well as the
number of shares then issuable upon exercise of the Warrants.
7. (a) Whenever pursuant to paragraph 6 a registration statement
relating to the Option or any shares or warrants issued or issuable upon the
exercise of any Options, is filed under the Act, amended or supplemented, the
Company will indemnify and hold harmless each holder of the securities covered
by such registration statement, amendment, or supplement (such holder being
hereinafter called the "Distributing Holder"), and each person, if any, who
controls (within the meaning of the Act) the Distributing Holder, and each
underwriter (within the meaning of the Act) of such securities and each person,
if any, who controls (within the meaning of the Act) any such underwriter,
against any losses, claims, damages, or liabilities, joint or several, to which
the Distributing Holder, any such controlling person or any such underwriter may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) which arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in any such registration statement or any preliminary prospectus
or final prospectus constituting a part thereof or any amendment or supplement
thereto, or which arise out of or are based upon the omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading; and will reimburse the Distributing Holder and each such
controlling person and underwriter for any legal or other expenses reasonably
incurred by the Distributing Holder or such controlling person or underwriter in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the Company will not be liable in
any such case to the extent that any such loss, claim, damage, or liability
arises out of or is based upon an untrue statement or alleged
6
<PAGE>
untrue statement or omission or alleged omission made in said registration
statement, said preliminary prospectus, said final prospectus, or said amendment
or supplement in reliance upon and in conformity with written information
furnished by such Distributing Holder or any other Distributing Holder, for use
in the preparation thereof.
(b) The Distributing Holder will indemnify and hold harmless the
Company, each of its directors, each of its officers who have signed said
registration statement and such amendments and supplements thereto, each person,
if any, who controls the Company (within the meaning of the Act) against any
losses, claims, damages, or liabilities, joint and several, to which the Company
or any such director, officer, or controlling person may become subject, under
the Act or otherwise, insofar as such losses, claims, damages, or liabilities
arise out of or are based upon any untrue or alleged untrue statement of any
material fact contained in said registration statement, said preliminary
prospectus, said final prospectus, or said amendment or supplement, or arise out
of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in said registration statement, said preliminary prospectus,
said final prospectus, or said amendment or supplement in reliance upon and in
conformity with written information furnished by such Distributing Holder for
use in the preparation thereof; and will reimburse the Company or any such
director, officer, or controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability, or action.
(c) Promptly after receipt by an indemnified party under this
paragraph 7 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying
party, give the indemnifying party notice of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Paragraph 7.
(d) In case any such action is brought against any indemnified
party, and it notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
paragraph 7 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof.
7
<PAGE>
8. The Exercise Price in effect at any time and the number and kind of
securities purchasable upon the exercise of this Option shall be subject to
adjustment from time to time upon the happening of certain events as follows:
(a) In case the Company shall (i) declare a dividend or make a
distribution on its outstanding shares of Common Stock in shares of Common
Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock into
a greater number of shares, or (iii) combine or reclassify its outstanding
shares of Common Stock into a smaller number of shares, the Exercise Price in
effect at the time of the record date for such dividend or distribution or of
the effective date of such subdivision, combination or reclassification shall be
adjusted so that it shall equal the price determined by multiplying the Exercise
Price by a fraction, the denominator of which shall be the number of shares of
Common Stock outstanding after giving effect to such action, and the numerator
of which shall be the number of shares of Common Stock outstanding immediately
prior to such action. Notwithstanding anything to the contrary contained in the
Warrant Agreement, in the event an adjustment to the Exercise Price is effected
pursuant to this Subsection (a) (and a corresponding adjustment to the number of
Option Units is made pursuant to Subsection (d) below), the exercise price of
the Warrants shall be adjusted so that it shall equal the price determined by
multiplying the exercise price of the Warrants by a fraction, the denominator of
which shall be the number of shares of Common Stock outstanding immediately
after giving effect to such action and the numerator of which shall be the
number of shares of Common Stock outstanding immediately prior to such action.
In such event, there shall be no adjustment to the number of shares of Common
Stock or other securities issuable upon exercise of the Warrants. Such
adjustment shall be made successively whenever any event listed above shall
occur.
(b) In case the Company shall fix a record date for the issuance
of rights or warrants to all holders of its Common Stock entitling them to
subscribe for or purchase shares of Common Stock (or securities convertible into
Common Stock) at a price (the "Subscription Price") (or having a conversion
price per share) less than the current market price of the Common Stock (as
defined in Subsection (e) below) on the record date mentioned below, the
Exercise Price shall be adjusted so that the same shall equal the price
determined by multiplying the number of shares then comprising an Option Unit by
the product of the Exercise Price in effect immediately prior to the date of
such issuance multiplied by a fraction, the numerator of which shall be the sum
of the number of shares of Common Stock outstanding on the record date mentioned
below and the number of additional shares of Common Stock which the aggregate
offering price of the total number of shares of Common Stock so offered (or the
aggregate conversion price of the convertible securities so offered) would
purchase at such current market price per share of the Common Stock, and the
denominator of which shall be the sum of the number of shares of Common Stock
outstanding on such record date and the number of additional shares
8
<PAGE>
of Common Stock offered for subscription or purchase (or into which the
convertible securities so offered are convertible). Such adjustment shall be
made successively whenever such rights or warrants are issued and shall become
effective immediately after the record date for the determination of
shareholders entitled to receive such rights or warrants; and to the extent that
shares of Common Stock are not delivered (or securities convertible into Common
Stock are not delivered) after the expiration of such rights or warrants the
Exercise Price shall be readjusted to the Exercise Price which would then be in
effect had the adjustments made upon the issuance of such rights or warrants
been made upon the basis of delivery of only the number of shares of Common
Stock (or securities convertible into Common Stock) actually delivered.
(c) In case the Company shall hereafter distribute to the holders
of its Common Stock evidences of its indebtedness or assets (excluding cash
dividends or distributions and-dividends or distributions referred to in
Subsection (a) above) or subscription rights or warrants (excluding those
referred to in Subsection (b) above), then in each such case the Exercise Price
in effect thereafter shall be determined by multiplying the number of shares
then comprising an Option Unit by the product of the Exercise Price in effect
immediately prior thereto multiplied by a fraction, the numerator of which shall
be the total number of shares of Common Stock outstanding multiplied by the
current market price per share of Common Stock (as defined in Subsection (e)
below), less the fair market value (as determined by the Company's Board of
Directors) of said assets or evidences of indebtedness so distributed or of such
rights or warrants, and the denominator of which shall be the total number of
shares of Common Stock outstanding multiplied by such current market price per
share of Common Stock. Such adjustment shall be made successively whenever such
a record date is fixed. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after the record
date for the determination of shareholders entitled to receive such
distribution.
(d) Whenever the Exercise Price payable upon exercise of this
Option is adjusted pursuant to Subsections (a), (b) or (c) above, the number of
Option Units purchasable upon exercise of this Option shall simultaneously be
adjusted by multiplying the number of Option Units initially issuable upon
exercise of this Option by the Exercise Price in effect on the date hereof and
dividing the product so obtained by the Exercise Price, as adjusted.
(e) For the purpose of any computation under Subsections (b) or
(c)above, the current market price per share of Common Stock at any date shall
be deemed to be the average of the daily closing prices for 20 consecutive
business days before such date. The closing price for each day shall be the last
sale price regular way or, in case no such reported sale takes place on such
day, the average of the last reported bid and asked prices regular way, in
9
<PAGE>
either case on the principal national securities exchange on which the Common
Stock is admitted to trading or listed, or if not listed or admitted to trading
on such exchange, the average of the highest reported bid and lowest reported
asked prices as reported by NASDAQ, or other similar organization if NASDAQ is
no longer reporting such information, or if not so available, the fair market
price as determined by the Board of Directors.
(f) No adjustment in the Exercise Price shall be required unless
such adjustment would require an increase or decrease of at least ten cents
($0.10) in such price; provided, however, that any adjustments which by reason
of this Subsection (f) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment required to be made hereunder.
All calculations under this Section 8 shall be made to the nearest cent or to
the nearest one-hundredth of a share, as the case may be. Anything in this
Section 8 to the contrary notwithstanding, the Company shall be entitled, but
shall not be required, to make such changes in the Exercise Price, in addition
to those required by this Section 8, as it shall determine, in its sole
discretion, to be advisable in order that any dividend or distribution in shares
of Common Stock, or any subdivision, reclassification or combination of Common
Stock, hereafter made by the Company shall not result in any Federal Income tax
liability to the holders of Common Stock or securities convertible into Common
Stock (including Warrants issuable upon exercise of this Option).
(g) Whenever the Exercise Price is adjusted, as herein provided,
the Company shall promptly, but no later than 10 days after any request for such
an adjustment by the Holder, cause a notice setting forth the adjusted Exercise
Price and adjusted number of Option Units issuable upon exercise of this Option
and, if requested, information describing the transactions giving rise to such
adjustments, to be mailed to the Holder, at the address set forth herein, and
shall cause a certified copy thereof to be mailed to its transfer agent, if any.
The Company may retain a firm of independent certified public accountants
selected by the Board of Directors (who may be the regular accountants employed
by the Company) to make any computation required by this Section 8, and a
certificate signed by such firm shall be conclusive evidence of the correctness
of such adjustment.
(h) In the event that at any time, as a result of an
adjustment made pursuant to Subsection (a) above, the Holder thereafter shall
become entitled to receive any shares of the Company, other than Common Stock,
thereafter the number of such other shares so receivable upon exercise of this
Option shall be subject to adjustment from time to time in a manner and on terms
as nearly equivalent as practicable to the provisions with respect to the Common
Stock contained in Subsections (a) to (f), inclusive above.
9. This Agreement shall be governed by and in accordance
with the laws of the State of New York.
10
<PAGE>
IN WITNESS WHEREOF, Kids Stuff, Inc. has caused this Option to be signed
by its duly authorized officers under its corporate seal, and this Option to be
dated _____________________, 1997.
KIDS STUFF, INC.
By: ______________________________
Its
(Corporate Seal)
11
<PAGE>
PURCHASE FORM
(To be signed only upon exercise of option)
THE UNDERSIGNED, the holder of the foregoing Option, hereby irrevocably
elects to exercise the purchase rights represented by such Option for, and to
purchase thereunder,
Units of Kids Stuff, Inc., each Unit consisting of two shares of $.001
Par Value Common Stock and one Class A Redeemable Common Stock Purchase Warrant,
and herewith makes payment of $______________ therefor, and requests that the
Warrants and certificates for shares of Common Stock be issued in the name(s)
of, and delivered to ________________________ whose address(es) is
(are)_________________________________________.
Dated:
<PAGE>
TRANSFER FORM
(To be signed only upon transfer of the Option)
For value received, the undersigned hereby sells, assigns, and transfers
unto _________________________________ the right to purchase Units represented
by the foregoing Option to the extent of _____ Units, and appoints
_________________________________ attorney to transfer such rights on the books
of Kids Stuff, Inc., with full power of substitution in the premises.
Dated:
By: ______________________________
Address:
------------------------------
------------------------------
------------------------------
In the presence of:
EXHIBIT 10.01
ASSET PURCHASE AGREEMENT
AGREEMENT dated as of May 14, 1996, among DUNCAN HILL COMPANY,
INC., an Ohio corporation ("Buyer"), WILLIAM L. MILLER AND JEANNE MILLER, both
individuals residing in Ohio (collectively referred to herein as "Buyer
Shareholders"), THE NATURAL BABY COMPANY, INC., a New Jersey corporation
("Seller") and Daniel Martin and Jane Martin, both individuals residing in New
Jersey (collectively referred to herein as "Shareholders").
RECITALS:
A. Seller owns and operates a catalog retail business in Trenton,
New Jersey and doing business throughout the United States (the "Business").
B. Seller desires to sell, and Buyer desires to purchase,
substantially all of the operating assets used or useful in the Business, as
well as the Business as a going concern.
C. As a material inducement to Buyer to enter into this
Agreement, Shareholders are each willing to enter into consulting and\or
non-competition agreements with Buyer, as well as this Agreement.
D. As a material inducement to Seller to enter into this
Agreement, Buyer Shareholders are each willing to enter into this Agreement.
AGREEMENT:
In consideration of the foregoing recitals, and the mutual
covenants and agreements set forth herein, the parties agree:
1. PURCHASE AND SALE OF ASSETS.
1.1. DESCRIPTION OF PURCHASED ASSETS. Seller shall sell, assign,
transfer and deliver, and Buyer shall purchase and accept, certain operating
assets used or useful in the Business, as the same exist upon Closing hereof
(collectively hereinafter sometimes referred to as the "Assets"), which Assets
shall include:
(a) all of the fixed assets shown on the December 31, 1995
balance sheet of Seller previously delivered to Buyer and as listed on SCHEDULE
1.1(A) attached hereto and made part hereof (the "Purchased Fixed Assets"),
subject to such changes in the Purchased Fixed Assets as shall arise in the
ordinary course of business through the date of Closing;
(b) all of Seller's inventory of products, and all supplies on
hand (the "Purchased Inventories");
1
<PAGE>
(c) all customer lists, supplier lists, catalogs, price lists,
marketing and promotional materials, credit files, operating data, patents,
copyrights, know how, show how, trademarks, service marks and trade names
(including the marks and name incorporating the phrases "Natural Baby" or "The
Natural Baby Company, Inc."), trade secrets, licenses, all operating, sales, and
marketing data used or useful in, or pertaining to, the Business and the Assets
(the "Purchased Rights");
(d) all rights under the contracts and other agreements, if any,
set forth on SCHEDULE 4.13) attached hereto and made part hereof (the "Purchased
Contracts"), as well as open purchase orders outstanding at Closing, subject to
such changes in the Purchased Contracts as shall arise in the ordinary course of
business through the date of Closing; ;
(e) all accounts and notes receivable, excluding the receivables
set forth on SCHEDULE 1.1(e) but subject to the agreements respecting
uncollectibility set forth in Section 6.2 hereof; and
(f) all other property and rights of every kind and nature owned
or held by Seller on the date of Closing, used or useful in the Business or
relating to the Assets, regardless of whether specifically referred to in this
Agreement, including Seller's cash on hand, marketable securities, bank
deposits, prepaid items and the like, and excepting only those assets listed on
SCHEDULE 1.1(e) attached hereto and made part hereof.
1.2. LIMITED ASSUMPTION OF LIABILITIES. At Closing, Buyer shall
assume and agrees to discharge in full when due all accounts payable of Seller
incurred in the ordinary course of business prior to Closing, whether invoiced
to Seller or not, and the specific liabilities of Seller shown on SCHEDULE 1.2,
including (i) Seller's long term debt of $203,358.25, plus interest thereon
until Closing to relatives of Shareholders; (ii) up to $50,000 of the Seller's
credit line at New Jersey National Bank, both of which Buyer shall pay to Seller
for payment in full contemporaneously with the Closing (as hereinafter defined),
and (iii) certain leasehold obligations shown on SCHEDULE 1.2. Except for the
foregoing limited liabilities expressly assumed by Buyer, all other liabilities
and obligations of Seller arising out of its operation of the Business, or
otherwise affecting the Assets or Business, shall remain Seller's sole
responsibility and Seller hereby agrees to discharge such liabilities and
obligations in full as they become due.
1.3. NET WORTH. Seller and Shareholders hereby represent and
warrant to Buyer that, as of the date of Closing hereof, the book value of the
Assets transferred to Buyer, less the liabilities assumed pursuant to Section
1.2, shall be not less than $250,000.
2. PURCHASE PRICE AND PAYMENT.
2.1. PURCHASE PRICE. The purchase price for the Assets is
$1,000,000, plus assumption of the liabilities referred to in Section 1.2 hereof
in the approximate aggregate amount of $1,502,034. The purchase price shall be
allocated as follows: physical assets at cost less depreciation, $60,950 to
goodwill, and the balance of approximately
2
<PAGE>
$505,000 to the mailing list. Adjustments to the foregoing allocations shall be
made first to goodwill, then to the mailing list.
2.2. PAYMENT. At Closing, Buyer shall deliver to Seller, by
immediately payable funds payable to Seller, the purchase price. Buyer shall
also deliver, by bank check or cashier's check payable to Seller and the debt
holding relatives listed on Schedule 1.2, $203,358.25 plus interest through
Closing to discharge Seller's debt to the latter. Buyer shall also deliver, by
bank check or cashier's check payable to Seller and New Jersey National Bank, an
amount of up to $50,000 of the balance due on said credit facility through
Closing to discharge Seller's debt to the latter.
2.3 ADJUSTMENTS.
(a) In the event that Closing occurs after July 31, 1996 and before
October 1, 1996, at Closing Buyer shall deliver to Seller in compliance with
applicable securities laws 20,000 shares of common stock. In the event that the
20,000 shares of common stock issued to Buyer has a fair market value of less
than 140% of the Delay Amount upon the earlier of (i) registration or (ii) two
years from the date of this Agreement, then Buyer shall immediately issue to
Buyer (or its designee) such additional shares as necessary to cause the fair
market value to equal 140% of the Delay Amount. The "Delay Amount" shall be
determined as follows: an additional $30,000 if Closing is after July 31, 1996
and before September 1, 1996; an additional $50,000 if Closing is after August
31, 1996 and before September 15, 1996; or an additional $70,000 if Closing is
after September 15, 1996 and before October 1, 1996, (such additional amount
referred to herein as the "Delay Amount"); Buyer grants to Seller or its
assignee piggyback registration rights with regard to any securities issued to
it under this section and shall give Seller at least 30 days advance notice of
any such registration and the exact terms and conditions of such offering of
securities all at the expense of Buyer. "Piggyback registration rights" granted
hereunder means that Buyer shall exercise its best efforts to obtain
registration of the securities issued to Seller hereunder in the event Buyer
registers with the Securities and Exchange Commission any of the same class of
securities for sale to the public. Buyer and Buyer Shareholders agree that in
the event Buyer registers any securities for sale to the public by the Buyer
shareholders, Buyer shall cause the registration of an equal number of
securities to be registered for Seller.
Therefore, if Closing is after October 1, 1996, then the Purchase Price
shall be the same as if Closing occurred prior to August 1, 1996)
(b) It is the intent of the parties to close the purchase based upon the
net worth reflected in Seller's December 31, 1995 Balance Sheet. Therefore, the
parties agree that the Purchase Price shall be decreased in amount equal to any
decrease in the tangible net worth of the Seller between December 31, 1995 and
the Closing. Further, in the event the tangible net worth of the Seller
increases between December 31, 1995 and Closing the Seller shall be entitled to
issue a dividend or bonus on or at Closing to its shareholders or reimbursement
thereafter in accordance with the provisions herein for post Closing adjustments
in an amount equal to such increase.
3
<PAGE>
(c) Buyer shall pay Seller for fifty percent (50%) of the cost basis for
"Obsolete Inventory" for up to $60,000 of Obsolete Inventory and shall not pay
for Obsolete Inventory above $60,000 of cost basis. Obsolete Inventory mean (i)
inventory reflected on the December 31, 1995 balance sheet, other than seasonal
items, which have not been included in the most recent catalog printed by
Seller; or, (ii) any inventory which has (a) been discontinued by a supplier or
manufacturer, (b) for which there is no ready alternative supplier and (c) there
is insufficient quantity to on hand to reasonably justify inclusion in a
catalog. Buyer agrees that in the event it subsequently sell any Obsolete
Inventory at a price greater than its cost plus direct selling costs, Seller
shall be paid an amount equal to sixty percent (60%) the amount of such excess.
(d) Buyer shall not purchase nor pay Seller for accounts receivable in
excess of one hundred twenty (120) days at Closing and the Purchase Price shall
be decreased by an amount equal to the over 120 day receivables.
(e) Buyer shall not purchase the receivables due Seller from Steve Craig
or 100% Cotton Diaper Co. nor shall the Purchase Price be reduced by the amount
of the foregoing receivables.
2.4 Buyer has paid to Seller upon execution hereof the sum of Twenty
Five Thousand Dollars ($25,000) as a non-refundable deposit, subject to
completion of Buyer's due diligence as set forth below, which amount shall be
credited against the purchase price upon Closing. Upon the failure by Buyer to
Close other than in accordance with Section 3.2.3 hereof, Seller shall be
entitled to retain said sum. Upon the failure by Buyer to Close other than in
accordance with Article 3.2, Seller shall also be further entitled to delivery
of a Promissory Note from Buyer in the amount of $87,500, in the form attached
hereto as Exhibit J, guaranteed by William L. Miller due and payable on January
3, 1997. The aggregate amount of the retained deposit and the Promissory Note
shall be deemed the mutually agreed upon liquidated damages to Seller resulting
from Buyer's failure to Close. Buyer expressly waives any right to compel
specific performance hereof or any other remedy it may have at law or equity for
Buyer's failure to close. The foregoing is not intended to limit Seller's
damages relating to any breach by Buyer of its warranties and representations in
Article 5 below.
2.5 Preliminary Closing Statement.
(a) As soon as reasonably possible after the Closing Date but in any
event within sixty (60) days thereafter, Seller shall prepare and deliver to
Buyer a balance sheet for Seller as of the Closing Date (the "PRELIMINARY
CLOSING STATEMENT").
(b) The Preliminary Closing Statement shall be prepared in accordance
with the accounting principles applied on a basis consistent with that applied
in preparing the Seller's December 31, 1995 Balance Sheet.
(c) Buyer will make available to Seller and its representative, as
reasonably requested by Seller, all books, records and other documents
pertaining to the business of the Seller deemed necessary or desirable by Seller
in preparing the Preliminary Closing
4
<PAGE>
Statement and personnel responsible for preparing or maintaining such books,
records and documents. Seller shall provide to Buyer at the Closing or as soon
thereafter as is reasonably possible all appropriate books and records of the
business being sold pursuant to this Agreement and the transaction contemplated
hereby, to the extent such books and records are not already at the Seller's
offices.
2.6. REVIEW OF STATEMENTS. Buyer and its independent certified public
accountants may review the Preliminary Closing Statement and the books of
account and basis of calculation of Seller relating to the Assets and may make
inquiry of the representative of Seller's accountants and Seller. The
Preliminary Closing Statement shall be binding and conclusive upon, and deemed
accepted by, Buyer unless Buyer shall have notified Seller in writing within
thirty (30) days after receipt of the Preliminary Closing Statement of any
objections thereto. Objections in the aggregate equal to or less than $3,000
shall be deemed to be DE MINIMIS and therefore waived. A notice under this
Section 2.6 shall specify in reasonable detail the items in the Preliminary
Closing Statement which are being disputed, and a summary of the reasons for
such dispute.
2.7 DISPUTES; FINAL CLOSING STATEMENT. (a) At the request of either
party, any dispute between the parties relating to the Preliminary Closing
Statement which cannot be resolved by them within thirty (30) days after receipt
of notice of any objections to such Preliminary Closing Statement pursuant to
Section 2.6 shall be referred to the Disputes Auditor for decision, which shall
be final and binding on both parties. The parties agree that they will require
the Disputes Auditor to render its decision with thirty (30) days after referral
of the dispute to the Disputes Auditor for decision pursuant hereto.
(b) Before referring a matter to the Disputes Auditor, the parties shall
agree on procedures to be followed by the Disputes Auditor (including procedures
for presentation of evidence). If the parties are unable to agree upon
procedures before the end of thirty (30) days after receipt of notice of any
objections pursuant to Section 2.6, the Disputes Auditor shall establish
procedures giving due regard to the intention of the parties to resolve disputes
as quickly, efficiently and inexpensively as possible. The Disputes Auditor's
procedures may be, but need not be, those proposed by either party. The parties
shall, as promptly as practicable, submit evidence in accordance with the
procedures agreed upon or established by the Disputes Auditor, and the Disputes
Auditor shall decide the dispute in accordance therewith as promptly as
practicable. The fee of the Disputes Auditor for, and relating to, the making of
any such decision shall be borne by the parties equally. Each Party shall bear
its own costs and expenses incurred by it in connection with any such dispute.
(c) The Preliminary Closing Statements shall become final and binding on
both parties upon the earliest of (i) if no such notice has been given, the
expiration of the period within which Buyer may notify Seller of any objections
thereto pursuant to Section 2.6, (ii) agreement by Seller and Buyer that such
Preliminary Closing Statement, together with any modifications thereto agreed by
Seller and Buyer, shall be final and binding and (iii) the date on which the
Disputes Auditor shall issue its decision with respect to any dispute relating
to such Preliminary Closing Statement. The Preliminary Closing Statement, as
adjusted pursuant to any agreement between the parties or pursuant to the
decision of the
5
<PAGE>
DISPUTES AUDITOR, WHEN FINAL AND BINDING ON BOTH PARTIES, IS HEREIN REFERRED TO
AS THE "FINAL CLOSING STATEMENT".
(d) The Disputes Auditor shall be composed of three independent
certified public accountants, one selected by Seller and one selected by Buyer
and the third selected by the accountants selected by the parties.
2.8 ADJUSTMENT. Within ten business days after the Preliminary Closing
Statement having become final and binding on Seller and Buyer pursuant to
Section 2.7:
(a) If the Final Closing Statement shows a balance due Seller pursuant
to Section 2.2 as adjusted in accordance with Section 2.3, then Buyer shall pay
to Seller, by wire transfer in immediately available funds to the account
designated by Seller, an amount equal to such excess, or
(b) If the Final Closing Statement shows that aggregate amount paid by
Buyer to Seller pursuant to Section 2.2 as adjusted in accordance with Section
2.3 exceeds the Purchase Price, Seller Shall pay to Buyer, by wire transfer in
immediately available funds to the account designated by Buyer, an amount equal
to such excess.
3. CLOSING.
3.1. DATE AND PLACE. The consummation of the transactions
contemplated herein (the "Closing") shall take place on or before January 3,
1997 in accordance with the terms of this Agreement at the offices of Seller.
Closing shall not take place between October 1, 1996 and December 28, 1996.
Buyer shall give Seller FIFTEEN (15) days notice of its readiness to close.
Buyer shall exercise its best efforts to inform Seller of the status of its
financing for the purchase during the term hereof.
3.2 CONDITIONS TO BUYER'S OBLIGATIONS TO CLOSE.
The obligations of the Buyer hereunder are subject to the conditions that on
or before the Closing date:
3.2.1. No fire, flood or other disaster, whether or not covered by insurance
shall have occurred prior to Closing which in any manner shall have destroyed or
made unusable any substantial part of the Assets to be purchased hereunder or
the premises to be leased at 816 Sylvia Street, Trenton, New Jersey.
"Substantial part" shall mean twenty percent (20%) or more for purposes of this
paragraph.
3.2.2. That no material litigation has been instituted or threatened
affecting the Seller's ability to transfer title to the property contemplated in
the within Purchase Agreement, and further that Buyer has been made aware of all
pending litigation involving Seller as of this date.
3.2.3 DUE DILIGENCE. Buyer shall have until June 14, 1996 to complete its
due diligence. This Agreement is contingent upon Buyer obtaining satisfactory
results from such due
6
<PAGE>
diligence. "Satisfactory results" shall mean that the representations and
warranties of Seller set forth in Article 4.6, 4.11, 4.13, and 4.20 herein are
true and correct in all material respects as of March 31, 1996. Seller shall
have the right to remedy any inconsistency revealed in the due diligence
process. Buyer and Seller agree to negotiate in good faith as to any matter not
readily remediable by Seller. Between the date hereof and June 4, 1996 Seller
shall provide Buyer, its agents, counsel, accountants and other representatives
access during normal business hours to all properties, books, contracts,
documents and records with respect to Seller as may be reasonably requested by
Buyer. Buyer shall maintain confidentiality of information received from Seller
in accordance with the previously signed confidentiality agreement between the
parties and further provided that such due diligence shall not unreasonably
interfere with normal operations of Seller's business.
3.2.4 MATERIAL CHANGE. Closing of this Agreement is subject to the
contingency that there shall have been no material change in the business of
Seller between the date hereof and Closing. "Material change" shall mean a
significant adverse event which results in a twenty percent or more decrease in
Seller's 1996 revenue through the date of closing compared to the same period in
1995, the death or total disability of Jane Martin, or a decline in the net
worth of Seller to an amount less than $250,000.
3.2.5 LEGAL REVIEW. Buyer shall have until the completion of its due
diligence under 3.2.3 above to obtain legal counsel licensed in the State of New
Jersey to advise Buyer whether the choice of New Jersey law governing this
Agreement would have unanticipated, substantive, material and adverse impact
upon Buyer. In the event that Buyer's legal counsel does determine that the
choice of New Jersey law governing this Agreement as opposed to Ohio law would
have unanticipated, substantive, material and adverse impact upon Buyer, then
Buyer may elect to terminate this Agreement. If Buyer so elects, Seller shall be
entitled to retain the $25,000 deposit.
3.3. DELIVERIES BY BUYER. Buyer shall deliver to Seller and/or
Shareholders, against the deliveries specified in Section 3.4 below:
(a) the cash payment in accordance with Section 2.2 hereof;
(b) Buyer shall submit to Seller in proper form all necessary
Board of Directors minutes, resolutions and other necessary documents properly
executed by the Board of Directors authorizing Buyer to enter into this
AGREEMENT and granting authority for the proper officers to execute this
agreement.
3.4. DELIVERIES BY SELLER AND SHAREHOLDERS. Seller and
Shareholders shall deliver to Buyer, against the deliveries specified in Section
3.3 above:
(a) a general bill of sale conveying good title to the Assets,
free and clear of all liens, security interests, encumbrances, and claims or
rights of others;
(b) all consents of third parties necessary to transfer the
Assets, other than real property leases, to Buyer;
7
<PAGE>
(c) legal opinion of Seller's counsel (Daniel Martin), of even
date herewith, addressing the matters set forth in EXHIBIT C, in form and
substance satisfactory to Buyer and its counsel;
(d) proof of payment of the $203,358.25 of long-term debt of
Seller;
(e) a certificate of the Secretary of State of New Jersey as to
the good standing of Seller in New Jersey as of a date not more than 10 days
prior to the date of Closing; and
(f) The Noncompetition Agreement and Consulting Agreement
provided for in Section 6.4 and the Employment Agreement with Sue Pratt.
(g) The resolution of both the Board of Directors and the
Shareholders authorizing the sale of Assets as are affected by this Agreement.
(h) such other separate instruments of sale, assignment or
transfer as Buyer and its counsel may deem necessary or appropriate in order to
perfect, confirm or evidence title in Buyer to all or any part of the Assets.
(i) detailed statements of aged receivables, aged payables and
list of assets, as current as reasonably possible.
In addition, Seller shall exercise its best efforts to obtain
Assignment of the lease (with approval by the landlord) to the premises at 816
Sylvia Street, Trenton, New Jersey, where Seller maintains its principal office,
a copy of which lease is attached hereto as Exhibit "F" and made a part hereof.
4. REPRESENTATIONS AND WARRANTIES OF SELLER AND SHAREHOLDERS.
Except as set forth in the Closing Exception Schedule presented by Seller at
Closing or as may be readily ascertainable from Seller's financial statements
presented at Closing, Seller and Shareholders hereby represent and warrant to
Buyer as follows:
4.1. ORGANIZATION AND AUTHORITY OF SELLER. Seller is a
corporation duly organized, validly existing and in good standing under the laws
of the State of New Jersey, and has all requisite corporate power and authority
to own or lease and operate its properties and to carry on the Business as now
conducted.
4.2. CORPORATE POWER OF SELLER, BINDING EFFECT ON SELLER; NO
CONFLICTS. Seller has all requisite power and full legal right to enter into
this Agreement with Buyer, and to perform all of its agreements and obligations
hereunder in accordance with its terms. This Agreement has been duly authorized
by Seller's Board of Directors and Shareholders, has been duly executed and
delivered by Seller, and (assuming due execution and delivery by Buyer)
constitutes the legal, valid and binding obligation of Seller, enforceable
against Seller in accordance with its terms, subject only to the effects of
bankruptcy, insolvency and similar laws of general application and principles of
equity. Neither the execution, delivery
8
<PAGE>
or performance by Seller of this Agreement will result in any violation of or
default or creation of any lien under, or the acceleration or vesting or
modification of any right or obligation under, or in any conflict with, the
Articles of Incorporation or Code of Regulations of Seller, or of any agreement,
instrument, statute, rule or regulation, or of any judgment, injunction, decree,
award or order of any court or state or federal governmental or regulatory body,
binding on or applicable to Seller.
4.3. VALIDITY OF LICENSES. Seller has obtained all approvals,
leases or licenses, governmental and private, necessary for the ordinary course
of business as presently conducted, and the consummation of the transactions
contemplated hereby will not alter or impair any such approval, lease or
license, each of which is freely transferable by Seller, except for the real
property leases which require landlord's approval, as disclosed herein.
4.4. SUBSIDIARIES OF SELLER. Seller does not own or hold of
record and/or beneficially any shares of any class in the capital or, or any
other securities issued by, any corporation. Seller does not own any legal
and/or beneficial interests in any partnerships, business trusts or joint
ventures or in any other unincorporated trade or business enterprises.
4.5. OWNERSHIP OF SELLER. The authorized capital of Seller
consists of shares of common stock. All of the outstanding shares of capital
stock of Seller are owned of record by the Shareholders. There are no
outstanding subscriptions, options, warrants, puts, calls, agreements,
understandings, conversion rights, or other commitments or rights of any type
relating to the issuance, sale or transfer of Seller of any securities of
Seller.
4.6. FINANCIAL STATEMENTS. As Schedule 4.6, Seller has attached
hereto copies of the following financial statements (the "FINANCIAL
STATEMENTS"), each attested to by the chief financial officer of Seller: (i) the
unaudited balance sheets and statements of income of Seller for the years ended
December 31, 1995, 1994, 1993 and 1992 and (ii) the unaudited balance sheet and
statement of income of Seller for the period ending on March 31, 1996. To the
best of Seller's knowledge, each of such Financial Statements are true and
correct in all material respects and are prepared in accordance with generally
accepted accounting principles applied on a basis consistent with prior periods;
each of such balance sheets fairly present the financial condition of Seller as
of its date; and each of such statements of income fairly present the results of
operations for the period covered thereby.
4.7. ABSENCE OF CERTAIN CHANGES. Since the date of the December
31, 1995 Balance Sheet, there has not been nor shall there be at Closing:
(a) any change in the Assets, liabilities, sales, income,
Business or business prospects of Seller or in any of its relationships with
suppliers, or lessors, other than changes which were in the ordinary course of
business.
(b) any acquisition or disposition by Seller of any asset or
property, except for sales of inventory in the ordinary course of business;
9
<PAGE>
(c) any damage, destruction or loss described in 3.21 above,
whether or not covered by insurance, or any material change described in 3.24;
(d) any incurrence by Seller of any obligations or liabilities,
whether absolute, accrued, contingent or otherwise (including, without
limitation, liabilities as guarantor or otherwise with respect to obligations of
others), other than obligations and liabilities incurred for the purchase or
sale of product in the ordinary course of business; or
(e) any mortgage, pledge, or grant of lease, lien, security
interest or other charge or encumbrance on any of the Assets.
4.8. TITLE, COMPLETENESS AND CONDITION OF ASSETS. Except as set
forth in SCHEDULE 4.8 hereto, the Assets constitute all of the assets and
properties used or useful in the Business as carried on by Seller. As of the
date of closing, Seller shall transfer to Buyer good and marketable title to the
Assets, free and clear of all liens, pledges, charges, security interests,
mortgages, encumbrances, or title retention agreements. All of the fixed Assets
shall be in good operating condition and repair, and free of material defects.
Seller owns no real property.
4.9. ABSENCE OF UNDISCLOSED LIABILITIES. Except to the extent
reflected or reserved against in the December 31, 1995 balance sheet of Seller
previously delivered to Buyer or incurred in the ordinary course of business
after December 31, 1995 and described in SCHEDULE 4.9 hereto, to the best of its
knowledge Seller has no liabilities or obligations of any nature, whether
accrued, absolute, contingent or otherwise (including, without limitation,
liabilities as guarantor or otherwise with respect to obligations of others) and
whether due or to become due, including, without limitation, any liabilities for
taxes due or to become due. Seller shall deliver to Buyer a Closing as part of
Schedule 4.9 a listing of its aged payables, which shall be certified true and
complete by an officer of Seller.
4.10. TAXES. Seller has duly filed with the appropriate federal,
state, local or other governmental agencies all of the income, sales, use,
employment and other tax returns and reports required to be filed by it, and
each of such returns and reports is correct and complete in all material
respects. No waiver of any statute of limitations relating to taxes has been
executed or given by Seller. Seller is not currently the beneficiary of any
extension of time within which to file any such return or report. All taxes,
assessments, fees and other government charges upon Seller or upon any of its
properties, assets, revenues, income or franchises (whether or not shown on any
such return or report) owed by Seller at Closing shall have been paid to the
best of Seller's knowledge. No federal tax return of Seller is currently under
audit by the Internal Revenue Service, and no other tax return of Seller is
currently under audit by any other taxing authority. Neither the Internal
Revenue Service nor any other taxing authority is now asserting to the best of
Seller's knowledge or threatening to assert against Seller any deficiency or
claim for additional taxes or interest thereon or penalties in connection
therewith or any adjustment that would have a material adverse effect on Seller.
10
<PAGE>
4.11. LITIGATION, ETC. Except as set forth on SCHEDULE 4.11
hereto, no action, suit, proceeding or investigation (including but not limited
to any products liability claim, action, suit or other proceeding) whether
conducted by any judicial or regulatory body or other person, is pending or, to
the knowledge of Seller, threatened against Seller (nor is there any basis
therefor known to Seller) which questions any action taken or to be taken
pursuant hereto or which might, either in any case or in the aggregate,
materially adversely affect the Assets, Business, operations, affairs, or
properties of Seller or materially impair the right or the ability of Buyer to
carry on the Business substantially as now conducted.
4.12. SAFETY, ZONING AND ENVIRONMENTAL MATTERS. To the best of
Seller's knowledge, Neither the offices nor properties in or on which Seller
carries on the Business nor the activities carried on therein are in material
violation of any zoning, health or safety law or regulation, including, without
limitation, the Occupational Safety and Health Act of 1970, as amended. Seller
represents that, except as set forth in SCHEDULE 4.12 hereto:
(a) Neither Seller nor any operator of its properties is in
violation, or alleged violation, of any judgment, decree, order, law, license,
rule or regulation pertaining to environmental matters, including without
limitation those arising under the Resource Conservation and Recovery Act
("RCRA"), the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended ("CERCLA"), the Superfund Amendments and Reauthorization
Act of 1986 ("SARA"), the Federal Clean Water Act, the Federal Clean Air Act,
the Toxic Substances Control Act, or any state or local statute, regulation,
ordinance, order or decree relating to health, safety or the environment
(hereinafter, collectively, "ENVIRONMENTAL LAWS"), which violation would have a
material adverse effect on the environment or the Business, Assets or financial
condition of Seller;
(b) Seller has not received notice from any third party including
without limitation any federal, state or local governmental authority, (i) that
it has been identified by the United States Environmental Protection Agency
("EPA") as a potentially responsible party under CERCLA with respect to a site
listed on the National Priorities List, 40 C.F.R. Part 300 Appendix B (1986);
(ii) that any hazardous waste as defined by 42 U.S.C. ss.6903(5), any hazardous
substances as defined by 42 U.S.C. ss.9601(14), any pollutant or contaminant as
defined by 42 U.S.C. 33) and any toxic substance, oil or hazardous materials or
other chemicals or substances regulated by any Environmental Laws (collectively,
"HAZARDOUS SUBSTANCES") which any one of them has generated, transported or
disposed of has been found at any site at which a federal, state or local agency
or other third party has conducted or has ordered that Seller conduct a remedial
investigation, removal or other response action pursuant to any Environment Law;
or (iii) that it is or shall be a named party to any claim, action, cause of
action, complaint (contingent or otherwise) legal or administrative proceeding
arising out of any third party's incurrence of costs, expenses, losses or
damages of any kind whatsoever in connection with the release of Hazardous
Substances;
(c) (i) No portion of the property leased by Seller has been used
for the handling, manufacturing, processing, storage or disposal of Hazardous
Substances except in accordance with applicable Environmental Laws; and no
underground tank or other underground storage receptacle for Hazardous
Substances is located on such properties; (ii)
11
<PAGE>
in the course of any activities conducted by Seller on its leased properties, no
Hazardous Substances have been generated or are being used on such properties
except in accordance with applicable Environmental Laws; (iii) there have been
no releases (i.e. any past or present releasing, spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting, escaping, disposing or
dumping) or threatened releases of Hazardous Substances on, upon, into or from
the properties of Seller, which releases would have a material adverse effect on
the value of such properties or adjacent properties or the environment; (iv) to
the best of the Seller's knowledge, there have been no releases on, upon, from
or into any real property in the vicinity of the real properties leased by
Seller which, through soil or groundwater contamination, may have come to be
located on, and which would have a material adverse effect on the value of, the
properties of Seller; and (v) in addition, any Hazardous Substances that have
been generated on the properties leased by Seller have been transported off-site
only by carriers having an identification number issued by the EPA and treated
or disposed of only by treatment or disposal facilities maintaining valid
permits as required under applicable Environmental Laws, which transporters and
facilities have been and are, to the best of the Seller's knowledge, operating
in compliance with such permits and applicable Environmental Laws; and
(d) None of the properties leased by Seller are or shall be
subject to any applicable environmental cleanup responsibility law or
environmental restrictive transfer law or regulation by virtue of the
transactions set forth herein and contemplated hereby, which would adversely
affect the Assets or the Business of Buyer after the Closing.
(e) The foregoing representations and warranties of Seller are
strictly limited to real property it leases and controls and it shall have no
responsibility for any other property owned by the Landlord.
4.13. CONTRACTS. SCHEDULE 4.13 hereto sets forth a complete and
accurate list to the best of Seller's knowledge of the Purchased Contracts,
which shall include all contracts and other agreements to which Seller is a
party or by or to which any of the Assets or properties of Seller is bound or
subject. All of the contracts listed on SCHEDULE 4.13 are in full force and
effect, and Seller is not in default under any of them, nor is any other party
to any such contract in default thereunder, nor to the best of Seller's
knowledge does any event or condition exist which after notice or lapse of time
or both would constitute a default thereunder. Seller shall at closing have
secured and delivered to Buyer the written consent, in form and substance
satisfactory to Buyer and its counsel, to the consummation of the transactions
contemplated by this Agreement by each party to any contract, commitment or
obligation of Seller, under which such transactions would constitute a default,
or would enlarge, accelerate, or modify any obligation of Seller or would permit
cancellation of any such contract, and no approval or consent of any person is
needed, which has not been obtained, in order that the contracts listed on
SCHEDULE 4.13 shall continue in full force and effect following the Closing.
Seller has delivered to Buyer true, correct and complete copies of all such
written contracts, together with all modifications and supplements thereto.
Seller is obligated until 9/21/97 to use Catalyst Direct as its exclusive list
manager and broker and Buyer agrees to make no claim against Seller under this
Agreement as a result of this exclusive agreement with Catalyst. Buyer
acknowledges that Seller's open purchase orders are not listed on any Schedule
and may be
12
<PAGE>
too numerous to list. Seller shall exercise its best efforts at Closing to list
open purchase orders at Closing. Buyer acknowledges that Seller's leases for
real property are not listed on Schedule 4.13. Seller shall exercise its best
efforts to obtain landlord's consent to the assumption by Buyer of the lease for
its premises at 816 Sylvia Street.
4.14. EMPLOYEES; EMPLOYEE BENEFIT PLANS.
(a) Seller's employees are not represented under any collective
bargaining agreement, and there are no employment agreements in effect between
Seller and any employee. SCHEDULE 4.14(a) sets forth the name and current annual
salary and other compensation payable by Seller to each current employee
(including but not limited to wages, salary, commissions, bonus, profit sharing,
deferred compensation and other extra compensation).
(b) Except for the arrangements set forth on SCHEDULE 4.14(b),
Seller does not maintain or contribute to, and has not in the current or
preceding six (6) calendar years maintained or contributed to, any pension,
profit-sharing, deferred compensation, bonus, stock option, share appreciation
right, severance, group or individual health, dental, medical, life insurance,
survivor benefit, or similar plan, policy or arrangement, whether formal or
informal, for the benefit of any director, officer, consultant or employee,
whether active or terminated, of Seller, as applicable.
(c) DELIVERY OF DOCUMENTS. Seller has heretofore delivered to
Buyer true, correct and complete copies of each employee benefit plan of Seller
listed on SCHEDULE 4.14(b).
4.15. PURCHASED RIGHTS. SCHEDULE 4.15 sets forth a complete and
accurate list of (a) all patents, trademarks, trade names and copyrights
registered in the name of Seller or used or proposed to be used by Seller, all
applications therefor, and all licenses and other agreements relating thereto,
and (b) all written agreements relating to technology, know-how and processes
which Seller has licensed or authorized for use by others. Except to the extent
set forth in SCHEDULE 4.15, Seller owns or has the sole and exclusive right to
use all patents, trademarks, trade names and copyrights used or necessary for
the ordinary course of business as presently conducted, and the consummation of
the transactions contemplated hereby will not alter or impair any such right.
Seller has complied with all of its obligations of confidentiality in respect of
the claimed trade secrets or proprietary information of others, and Seller does
not know of any violation of such obligations or confidentiality as are owed to
Seller to the best of Seller's knowledge. No employee, agent or consultant of
Seller is subject to confidentiality restrictions in favor of any third person,
the breach of which could subject Seller to any material liability. No notice of
claims have been asserted, and no claims are pending, by any person regarding
the use of any such trademarks, trade names, copyrights, technology, know-how or
processes, or challenging or
13
<PAGE>
questioning the validity or effectiveness of any license or agreement, and there
is no basis for such claim. The use by Seller of such patents, trademarks, trade
names, copyrights, technology, know-how or processes does not infringe on the
rights of any person.
4.16. PURCHASED RECEIVABLES. All Accounts and notes receivable
reflected on the December 31, 1995 balance sheet and the unaudited balance sheet
included in the Financial Statements, and all accounts and notes receivable
arising subsequent to the date of such balance sheets, have arisen in the
ordinary course of business, represent valid obligations of Seller, and have
been collected or are collectible in the aggregate recorded amounts thereof in
accordance with their terms, subject only to the limited allowances for
uncollectibility provided in Section 6.2 hereof. Purchased Receivables shall not
include any loans to Seller's employees or shareholders, the amount of which, if
any, shall be deducted from the purchase price and retained by Seller. At
Closing, Seller shall deliver to Buyer a Schedule 4.16 setting forth a listing
of the Seller's aged receivables, which shall be certified by an officer of
Seller to be true and complete.
4.17. INSURANCE AND PRODUCTS LIABILITY. SCHEDULE 4.17(a) lists
the policies of theft, fire, liability (including products liability), worker's
compensation, life, property and casualty and other insurance owned or held by
Seller. There have been no products liability claims asserted or threatened to
the best of Seller's knowledge against Seller, whether or not covered by
insurance, at any time during the past five years.
4.18. LICENSES, PERMITS, GOVERNMENTAL CONSENT. Seller has and
maintains all licenses, permits or other authorizations from any governmental
agency necessary or desirable for the conduct of the Business or in connection
with the ownership or use of its Assets or other properties, all of which are
listed on SCHEDULE 4.18 and are in full force and effect. True and complete
copies of all such licenses, permits and authorizations relating to the
Business, Assets or other properties of Seller have previously been delivered to
Buyer by Seller. No consent, approval or authorization of or registration,
designation, declaration or filing with any governmental authority, federal or
other, on the part of Seller, is required in connection with the consummation of
any transactions contemplated hereby.
4.19. PURCHASED INVENTORIES. The Purchased Inventories, which
consist of retail products, catalogs, are maintained in amounts consistent with
Seller's historic requirements, are in usable and saleable condition in the
ordinary course of the Business, and at the Closing, the value of the Purchased
Inventories, at Seller's cost, shall be not less than $250,000.
4.20. SUPPLIERS AND CUSTOMERS. To the best of Seller's knowledge,
SCHEDULE 4.20 sets forth the ten (10) largest suppliers of Seller as of the date
hereof. The relationships of Seller with each of its suppliers are good
commercial working relationships and no supplier of material importance to
Seller has canceled or otherwise terminated, or threatened in writing to the
best of Seller's knowledge to cancel or otherwise to terminate, its relationship
with Seller or has during the last 12 months decreased materially, or threatened
to decrease or limit materially, its services, supplies or materials to Seller
other than in the ordinary course of business except for normal cyclical changes
related to customers' businesses. Seller has no knowledge that any such supplier
or customer intends
14
<PAGE>
to cancel or decrease materially or limit its services, supplies or materials to
Seller or its usage or purchase of Seller's services or products.
4.21. BOOKS OF ACCOUNT; RECORDS. Seller's general ledgers and
other material corporate records, as the same may relate to the Assets,
Business, properties and contracts are, in all material respects, complete and
correct, and have been maintained in accordance with prudent business practices.
4.22. BROKERS. No finder, broker, agent or other intermediary has
acted for or on behalf of Seller or the Shareholders in connection with the
negotiation or consummation of the transactions contemplated hereby.
4.23. COMPLIANCE WITH OTHER INSTRUMENTS, LAWS, ETC.. Seller has
complied with, and is in substantial compliance with, (a) all laws, statutes,
governmental regulations and all judicial or administrative tribunal orders,
judgments, writs, injunctions, decrees or similar commands applicable to the
Business, and (b) all unwaived terms and provisions of all contracts, agreements
and indentures to which Seller is a party, or by which Seller or any of the
Assets or Business may be subject. Seller has not committed, been charged with,
or been under investigation with respect to, nor does there exist, any violation
by Seller of any provision of any federal, state or local law or administrative
regulation, which violation would adversely affect the Assets or the Business
after the Closing.
4.24. DISCLOSURE. To the best of Seller's knowledge, no
representation or warranty by Seller and Shareholders in this Agreement or in
any exhibit, schedule, written statement or other document delivered to Buyer
pursuant hereto or in connection with the consummation of the transactions
contemplated hereby, contains any untrue statement of a material fact or omits
to state a material fact required to be stated therein or necessary to make the
statements contained therein not false or misleading. There is no fact relating
to the Business, Assets or condition of Seller known to Seller or Shareholders
which Seller of Shareholders have not disclosed to Buyer in writing which might
materially adversely affect the Business, Assets or condition (financial or
other) of Seller or the ability of Seller to perform this Agreement or any of
the transactions contemplated hereby. Disclosure in any Schedule or Exhibit
constitutes disclosure for all purposes herein.
5. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer and Buyer
Shareholders represent and warrant to Seller as follows:
5.1. ORGANIZATION AND STANDING OF BUYER. Buyer is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Ohio and has all requisite corporate power and authority to own or
lease and operate its properties and to carry on its business as now conducted.
Buyer has delivered to Seller complete and correct copies of its Articles of
Incorporation and Code of Regulations and all amendments thereto.
5.2. CORPORATE POWER OF BUYER, BINDING EFFECT ON BUYER; NO
CONFLICTS. Buyer has all requisite power and full legal right to enter into this
Agreement and to perform all of its agreements and obligations hereunder in
accordance with their terms.
15
<PAGE>
This Agreement has been duly authorized, executed and delivered by Buyer and
(assuming due execution and delivery by Seller) constitutes the legal valid and
binding obligation of Buyer, enforceable against Buyer in accordance with its
terms, subject only to the effects of bankruptcy, insolvency and similar laws of
general application. Neither the execution, deliver or performance by Buyer of
this Agreement will result in any violation of or default under or in conflict
with the Articles of Incorporation or the Code of Regulations of Buyer, or of
any agreement, instrument, statute, rule or regulation, or of any judgment,
injunction, decree, award or order of any court or state or federal governmental
or regulatory body, binding on or applicable to Buyer.
5.3. BROKERS. No broker, finder, agent or other intermediary has
acted for or on behalf of Buyer in connection with the negotiation or
consummation of this Agreement, or the transactions contemplated hereby.
5.4. LITIGATION, ETC. There is no action, suit, proceeding or
investigation (whether conducted by any judicial or regulatory body or other
person) pending or, to the knowledge of Buyer, threatened against Buyer (nor is
there any basis therefor known to Buyer) which questions any action taken or to
be taken pursuant hereto.
5.5. DISCLOSURE. No representation or warranty by Buyer in this
Agreement, written statement, or other document delivered to Seller pursuant
hereto or in connection with the consummation of the transactions contemplated
hereby, contains any untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
contained therein not false or misleading.
5.6 FINANCING. Buyer shall exercise its best efforts during the
term hereof to obtain financing sufficient to close the purchase. Buyer shall
inform Seller within three business days of obtaining a binding written
commitment for financing and in the event of a public offering to finance the
purchase, notify Seller within three business days of filing a registration
statement for public sale of securities.
6. OTHER AGREEMENTS.
6.1. BULK SALES LAW. For the types of liabilities and payables
assumed as of Closing, Buyer shall pay and discharge as they become due such
liabilities to creditors entitled to assert claims against Buyer as the
transferee of the Assets. Seller shall indemnify and hold Buyer harmless against
any loss, damage, or expense, including reasonable attorneys' fees and court
costs incurred by Buyer as a result of or attributable to the parties' failure
to comply with any applicable Bulk Transfers Act, to the extent that any such
losses, damages or expenses relate to unassumed liabilities or exceed the
assumed amounts.
6.2. UNCOLLECTIBILITY OF ACCOUNTS RECEIVABLE. With respect to the
Purchased Receivables, the parties agree to the following terms that limit
Buyer's losses in the event that the Purchased Receivables are not collectable
by Buyer in the ordinary course of business:
16
<PAGE>
(a) Buyer shall be reimbursed by Seller for any Purchased
Receivables that are not collectable by Buyer in the ordinary course of business
with reasonable diligence, to the extent such uncollected amount exceeds Ten
Thousand Dollars.
(c) Seller hereby appoints Buyer its true and lawful
attorney-in-fact to collect all accounts receivable in Seller's name and to
apply the proceeds to Buyer's use in accordance with this Section 6.2. Buyer
shall exercise reasonable and prudent efforts to collect any accounts
receivable. Buyer shall not be required to initiate litigation, engage
collection agencies or take other extraordinary measure in connection with the
collection of such accounts receivable. Seller shall have the right to collect
any accounts receivable deemed uncollectible by Buyer and retain any amounts
collected thereon.
(d) Any future collection on accounts receivable that have been
the subject of reimbursement to Buyer under (a), (b) or (c) above will belong to
Seller. Buyer shall remit to Seller payments of such accounts promptly after
payment is received by Buyer. Buyer shall not be obligated to Seller with
respect to such accounts receivable except to the extent Buyer receives payment
therefore, and Buyer will render any reasonable assistance possible in such
collection.
(f) If in the course of collecting Purchased Receivables, Buyer
receives any payments from accounts that were written off by Seller prior to
Closing, these payments (net of service charges and normal customer credits)
shall be used as a credit against the payments due Buyer described in (a), (b)
or (c) above.
6.3. EMPLOYMENT AGREEMENTS. Each of the persons listed on
SCHEDULE 6.3 hereto shall on the date of this Agreement enter into an employment
agreement with Buyer contingent upon Closing, in the form attached hereto as
EXHIBIT D, and such agreements shall be in full force and effect as of the date
of Closing.
6.4. CONSULTING AND NON-COMPETITION AGREEMENTS. Each of the
Shareholders shall enter into consulting and non-competition agreements with
Buyer, and such agreements shall be in full force and effect as of the date of
Closing, in substantially the form and with the terms set forth on EXHIBIT E
attached hereto, which include:
(a) As to Jane Martin, a two year consulting and non-competition
agreement at $65,000 per year of employment, with a three year non-competition
period following termination of employment; and,
(b) As to Daniel Martin, a three year non-competition agreement
at $200 per year.
6.5. COOPERATION AND FURTHER ASSURANCES. Seller agrees that it
will execute and deliver to Buyer any and all documents in addition to those
expressly provided for herein that may be necessary or appropriate to effectuate
the provisions of this Agreement, whether before, on or after the date hereof.
Seller further agrees that at any time and from time to time after the Closing
hereof, it will execute and deliver to Buyer such further assignments or other
written assurances as Buyer may reasonably request to
17
<PAGE>
perfect and protect Buyer's title to the Assets. The parties mutually agree to
cooperate with each other to any extent reasonably required in order to fully
accomplish the transaction herein contemplated and put Buyer in possession and
control of the Assets.
In particular, Seller agrees to cooperate with Buyer and Buyer's agents
at any time prior Closing for the purpose of allowing Buyer to audit the
financial statements of Seller or the Purchased Assets for its financial
statement purposes. Seller shall allow Buyer and its agents reasonable access to
its premises, records and personnel for the foregoing purpose. However Buyer
will not unreasonably interfere with Seller's business during such period of
access.
6.6. CONFIDENTIALITY. Seller and Buyer hereby agrees to safeguard
and maintain the confidentiality of any and all non-public information relating
to the Assets and the Business from and after the date of this Agreement and
agrees that it will not disclose or use such information for its own or
another's benefit or for any other purpose. The previously signed non-
disclosure agreement between the parties shall remain in force up to closing,
except as otherwise provided herein. Seller agrees that Buyer may utilize such
information from Seller as reasonably required in connection with Seller's
obtaining financing for this transaction.
6.8. NAME CHANGE. Promptly after the date of Closing, Seller
agrees to take all necessary steps to change its name from "The Natural Baby
Company, Inc." to a name which does not incorporate the phrases, "Natural" or
"Natural Baby" or any variation thereof. Seller will have the necessary name
changes completed in the records of the New Jersey Secretary of State no later
than three (3) days after the Closing hereof. Seller agrees not to use the name
"Natural" or "Natural Baby" or any variation thereof after the date of this
Agreement in any way contrary to the interests of Buyer or the terms of this
Agreement.
7. INDEMNIFICATION.
7.1. INDEMNITY OF SELLER AND SHAREHOLDERS. Seller and
Shareholders, jointly and severally, hereby agree to defend, indemnify and hold
Buyer harmless from, against and with respect to any and all claims,
liabilities, losses, damages, costs and expenses, (particularly all products
liability claims arising out of Seller's operation of the Business prior to the
date hereof, and all liability of any kind for violations of environmental law
or regulations arising out of Seller's operation of the Business prior to the
date hereof) including without limitation the reasonable fees and disbursements
of counsel, incurred by Buyer and any and all claims asserted or threatened
against Buyer by a third party, related to or arising directly out of: any
material inaccuracies in any representation or warranty made by Seller or
Shareholders in or pursuant to this Agreement, or in any schedule delivered to
Buyer pursuant to this Agreement by Seller; any failure by Seller or
Shareholders to disclosed in writing to Buyer any fact, disclosure of which is
required or necessary in order to make any of such representations or warranties
not materially false or misleading; or any failure or breach by Seller or
Shareholders of any covenant, obligation, or undertaking made by it or them in
this Agreement or any agreements entered into in connection with this Agreement.
18
<PAGE>
7.2. INDEMNITY OF BUYER. Buyer AND BUYER SHAREHOLDERS hereby
agree to defend, indemnify and hold Seller harmless from, against and with
respect to any and all claims, liabilities, losses, damages, costs and expenses,
including without limitation the fees and disbursements of counsel, incurred by
Seller, and any and all claims asserted or threatened against Seller by a third
party, related to or arising directly out of any inaccuracies in any
representation or warranty made by Buyer in or pursuant to this Agreement, any
failure by Buyer to disclose in writing to Seller any fact, disclosure of which
is required or necessary not false or misleading, or the failure or breach by
Seller of any covenant, obligation, or undertaking made by Buyer in this
Agreement or any agreements entered into in connection with this Agreement.
7.3. CLAIMS. If any third party shall notify any party hereto
(the "Indemnified Party") with respect to any matter which may give rise to a
claim for indemnification against any other party hereto (the "Indemnifying
Party") under this Section 7, then the Indemnified Party shall notify that
Indemnifying Party thereof promptly; provided, however, that, no delay on the
part of the Indemnified Party in notifying the Indemnifying Party shall relieve
the Indemnifying Party from any liability or obligation hereunder unless (and
then solely to the extent) the Indemnifying Party thereby is damaged. In the
event within THIRTY (30) days of receipt of notice of a claim from the
Indemnified Party the Indemnifying Party notifies the Indemnified Party, that
(i) the Indemnifying Party is assuming the defense thereof and (ii) the
Indemnifying Party is obligated hereunder to indemnify the Indemnified Party
with respect to such claim, then (A) the Indemnifying Party may defend the
Indemnified Party against the matter with counsel of its choice satisfactory to
the Indemnified Party and (B) the Indemnified Party may retain separate
co-counsel subject to direction of Counsel of Indemnifying Party at its sole
cost and expense (except that the Indemnifying Party will be responsible for the
fees and expenses of the separate co-counsel to the extent the Indemnified Party
concludes that the counsel the Indemnifying Party has selected has a conflict of
interest), (C) the Indemnified Party will not consent to the entry of any
judgment or enter into any settlement with respect to the matter without the
written consent of the Indemnifying Party (not to be withheld unreasonably) and
(D) the Indemnifying Party will not consent to the entry of any judgment with
respect to the matter, or enter into any settlement which does not include a
provision whereby the plaintiff or claimant in the matter releases the
Indemnified Party from all liability with respect thereto, without the written
consent of the Indemnified Party. In the event the Indemnifying Party fails to
notify the Indemnified Party within THIRTY (30) days after receiving notice of a
claim from the Indemnified Party THAT the Indemnifying Party is assuming the
defense thereof, however, THEN the Indemnified Party may defend against, or
enter into any settlement with respect to, the matter in any manner it may deem
appropriate.
7.4. CERTAIN LIMITATIONS. The liability of Seller or Buyer, as applicable, for
claims under this Agreement shall be limited by the following:
(a) except for obligations in respect of payment of taxes and compliance
with ERISA requirements which shall continue for their respective statutory
periods following the closing Date, the representations in Sections 4.1, 4.2,
4.3, 4.4, 4.5, 4.6, 4.7, 4.8, 4.9, 4.11, 4.13, 4.14, 4.15, 4.16, 4.17, 4.18,
4.19, 4.20, 4.21, 4.22, 4.23, 4.24, 5.1, 5.2, 5.3, 5.4, 5.5 and 5.6
19
<PAGE>
shall continue for two (2) years following the Closing Date, Seller shall have
no further obligations under this Article 7.4 or this Agreement or otherwise,
except for Damages in each case with respect to which the Buyer Indemnitee has
given Seller written notice prior to such dates.
(b) The amount of Damages otherwise recoverable under this Article 7.4
shall be reduced to the extent to which any Federal, state, local or foreign tax
liabilities of the Seller Indemnitee or Buyer Indemnitee, as applicable, or any
of their respective Affiliates is decreased by reason of any Damage in respect
of which such Seller Indemnitee or Buyer Indemnitee, as applicable, shall be
entitled to indemnity under this Agreement.
(c) No Damages shall be recoverable by a Seller Indemnitee or Buyer
Indemnitee with respect to any matter which is covered by insurance, to the
extent proceeds of such insurance are paid to a Seller Indemnitee or a Buyer
Indemnitee, as applicable.
(d) (i) Except as provided in Section 7.4(b), (c), (e) hereof which
in each case shall not be subject to the limitations of this Section 7.4 d (i),
no claim or claims shall be asserted by a Seller Indemnitee or Buyer Indemnitee
pursuant to the provisions of this Article 7.4 unless the amount of such
Indemnitee's Damages equals at least $15,000; and no Indemnitee shall be
entitled to recover any amount less than $15,000.
(ii) The aggregate amount of Damages recoverable pursuant to the
provisions of Article 7.4 by all Buyer Indemnitee shall be limited to the
aggregate of the Cash portion of the Purchase Price received by Seller on the
Closing Date and the amount in cash received by Seller pursuant to the
Promissory Note in the aggregate.
(e) No Damages shall be asserted by any Buyer Indemnitee which arise out
of facts, circumstances or conditions which are disclosed in this Agreement or
any Schedule or Exhibit hereto or which any Buyer Indemnitee had actual
knowledge on or before the Closing Date.
(f) No Damages shall be asserted by any Buyer Indemnitee or Seller
Indemnitee for consequential damages arising from any breach of this Agreement,
unless such breach was made intentionally, wantonly or recklessly.
(f) Notwithstanding anything to the contrary contained in this
Agreement, Buyer shall not be entitled to indemnification under Article 7.4 for
any Damages to the extent that Buyer receives at or after the Closing an
adjustment to the Purchase Price for such Damages by reason of Article 2.33,
2.5, 2.6, and 2.7 hereof.
8. GENERAL PROVISIONS.
8.1. SURVIVAL AND MATERIALITY OF REPRESENTATIONS. Each of the
representations, warranties and agreements made by the parties hereto shall
survive the Closing, however, the liability shall be limited as provided in
Section 7.4 above. Each of the representations, warranties and agreements made
by the parties hereto shall be deemed made at Closing hereof. All statements
contained in any instrument delivered by or on
20
<PAGE>
behalf of Buyer, Seller or Shareholders pursuant hereto or in connection with
the transactions hereby contemplated shall constitute representations and
warranties by each such person making such statement.
8.2. EXPENSES AND FEES. Buyer and Seller will each bear their own
costs and expenses (including all fees of lawyers, accountants and other
professionals engaged by them) incurred in connection with this Agreement, and
the transactions contemplated hereby.
8.3. NOTICES. Any notice expressly provided for under this
Agreement shall be in writing, shall be given either manually or by written
mail, cable, or by reputable overnight courier, and shall be deemed sufficiently
given when received by the party to be notified at its address set forth below
or, if mailed by registered mail, postage prepaid, five (5) days after deposit
in the mail, in each case addressed to such party at such address. Any party or
any representative designated below may, by notice to the others, change its
address for receiving such notices.
If notice is to Buyer:
DUNCAN HILL CO., LTD.
7245 Whipple Avenue, N.W.
North Canton, Ohio 44720
Attn: Mr. William l. Miller
Telephone: (330) 494-2323
Telecopier: (330) 481-0265
with a copy to:
Dinsmore & Shohl
175 S. Third Street, Suite 1000
Columbus, Ohio 43215
Attention: David G. LeGrand Esq.
Telephone: (614) 628-6880
Telecopier: (614) 628-6890
If notice is to Seller or Shareholders, by single notice to:
The Natural Baby Company
816 Silvia Street, 800 B-S
Trenton, NJ 08628-3299
Telephone: (609) 771-9233
Telecopier: () ___________
with a copy to:
Daniel Martin
475 Wall Street
21
<PAGE>
Princeton, New Jersey 08450
Telephone: ()
Telecopier: ()
8.4. ENTIRE AGREEMENT. This Agreement (including the documents
referred to herein) constitutes the entire agreement between the parties hereto
and supersedes any prior understandings, agreements, or representations by or
between the parties except that confidentiality agreement signed by Buyer shall
survive, written or oral, that may have related in any way to the subject matter
hereof.
8.6. ASSIGNMENT AND BENEFITS OF AGREEMENT. This Agreement shall
be binding upon and shall inure to the benefit of the parties and their
respective successors but may not be assigned by any of the foregoing without
the written consent of the others, provided, however, that Buyer may assign this
Agreement prior to Closing to a wholly owned subsidiary in the case of such
assignment Duncan Hill Company, Ltd. will guarantee performance of this
Agreement. Nothing in this Agreement, express or implied, is intended to confer
upon any person other than the parties hereto and their said successors and
permitted assigns, any rights under or by reason of this Agreement.
8.7. GOVERNING LAW. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of New Jersey.
8.8. COUNTERPARTS. This Agreement may be executed by the parties
in separate counterparts, each of which when so executed and delivered shall be
an original, but all such counterparts shall together constitute but one and the
same instrument.
8.9. SECTION HEADINGS. All enumerated subdivisions of this
Agreement are herein referred to as "section " or "subsection." The headings of
sections or subsections are for reference only and shall not limit or control
the meaning thereof.
8.10. PUBLIC STATEMENTS OR RELEASES. The parties hereto each
agree that no party to this Agreement shall make, issue or release any
announcement, statement or acknowledgment, whether to the public generally, or
to employees, suppliers or customers, of the existence of, or reveal the status
of, the transactions provided for herein, without first obtaining the consent of
the other party hereto. Nothing contained herein shall prevent any party from
making such public announcements as such party may consider necessary in order
to satisfy such party's legal or contractual obligations.
8.11 Jane Martin hereby consents to the use by Seller of her name
in connection with the business until the catalogs purchase with the Assets are
exhausted or her Consulting Agreement expires, whichever occurs first.
8.12 Seller agrees to exercise its best efforts to cooperate with
Buyer's efforts to obtain financing and hereby consents to inclusion of its
name, description of business and assets and financial information in the event
such information is required in connection with Buyer's financing.
22
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
BUYER:
Duncan Hill Company, Limited
By: /s/ WILLIAM L. MILLER
-----------------------------
Title: President
/s/ WILLIAM L. MILLER
---------------------------------
William L. Miller, individually
/s/ JEANNE MILLER
---------------------------------
Jeanne Miller, individually
SELLER:
The Natural Baby Company, Inc..
By: /s/ DANIEL MARTIN
-----------------------------
Title: President
/s/ DANIEL MARTIN
---------------------------------
Daniel Martin, Individually
/s/ JANE MARTIN
---------------------------------
Jane Martin, Individually
23
<PAGE>
SCHEDULE 1.1(a)
FIXED ASSETS
as of 12/31/95 Balance Sheet
Computer $57,665.94
$35,988.55 depreciated
Telephone System $ 5,554.41
$ 4,731.00 depreciated
Software Dyd/Manz $ 7,331.17
$5,928.48 depreciated
Furniture/Other $ 4,499.00
$ 4,436.52 depreciated
Automobile $16,935.76
$ 7,047.73 depreciated
<PAGE>
SCHEDULE 1.1(e) + 4.8
EXCLUDED ASSETS
As of 5/3/96
A/R Steve Craig $15,000.00
A/R 100% Cotton $12,012.54
A/R Shareholder $10,899.39
A/R Sue Pratt $10,442.63
<PAGE>
SCHEDULE 1.2
LIABILITIES
As of 3/31/96 Balance Sheet
Credit Line N.J. National $40,000.00
Corp. Tax Payable $5,000.00
Net A/P $249,103.08
Loan Gramma Eve $52,927.39
Loan Gramma Lois $84,454.93
Loan Julia $6,771.57
Loan Gramma Sue $37,128.88
Loan Sarah $10,883.28
Loan David $13,734.19
Store Lease - Gale and Wentworth
Office Warehouse Lease - Baker Properties
<PAGE>
SCHEDULE 4.11
Audit by New Jersey Department of Labor
Appeal by Stephen Craig of Decision Denying Unemployment for Gross
Misconduct
<PAGE>
SCHEDULE 4.13
PURCHASED CONTRACTS
12/5/93 Store Lease Gale and Wentworth
8/23/93 Office and Warehouse Lease Baker Properties
8/26/95 General Liability Insurance Smith Insurance
9/21/95 List Management and Broker Agreement Catalyst Direct
2/15/94 Maintenance Agreement Linc Service
2/3/95 ATX Phone Agreement ATX
9/9/94 New England Employee Health Plan New England Insurance
3/13/96 Marketing and Sales Agreement Intermont
4/22/96 Printing Contract American Signature
8/3/93 Shipping UPS
-/1/96 Collection (prepaid) Transworld Systems
-/7/96 Internet Website Letter Agreement Parents Place
Undated Hold Harmless Agreement Lew Jan Textiles
-/15/96 Marketing Agreement Saido Design
-/11/94 Credit Card Processing DMGT Corp.
3/2/96 Catalog Request Fulfillment QuikPak
1/28/95 Advertising Insertion Order Parenting Magazine
-/2/95 Advertising Contract Mothering Magazine
8/25/95 Advertising Contract Childs Magazine
11/28/95 Insertion Order Baby Talk
SCHEDULE 4.13 Continued
<PAGE>
2/12/96 Contract Baby Magazine
10/3/95 Insertion Order American Baby
4/22/96 NCOA Processing Agreement USPS
4/3/96 Catalog Distribution Lamaze Institute
5/7/96 Names from Data Base Data Base Anorrca
<PAGE>
SCHEDULE 4.14(a)
COMPENSATION TO EMPLOYEES
HOURLY
PROFIT SHARE = PS
EMPLOYEE # HEALTH INS. = H
- ------------------------------------------------
882-6949 PS 5%, 14.00
- ------------------------------------------------
737-6954 15.38
- ------------------------------------------------
883-7167 PS 1%, 10.00
- ------------------------------------------------
530-0194 H, 9.00
- ------------------------------------------------
215-493-6835 H, 8.50
- ------------------------------------------------
215-736-3020 H, 6.25
- ------------------------------------------------
908-704-9129 6.75
- ------------------------------------------------
883-2650 PS 1%, 8.00
- ------------------------------------------------
466-0527 PS 1%, 7.69
- ------------------------------------------------
737-2122 H, 8.00
- ------------------------------------------------
466-0527 6.75
- ------------------------------------------------
466-3227 PS 1%, 8.20
- ------------------------------------------------
581-4791 8.10
- ------------------------------------------------
261-3390 6.50
- ------------------------------------------------
406-0760 6.50
- ------------------------------------------------
882-0719 8.50
- ------------------------------------------------
530-0961 7.00
- ------------------------------------------------
386-6548 7.50
- ------------------------------------------------
737-0112 8.25
- ------------------------------------------------
215-321-1522 7.00
- ------------------------------------------------
737-7622 7.25
- ------------------------------------------------
737-2413 7.50
- ------------------------------------------------
882-3576 6.50
<PAGE>
- ------------------------------------------------
538-1074 8.50
- ------------------------------------------------
397-8830 7.25
- ------------------------------------------------
883-1109 7.50
- ------------------------------------------------
215--------- ---
- ------------------------------------------------
730-9288 6.25
- ------------------------------------------------
771-9206 7.75
- ------------------------------------------------
737-9438 8.00
- ------------------------------------------------
883-6153 6.25
- ------------------------------------------------
882-8141 6.25
- ------------------------------------------------
882-1191 7.00
- ------------------------------------------------
239-1756 H, 7.50
- ------------------------------------------------
Joyce 6.00
- ------------------------------------------------
393-4922 8.00
- ------------------------------------------------
737-3647 6.75
- ------------------------------------------------
392-0541 6.50
- ------------------------------------------------
683-0672 H, 7.25
- ------------------------------------------------
466-4702 6.50
- ------------------------------------------------
466-0440 H, 7.25
- ------------------------------------------------
215-295-0261 6.50
- ------------------------------------------------
394-3129 6.50
- ------------------------------------------------
882-7875 6.75
- ------------------------------------------------
530-0194 H, 6.00
- ------------------------------------------------
396-0198 6.25
- ------------------------------------------------
394-0599 6.00
- ------------------------------------------------
219-7277 6.75
- ------------------------------------------------
215-428-0601 6.50
- ------------------------------------------------
737-0451 6.50
- ------------------------------------------------
586-7297 6.50
<PAGE>
- ------------------------------------------------
882-2861 6.25
- ------------------------------------------------
376-1612 6.25
- ------------------------------------------------
538-0831 7.25
- ------------------------------------------------
882-1401 5.50
- ------------------------------------------------
393-4240 H, 9.50
- ------------------------------------------------
737-1519 6.00
- ------------------------------------------------
oc 6.00
- ------------------------------------------------
Chris N. deposit 8.20
- ------------------------------------------------
STORE
- ------------------------------------------------
MaryAnn 6.50
- ------------------------------------------------
Fuller 8.10
- ------------------------------------------------
Caroline 6.75
- ------------------------------------------------
Annelie 7.00
- ------------------------------------------------
- ------------------------------------------------
- ------------------------------------------------
- ------------------------------------------------
- ------------------------------------------------
- ------------------------------------------------
- ------------------------------------------------
<PAGE>
SCHEDULE 4.14(b)
CONTRIBUTIONS TO BENEFIT PLANS
I. Employees who meet the following criteria are eligible for health
insurance through New England Insurance:
(1) Must be employed for a minimum of 6 months;
(2) Must work at least 25 hours/wk;
(3) Co-pay
(a) 25-32 hr/wk = $25/wk co pay
(b) 32-39 hr/wk = $20/wk co pay
(c) 40 hr/wk = $15/wk co pay
Coverage is for the employee only. Coverage for dependents is available,
but is fully paid by employee.
II. Selected employees who have been employed in good standing for at least
3 years and continue to be employees in good standing at the end of the
calendar year (see Schedule 4.14(a)) must be eligible for profit
sharing. This is non-contributory.
<PAGE>
SCHEDULE 4.15
LIST OF PATENTS, TRADEMARKS, TRADE NAMES, ETC.
Servicemark - Natural Baby Co., Inc. with logo, filed 4/27/90,
registration number 1,644,016 5/7/9-
Trademark - Design of rainbow diaper, filed 1/9/90, registration number
1,627,263, 12/11/90
Trademark - "Rainbow" used with cloth diapers, filed 1/8/90, registered
10/1/91, registration number 1,659,002
<PAGE>
SCHEDULE 4.17(a)
POLICIES, FUNDS, ETC.
Smith Insurance (Continental) expiration 8/26/96
General liability $2,000,000.00 limit
<PAGE>
SCHEDULE 4.18
LICENSES, PERMITS, AUTHORIZATIONS
New Jersey Sales Tax Certificate of Authority effective 3/1/88
Sales and Use Tax Certificate of Authority 12/21/93
<PAGE>
SCHEDULE 4.20
[REDACTED FOR REASON OF CONFIDENTIALITY AND TRADE SECRET]
EXHIBIT 10.02
ADDENDUM
This Addendum to the Asset Purchase Agreement (the "Agreement") by and
between The Natural Baby Company, Inc. and Duncan Hill Co., Ltd. is entered into
by and between the parties and Kid's Stuff, Inc., effective as of November 10,
1996.
Whereas, Duncan Hill Co., Ltd. has requested additional time beyond
January 3, 1997 within which to close the purchase of assets; and
Whereas, The Natural Baby Company, Inc. is willing to extend the closing
date in accordance with the terms set forth herein.
Now, therefore, for and in consideration of the mutual promises and
covenants contained herein, the parties agree as follows:
1. The Purchase Price set forth in Paragraph 2.1 of the Purchase Agreement is
increased by the amount of $350,000, which shall be payable at Closing as
follows: $100,000 cash or certified funds and the $250,000 evidenced by a
promissory note from Kid's Stuff, Inc. containing the terms set forth in
Paragraph 2.
2. The Promissory Note shall be in the amount of $250,000, bear interest at
Eight percent (8%) per annum, with annual payments of interest only, in arrears
for three years, then followed by five annual payments of Fifty Thousand Dollars
($50,000), plus accrued interest, payable on the fourth, fifth, sixth, seventh
and eight anniversaries of the execution of the Promissory Note. The Promissory
Note shall be convertible into unregistered shares of the common stock of Kid's
Stuff, Inc. at the election of the holder, in whole or in part, at $5.00 per
share. The Promissory Note may be prepaid at any time without penalty, upon
thirty days written notice from Kid's Stuff, Inc. Such conversion is contingent
upon exemption from registration of the shares issued upon conversion. Kid's
Stuff, Inc. shall bear the expense of exemption from registration promptly upon
notice of conversion from the holder.
3. Jane Martin, Daniel Martin, The Natural Baby Company, Inc. and Duncan Hill
Co., Ltd. hereby consent to the assignment of the Purchase Agreement, the Daniel
Martin Non-Compete Agreement and the Jane Martin Consulting & Non-Compete
Agreement by Duncan Hill Co., Ltd. to its wholly owned subsidiary, Kids Stuff,
Inc., with out waiving or releasing Duncan Hill Co., Ltd. from any of its
obligations or duties under the foregoing agreements. Duncan Hill Company, Ltd.
hereby assigns all of its right, title and interest in the Purchase Agreement to
Kids Stuff, Inc.
4. The Final Closing Date is hereby extended to April 30, 1997, at the latest.
The Company shall attempt to cause the Final Closing Date to occur on the last
day of a month, however, the parties acknowledge that Final Closing Date shall
occur within five business days subsequent to the closing of the public sale of
securities of Kids Stuff, Inc. by VTR Capital, Inc. Further, the parties agree
that an escrow closing shall be made within ten (10) business days prior to the
effective date of the registration statement of
<PAGE>
Kid's Stuff, Inc. in connection with its pending public offering. Unless the
Final Closing Date is within fifteen business days from the effective date of
Kids Stuff, Inc.'s registration statement, Sellers may terminate the
transaction. At the escrow closing all deliveries required by the Seller's and
Buyers other than cash and notes shall be delivered to escrow agent. Between the
date of Escrow Closing and the Final Closing, business shall be conducted for
the benefit of Buyer by Seller and the Seller Shareholders. The parties hereto
agree that Dinsmore & Shohl, LLP shall serve as Escrow Agent for the Escrow
Closing.
5. Paragraph 2.3 (b) of the Purchase Agreement is hereby modified by addition of
the following: Provided, however, that the purchase price shall be adjusted
pursuant to this section as follows:
(i) An adjustment shall be made under this paragraph 2.3(b) for any increase or
decrease in the tangible net worth from 12/31/95 to 12/31/96;
(ii) If there is a decrease in the tangible net worth between 12/31/96 and
Closing which is greater than 105% of the decrease from 12/31/95 to the date
]one year prior to Closing, a second adjustment shall be made decreasing the
Purchase Price by the difference between:
(a) 105% of the decrease in tangible net worth from 12/31/95 to the date one
year prior to closing; and,
(b) the actual decrease in tangible net worth from 12/31/96 and Closing.
6. Paragraph 2.3 of the Purchase Agreement is hereby modified as follows: Any
adjustment to the Purchase Price shall be reconciled by adjusting the principal
amount of the Promissory Note issuable pursuant to Paragraph 2 of this Addendum.
The parties agree to deliver and execute such documents as reasonably required
to effect this provision.
Agreed and Accepted
/s/ JANE MARTIN /s/ DANIEL MARTIN
- --------------------------- --------------------------------
Jane Martin Daniel Martin
Duncan Hill Co., Ltd.
/s/ WILLIAM L. MILLER PRESIDENT
- --------------------------- --------------------------------
by Title
The Natural Baby Company, Inc.
/s/ DANIEL MARTIN PRESIDENT
- --------------------------- --------------------------------
by Title
Kid's Stuff, Inc.
/s/ WILLIAM L. MILLER CHIEF EXECUTIVE OFFICER
- --------------------------- --------------------------------
by Title
EXHIBIT 10.03
ESCROW AGREEMENT
THIS AGREEMENT is made and entered into this 26 day of December, 1996,
by and between NATURAL BABY COMPANY, a New Jersey Corporation ("Seller") and
KIDS STUFF, INC., a Delaware corporation ("Buyer").
R E C I T A L S:
WHEREAS, Seller has agreed to sell to Buyer, and Buyer has agreed to
purchase from Seller certain business assets of Seller (the "Assets")
pursuant to the terms and conditions of a certain Asset Purchase
Agreement, dated May 10, 1996, as amended by a certain Addendum
effective as of November 10, 1996 (collectively the "Asset Purchase
Agreement"); and
WHEREAS, the Asset Purchase Agreement contemplates that the closing of
the purchase and sale of the Assets shall be consummated prior to the
date that the purchase price is paid by Buyer to Seller; and
WHEREAS, the Buyer and Seller have agreed that the closing be subject to
the terms of this Escrow Agreement pending the payment of the final
purchase price by Buyer to Seller; and
WHEREAS, the parties hereto desire to have Dinsmore & Shohl, L.L.P.
serve as the escrow agent to hold the closing documents pursuant to the
terms of this Escrow Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and promises
set forth herein, and for other good and valuable considerations, the receipt of
which is hereby acknowledged, the parties hereto agree as follows:
T E R M S:
1. APPOINTMENT OF ESCROW AGENT. Seller and Buyer hereby appoint
Dinsmore & Shohl, L.L.P. as the Escrow Agent and the Escrow Agent
hereby accepts such appointment to serve as the Escrow Agent all
in accordance with the terms and conditions set forth herein.
2. TERM. The term of this Agreement shall commence as of the closing
of the purchase and sale of the Assets (the "Closing Date") and
the Escrow Agent's obligations hereunder shall terminate upon the
earlier of the Final Closing Date or receipt of notice of
Sellers' termination of the transaction in accordance with
Paragraph 4 after the Effective Date of the Kids Stuff, Inc.
public offering of common shares.
3. DELIVERY OF CLOSING DOCUMENTS. Upon the Closing Date, the parties
hereto shall deliver to the Escrow Agent the Asset Purchase
Agreement and any and all other agreements and documents related
to the purchase and sale of the Assets (the "Closing Documents").
-1-
<PAGE>
4. DUTIES. The Escrow Agent shall receive and accept the Closing
Documents on the Closing Date and shall hold the Closing
Documents pursuant to the terms hereof. In no event shall the
Escrow Agent be obligated to accept any notice, request or demand
from anyone other than a party hereto.
5. DISPOSITION OF DOCUMENTS. Upon delivery of a certified check made
payable to Seller in the amount $1,075,000, a certified check in
the amount of $203,358.25 plus interest thereon payable to Seller
and the creditors listed on Schedule 1.2 of the Purchase
Agreement and a promissory note made payable to Seller in the
amount of $250,000 (the "Purchase Payment") Escrow Agent shall
deliver the Purchase Payment to Seller and the Closing Documents
to the respective parties. Thereupon, the closing of the Purchase
and sale of the Assets shall become Final. In the event of the
termination of the Escrow Agent's obligations under this
Agreement prior to the payment in full of the Purchase Price by
Buyer to Seller, the Escrow Agent shall distribute the Closing
Documents to the respective parties and thereafter shall have no
further obligation or liability with respect thereto.
6. COMPENSATION. The Escrow Agent shall be entitled to be
compensated by the Buyer for its reasonable costs and expenses of
performing its duties hereunder.
7. LIABILITY OF ESCROW AGENT. The Escrow Agent shall have no
liability for anything done or omitted to be done by it hereunder
except for its gross negligence or willful misconduct. The Escrow
Agent shall be under no duty to determine the truth or validity
of any notice or instruction received by it hereunder, and it
shall in no event be under any duty to determine whether any
party hereto has or has not performed their obligations under
this Agreement. Notwithstanding any provisions to the contrary
contained in this Agreement:
a) The Escrow Agent shall be fully protected and shall incur
no liability in acting upon any notice, request, consent
or other instrument believed to be genuine or to have been
signed or presented by the proper person or persons;
b) Receipt of any written notice or instruction shall be
deemed to occur only when the notice or instruction,
signed by the party or parties giving it, is actually
received by the Escrow Agent;
c) The Escrow Agent shall not be bound by any notice of or
demand with respect to, any waiver, modification,
amendment, cancellation, rescission, or supercisions of
this Agreement, unless in writing and signed by the
parties hereto;
d) In the event of any controversy or dispute or any
question as to the construction of this Agreement or with
respect to any action to be taken by the Escrow Agent
hereunder, the Escrow Agent may seek advice of counsel of
its own selection and shall incur no liability for any
action taken or suffered in good faith by it in
accordance with the advice or opinion of such counsel;
-2-
<PAGE>
e) The Escrow Agent's duties and obligations hereunder shall
be governed solely by the provisions of this Agreement.
The Escrow Agent shall assume no duties other than those
expressly imposed herein and it shall not be required to
take any action other than in accordance with the terms
hereof;
f) No amendment or modification of the terms of this
Agreement shall effect the rights and duties of the
Escrow Agent hereunder unless its written consent thereto
shall have been obtained;
g) Seller acknowledges that nothing in this Agreement shall
cause or give rise to an attorney-client relationship
between Escrow Agent and Seller or a conflict of interest
among the parties hereto. The Escrow Agent has made no
representations, either written or oral, which shall be
construed by Seller as creating an attorney-client
relationship with Seller. Seller hereby waives, releases
and relinquishes any and all claims against the Escrow
Agent based on or related to the Escrow Agent's breach of
any duty owed by the Escrow Agent to Seller in the
capacity as attorney or legal counsel for Seller,
including, but not limited to, any claims for conflict of
interest among the parties hereto.
8. INDEMNIFICATION. The parties hereto agree to exonerate and hold
the Escrow Agent harmless from any liabilities, including court
costs and attorney fees, arising out of any dispute between
Seller, Buyer or any other person relative to the Escrow Agent's
duties and obligations under this Escrow Agreement. The Escrow
Agent shall not be required to defend any legal proceeding which
may be instituted against it, in respect of the subject matter of
this Escrow Agreement unless requested so to do by Seller or
Buyer, in which event it shall have the right to be indemnified
by the party so requesting to its satisfaction against the cost
and expense of such defense. It shall not be required to
institute legal proceedings of any kind.
9. TERMINATION. This Agreement shall terminate and the Escrow Agent
shall have no further obligation with respect hereto upon the
earlier of the expiration of the term of this Agreement or the
distribution of the Closing Documents held by the Escrow Agent
pursuant to the terms of this Agreement.
10. NOTICES. Any notices or instructions to be given hereunder shall
be validly given if set forth in writing and mailed or delivered
as follows:
TO SELLER:
Natural Baby Company
816 Sylvia Street
Trenton, New Jersey 08628
Attention: Daniel Martin
-3-
<PAGE>
TO BUYER:
Kids Stuff, Inc.
4450 Belden Village Street N.W., Suite 406
Canton, Ohio 44718
Attention: William L. Miller
TO ESCROW AGENT:
Dinsmore & Shohl, L.L.P.
175 South Third Street
Columbus, Ohio 43215
Attention: David G. LeGrand
11. INTEGRATED AGREEMENT; MODIFICATION; WAIVER. This Agreement
constitutes the entire understanding and agreement between the
parties pertaining to the subject matter contained herein and
supersedes all prior and contemporaneous agreements,
representations and understandings of the parties not otherwise
contained in this document. No alteration, modification,
amendment or change of this Agreement shall be binding unless
executed in writing by parties. No waiver of any of the
provisions of this Agreement shall be deemed a waiver of any
other provision, whether or not similar, nor shall any waiver
constitute a continuing waiver.
12. GOVERNING LAW. The provisions of this Agreement shall be
construed under and the respective rights and obligations of the
parties shall be determined with reference to the laws of the
State of Ohio.
13. CAPTIONS. The paragraph headings contained in this Agreement are
for reference purposes only and shall not affect in any way the
meaning or interpretation of the Agreement.
14. COUNTERPART EXECUTION. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same
instrument.
15. SUCCESSORS AND ASSIGNS. All of the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of and
be enforceable by the parties hereto, their successors and
assigns.
16. GENDER. All personal pronouns used in this Agreement shall
include the other genders, whether used in the masculine,
feminine or neuter, and the singular shall include the plural
whenever and as often as may be appropriate.
17. AGREEMENT TO TAKE NECESSARY AND DESIRABLE ACTIONS. The parties
hereto agree to execute and deliver such other assignments,
conveyances, instruments of transfer, documents, financing
statements, certificates and other writings and to take such
other actions as may be necessary or desirable in order to
consummate or implement expeditiously the transactions
contemplated by this Agreement.
-4-
<PAGE>
18. SEVERABILITY. Any term or provision of this Agreement which is
finally determined to be invalid or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to
the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and
provisions of this Agreement or affecting the validity or
enforceability of any of the terms or provisions of this
Agreement in any other jurisdiction.
19. SURVIVAL. All representations, warranties, covenants, and
indemnities made by the parties in this Agreement shall be deemed
made for the purpose of inducing the other to enter into this
Agreement, and shall survive the termination of the Escrow
Agent's obligations hereunder and remain operative in full force
and effect after the termination of this Agreement.
20. ENFORCEABILITY. This document shall not be deemed for any purpose
to represent the agreement or basis of the bargain between the
parties until it has been completely executed by all parties.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, all
as of the day and year first above written.
NATURAL BABY COMPANY
By: /s/ DANIEL MARTIN, PRESIDENT
-----------------------------------------------
Daniel Martin, President
KIDS STUFF, INC.
By: /s/ WILLIAM L. MILLER, CHIEF EXECUTIVE OFFICER
-----------------------------------------------
William L. Miller, Chief Executive Officer
DINSMORE & SHOHL, L.L.P.
By: /s/ DAVID G. LEGRAND, PARTNER
-----------------------------------------------
David G. LeGrand, Partner
-5-
EXHIBIT 10.04
CONSULTING & NON-COMPETE AGREEMENT
This agreement ("Agreement"), made and entered into this 20 day of May,
1996, by and between Duncan Hill Co., Ltd., an Ohio corporation whose offices
are at 7245 Whipple Ave. N.W., North Canton, Ohio 44720 (the "Company") and Jane
Martin, whose office is 816 Silvia St., 800B, Trenton, N.J. 08628, (the
"Consultant").
WHEREAS, on May 20, 1996 the Company entered into an Asset Purchase
Agreement For the purchase of all assets of The Natural Baby Co., Inc., ("Asset
Purchase Agreement") and
WHEREAS, the Consultant is the President and majority shareholder of The
Natural Baby Co., Inc., and
WHEREAS, the Consultant has expert knowledge in, and has been essential
to, the merchandise selection, copywriting, and production of the Natural Baby
Catalogs ("Catalog"), and
WHEREAS, Consultant has agreed to serve as a full time Consultant and
contractor to the Company on the terms and conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants made herein, the parties hereto agree as follows:
1. RETENTION AND DUTIES. The Company agrees to and does hereby retain
the Consultant, and the Consultant agrees to and does hereby accept a full time
engagement with the Company for a period of two (2) years commencing from the
date of closing of the Asset Purchase Agreement hereof ("Consulting Period");
subject, however, to earlier termination pursuant to Section 5. During the
Consulting Period, Consultant shall perform such duties as are from time to time
delegated to her Jeanne or Bill Miller and limited to the following:
(a) To assist in the development of the annual Catalog Plan
consisting of the analysis of sales patterns, product sales
performance, product profitability, and identification of overall
trends necessary for the merchandising and design of the Catalog.
<PAGE>
(b) Plan and select merchandise to be featured in the Catalog;
negotiation of prices, terms, and deliveries with selected
vendors; completion of vendor information sheets required by the
Company to conduct ongoing purchasing activity.
(c) Implement the Catalog Plan by planning, scheduling, obtaining
quotations, and generally supervising activities related to the
creation and production of each Catalog printing.
(d) Supervise the Catalog graphic design and layout; select models
and supervise the photography of products.
(e) Scheduling the printing and production of the Catalog to
completion or assist the Company in such activity should print
production functions be consolidated with other Company activity.
Such duties may also include, among other things, travel from time to time.
During the Consulting Period, Consultant, shall devote her full time and effort
for the benefit of the Company.
2. COMPENSATION.
(a) PAYMENT. During the Consulting Period, the Consultant shall be
compensated at a rate of Sixty Five Thousand Dollars ($65,000)
per year, payable in equal monthly payments of $5,416.67, for
services rendered herein.
(b) BENEFITS. The Consultants agrees to act as an independent
contractor under the terms and conditions of this agreement but
shall be entitled to participate in employee benefit programs
such as group health, accident or life insurance plans, group
medical and hospitalization plans and other similar benefits, as
may be available to consultants and the executive employees of
the Company.
(c) EXPENSES. Company shall pay or reimburse Consultant for
reasonable and necessary expenses incurred by it in connection
with its duties herein, upon submission by the Consultant to the
Company of such written evidence of expense as the Company may
require. Expenses in excess of $250 shall require prior written
approval of the Company.
2
<PAGE>
3. NON-COMPETITION. Consultant agrees to be bound by the Non-Competition
Agreement Exhibit 1, made a part of this agreement by attachment.
4. INCAPACITY. In the event that Consultant shall become incapacitated
for 60 consecutive days through accident, sickness or otherwise and thereby be
prevented from performing the duties hereunder, Consultant shall not be entitled
to the compensation provided for hereunder for the period in which the
Consultant is incapacitated.
5. TERMINATION. Except as hereinafter provided, this Agreement may be
terminated by the Company only for cause, or by the Consultant, with or without
cause, upon giving one hundred and twenty (120) days written notice to the other
party. In addition, this Agreement shall be terminated immediately upon the
occurrence of any of the following events:
(a) If the Consultant shall completely neglect her duties or devote
all of her time or attention to other interests, for a continuous
period of more than thirty (30) days, after 30 days notice to
remedy.
Further, this Agreement may be terminated by the sole discretion of the Company,
with 30 days notice, upon the occurrence of any of the following events:
(b) If the Consultant shall be in material breach of or default under
any provision of this Agreement; or
(c) If the Seller shall be in material breach of or default under any
provision of the Asset Purchase Agreement; or
(d) If the Board of Directors of the Company determine to sell or
otherwise dispose of substantially all of the assets of the
Company, or distribute the assets of the Company to the
stockholders in liquidation, however, employee shall then receive
her remaining contract compensation; or
(e) In the event the Consultant shall be convincted of a crime or
moral turpitude in the rendering of service on behalf of the
Company.
3
<PAGE>
If this Agreement is terminated pursuant to Section 5 hereof, Consultant shall
be paid her compensation to the date of such termination.
6. NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and if sent by registered mail to
the residence of Consultant; to Duncan Hill Co., Ltd. at their corporate office.
7. ENTIRE AGREEMENT; WAIVER. This Agreement contains the entire
understanding of the parties and may not be changed orally but only by an
agreement in writing; signed by both parties. Waiver of or failure to exercise
any rights provided by this Agreement in any respect shall not be deemed a
waiver of any further or future rights.
8. APPLICABLE LAW. This Agreement shall be governed by and interpreted
under the laws of the State of New Jersey.
IN WITNESS WHEREOF, the Company has caused this instrument to be signed
by a duly authorized officer of the Company and Consultant has hereunder set her
hand the day and year first above written.
DUNCAN HILL CO., LTD.
By:
---------------------------------
William L. Miller, President
and
---------------------------------
Jane Martin
4
EXHIBIT 10.05
ASSET PURCHASE AGREEMENT
Agreement effective as of June 30, 1996, by and between DUNCAN HILL CO.,
LTD., an Ohio corporation, 4450 Belden Village Street, N.W., Suite 406, Canton,
Ohio 44718 ("Seller") and KIDS STUFF, INC., a Delaware corporation, 4450 Belden
Village Street, N.W., Suite 406, Canton, Ohio 44718 ("Buyer").
R E C I T A L S:
WHEREAS, Seller received the assets and liabilities of its subsidiary
Perfectly Safe, Inc. ("Perfectly Safe") in a liquidating distribution
under Section 332 of the Internal Revenue Code of 1986, as amended; and
WHEREAS, Seller desires to sell the Perfectly Safe assets to Buyer as
well as certain other assets of Duncan Hill used to perform
telemarketing, order fulfillment, data processing and administrative
functions, all of which are identified on Exhibit A hereto.
WHEREAS, Buyer desires to acquire the assets set forth in Exhibit A upon
the terms and conditions stated herein.
NOW, THEREFORE, in consideration of the foregoing, and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto hereby agree as follows:
1. TRANSFER AND SALE. Seller shall transfer, sell, assign and convey
unto Buyer, and Buyer shall purchase from Seller, for the
Purchase Price set forth in Paragraph 4 below, the assets
identified and described on Exhibit A attached hereto and made a
part hereof (the "Assets").
2. CLOSING. The closing shall take place at the office of Kids
Stuff, Inc., 7245 Whipple Ave., N.W., N. Canton, Ohio 44720.
3. TRANSFER AT CLOSING. At the time of the closing, Seller shall
transfer to Buyer, free and clear of any lien or encumbrance
(except as otherwise provided herein), all of the Assets
identified on Exhibit A. Upon Buyer's demand, Seller shall
execute and deliver all other documents necessary to give full
effect to the terms of this Agreement.
4. PURCHASE PRICE. The purchase price payable by Buyer for the
Assets transferred and sold hereunder shall be $2,613,404.00
payable at the closing as follows:
(a) Buyer shall execute and deliver to Seller a certain
Promissory Note, a form of which is attached hereto as
Exhibit B, for the principal amount of $366,858.00
repayable upon the terms and conditions stated therein;
(b) The assumption by Buyer of accounts payable of Perfectly
Safe as of June 30, 1996 in the amount of $1,215,703; the
assumption by Buyer of Seller's obligations in the amount
of $650,000 as of June 30, 1996 under Seller's credit
facility at United National Bank and Trust Company; and,
Seller's
<PAGE>
assumption of Perfectly Safe's deferred federal
income tax liability in the amount of $75,843, as of June
30, 1996; and,
(c) The issuance to Seller of 2,400,000 shares of Buyer's
common stock valued at $.125 per share and 5,000,000
shares of Series A Preferred Stock Value at $.001 per
share.
5. REPRESENTATIONS OF SELLER. Seller warrants and represents that
the following are now true and will be true at closing:
(a) Seller is a corporation duly organized and validly
existing and in good standing under the laws of the State
of Ohio, and has the requisite corporate power and
authority to own and operate its property and to carry on
its business as now conducted.
(b) Seller has all requisite power and full legal right to
enter into this Agreement with Buyer and to perform all of
its agreements and obligations hereunder in accordance
with its terms. This Agreement has been duly authorized by
Seller's Board of Directors, has been duly executed and
delivered by Seller, and constitutes the legal, valid and
binding obligation of Seller.
(c) Seller has good and marketable title to the Assets, free
and clear of all liens, pledges, charges, security
interests, mortgages, encumbrances or title retention
agreements except for the lien of United National Bank
&Trust. All of the fixed Assets shall be in good operating
condition and repair, and free from material defects.
(d) The sale, assignment, transfer, conveyance and delivery of
the Assets will not conflict with or violate any provision
of the Seller's Articles of Incorporation, Code of
Regulations, or other any other agreement to which Seller
is a party.
6. REPRESENTATIONS OF BUYER. Buyer warrants and represents the
following are now true and will be true at closing:
(a) Buyer is a corporation duly organized and validly existing
and in good standing under the laws of the State of
Delaware, and has the requisite corporate power and
authority to own and operate its property and to carry on
its business as now conducted.
(b) Buyer has all requisite power and full legal right to
enter into this Agreement with Seller and to perform all
of its agreements and obligations hereunder in accordance
with its terms. This Agreement has been duly authorized by
Buyer's Board of Directors, has been duly executed and
delivered by Buyer, and constitutes the legal, valid and
binding obligation of Buyer.
(c) The purchase and acceptance of delivery of the Assets by
Buyer will not conflict with or violate any provision of
the Buyer's Certificate of
<PAGE>
Incorporation, By-Laws, or other any other agreement to
which Buyer is a party.
7. ACCESS AND INFORMATION. Seller shall give to Buyer and its
counsel, accountants and other representatives full access,
during normal business hours throughout the period before the
closing, to all of Seller's books, contracts, commitments and
records, and shall furnish Buyer during such period with all
information concerning Seller's affairs that Buyer reasonably
requests.
8. NO VIOLATION. The parties represent to each other that their
performance of this Agreement, including any conditions or
surviving warranties or representations, is not in violation of
any law, statute, local ordinance, state or federal regulation,
court order or administrative ruling.
9. SURVIVAL OF WARRANTIES. All representations and warranties made
herein shall survive the closing and continue to be enforceable
by the parties hereto after the termination of this Agreement.
10. GOVERNING LAW. This Agreement shall be construed and interpreted
under the laws of the State of Ohio.
11. BINDING EFFECT. This Agreement shall inure to the benefit of and
be binding upon the parties and their respective successors and
assigns.
12. COUNTERPARTS. This Agreement may be executed simultaneously in
any number of counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the
same instrument.
13. NOTICES. All notices, requests, demands, and other communications
hereunder shall be in writing and be deemed to have been duly
given if delivered or mailed, first class postage prepaid, to the
address of the appropriate party shown at the outset of this
Agreement.
14. NON-WAIVER. No delay or failure by either party to exercise any
right hereunder, and no partial or single exercise of any such
right shall constitute a waiver of that or any other right,
unless otherwise expressly provided herein.
15. HEADINGS. Headings in this Agreement are for reference and
convenience only and shall not be used to interpret or construe
its provisions.
16. TIME. Time is of the essence of this Agreement. It is the
intent of the parties that the transactions contemplated by this
Agreement be effective as of June 30, 1996.
17. ENTIRE AGREEMENT; MODIFICATION. This Agreement supersedes all
prior agreements and constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof. It may
not be amended or modified except by an instrument executed by
the parties.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have signed this instrument.
DUNCAN HILL CO., LTD.
By: /s/ WILLIAM L. MILLER, PRESIDENT
----------------------------------------------
William L. Miller, President
KIDS STUFF, INC.
By: /s/ WILLIAM L. MILLER, CHIEF EXECUTIVE OFFICER
----------------------------------------------
William L. Miller, Chief Executive Officer
<PAGE>
EXHIBIT A
SCHEDULE OF ASSETS
Inventories
Deferred Catalog Expense
Prepaid Assets & Deposits
Receivable from Affiliates
Data Processing Equipment
Machinery and Equipment
Vehicles
Furniture & Fixtures
Customer Lists
Development & Catalog Costs
Goodwill
<PAGE>
EXHIBIT B
PROMISSORY NOTE
<PAGE>
$366,858.00 PROMISSORY NOTE June 30, 1996
===============
FOR VALUE RECEIVED, KIDS STUFF, INC. a Delaware corporation, whose
address is 4450 Belden Village Street, N.W., Suite 406, Canton, Ohio 44718
("Borrower") promises to pay to DUNCAN HILL CO., LTD., an Ohio corporation
("Lender"), as hereinafter set forth, the principal sum of Three Hundred Sixty
Six Thousand Eight Hundred Fifty Eight and 00\100 Dollars ($366,858.00) with
interest thereon from the date hereof at the rate of eight percent (8%) per
annum.
Payments of principal and interest shall be made as follows: The
payment of the first installment of $66,858.00 in principal plus interest
accrued thereon to date shall be due and payable on June 30, 1997; the second
installment of $100,000.00 in principal plus interest accrued thereon to date
shall be due and payable on June 30, 1998; the third installment of $100,000.00
in principal plus interest accrued thereon to date shall be due and payable on
June 30,1999; and the final installment of $100,000.00 in principal plus
interest accrued thereon to date shall be due and payable on June 30, 2000.
If any of the following events shall occur and be continuing, it shall
constitute an Event of Default under this Note:
(a) Failure to make any payments of principal or interest required to
be made under this Note within thirty (30) days (excluding bank
holidays) after the same shall become due;
(b) Failure to perform or observe any covenant, term or condition
contained in this Note and such default shall not have been
remedied for a period of thirty (30) days following written
notice thereof by Lender.
Upon any Event of Default, and if such default shall continue for a
period of thirty (30) days, then the Lender may, at his option and without
further notice, declare the unpaid principal hereof and all accrued interest
thereon to be at once due and payable in full.
There shall be no prepayment penalty in the event that the undersigned
prepays all or a portion of the principal sum and accrued interest evidenced
hereby.
The Borrower and all indorsers, sureties, and guarantors hereof,
jointly and severally waive presentment, demand for payment, notice of dishonor,
notice of protest, and protest, and all other notices or demands in connection
with the delivery, acceptance performance, default, indorsement, or guaranty of
this instrument.
BORROWER:
KIDS STUFF, INC.
By: //S WILLIAM L. MILLER, CHIEF EXECUTIVE OFFICER
----------------------------------------------
William L. Miller, Chief Executive Officer
<PAGE>
EXHIBIT C
SCHEDULE OF ASSUMED ACCOUNTS PAYABLE
Miscellaneous Payables in the amount of $1,215,703
EXHIBIT 10.06
$366,858.00 PROMISSORY NOTE June 30, 1996
===============
FOR VALUE RECEIVED, KIDS STUFF, INC. a Delaware corporation, whose
address is 4450 Belden Village Street, N.W., Suite 406, Canton, Ohio 44718
("Borrower") promises to pay to DUNCAN HILL CO., LTD., an Ohio corporation
("Lender"), as hereinafter set forth, the principal sum of Three Hundred Sixty
Six Thousand Eight Hundred Fifty Eight and 00\100 Dollars ($366,858.00) with
interest thereon from the date hereof at the rate of eight percent (8%) per
annum.
Payments of principal and interest shall be made as follows: The
payment of the first installment of $66,858.00 in principal plus interest
accrued thereon to date shall be due and payable on June 30, 1997; the second
installment of $100,000.00 in principal plus interest accrued thereon to date
shall be due and payable on June 30, 1998; the third installment of $100,000.00
in principal plus interest accrued thereon to date shall be due and payable on
June 30,1999; and the final installment of $100,000.00 in principal plus
interest accrued thereon to date shall be due and payable on June 30, 2000.
If any of the following events shall occur and be continuing, it shall
constitute an Event of Default under this Note:
(a) Failure to make any payments of principal or interest required to
be made under this Note within thirty (30) days (excluding bank
holidays) after the same shall become due;
(b) Failure to perform or observe any covenant, term or condition
contained in this Note and such default shall not have been
remedied for a period of thirty (30) days following written
notice thereof by Lender.
Upon any Event of Default, and if such default shall continue for a
period of thirty (30) days, then the Lender may, at his option and without
further notice, declare the unpaid principal hereof and all accrued interest
thereon to be at once due and payable in full.
There shall be no prepayment penalty in the event that the undersigned
prepays all or a portion of the principal sum and accrued interest evidenced
hereby.
The Borrower and all indorsers, sureties, and guarantors hereof, jointly
and severally waive presentment, demand for payment, notice of dishonor, notice
of protest, and protest, and all other notices or demands in connection with the
delivery, acceptance performance, default, indorsement, or guaranty of this
instrument.
BORROWER:
KIDS STUFF, INC.
By: //S WILLIAM L. MILLER, CHIEF EXECUTIVE OFFICER
----------------------------------------------
William L. Miller, Chief Executive Officer
EXHIBIT 10.07
October 16, 1996
Mr. William L. Miller
President
Kids Stuff, Inc.
7245 Whipple Avenue, N.W.
North Canton, Ohio 44720
RE: BRIDGE LOAN
Dear Mr. Miller:
This letter summarizes our agreement as follows:
1. BRIDGE LOAN. Upon the execution of this letter, the undersigned
("Lender") shall loan (the "Loan") one hundred thirty one thousand three hundred
thirty three dollars and 33/100 ($131,333.33) to Kids Stuff, Inc., a Delaware
corporation (the "Company"), pursuant to the terms of (i) a certain promissory
note in the amount of $82,083.33 payable on the earlier of October 16, 1997 or
the closing of the Company's next public offering (the "Class A Note") and (ii)
a promissory note in the amount of $49,250.00 payable on September 27, 1997 or
convertible, at the option of the holder, into nine hundred eighty five thousand
(985,000) Class A Redeemable Common Stock Purchase Warrants (the "Bridgeholder's
Warrants") of the Company (the "Class B Note"). The forms of the Class A Note
and Class B Note are attached hereto as Exhibits A and B, respectively
(collectively, the "Notes"). Concurrently, with the execution of this letter,
the Company shall execute and deliver the Notes to Lender.
2. ISSUANCE OF BRIDGEHOLDER'S WARRANTS. Upon conversion of the Class B
Note, the Company shall issue to Lender the Bridgeholder's Warrants. Each
Bridgeholder Warrant will be identical to the terms and conditions of the Class
A Warrants being offered to the public pursuant to the Company's contemplated
Initial Public Offering (the "Public Offering"). Effective the date on which the
initial registration statement (the "Registration Statement") filed by the
Company with the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Securities Act") is
<PAGE>
Mr. William L. Miller
October 16, 1996
Page 2
declared effective by the Commission, Lender shall be deemed to have exercised
its option to convert the Class B Note into the Bridgeholder's Warrants and the
Company will deliver to Lender certificates representing each of the
Bridgeholder's Warrants.
3. REGISTRATION RIGHTS. The Company agrees to include the Bridgeholder's
Warrants and the shares of the Common Stock issuable upon exercise of the
Bridgeholder's Warrants (collectively, the "Registrable Securities"), in the
Registration Statement at no cost or expense to Lender.
Anything in this Section 3 to the contrary notwithstanding, in the event
that the managing underwriter of the Public Offering informs the Company in
writing that the inclusion of the Registrable Securities in the Public Offering
will result in the inability to effect the Public Offering or qualify the Public
Offering in one or more states which such managing underwriter, in its sole
discretion, deems necessary for the Public Offering to proceed, Lender shall
agree to withhold some or all of the Registrable Securities from registration in
accordance with the instructions of such managing underwriter. In such event,
upon Lender's request, the Company shall file a registration statement with the
Commission for the purpose of registering the Registrable Securities as soon as
practicable after the closing date of such Public Offering at no cost or expense
to Lender.
4. REPRESENTATIONS OF LENDER. Lender represents that in the event he
converts the Class B Note, he will be acquiring the Bridgeholder's Warrants for
investment purposes only and not with a view to any resale or public
distribution thereof. Lender has had full access to the books and records of the
Company and has had the opportunity to question the officers, counsel and
independent accountants of the Company. Lender is an "accredited investor" as
defined in section 2(15) of the Securities Act and Regulation D promulgated by
the Commission.
5. GOVERNING LAW; JURISDICTION AND VENUE. Regardless of the place of
execution or performance, this letter and the Notes shall be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to such State's conflicts of laws provisions. Each of the parties hereto
irrevocably consents to the jurisdiction and venue of the federal and state
courts located in the State of New York, County of New York.
Please acknowledge your consent to the foregoing terms by countersigning
the enclosed duplicate copy of this letter and returning it to us together with
the Notes.
Very truly yours,
M & M SPECIALTIES, INC.
By:
--------------------------------
AGREED TO AND ACKNOWLEDGED:
KIDS STUFF, INC.
By:
--------------------------------
William L. Miller, President
2
<PAGE>
EXHIBIT "A"
CLASS A
PROMISSORY NOTE
$82,083.33 October 16, 1996
New York, New York
FOR VALUE RECEIVED, KIDS STUFF, INC., a Delaware corporation ("Maker"),
promises to pay to M&M Specialities, Ltd. ("Holder") at such place as Holder may
designate in writing, the entire principal sum of eighty two thousand eighty
three dollars and 33/100 ($83,083.33), together with interest at the rate of
eight percent (8%) per annum, (i) on the earlier of October 11, 1997 or (ii) the
closing date of the initial underwritten public offering of Maker's securities,
at which time all principal and interest shall be due and owing.
All payments of principal and interest hereunder shall be payable in
lawful money of the United States.
Maker shall be in default hereunder, at the option of Holder, upon the
occurrence of any of the following events: (i) the failure by Maker to make any
payment of principal or interest when due hereunder, and such failure shall have
continued for a period of more than ten (10) days after notice and a reasonable
opportunity to cure; (ii) the entering into of a decree or order by a court of
competent jurisdiction adjudicating Maker a bankrupt or the appointing of a
receiver or trustee of Maker upon the application of any creditor in an
insolvency or bankruptcy proceeding or other creditor's suit; (iii) a court of
competent jurisdiction approving as properly filed, a petition for
reorganization or arrangement filed against Maker under the Federal bankruptcy
laws and such decree or order not being vacated within thirty (30) days; (iv)
the pendency of any bankruptcy proceeding or other creditors' suit against
Maker; (v) a petition or answer seeking reorganization or arrangement under the
Federal bankruptcy laws with respect to Maker; (vi) an assignment for the
benefit of creditors by Maker; (vii) Maker consents to the appointment of a
receiver or trustee in an insolvency or bankruptcy proceeding or other
creditors' suit; (viii) the existence of any uncured event of default under the
terms of any instrument in writing evidencing a debt to someone other than
Holder, if the effect of such default is to cause or permit the holder(s) of
such indebtedness to have such indebtedness to become due and payable prior to
the stated maturity thereof, provided, that Maker is not contesting in good
faith by appropriate proceedings such uncured event of default; (ix) the
existence for, more than thirty days of any judgment against maker, provided
that maker has not stayed or otherwise bonded the judgment pending appeal, or
any attachment of property of Maker; or (x) any other
<PAGE>
condition which, in the good faith determination of Holder, would materially
impair the timely repayment of this Note.
Upon the occurrence of any event or condition of default hereunder, or
at any time thereafter, Holder at his option may accelerate the maturity of this
Note and declare all of the indebtedness or any portions thereof to be
immediately due and payable, together with accrued interest thereon, and payment
thereof may be enforced by suit or other process of law.
If this Note is not paid when due, whether at maturity or by
acceleration, Maker agrees to pay all reasonable costs of collection and such
costs shall include without limitation all costs, attorneys' fees and expenses
incurred by Holder hereof in connection with any insolvency, bankruptcy,
reorganization, arrangement or similar proceedings involving Holder, or
involving any endorser or guarantor hereof, which in any way affects the
exercise by Holder hereof of its rights and remedies under this Note.
Presentment, demand, protest, notices of protest, dishonor and
non-payment of this Note and all notices of every kind are hereby waived.
The terms "Maker" and "Holder" shall be construed to include their
respective heirs, personal representatives, successors, subsequent holders and
assigns.
Regardless of the place of execution or performance, this letter and the
Note shall be governed by, and construed in accordance with, the laws of the
State of New York without giving effect to such state's conflicts of laws
provisions. Each of the parties hereto irrevocably consents to the jurisdiction
and venue of the federal and state courts located in the State of New York,
County of New York.
KIDS STUFF, INC.
By:
--------------------------------
William L. Miller
President
<PAGE>
EXHIBIT "B"
CLASS B
PROMISSORY NOTE
$49,250 October 16, 1996
New York, New York
FOR VALUE RECEIVED, KIDS STUFF, INC., a Delaware corporation ("Maker"),
promises to pay to M&M Specialities, Inc. ("Holder") at such place as Holder may
designate in writing, the entire principal sum of forty nine thousand two
hundred fifty ($49,250 ), together with interest at the rate of eight percent
(8%) per annum, (i) on the earlier of , 1996 or (ii) the closing date of the
next initial public offering of Maker's securities (the "Public Offering"), at
which time all principal and interest shall be due and owing.
Effective the Effective Date of the Public Offering, the Holder shall be
deemed to have converted this Note into 985,000 Class A Redeemable Common Stock
Purchase Warrants (the "Class A Warrants") of Maker. The Class A Warrants shall
be identical to the terms and conditions of the Class A Warrants being offered
to the public in the Public Offering.
All payments of principal and interest hereunder shall be payable in
lawful money of the United States.
Maker shall be in default hereunder, at the option of Holder, upon the
occurrence of any of the following events: (i) the failure by Maker to make any
payment of principal or interest when due hereunder, and such failure shall have
continued for a period of more than ten (10) days after notice and a reasonable
opportunity to cure; (ii) the entering into of a decree or order by a court of
competent jurisdiction adjudicating Maker a bankrupt or the appointing of a
receiver or trustee of Maker upon the application of any creditor in an
insolvency or bankruptcy proceeding or other creditor's suit; (iii) a court of
competent jurisdiction approving as properly filed, a petition for
reorganization or arrangement filed against Maker under the Federal bankruptcy
laws and such decree or order not being vacated within thirty (30) days; (iv)
the pendency of any bankruptcy proceeding or other creditors' suit against
Maker; (v) a petition or answer seeking reorganization or arrangement under the
Federal bankruptcy laws with respect to Maker; (vi) an assignment for the
benefit of creditors by Maker; (vii) Maker consents to the appointment of a
receiver or trustee in an insolvency or bankruptcy proceeding or other
creditors' suit; (viii) the existence of any uncured event of default under the
terms of any instrument in writing evidencing a debt to someone other than
Holder, if the effect of such default is to cause or permit the holder(s) of
such indebtedness to have such indebtedness to become due and payable prior to
the
<PAGE>
stated maturity thereof, provided, that Maker is not contesting in good faith by
appropriate proceedings such uncured event of default; (ix) the existence for,
more than thirty days of any judgment against maker, provided that maker has not
stayed or otherwise bonded the judgment pending appeal, or any attachment of
property of Maker; or (x) any other condition which, in the good faith
determination of Holder, would materially impair the timely repayment of this
Note.
Upon the occurrence of any event or condition of default hereunder, or
at any time thereafter, Holder at his option may accelerate the maturity of this
Note and declare all of the indebtedness or any portions thereof to be
immediately due and payable, together with accrued interest thereon, and payment
thereof may be enforced by suit or other process of law.
If this Note is not paid when due, whether at maturity or by
acceleration, Maker agrees to pay all reasonable costs of collection and such
costs shall include without limitation all costs, attorneys' fees and expenses
incurred by Holder hereof in connection with any insolvency, bankruptcy,
reorganization, arrangement or similar proceedings involving Holder, or
involving any endorser or guarantor hereof, which in any way affects the
exercise by Holder hereof of its rights and remedies under this Note.
Presentment, demand, protest, notices of protest, dishonor and
non-payment of this Note and all notices of every kind are hereby waived.
The terms "Maker" and "Holder" shall be construed to include their
respective heirs, personal representatives, successors, subsequent holders and
assigns.
Regardless of the place of execution or performance, this letter and the
Note shall be governed by, and construed in accordance with, the laws of the
State of New York without giving effect to such state's conflicts of laws
provisions. Each of the parties hereto irrevocably consents to the jurisdiction
and venue of the federal and state courts located in the State of New York,
County of New York.
KIDS STUFF, INC.
By:
-----------------------------
William L. Miller
President
EXHIBIT 10.08
Kids Stuff, Inc.
4450 Belden Village Street, N.W.
Suite 406
Canton, OH 44718
VTR Capital Inc. ___________, 1997
99 Wall Street
New York, NY 10005
Gentlemen:
The following sets forth our understanding with respect to your
providing financial advisory services for this corporation.
l. For a period of three (3) years commencing on the date hereof, you
will render financial consulting services to this corporation as such services
shall be required but in no event shall such services require more than two
business days per month. Your services shall include the following:
(a) to advise and assist in matters pertaining to the financial
requirements of our corporation and to assist, as and when required, in
formulating plans and methods of financing;
(b) to prepare and present financial reports required by us and
to analyze proposals relating to obtaining funds for our business, mergers
and/or acquisitions;
(c) to assist in our general relationship with the financial
community including brokers, stockholders, financial analysts, investment
bankers, and institutions; and
(d) to assist in obtaining financial management, and technical
and advisory services, and financial and corporate public relations, as may be
requested or advisable.
2. All services required to be performed hereunder shall be requested by
us in writing and upon not less than seven business days notice, unless such
notice is waived by you. Such notice shall be to the address specified above or
to such other place as you shall designate to us in writing.
<PAGE>
VTR Capital Inc.
Page 2
3. For the services to be performed hereunder, and for your continued
availability to perform such services, we will pay you a fee of $100,000, which
sum is payable in full in advance on the closing date of our proposed initial
public offering. Further, we will reimburse you for such reasonable
out-of-pocket expenses as may be incurred by you on our behalf, but only to the
extent authorized by us.
4. This Agreement has been duly approved by our Board of Directors.
5. You shall have no authority to bind this corporation to any contract
or commitment, inasmuch as your services hereunder are advisory in nature.
6. You will maintain in confidence all proprietary, non- published
information obtained by you with respect to our corporation during the course of
the performance of your services hereunder and you shall not use any of the same
for your own benefit or disclose any of the same to any third party, without our
prior written consent, both during and after the term of this Agreement.
7. This Agreement shall not be assignable by either of us without the
other party's prior written consent.
8. This Agreement shall be binding upon, and shall inure to the benefit
of, our respective successors and permitted assigns.
9. The foregoing represents the sole and entire agreement between us
with respect to the subject matter hereof and supersedes any prior agreements
between us with respect thereto. This Agreement may not be modified, amended or
waived except by a written instrument signed by the party to be charged. This
Agreement shall be governed by and construed in accordance with the internal
laws of the State of New York, without regard to the principles of conflicts of
laws of such State.
<PAGE>
VTR Capital Inc.
Page 3
Please signify your agreement to the foregoing by signing and returning
to us the enclosed copy of this Agreement which will hereupon constitute an
agreement between us.
Very truly yours,
KIDS STUFF, INC.
BY
-------------------------------
Agreed and Consented to:
VTR CAPTTAL INC.
BY
-------------------------------------
EXHIBIT 23.01
HAUSSER+TAYLOR
[LETTERHEAD]
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Kids Stuff, Inc.
Canton, Ohio 44718
As independent certified public accoutants for Kids Stuff, Inc., we
hereby consent to the use in this Form SB-2 Registration Statement for Kids
Stuff, Inc. of our report included herein, which has a date of March 1, 1996
relating to the balance sheet of Kids Stuff, Inc. as of December 31, 1995 and
the related statements of income, cash flows, and stockholder's equity for the
years ended December 31, 1995 and 1994 and of our report included herein, which
has a date of August 5, 1996 relating to the balance sheet of The Natural Baby
Company, Inc. as of December 31, 1995 and the related statements of income, cash
flows, and stockholders' equity for the years ended December 31, 1995 an 1994,
and to the reference to our firm under the caption "Experts" in the Prospectus.
We have not examined any financial statements of Kids Stuff, Inc. or The
Natural Baby Company, Inc. as of any date or for any period subsequent to
December 31, 1995. Accordingly, we do not express an opinion on the financial
position, results of operations or cash flows at or for any date subsequent to
the aforementioned respective date.
/s/ HAUSSER+TAYLOR
--------------------
HAUSSER+TAYLOR
Canton, Ohio
January 7, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM KIDS
STUFF, INC'S BALANCE SHEETS AS OF DECEMBER 31, 1995 AND AS OF SEPTEMBER 30,
1996 (UNAUDITED), STATEMENTS OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1995
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED), STATEMENTS OF
CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1995 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1996 AND STATEMENTS OF STOCKHOLDERS EQUITY FOR THE YEAR
ENDED DECEMBER 31, 1995 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-END> DEC-31-1995 SEP-30-1996
<CASH> 35,719 28,883
<SECURITIES> 0 0
<RECEIVABLES> 73,633 151,474
<ALLOWANCES> 0 0
<INVENTORY> 602,017 436,676
<CURRENT-ASSETS> 882,894 1,132,259
<PP&E> 306,976 340,411
<DEPRECIATION> 184,834 218,814
<TOTAL-ASSETS> 2,112,573 2,522,281
<CURRENT-LIABILITIES> 1,636,702 1,872,313
<BONDS> 0 300,000
0 0
0 5,000
<COMMON> 0 2,400
<OTHER-SE> 297,600 297,600
<TOTAL-LIABILITY-AND-EQUITY> 2,112,573 2,522,281
<SALES> 5,498,197 4,324,744
<TOTAL-REVENUES> 5,724,337 4,816,950
<CGS> 2,300,676 2,106,180
<TOTAL-COSTS> 2,994,075 2,268,347
<OTHER-EXPENSES> 583,582 535,193
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 46,336 33,132
<INCOME-PRETAX> (200,332) (125,902)
<INCOME-TAX> (37,100) (31,476)
<INCOME-CONTINUING> (163,232) (94,427)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (163,232) (94,427)
<EPS-PRIMARY> ($0.07) ($0.04)
<EPS-DILUTED> ($0.07) ($0.04)
</TABLE>
