As filed with the Securities and Exchange Commission on March 14, 1997
Registration No. 333-19423
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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KIDS STUFF, INC.
(Name of small business issuer in its charter)
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DELAWARE 5961 34-1843520
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(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
organization) Classification Code No.)
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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)
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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: [_]
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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
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Units, each consisting of two shares of Common
Stock, $.001 par value per share, and one Class A
Warrant to purchase one share of Common Stock(2) 345,000 $10.00 per Unit $3,450,000 $1,045
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
Warrants(3) 345,000 $5.00 per share $1,725,000 523
Class A Warrants of Selling Securityholders 1,500,000 - - (4)
Common Stock underlying Class A Warrants of
Securityholders(5) 1,500,000 $5.00 per share $7,500,000 2,273
Underwriter's Unit Purchase Option
("Underwriter's Option"), each Unit consisting 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 - - -
Shares of Common Stock underlying Class A
Warrants included in the Underwriter's Option(6) 30,000 $5.00 per Unit $150,000 45
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Total Registration Fee $3995
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<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>
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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.
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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
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1. Front of Registration Statement and
Outside Front Cover of Prospectus.......... Outside Front Cover Page of Prospectus
2. Inside Front and Outside Bank Inside Front and Outside Bank Cover Pages of
Cover Pages of Prospectus.................. Prospectus; Additional Information
3. Summary Information and Risk
Factors.................................... Prospectus Summary; Risk 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
Counsel.................................... Legal Matters
14. Disclosure of Commission Position
on Indemnification for Securities Act
Liabilities................................ Underwriting
15. Organization Within Last Five Years........ The Company and its Parent
16. Description of Business.................... Prospectus Summary; The Company and its
Parent; Business
17. Management's Discussion and Management's Discussion and Analysis of
Analysis or Plan of Operation.............. Financial Condition and Results of Operations
18. Description of Property.................... Business
19. Certain Relationships and Related
Transactions............................... Certain 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
Financial Disclosure....................... Not Applicable
</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 March 14, 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, which were purchased at
a price of $.05 per Warrant. The Selling Securityholders are not affiliated with
the Company. 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. The initial
public offering price will be $10.00 per Unit. 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," on page __. There is no assurance, however, that the Company's
securities will be approved for listing on the OTC Bulletin Board or elsewhere.
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," on page ___.
Commencing in October, 1996, the Company sold 1,300,000 unregistered
shares of Common Stock for $.125 per share to eight private investors (the
"Private Investors") in order to obtain equity bridge financing. Assuming that
each of the two shares of Common Stock comprising a $10 Unit is valued at $5.00
per share, and no value is attributed to a Warrant included in a Unit, the
1,300,000 shares held by the eight private investors have a hypothetical value
of $6,500,000 for which they paid a total of $162,500. See "RISK FACTORS -
Unregistered Shares Eligible for Immediate and Future Sale," on page __.
Upon completion of this Offering, Duncan Hill Co., Ltd., the Company's
parent, will own approximately 80% of the Company's outstanding voting capital
stock. See "RISK FACTORS - Control by Parent and Parent's Controlling
Stockholders," on page __.
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<PAGE>
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" BEGINNING ON
PAGE __ AND "DILUTION."
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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.
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=============================================================================================================================
Price Underwriting Proceeds
to Discounts and to
Public Commissions(1) Company(2)
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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 $465,495, 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>
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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 arrangements, agreements or understandings with any of the Selling
Securityholders or Private Investors with respect to the sale of the 1,500,000
Warrants being offered for sale by the Selling Securityholders or the securities
owned by the Private Investors.
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
believes that its first catalog, "Perfectly Safe, The Catalog For Parents Who
Care(R)" 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 20 million catalogs and
helped to childproof over 350,000 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.
The Company incurred a net loss of $521,640 and $536,992 for fiscal
year 1996 and 1995, respectively. Upon the completion of the Offering, the
Company intends to acquire The Natural Baby Catalog, which specializes in
children's and products made from natural fiber from prenatal to age three, and
consolidate its operations with the operations of the Company. On a pro forma
basis, the combined operations of the Company and The Natural Baby Catalog would
have resulted in revenues of $13,090,210 and pre-tax profit of $37,009 for the
year ended December 31, 1996, and revenues of $10,952,806 and a pre-tax loss of
$324,259 for the year ended December 31, 1995. On a pro forma basis, no
adjustments are permitted which give effect to transactions which are
anticipated to occur subsequent to the acquisition, such as the Company's plans
to consolidate the operations of The Natural Baby Catalog with that of the
Company.
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. The
Company believes that such consolidations will result in approximately $200,000
in direct labor savings and $450,000 in general and administrative savings, on
an annualized basis, exclusive of additional annual expenses which the Company
will incur and as a public entity, estimated to be $200,000 and $50,000 of
additional annual payroll expense relating to the salaries of the Company's two
executive officers, as well as any additional compensation that may be awarded
under any incentive compensation plan.
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 34,000 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 $6.5 million in
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.
- 1 -
<PAGE>
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. The Company
has not yet entered into any agreements to commence any such new acquisition
program.
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 system is outdated.
In February, 1997 the Company began to develop a statistical modeling system
with the assistance of a new outside vendor. The Company anticipates that this
system will be ready for testing around in June 1997. The cost of developing
this new software should not exceed $10,000 and will be paid for from the
Company's cash flow or working capital. See "USE OF PROCEEDS."
REPLACE OUTDATED DATA PROCESSING SYSTEM. The Company intends to acquire
state-of-the-art computer hardware and system software, at an annualized cost of
approximately $75,000 per year, on a leased basis, to improve the efficiencies
of its operations and financial reports. Lease payments will be made monthly and
will be paid for from the Company's cash flow or working capital.
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 unless it is able to
obtain suitable financing.
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."
Prior to the reorganization, the telemarketing, order fulfillment, data
processing and administrative functions of Perfectly Safe, Inc. were provided by
Duncan Hill, which also provided those services as applicable, to its other
operating subsidiaries. As part of the reorganization, the Company also acquired
from Duncan Hill the assets used by Duncan to perform those functions itself.
The purchase price of the Perfectly Safe and Duncan Hill assets acquired by the
Company is $2,613,404 payable in the issuance of stock, a promissory note and
the assumption of liabilities. 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.
- 2 -
<PAGE>
THE OFFERING
Securities Offered 300,000 Units, each Unit consisting of two
by the Company............ shares of Common Stock and 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
- ----------
(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."
Also does not include up to 200,000 shares of Common Stock issuable upon
the exercise of stock purchase options granted under two executive
employment agreements. See "MANAGEMENT - Employment Agreements."
- 3 -
<PAGE>
USE OF PROCEEDS
The Company intends to apply the net proceeds of this Offering primarily
for the acquisition of The Natural Baby Catalog, accounts payable, the repayment
of debt, consolidation of the operations of The Natural Baby Catalog and for
working capital and general corporate purposes. See "USE OF PROCEEDS."
Approximately $225,000 of the debt to be repaid includes the repayment of a
Bridge Loan made to the Company and partial payment on the debt owed by the
Company to its parent, Duncan Hill. 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.
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YEAR ENDED DECEMBER 31,
-----------------------
PRO FORMA(1)
1995 1996 1996
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Statement of Operational Data:
Total Revenue $5,724,337 $6,638,995 $13,090,210
Income (Loss) from Operations (545,602) (527,125) 26,602
Net Income (Loss) (536,992) (521,640) 37,009
Net Income (Loss) per common share ($0.15) ($0.14) $0.01
Weighted average number of common shares outstanding
during the period 3,700,000 3,700,000 4,300,000(2)
</TABLE>
DECEMBER 31, 1996
-----------------
ACTUAL PRO FORMA(3)
------ ------------
Balance Sheet Data:
Total Assets $1,471,689 $3,682,949
Working Capital (deficit) (803,789) 400,095
Total Liabilities 2,461,869 2,463,342
Stockholder's Equity (990,180) 1,225,407
(1) Assumes that the Company acquired The Natural Baby Catalog as of January 1,
1996.
(2) Gives effect to the sale of 300,000 Units offered hereby.
(3) Gives effect to the sale of 300,000 Units offered hereby and the
application of the net proceeds therefrom in the amount $2,234,505. 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 December 31, 1996. Also gives effect to the issuance of 5,000,000 shares
of the Company's Series A Preferred Stock to the Company's parent in
January, 1997. See "THE COMPANY AND ITS PARENT - The Reorganization."
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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. HISTORY OF OPERATING AND NET LOSSES; DEPENDENCE ON OFFERING PROCEEDS TO
PAY TRADE CREDITORS AND TO ACQUIRE THE NATURAL BABY CATALOG BUSINESS. The
Company experienced significant losses for the years ended December 31, 1996 and
1995. For 1996 the Company incurred an operating loss of $527,125 and a net loss
of $521,640. For 1995 the Company incurred an operating loss of $545,602 and a
net loss of $536,992. 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. The Company
had a backlog of unshipped orders in excess of $115,000 at December 31, 1996
attributable largely to its inability to timely pay vendors and restock
inventory. Accordingly, the Company, needs the proceeds of this Offering to
continue its operations as well to as finance its planned acquisition of The
Natural Baby Catalog. Upon the closing of this Offering the Company intends to
pay over due trade creditor balances which, based upon 45 days sales,
approximated $258,000 at December 31, 1997. See "USE OF PROCEEDS."
2. POSSIBLE LACK OF SAVINGS FROM THE INTEGRATION AND CONSOLIDATION OF THE
NATURAL BABY CATALOG BUSINESS; ADEQUACY OF FINANCING. 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. See "BUSINESS".
3. REQUIREMENT TO COMPLETE THE 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. Should this not occur, then this Offering will be
withdrawn. 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." The Company is entirely dependent upon the proceeds of
this Offering to pay the purchase price to the escrow agent for the release of
the acquisition from escrow. 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 -- such as a
lawsuit to enjoin the purchase -- a risk which the Company
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<PAGE>
believes is very remote, the Company will not be able to complete its
acquisition of The Natural Baby Catalog. Should that occur, the Company will not
be able to achieve profitability through the purchase of a profitable mail order
catalog business unless it was able to purchase another children's mail order
catalog with characteristics similar to that of The Natural Baby Catalog. The
Company has not identified any suitable potential acquisitions to replace The
Natural Baby Catalog should it become necessary to do so. Pending its efforts to
effect a replacement acquisition, should it become necessary to do so, the
Company would apply the proceeds of this Offering to pursuing its other
strategies to grow its business. See "BUSINESS - Strategies." There is no
assurance, however, that the Company will be able to become profitable without
acquiring a profitable children's mail order catalog with characteristics
similar to that of The Natural Baby Catalog.
4. IMMEDIATE AND SUBSTANTIAL DILUTION TO PUBLIC INVESTORS. Upon completion
of the sale of the Company's Units in this Offering, without giving effect to
the exercise of the Underwriter's Option, the net tangible book value per Share
of the Company's Common Stock will be $.31. At the initial public offering price
of $5.00 per share of Common Stock offered hereby (assuming no value
attributable to the Warrants), investors in this Offering will experience an
immediate dilution of approximately $4.69 or 94% in net tangible book value per
share and existing investors will experience an increase of approximately $.58
per share. See "DILUTION." The present stockholders of the Company have acquired
their respective equity interest at costs substantially below the public
offering price. Accordingly, to the extent that the Company incurs losses, the
public investors will bear a disproportionate risk of such losses.
5. UNCERTAINTY AS TO 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.
6. 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 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. Although paper
prices decreased in 1996, 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, unless the Company is successful
in developing new methods for acquiring new customers so that it need not rely
upon catalog circulation as the sole method to acquire new customers.
7. NEED TO DEVELOP NEW METHODS FOR ACQUIRING NEW CUSTOMERS. 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 believes that its future growth and profitability will be largely
dependent upon the Company's ability to develop alternative customer acquisition
programs. See "BUSINESS - Strategies."
8. 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."
9. 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
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<PAGE>
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." There can be no assurance that such a competitive
reaction will not occur with respect to children's catalogs from which The
Natural Baby Catalog rents mailing lists, or that such an occurrence would not
have an adverse effect upon the profitability of The Natural Baby Catalog.
10. 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 have 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. See "MANAGEMENT."
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.
11. 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 purchase price in excess of its fair value. See "CERTAIN TRANSACTIONS
- - Acquisition of The Natural Baby Catalog."
12. 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 an umbrella with identical limits of coverage. 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
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<PAGE>
limits or relating to an injury excluded under the policy could have a material
adverse effect on the Company. See "BUSINESS - Product Liability Insurance."
13. THE COMPANY'S CHIEF EXECUTIVE OFFICER WILL NOT BE REQUIRED TO WORK FULL
TIME; POTENTIAL CONFLICT OF INTEREST. 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 provides that he shall be permitted to devote such time to managing the
various other Duncan Hill entities as he deems appropriate. Accordingly, Mr.
Miller will not be devoting his full-time attention to managing the operations
of the Company Thus, a conflict of interest could potentially develop to the
extent that Mr. Miller is not able to devote his full time attention to a matter
that would otherwise require the full time attention of a business' chief
executive officer. Because the businesses of Duncan Hill's other subsidiaries in
no way relate to the children's catalog business of the Company, the Company
does not believe that there is a reasonable potential for any other type of
conflicts of interest, such as competition for business opportunities. Thus the
Company and Duncan Hill have not adopted any procedure for dealing with
conflicts of interest. See "MANAGEMENT - Employment Agreements."
14. LIMITED NUMBER OF MANAGEMENT PERSONNEL. There are currently only two
executive officers of the Company, who are husband and wife. In addition, one of
those two officers, the Chief Executive Officer, will not be devoting his full
time attention to the management of the Company. Thus, following this Offering,
there can be no assurance that, if the Company grows, the current management
team will be able to continue to properly manage the Company's affairs. Further,
there can be no assurance that the Company will be able to identify additional
qualified managers on terms economically feasible to the Company.
15. 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 Underwriter's 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. Accordingly, while the new
investors in this Offering will have provided approximately 87% of the total
consideration paid for the Company's outstanding Common Stock, they will only
own approximately 20% of the Company's outstanding voting capital stock
(approximately 21% if the Underwriter's over-allotment option is exercised in
full). Duncan Hill, on the other hand, will own approximately 80% of the
Company's outstanding voting capital stock (approximately 79% if the
Underwriter's over-allotment option is exercised in full) for which Duncan Hill
will have provided approximately 9% of the total consideration paid for the
Company's outstanding 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.
16. DATA PROCESSING AND TELEPHONE. 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 data processing and
telephone systems. 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, commencing with the intended replacement of the
Company's current computer hardware and system software. 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.
The Company also creates a back-up tape for off-site storage of its customer
list
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and computer information. However, a significant disruption or loss affecting
the telephone or computer systems or any significant damage to the Company's
headquarters could have a material adverse effect on the Company's business. See
"BUSINESS - Data Processing."
17. NEED TO KEEP CURRENT WITH 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.
18. 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.
19. 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."
20. POSSIBLE CHANGE OF STATE SALES TAX LAWS. 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. Since 1987, legislation has been
introduced periodically in the U.S. Congress which would permit states to
require sales tax collection by mail order companies. To date, this proposed
legislation has not been passed. Should Congress, however, pass such legislation
in the future, most states could be expected to require sales tax collection by
out-of-state mail order companies. 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.
21. ARBITRARY DETERMINATION OF OFFERING PRICE. The initial public offering
price of $10 per Unit (or $5.00 for each of the two shares of Common Stock
comprising a $10 Unit assuming no value is attributable to a Warrant included in
a Unit), as well as 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." In
that regard, prior to this Offering, the Company issued a total of 3.7 million
shares of its Common Stock at a value of $.125 per share.
22. 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.
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23. 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.
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 a warrant that has an exercise
price of less than $5.00 per share. Subject to certain limited exceptions, the
rules for any transaction involving a "penny stock" require the delivery, prior
to the transaction, of a risk disclosure document prepared by the Commission
that contains certain information describing the nature and level of risk
associated with investments in the penny stock market. The broker-dealer also
must disclose the commissions payable to both the broker-dealer and the
registered representative and current quotations for the securities. Monthly
account statements must be sent by the broker-dealer disclosing the estimated
market value of each penny stock held in the account or indicating that the
estimated market value cannot be determined because of the unavailability of
firm quotes. In addition, the rules impose additional sales practice
requirements on broker-dealers who sell such securities to persons other than
established customers and institutional credited investors (generally
institutions with assets in excess of $5,000,000). These practices require that,
prior to the purchase, the broker-dealer determined that transactions in penny
stocks were suitable for the purchaser and obtained the purchaser's written
consent to the transaction. 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.
24. 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 no arrangements, agreements or
understandings with any of the Selling Securityholders or Private Investors with
respect to the sale of the 1,500,000 Warrants being offered for sale by the
Selling Securityholders or the securities owned by the Private Investors.
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."
25. 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
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<PAGE>
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.
26. UNDERWRITER'S PURCHASE OPTION. In connection with this Offering, the
Company will sell the Underwriter an option to purchase an aggregate of up to
30,000 Units (the "Underwriter's Purchase Option"). The Underwriter's 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 Underwriter's Purchase Option, 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 Underwriter's 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 Underwriter's Purchase Option. See
"UNDERWRITING."
The Company has also agreed to register the Underwriter's Purchase Option
and/or the underlying securities covered thereunder in any future registration
statement that the Company may file during the life of the Underwriter's
Purchase Option. This obligation could interfere with the Company's ability to
obtain financing under any future registration statement filing. See
"UNDERWRITING."
27. 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."
28. 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.
- 11 -
<PAGE>
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. There are no agreements,
arrangements or understandings with any of the Company's Securityholders with
respect to the early release of the lock up. 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."
29. 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 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."
30. 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."
31. APPLICATION OF PROCEEDS. As reflected in the "USE OF PROCEEDS" section:
approximately $1,310,777 or 59% of the net proceeds of this Offering will be
used for the acquisition of The Natural Baby Catalog; approximately $350,000 or
16% of the net proceeds will be used to pay accounts payable; approximately
$225,782 of the net proceeds will be used to repay indebtedness; approximately
$100,000 of the net proceeds will be used to pay for the consolidation of the
operations of The Natural Baby Catalog with the operations of the Company; and,
approximately $247,946 of the net proceeds will be used for general working
capital purposes. Pending use of such proceeds, the net proceeds of this
Offering will be invested by the Company in short-term, low risk marketable
securities. See "USE OF PROCEEDS."
- 12 -
<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
$2,234,505 ($2,626,005 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)........................... $1,310,777 59%
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)................... 247,946 11%
---------- ---
TOTAL........................... $2,234,505 100%
- ----------
(1) Represents the remaining cash portion of the purchase price in the amount
of $1,075,000 to be paid to the Seller of The Natural Baby Catalog, I.E.,
The Natural Baby Company, Inc. (the "Seller"), a cash payment in the amount
of $210,777 in payment of a note owed by 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 Promissory Note in
the amount of $250,000 convertible at any time at the election of the
holder into unregistered shares of the Company's Common Stock at a
conversion rate of $5.00 per share, and assume the obligation to pay
certain liabilities of the Seller, which is approximately $311,458 as of
December 31, 1996. 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 $285,000 owed to suppliers of inventory purchased
by the Company. At December 31, 1996, the Company estimates that $258,000
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 $65,000 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 June 30, 1997 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 system software and
hardware at an annualized cost of approximately $75,000 per year, on a
leased basis. Lease payments will be made monthly and paid for from the
Company's cash flow or working capital. The Company also anticipates
spending no more than $10,000 to develop new statistical modeling software,
which will be paid for by the Company's cash flow or working capital. 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.
The amounts set forth above are estimates. Should a reapportionment or
redirection of funds be determined to be in the best interests of the Company,
the actual amount expended to finance any category of expenses may be increased
or decreased by the Company's Board of Directors, at its discretion. Although
the Company does not intend to utilize any portion of the proceeds for payment
of officers' salaries, it is possible that portions of working capital may be
utilized for that purpose dependent upon revenues.
- 13 -
<PAGE>
To the extent that the Company's expenditures are less than projected, the
resulting balances will be retained and used for general working capital
purposes. Conversely, to the extent that such expenditures require the
utilization of funds in excess of the amounts anticipated, additional financing
may be sought from other sources, such as debt financing from financial
institutions, although there can be no assurance that such additional financing,
if available, will be on terms acceptable to the Company. See "RISK FACTORS -
History of Operating and Net Losses; Dependence on Offering Proceeds to Pay
Trade Creditors and to Acquire The Natural Baby Catalog Business." The net
proceeds of this Offering which are not expended immediately may be deposited in
interest-bearing accounts or invested in government obligations or certificates
of deposit.
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. The Company is not subject to any contractual
arrangements which restrict its ability to pay dividends.
- 14 -
<PAGE>
DILUTION
The adjusted net tangible book value of the Company as of December 31, 1996
was ($990,180) or ($0.27) per share of Common Stock. 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 at December 31, 1996). The Company's tangible assets consists
of all of its balance sheet assets. 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 December 31, 1996 would have been $1,319,325 or $0.31 per share of
Common Stock. This represents an immediate increase in the adjusted net tangible
book value of $0.58 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 $4.69 per share (94%)
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.................................... ($0.27)
Increase in adjusted net tangible book
value per share of Common Stock
attributable to new investors...............
$0.58
Adjusted net tangible book value per
share of Common Stock after this
Offering......................................... $0.31
----
Dilution in adjusted net tangible book
value per share of Common Stock to new
investors........................................ $4.69
====
- 15 -
<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% $3,462,500 100% $ .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, the Warrants underlying the sale of 300,000 Units in this
Offering, and the 200,000 stock purchase options granted under two executive
employment agreements. 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.
- 16 -
<PAGE>
CAPITALIZATION
The following table sets forth, as of December 31, 1996, (i) the actual
capitalization of the Company and (ii) the capitalization of the Company, as
adjusted to reflect issuance of 5,000,000 shares of Series A Preferred Stock in
January, 1997 to the Company's parent (see "THE COMPANY AND ITS PARENT - The
Reorganization") and 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>
DECEMBER 31, 1996
--------------------------------------------
ACTUAL AS ADJUSTED(1)
--------------------------------------------
<S> <C> <C>
Long Term Debt obligations, less current maturities $ 300,000(2) $ 300,000
Stockholder's Equity:
Common Stock, $.001 par value, 35,000,000 shares
authorized, 3,700,000 shares issued and outstanding;
and, 4,300,000 issued and outstanding as adjusted....... 3,700 4,300
Series A Preferred Stock, $.001 par value,
10,000,000 shares authorized, 5,000,000 shares
issued and outstanding as adjusted...................... -- 5,000
Warrants, 1,500,000 issued and outstanding as
adjusted(3)............................................. -- 75,000
Additional Paid-in-capital.............................. 458,800 2,692,705
Retained Earnings (Accumulated Deficit)................. ($1,452,680) ($1,452,680)
Total stockholders' equity (deficit)................. ($ 990,180) ($1,324,325)
----------- -----------
Total Capitalization ($ 690,180) $1,624,325
=========== ===========
- ----------
(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, the
Underwriter's Purchase Option, or stock options granted under two executive
employment agreements.
(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 $366,858 less $66,858 of current maturities. See "THE
COMPANY AND ITS PARENT - The Reorganization."
(3) Issued upon the conversion of the convertible portion of the $200,000
Bridge Loan. See "Certain Transactions - Bridge Loan").
</TABLE>
- 17 -
<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 1996 This selected financial data
has 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. Also set forth below
are pro forma selected financial data for the year ended December 31, 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, 1996 for the
unaudited pro forma combined statements of income and as of December 31, 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>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
PRO FORMA
1995 1996 1996
------ ----- -----
<S> <C> <C> <C>
Statement of Operations Data:
Total Sales $5,724,337 $6,638,995 $13,090,210
Cost of Sales 3,540,487 4,204,321 7,801,286
--------- --------- ---------
Gross Profit 2,183,850 2,434,674 5,288,924
Selling Expenses 1,998,502 2,193,219 3,891,965
General and Administration Expenses 730,950 768,580 1,370,357
--------- --------- ----------
Income (Loss) from Operations (545,602) (527,125) 26,602
Other Income (Expense) 8,610 5,485 10,407
--------- --------- ----------
Net Income (Loss) ($536,992) ($521,640) $ 37,009
========= ========= ===========
Net Income (Loss) per common share ($0.15) ($0.14) $0.01
Weighted average number of common shares outstanding
during the period 3,700,000 3,700,000 4,300,000(1)
</TABLE>
Year ended December 31, 1996
ACTUAL PRO FORMA(2)
------ ------------
Balance Sheet Data:
Total Assets $1,471,689 $3,682,949
Working Capital (deficit) (803,789) 400,095
Total Liabilities 2,461,869 2,463,342
Stockholder's equity (deficit) (990,180) 1,225,401
- ----------
(1) Gives effect to the sale of 300,000 Units offered hereto.
(2) Gives effect to the sale of 300,000 Units offered hereby and the
application of the net proceeds therefrom in the amount of $2,234,505. 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 gives effect to the issuance of 5 million shares of Series A
Preferred Stock in January, 1997 to the Company's parent. See "THE COMPANY
AND ITS PARENT - The Reorganization."
- 18 -
<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.
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. Subject to cancellation, expired
credit card or change of address, a renewal is automatically billed to a club
member's credit card prior to the membership's expiration. The Company believes
that its cost of generating a renewal is less than 10% of the renewal fee of $18
and thus will favorably impact the potential profitability of Jeannie's Kids
Club operation.
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 18% of the Company's net sales
for the year 1995. The Perfectly Safe Catalog on the other hand, experienced a
reduction in sales from $5.0 million in 1994 to $4.7 million in 1995. The
Company believes that the decrease in sales was attributable to 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 mailing 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 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. Accordingly, the Company decided to devote more of its available
resources to building the mailing list and membership base of Jeannie's Kids
Club Catalog, which the Company believes will be the more profitable segment of
its children's catalog business, and began to reduce the catalog circulation of
Perfectly Safe.
RESULT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996 COMPARED TO THE YEAR ENDED DECEMBER 31, 1995.
Total net sales for the year ended December 31, 1996 increased
$914,356, or 16%, to $6,638,695, compared with $5,724,337 during the year 1995.
Net sales include sales from merchandise, Jeannie's Kids Club membership,
shipping and handling charges, and mailing list rentals. The net sales of
Jeannie's Kids Club in 1996 of $3,921,939 were partially offset by a decrease in
sales of the Perfectly Safe Catalog, which declined $1,973,476 or 42.1%, to
$2,717,056, compared with $4,690,532 in 1995.
The Company's total catalog circulation was approximately 3.8 million
in each of 1995 and 1996. The Company introduced Jeannie's Kids Club Catalog in
July 1995 and mailed 708,804 catalogs in the second half of 1995 and 2,372,891
catalogs in 1996, which accounted for 18% and 59.8% of its total catalog
mailings in 1995 and 1996, respectively. The Company reduced the circulation of
its Perfectly Safe Catalog 48.4% from 3.1 million in 1995 to 1.6 million in 1996
consistent with its plan to allocate more of its available resources to building
Jeannie's Kids Club, as discussed above. Gross revenue per catalog mailed in
1996 increased
- 19 -
<PAGE>
15.9% to $1.75 per book, versus $1.51 for 1995. The Company attributes the
higher revenue per catalog mailed to the relatively higher Jeannie's Kids Club
average order and percentage response rates.
At December 31, 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 the years ended December 31, 1996 and 1995, the net list
rental income was $79,240 and $84,093 respectively. The decrease in revenue of
5.8% is attributable to the Company changing list brokerage firms in 1996, with
a resulting 30 day period of inactivity during the cross over phase.
Cost of sales, as a percentage of net sales, was 63.3% and 61.8% for
1996 and 1995, respectively. Cost of sales consists of cost of merchandise and
fulfillment. The increase was primarily due to increased costs of merchandise,
which rose from 40.2% of net sales to 42.9% in 1996. Merchandise costs of the
Company's Jeannie's Kids Club Catalog are a relatively higher percentage of net
sales, as merchandise is sold on a discounted basis, while Perfectly Safe's
generally is not. Accordingly, the increase of Jeannie's Kids Club net sales
from 18% of the Company's total net sales in 1995 to 59% in 1996 resulted in the
Company's increased costs of merchandise in 1996, as a percentage of net sales.
The merchandise cost increases were partially offset by a decrease in the
Company's cost of fulfillment equal to 1.2% of net sales, as fulfillment
expenses fell from 21.6% of net sales in 1995 to 20.4% of net sales in 1996.
Fulfillment expense consists of costs of shipping, direct labor, packaging,
order entry and 800 line telephone costs. The Company experienced cost
reductions in this area primarily from a decrease in shipping costs, which fell
.6% from 1995 to 1996. While outbound shipping costs fluctuate with the package
size, number of shipments per order, etc., the decrease was affected by the
reduction of the Company's number of shipments per order which fell from 1.6 in
1995 to 1.4 in 1996.
Selling expenses increased 9.7% from $1,998,502 in 1995 to $2,193,219
in 1996. Selling expenses consist of advertising and other marketing related
expenses. The increase in 1996 is primarily attributable to the Company's
revenue increase of 16% from 1995 to 1996. Selling expenses, as a percentage of
net sales, were 33% and 34.9% for 1996 and 1995, respectively. The Company's
Perfectly Safe Catalog experienced an increase, on a percentage basis, in
advertising expense of 2.5% of net sales from 29.7% of net sales in 1995 to
32.2% in 1996. This increase was primarily attributable to the less profitable
mix of mailing lists in 1996 than 1995. Advertising expense consists of the cost
of producing the catalogs, postage, mailing preparation and outside mailing
lists rented by the Company. Jeannie's Kids Club Catalog recorded advertising
expenses of 28.9% of net sales in 1996 compared with 46.8% 1995. This decrease
is attributable to the fact that 1995 was the initial inception year of
Jeannie's Kids Club Catalog and the Company incurred initial non recurring costs
of developing Jeannie's Kids Club Catalog, such as research and development,
market testing and design of the catalogs in the amount of $392,495.
The Company believes that its general and administrative expenses are
high relative to its revenue base. General and administrative expenses were
$730,950, or 12.8% of net sales, in fiscal 1995 and $768,580, or 11.6% of net
sales, in fiscal 1996. This decrease is attributable to the increase in revenues
in 1996 from 1995. The Company believes that its general and administrative
functions will become more efficient and cost effective upon absorbing the
revenue base of The Natural Baby Catalog, which the Company believes can be
accomplished with significantly less than proportionate increases in general and
administrative expenses. General and administrative expenses for the year ended
December 31, 1995 and for the six month period ended June 30, 1996 were incurred
by the Company's parent, Duncan Hill, and allocated to the Company consistent
with past practices, under which Duncan Hill allocated its general and
administrative expenses to its operating subsidiaries on a pro rata basis
determined by the percentage of total assets of the various operating
subsidiaries, exclusive of the assets of Duncan Hill. 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.
- 20 -
<PAGE>
See "THE COMPANY AND ITS PARENT." In 1995 and for the first six months of 1996
the Company's allocation was 69% of Duncan Hill's total general and
administrative expense.
Net losses for the year ended December 31, 1996 were $521,640, or 7.9%
of sales, compared with net losses of $536,992, or 9.4% of sales for the year
ended December 31, 1995. The Company attributes this slight decrease to the
growth in 1996 of Jeannie's Kids Club membership base and the increase in
revenues associated therewith. The Company believes that in order to achieve
profitability with respect to its two current catalogs, the membership of
Jeannie's Kids Club will have to reach a sustainable level of 45,000 members.
Currently, there are approximately 34,000 members.
Deferred catalog expenses at December 31, 1996, were $277,469 compared
to $171,525 at December 31, 1995. Deferred catalog expenses are costs of
catalogs mailed to customers that are deferred and amortized over periods
ranging from four to six months. $70,000 of the increase in deferred catalog
expenses from 1995 to 1996 is attributable to an increase in late December
catalog mailings in 1996 from 1995. $30,000 of the increase is attributable to
deferred catalog expenses in 1996 associated with the Company's unshipped order
backlog at December 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996 the Company had a deficit in retained earnings of
$1,452,680, compared with a deficit of $931,040 at December 31, 1995. This
resulted, from a net loss of $521,640 for the 1996 fiscal year.
The impact of the operating loss on the Company's cash position was
lessened by changes in working capital which effected operating activities. The
operating activities consumed $198,090 in cash through increases in accounts
receivable and deferred catalog expense, but provided $459,642 in cash through
decreases in inventory and increases in accounts payable. The net impact of
these changes and non cash charges of $47,455 relating to depreciation and
amortization and loss on disposal of assets, was to offset the Company's net
loss by $47,455, so that net cash used by operating activities was $212,633.
The most significant provider of cash was the increase in accounts payable,
which increased $354,020 during the period.
The Company's financing activities provided $590,490 in cash, with
$582,500 provided from external sources of financing and $7,990 from changes in
obligations to the parent company and prepaid amounts for the public offering.
The Company increased its borrowings on its line of credit by $220,000, issued
$200,000 in promissory notes described herein, and sold $162,500 in common
stock, for an aggregate of $582,500.
The combined effect of net cash used by operating activities of
$212,633 net cash provided by financing activities of $590,490, and investments
in fixed assets and prepaid amounts for the acquisition of The Natural Baby
Catalog totaling $164,928, increased cash by $212,929, from $35,719 at December
31, 1995, to $248,648 at December 31, 1996.
The Company's bank line of credit had a balance of $650,000 at December
31, 1996. 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 and another Duncan subsidiary, 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 $650,000, with interest
charged at the rate of 1% over prime. It is the policy of the bank to review the
credit facility, annually, commencing June 30, 1997, and to require that the
Company maintain a zero balance on the credit line for a period of thirty
consecutive days sometime during the course of each year. The bank has agreed to
waive the "zero balance" required for the 1997 loan year ending June 30, 1997.
Additionally, the Company used extensions of trade credit to finance
its operations during this period. Accounts payable at December 31, 1996 were
$1,102,311, and the Company estimates that approximately $258,000 of this
balance is overdue, based upon the Company's historical experience with accounts
payable, whose normal working balances have been equivalent to 45 days sales. At
December 31, 1996, the Company had cash balance of $248,648.
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Effective June 30, 1996, the Company was recapitalized as Kids Stuff,
Inc. by its parent, Duncan Hill, for the purpose of acquiring the operating
assets of Duncan Hill, as well as the children's catalog business of Perfectly
Safe, Inc. The Company paid for those assets through the assumption of Perfectly
Safe, Inc.'s liabilities and Duncan Hill's bank line 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." 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 bridge financing should the policies of its trade creditors change.
For the fiscal year 1997, the Company intends to incur certain capital
expenditures in connection with upgrading its computer technology. See "BUSINESS
- - Data Processing". Specifically, the Company intends to replace its outdated
data processing software and hardware, at an annualized cost of approximately
$75,000 per year, on a leased basis. Lease payments will be made monthly and
will be paid for from cash flow or working capital. Additionally, the Company
intends to spend no more than $10,000 to develop new statistical modeling
software which will also be paid for from cash flow or working capital. See "USE
OF PROCEEDS".
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 payments in the aggregate amount of $1,310,777 (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 is estimated
to be approximately $275,958, as of December 31, 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 unpaid balance of the convertible note is convertible at any time
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 Company intends to
pay these obligations from The Natural Baby Catalog's cash flow. The purchase
price to be paid by the Company to purchase the catalog business of Baby Co. 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 1996 net sales of $6,451,215 and operating
pre-tax profits of $558,649. On a pro forma basis, assuming the Company had
acquired The Natural Baby Catalog at the beginning of the fiscal year ended
December 31, 1996, the combined operations would have resulted in net sales of
$13,090,210, income from operations of $26,602, net income of $37,009, and net
income per share of Common Stock of $.01, for the year ended December 31, 1996.
See the Company's pro forma combined financial statements (unaudited) and the
related notes thereto, included elsewhere in the Prospectus. In accordance with
the accounting policies of the Securities and Exchange Commission, these pro
forma financial statements do not include any adjustments which give effect to
transactions which are anticipated to occur subsequent to the acquisition, such
as the Company's plans to consolidate the operations of The Natural Baby
Catalog.
The Company believes that by consolidating the operations of The
Natural Baby Catalog with the Company's, that substantial savings can be
realized in direct labor and general and administrative areas. The Company
estimates that $200,000 in direct labor savings and $450,000 in general and
administrative savings can be realized, on an annual basis, exclusive of
additional expenses which the Company will incur as a public
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entity, estimated to be $200,000 and $50,000 of additional payroll expense in
1997 related to the salaries of the Company's two executive officers, as well as
any additional compensation that may be awarded under any incentive compensation
plan.
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."
In October 1995, Statement of Financial Accounting Standards No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION, was issued which establishes accounting
and reporting standards for stock-based compensation plans. This standard
encourages the adoption of the fair value-based method of accounting for
employee stock options or similar equity instruments, but continues to allow the
Company to measure compensation cost for those equity instruments using the
intrinsic value-based method of accounting prescribed by Accounting Principles
Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. Under the fair
value-based method, compensation cost is measured at the grant date based on the
value of the award. Under the intrinsic value-based method, compensation cost is
the excess, if any, of the quoted market price of the stock at the grant date or
other measurement date over the amount the employee must pay to acquire the
stock. The Company uses the intrinsic value-based method for stock-based
compensation to employees. As a result, this standard does not have any effect
to the Company's financial statement other than to require disclosure of the pro
forma effect on net income of using the fair value-based method of accounting.
Management believes this effect to currently be immaterial.
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.
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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 has
completed the transition period as of 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 under the credit facility were used
to support the Company's operations. See "BUSINESS - Institutional Credit
Facility."
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BUSINESS
GENERAL
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
believes that its 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 20 million catalogs and helped to childproof over 350,000 homes.
One of the Company's founders authored "The Perfectly Safe Home" published by
Simon & Schuster, 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
products made of natural fiber for children from prenatal to age three. The
Natural Baby Catalog carries both hardgood products and softgood products (I.E.,
products primarily made from fabrics).
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, on an annualized basis, in direct labor expenses in the approximate
amount of $200,000 and in general and administrative expense in the approximate
amount of $450,000, exclusive of additional annual expenses which the Company
will incur as a public entity estimated to be $200,000 and $50,000 of additional
annual payroll expense commencing in 1997 relating to the salaries of the
Company's two executive officers, as well as any additional compensation that
may be awarded under any incentive plan. The combined revenues of the Company
and The Natural Baby Catalog were $13,090,210 for the year ended December 31,
1996. 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, although for the past two years the Company's
operations have not been profitable. The Company incurred a net loss of $521,640
and $536,992 for the years ended December 31, 1996 and 1995, respectively.
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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. 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 34,000 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 $6.5 million in
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 system, which was
originally purchased and developed between 1990 and 1993, is outdated. In
February, 1997, the Company began to develop a statistical modeling system with
the assistance of an outside vendor for the purposes of increasing its catalog
response rates and lower its cost per catalog mailed.
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, the
inability of the Company to access certain profitable mailing lists following
the Company's introduction of Jeannie's Kids Club, and the decision of the
Company to devote more of its available resources to building the mailing list
and membership base 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 substantially reduced catalog
mailings in the immediate short term and alternative acquisition programs on a
long-range
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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 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 Jeannie's Kids Club Catalog
currently consists of 48 pages containing 289 products.
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 53,780 for Perfectly Safe,
and 42,744 member and non-member buyers for Jeannie's Kids Club (non-member
buyers are not entitled to purchase Jeannie's Kids Club merchandise at a
discount). 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
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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. As discussed previously, the Company is in the process of
developing that software. At the present time, The Natural Baby Catalog does not
use a statistical modeling system. The Company believes that the application of
a 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 and
availability of rental mailing lists. In 1996, the catalog mailings for
Perfectly Safe and Jeannie's Kids Club were 1,595,890 and 2,372,891
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 2.1 million catalogs in 1996.
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'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.
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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 230,000
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, for a term not
to exceed three years, of between approximately 20,000 and 25,000 square feet in
the Canton, Ohio area and move The Natural Baby Catalog from its current
location in Trenton, NJ to the Company's new facility. The Company believes that
such space is readily available in the Canton area at very affordable rates. The
Company has not yet determined a specific location and consequently negotiations
for the terms of a lease have not begun.
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 December 31, 1996, the Company had a
backlog of unshipped orders in excess of $115,000 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 1996, The Natural Baby Catalog sales in the fourth quarter were 32.6%
of total 1996 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. Almost the
entirety of those borrowings were used to finance the Company's operations. 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
- 29 -
<PAGE>
of Duncan Hill and another Duncan subsidiary, 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 $650,000, with interest
charged at the rate of 1% over prime.
It is the policy of the Bank to review the credit facility, annually,
commencing June 30, 1997, and to require that the Company maintain a zero
balance on the credit line for a period of thirty consecutive days sometime
during the course of each year. The Bank has agreed to waive the "zero balance"
required for the 1997 loan year ending June 30, 1997
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 which can be generated from the system 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 system software, as well as the hardware, during the
year 1997.
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.
- 30 -
<PAGE>
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 four federally registered trademarks: "Perfectly
Safe"; "Perfectly Safe, The Catalog For Parents Who Care" with logo; "Perfectly
Safe Guarantee" with logo; and, logo. 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.
EMPLOYEES
As of December 31, 1996, the Company had 33 full time employees and 14
part time 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
September 30, 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 approximately 12,000 square feet, which is leased for a one year
term expiring September 30, 1997, and subject to earlier termination without
penalty at the option of the lessee upon sixty days written notice to the
landlord. 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 which 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
- 31 -
<PAGE>
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 an umbrella
liability policy providing coverage of an additional $1 million per occurrence,
$2 million aggregate. 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.
- 32 -
<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 Perdue 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.
Following the completion of this Offering, the Company will attempt to
identify and appoint two individuals who are not affiliated with the Company or
the Underwriter as the fourth and fifth directors. There is no assurance,
however, that the Company will be able to attract suitable candidates at this
stage of its development.
Upon the appointment of two additional unaffiliated directors, the
Board of Directors intends to establish a Compensation Committee and an Audit
Committee. The Audit Committee, which will consist of at least a majority of
directors who are not affiliated with the Company, will among other things, make
recommendations to the Board of Directors regarding the independent auditors for
the Company, approve the scope of the annual audit activities of the independent
auditors and review audit results and have general
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<PAGE>
responsibility for all auditing related matters. The Compensation Committee will
consist entirely of directors who are not affiliated with the Company. The
Compensation Committee will review and recommend to the Board of Directors the
compensation structure for the Company's officers and other management
personnel, including salary rates, participation in incentive compensation and
benefit plans, fringe benefits, non-cash perquisites and other forms of
compensation. The Committee will also administer the Company's 1997 Long-Term
Stock Incentive Plan.
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. Directors will be eligible to participate in 1997 Stock
Incentive Plan.
The Underwriter has been granted by the Company the right to designate
one director to serve on the Company's Board of Directors for a period of three
years from the date of this Prospectus. As of the date hereof, no such person
has been designated.
EXECUTIVE COMPENSATION
The following table sets forth the total compensation paid to the named
Executive Officers for the fiscal years ended December 31, 1996, 1995 and 1994.
<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, Chief Executive 1996 $100,000 - - -
Officer and Principal Financial 1995 $100,000 - - -
Officer(2) 1994 $100,000 - - -
Jeanne E. Miller, Executive Vice 1996 $ 65,000 - - -
President(3) 1995 $ 65,000 - - -
1994 $ 65,000 - - -
<FN>
- ----------
(1) Compensation was paid by Duncan Hill which, prior to the reorganization,
provided management and general and administrative services to the Company,
and which after the reorganization continued to maintain the named
Executive Officers on its payroll through December 31, 1996. Approximately
69%, 69% and 49% of the compensation paid by Duncan Hill to the named
Executive Officers were expensed to the Company in 1996, 1995 and 1994,
respectively. See "THE COMPANY AND ITS PARENT."
(2) Mr. Miller served as the Vice President of Perfectly Safe, Inc. until the
reorganization effective June 30, 1996 when he became Chief Executive
Officer and Principal Financial Officer of the Company.
(3) Mrs. Miller served as the President of Perfectly Safe, Inc. until the
reorganization effective June 30, 1996 when she became Executive Vice
President of the Company.
</FN>
</TABLE>
INCENTIVE COMPENSATION PLAN. The Company's Incentive Compensation Plan (the
"Plan") is designed to motivate employee participants to achieve the Company's
annual strategic goals. Eligibility for participation in the Plan is limited to
the Chief Executive Officer and the Executive Vice President of the Company, and
such other employees of the Company as may be designated by the Board of
Directors from time to time. For each fiscal year of the Company, the Board will
establish a bonus pool not to exceed 10% of the Company's operating income. The
amount of such pool with respect to any year shall be determined subsequent to
the end of that year upon the determination of the Company's operating income
for that year. Each participant in the Plan is eligible to receive from the
bonus pool an annual award of up to 50% of the participant's base salary. Upon
its establishment, the Compensation Committee shall be responsible for
recommending to the Board of Directors performance objectives and awards for
participants. Until the Compensation Committee is established, these
determinations will be made solely by the Board of Directors. Payouts are to be
determined annually following determination of the Company's fiscal year-end
results. The Plan is subject to amendment of termination at any time, but no
such action may adversely affect any rights or obligations with respect to any
awards theretofore made under the Plan.
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<PAGE>
1997 STOCK INCENTIVE PLAN. In March 1997, the Board of Directors
recommended for stockholder approval, the adoption of the Company's 1997
Long-Term Incentive Plan (the "Incentive Plan"). The Incentive Plan will be
shortly submitted to the stockholders for approval. Under the Incentive Plan,
the Compensation Committee of the Board of Directors may grant stock incentives
to key employees and the directors of the Company pursuant to which a total of
400,000 shares of Common Stock may be issued; provided, however, that the
maximum amount of Common Stock with respect to which stock incentives may be
granted to any person during any calendar year shall be 20,000 shares, except
for a grant made to a recipient upon the recipients initial hiring by the
Company, in which case the number shall be a maximum of 40,000 shares. These
numbers are subject to adjustment in the event of a stock split and similar
events. Stock incentive grants may be in the form of options, stock appreciation
rights, stock awards or a combination thereof.
Options granted under the Incentive Plan may be either "incentive stock
options," which qualify for special tax treatment under the Internal Revenue
Code (the "Code"), or nonstatutory stock options, which do not qualify.
Incentive stock options may only be granted to persons who are employees of the
Company. Options will expire at such time as the Compensation Committee
determines, provided that no stock option may be exercisable later than ten
years from its grant, except that the maximum term of any incentive stock option
granted to a person who owns, directly or indirectly, 10% or more of the
combined voting power of the Company's capital stock (a "10% Shareholder") shall
be five years. If an optionee ceases to be an employee or director by reason of
death, incapacity of retirement, the option shall terminate fifteen months after
the optionee ceases to be an employee. If an optionee ceases to be an employee
because of resignation with the consent of the Compensation Committee, the
option will terminate three months after the optionee ceases to be an employee.
If an optionee ceases to be an employee or director for any other reason, the
option will expire thirty days after the optionee ceases to be an employee.
The option price per share is determined by the Compensation Committee,
except for incentive stock options which cannot be less than 100% of the fair
market value of the Common Stock on the date such option is granted or less than
100% of such fair market value if the optionee is a 10% shareholder. Payment of
the exercise price may be made in cash, or unless otherwise provided by the
Compensation Committee in shares of Common Stock delivered to the Company by the
optionee or by the withholding of shares issuable upon exercise of the option or
in a combination thereof. Options cannot be exercised until six months after the
date that the option is granted or such later time determined by the
Compensation Committee. Each option shall be exercised in full or in part.
Options are not transferable other than by will or the laws of descent and
distribution, and may be exercised during the life of the employee or director
only by him or her. No options may be granted under the Incentive Plan after
March ___, 2007. However, any options outstanding on March ___, 2007 will remain
in effect in accordance with their terms.
The Incentive Plan also provides for the granting of stock appreciation
rights ("SAR"), which entitle the holder to receive upon exercise an amount in
cash and/or stock which is equal to the appreciation in the fair market value of
the Common Stock between the date of the grant and the date of exercise. The
number of shares of Common Stock to which a SAR relates, the period in which it
can be exercised, and other terms and conditions shall be determined by the
Compensation Committee, provided however, that such expiration date shall not be
later than ten years from the date of the grant. SARS are not transferable other
than by will or the laws of descent and distribution, and may be exercised
during the life of the grant only by the grantee. The SARS are subject to the
same rules regarding expiration upon a grantee's cessation of employment or
directorship, as pertains to options, discussed above.
The Compensation Committee may also award shares of Common Stock ("stock
awards") in payment of certain incentive compensation, subject to such
conditions and restrictions as the Committee may determine. All shares of Common
Stock subject to a stock award will be valued at not less than 100% of the fair
market value of such shares on the date the stock award is granted. The number
of shares of Common Stock which may be granted as a stock award in any calendar
year may not exceed 80,000.
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<PAGE>
The Incentive Plan will be administered by the Compensation Committee,
which has the authority to prescribe, amend and rescind rules and regulations
relating to the Plan, to accelerate the exercise date of any option, to
interpret the Plan and to make all necessary determinations in administering the
Plan.
The Incentive Plan will remain in effect until such time as it is
terminated by the Board of Directors. The Incentive Plan may be amended by the
Board of Directors upon the recommendation of the Compensation Committee, except
that, without stockholder approval, the Plan may not be amended to: increase the
number of shares subject to issuance under the Plan; change the class of persons
eligible to participate under the Plan; withdraw the administration of the Plan
from the Compensation Committee; or, to permit any option to be exercised more
than ten years after the date it was granted.
As of the date of the Prospectus, the Compensation Committee has yet to be
formed, and accordingly, no stock incentives have been granted under the
Incentive Plan.
EMPLOYMENT AGREEMENTS
The Company has entered into separate five-year employment agreements
with William L. Miller and Jeanne E. Miller, effective January 1, 1997, pursuant
to which Mr. Miller is to serve as Chief Executive Officer of the Company and
Mrs. Miller is to serve as its Executive Vice President. The employment
agreements provide for an annual base salary of $125,000 for Mr. Miller and
$90,000 for Mrs. Miller, subject to annual review for increase by the Company.
The employment agreements also provide for the eligibility of these executives
to receive annual cash bonuses under the Company's Incentive Compensation Plan
discussed above. Each of these executives is also to be provided with
automobiles, at the Company's expense, for their exclusive use, the make and
model of which is to be mutually agreed upon by the executive and the Company,
from time to time. Each of these executives is also to be reimbursed for certain
personal expenses up to $7,500, which amount shall be subject to increase to pay
for any personal income tax liability should such reimbursements be deemed
taxable to the executive. Each of these executive is also entitled to
participate in any employee benefit plan which the Company may create in the
future. The Company has also agreed to maintain in force, at its expense, during
the term of the employment agreements, life insurance for the benefit of each of
the executives in an amount equal to twice the base salary of Mr. Miller and
five times the base salary of Mrs. Miller. Pursuant to the employment
agreements, each of these executives has agreed not to compete with the Company
during employment and for a period of one year following termination of
employment and has further agreed to maintain as confidential, the Company's
proprietary information.
Each of the employment agreements provide for severance compensation to
be paid in all instances other than the executive's termination for cause. In
the event that the executive becomes disabled or dies, the Company, in the case
of Mr. Miller, is required to pay an amount equal to the product of (x) and (y)
where (x) is the sum of the executive's salary and bonus paid in the prior year
multiplied by 2.99 and (y) the percentage of the employment agreement's five
year term remaining from the date of death of disability; provided, however,
that such severance compensation will not be less than the officer's salary and
bonus paid in the year prior to the year in which the officer dies or becomes
disabled. The foregoing benefit is provided in the employment agreement of Mrs.
Miller, but only in the event of disability. Each executive is also entitled to
be paid severance compensation in an amount equal to the sum of the executive's
salary and bonus paid in the prior year multiplied by 2.99 in the event that the
executive elects to terminate the employment agreement upon the occurrence of
certain events which would adversely affect the executive's position or
responsibilities or upon the Company's material breach of the employment
agreement. Each executive is further entitled to be paid severance compensation
in the amount equal to the sum of the executive's salary and bonus paid in the
last year of the executive's employment agreement in the event that the
executive is not rehired upon terms acceptable to him or her or, in the case of
Mr. Miller, a successor chief executive officer is hired with Mr. Miller's
consent to replace Mr. Miller prior to the expiration of the term of his
employment agreement. Additionally, any executive entitled to severance
compensation, above, will also be entitled to participate in any
Company-sponsored employee health benefit plan at the Company's expense, for a
maximum of eighteen months from the date of termination.
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<PAGE>
Each of Mr. Miller and Mrs. Miller was granted under their respective
employment agreements 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
commencing January 1, 1998, regardless of whether the executive is employed on
such dates by the Company. The vested options will be immediately exercisable
and will expire ten years from the date of the agreement. 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 is permitted under his agreement to devote such time to
managing the affairs of the various other Duncan Hill entities as he deems
appropriate, and to retain any compensation that he receives from those entities
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 additional 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.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation contains a provision
eliminating the personal monetary liability of directors to the extent allowed
under the General Corporation Law of the State of Delaware. Under the provision,
a stockholder is able to prosecute an action against a director for monetary
damages only if he can show a breach of the duty of loyalty, a failure to act in
good faith, intentional misconduct, a knowing violation of law, an improper
personal benefit or an illegal dividend or stock repurchase, as referred to in
the provision, and not "negligence" or "gross negligence" in satisfying his duty
of care. In addition, the provision applies only to claims against a director
arising out of his role as a director or not, if he is also an officer, his role
as an officer or in any other capacity or to his responsibilities under any
other law, such as the federal securities laws. In addition, the Company's
Bylaws provide that the Company will indemnify its directors, officers,
employees and other agents to the fullest extent permitted by Delaware law.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, 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 Securities Act and
is, therefore, unenforceable.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth as of March 8, 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>
SHARES OF
SHARES OF SERIES A
COMMON STOCK PREFERRED STOCK
BENEFICIALLY OWNED BENEFICIALLY OWNED
------------------ ------------------
NAME AND ADDRESS
OF BENEFICIAL OWNER(1) NUMBER PERCENT(2) NUMBER PERCENT(3)
- ---------------------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Duncan Hill Co., Ltd. 2,400,000(4) 65%(4) 5,000,000(4) 100%(4)
4450 Belden Village Street,
N.W., Suite 406
Canton, OH 44718
William L. Miller(5) 2,400,000(6) 65%(6) 5,000,000(7) 100%(7)
c/o 4450 Belden Village Street,
N.W., Suite 406
Canton, OH 44718
Jeanne E. Miller(8) -0- -0- -0- -0-
c/o 4450 Belden Village Street,
N.W., Suite 406
Canton, OH 44718
Clark D. Swisher(9) -0- -0- -0- -0-
c/o 4450 Belden Village Street,
N.W., Suite 406
Canton, OH 44718
All Officers and Directors as a 2,400,000(6) 65%(6) 5,000,000(7) 100%(7)
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.
(3) Calculated based upon 5,000,000 shares of Series A Preferred Stock
outstanding.
(4) 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.
(5) Chief Executive Officer and Director of the Company.
(6) Represents Mr. Miller's deemed beneficial ownership of 2,400,000 shares of
Common Stock.
(7) Represents Mr. Miller's deemed beneficial ownership of 5,000,000 shares of
Series A Preferred Stock, the record holder of which is Duncan Hill.
(8) Executive Vice President and Director of the Company.
(9) Director of the Company.
</FN>
</TABLE>
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<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." Two of the Selling Securityholders are customers of the Underwriter. The
third Selling Securityholder was introduced to the Company by the Underwriter.
There are no other affiliations or relationships between any of the Selling
Securityholders and either the Company or the Underwriter. 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 following table sets forth certain information with respect to holders
for whom the Company is registering the possible resale to the public of
Warrants. 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." The Underwriter has no arrangements, agreements, or
understandings with any of the Selling Securityholders to sell their 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.(2) 985,000 ---- ----
<FN>
- ----------
(1) Such percentage assumes that all securities offered hereby by such Selling
Securityholder are sold.
(2) Holds 171,428 shares of the Company's Rule 504 Shares. See "CERTAIN
TRANSACTIONS - Rules 504 Shares."
</FN>
</TABLE>
The Warrants 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 transactions 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 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.
- 39 -
<PAGE>
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 profits
realized may be deemed to be underwriting commissions or discounts under the
Act.
At the time a particular offer to sell the Warrants is made by or on
behalf of a Selling Securityholder, to the extent required, a Prospectus will be
distributed which will set forth the number of shares being offered and the
terms of the Offering, including the name or names of any underwriters, dealers
or agents, if any, the purchase price paid by any underwriter for sales
purchased from the Selling Securityholder and any discounts, commissions or
concessions allowed or reallowed or paid to dealers and the proposed selling
price to the public.
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
eight private investors at a purchase price of $.125 per share. Seven of these
investors are customers of the Underwriter. There are no other affiliations or
relationships between the seven private investors and either the Company or the
Underwriter. The eighth investor, who is not a customer of the Underwriter and
who had no relationship or affiliation with the Underwriter, had once been
engaged to provide financial consulting services to the Company's parent, Duncan
Hill. This investor has no other relationships or affiliations with the Company.
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." The Underwriter has no arrangements,
agreements or understandings with any of these eight private investors to sell
their Rule 504 Shares.
BRIDGE LOAN
In October 1996, the Company borrowed an aggregate of $200,000 (the
"Bridge Loan") from three private investors, two of whom who are customers of
the Underwriter, and the third of whom was introduced by the Underwriter to the
Company. These three private investors are Clinthill Investments, Ltd., Kurt
Cambell and M&M Specialties, Inc. 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."
- 40 -
<PAGE>
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 $1,075,000 to be made by the Company to the seller upon
the closing of the Offering; a cash payment in the amount of $210,777 in payment
of a note owed by Baby Co. in the principal amount of $197,603 together with
accrued interest in the amount of $13,174 through April 30, 1997; the assumption
by the Company of Baby Co.'s accounts payable incurred in the ordinary course of
business, which is approximately $275,958 as of December 31, 1996; 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 at any time
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 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 the material provisions of the Asset
Purchase Agreement, as amended, and the Escrow Agreement, 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.
GENERAL
It is the policy of the Company that future transactions with
affiliates will be on terms no less favorable than could be obtained from
unaffiliated parties.
- 41 -
<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 25,000,000 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.
- 42 -
<PAGE>
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 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.
- 43 -
<PAGE>
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.
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 one year 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 two 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.
- 44 -
<PAGE>
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 Underwriter
does not intend to sell any of the securities offered hereby to accounts for
which it has discretionary authority.
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 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
- 45 -
<PAGE>
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.
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, not to exceed two business days per month. The services to be
provided by the Underwriter shall include: assistance in formulating plans and
presenting financial reports; analyzing third party proposals for the provision
of additional financing to the Company; assistance in dealing with brokers and
institutions; assistance in obtaining financial management, technical and
advisory services; and, assistance in obtaining financial and corporate public
relations. 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.
- 46 -
<PAGE>
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 Underwriter by
Bernstein & Wasserman, LLP, New York, New York.
EXPERTS
The financial statements of Kids Stuff, Inc. as of December 31, 1996
and for the years ended December 31, 1996 and 1995 and the financial statements
of The Natural Baby Company, Inc., as of December 31, 1996 and for the years
ended December 31, 1996 and 1995 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 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 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.
-47-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
KIDS STUFF, INC.
Report of Independent Auditors ....................................... F-2
Balance Sheet as of December 31, 1996................................. F-3-4
Statements of Income for the Years ended
December 31, 1996 and 1995.........................................F-5
Statements of Stockholders' Equity
for the Year ended December 31, 1996...............................F-6
Statements of Cash Flows for the Years
ended December 31, 1996 and 1995...................................F-7
Notes to Financial Statements..........................................F-8-17
THE NATURAL BABY COMPANY, INC.
Report of Independent Auditors.........................................F-18
Balance Sheet as of December 31, 1996..................................F-19-20
Statements of Income for the Years ended December 31, 1996
and 1995...........................................................F-21
Statements of Stockholders' Equity for the Years ended
December 31, 1996 and 1995.........................................F-22
Statements of Cash Flows for the Years ended December 31, 1996
and 1995...........................................................F-23
Note to Financial Statements...........................................F-24-26
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
Introduction...........................................................P-1
Unaudited Pro Forma Combined Balance Sheet as of December 31, 1996.....P-2-3
Unaudited Pro Forma Combined Statements of Income
for the Year ended December 31, 1996...............................P-4
Notes to Unaudited Pro Forma Combined Financial Statements.............P-5
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders 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, 1996, and the related statements of operations, stockholders'
equity, and cash flows for the years ended December 31, 1996 and 1995. 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, 1996, and the results of its operations and its cash flows for
the years ended December 31, 1996 and 1995, in conformity with generally
accepted accounting principles.
As discussed in Note A to the financial statements, 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. As
discussed in Note 8 to the financial statements, the Company changed its method
of accounting for certain intangible assets.
HAUSSER + TAYLOR
Canton, Ohio
February 21, 1997
F-2
<PAGE>
KIDS STUFF, INC.
BALANCE SHEET
DECEMBER 31, 1996
ASSETS
- ------
CURRENT ASSETS
Cash $ 248,648
Accounts receivable 165,779
Inventories 496,395
Deferred catalog expense 277,469
Prepaid expenses 169,789
------------
Total current assets 1,358,080
PROPERTY AND EQUIPMENT
Data processing equipment 95,894
Machinery and equipment 83,360
Furniture and fixtures 98,448
------------
277,702
Less accumulated depreciation 164,093
------------
113,609
------------
$ 1,471,689
============
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
KIDS STUFF, INC.
BALANCE SHEET
DECEMBER 31, 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES
Current portion of long-term debt-related parties $ 266,858
Accounts payable 1,102,311
Line of credit 650,000
Due to affiliates 137,070
Customer advances and other 5,630
-----------
Total current liabilities 2,161,869
LONG-TERM DEBT-RELATED PARTIES,
NET OF CURRENT PORTION 300,000
STOCKHOLDERS' EQUITY
Common stock 3,700
Additional paid-in capital 458,800
Retained earnings (deficit) (1,452,680)
-----------
Total stockholders' equity (990,180)
-----------
$1,471,689
===========
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
KIDS STUFF, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
----------- -----------
SALES $ 6,638,995 $ 5,724,337
COST OF SALES 4,204,321 3,540,487
----------- -----------
GROSS PROFIT 2,434,674 2,183,850
SELLING EXPENSES 2,193,219 1,998,502
GENERAL AND
ADMINISTRATIVE EXPENSES 768,580 730,950
----------- -----------
(LOSS) FROM OPERATIONS (527,125) (545,602)
NET OTHER INCOME 5,485 8,610
----------- -----------
NET (LOSS) $ (521,640) $ (536,992)
=========== ===========
(LOSS) PER SHARE $ (.14) $ (.15)
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
KIDS STUFF, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1995
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
------- --------- ---------- --------
<S> <C> <C> <C> <C>
BALANCE - DECEMBER 31, 1994 $2,400 $297,600 $ 234,503 $534,503
PRIOR PERIOD ADJUSTMENT - - (628,551) (628,551)
------- --------- ---------- --------
BALANCE - DECEMBER 31, 1994
As restated 2,400 297,600 (394,048) (94,048)
DEDUCTION
Net loss - - (536,992) (536,992)
------- --------- ---------- --------
BALANCE - DECEMBER 31, 1995 2,400 297,600 (931,040) (631,040)
ADDITION
Sale of common stock 1,300 161,200 - 162,500
DEDUCTION
Net loss - - (521,640) (521,640)
------- --------- ---------- --------
BALANCE - DECEMBER 31, 1996 $3,700 $458,800 $(1,452,680) $(990,180)
======= ========= ========== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
KIDS STUFF, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $ (521,640) $ (536,992)
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation 17,005 25,991
Loss on disposal of assets 30,450 -
(Increase) decrease in accounts receivable (92,146) 21,705
Decrease (increase) in inventories 105,622 (237,747)
(Increase) in deferred catalog expense (105,944) (34,072)
Increase in accounts payable, customer advances and other 354,020 250,974
---------- ----------
Net cash (used) by operating activities (212,633) (510,141)
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in property and equipment (38,921) (28,016)
Prepaid amounts for acquisition of Natural Baby Catalog business (126,007) -
---------- ----------
Net cash (used) by investing activities (164,928) (28,016)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on line of credit 220,000 255,000
Sale of common stock 162,500 -
Borrowings on long-term debt - related parties 566,858 -
Prepaid amounts for public offering (43,782) -
(Decrease) increase in due to affiliates (315,086) 281,726
---------- ----------
Net cash provided by financing activities 590,490 536,726
---------- ----------
NET INCREASE (DECREASE) IN CASH 212,929 (1,431)
CASH - BEGINNING 35,719 37,150
---------- ----------
CASH - ENDING $ 248,648 $ 35,719
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest $ 50,554 $ 46,336
========== ==========
</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 and Reorganization
A. Reorganization - 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 Save, 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 net 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
hard good 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. The carrying values of the Company's
long-term obligations approximate their fair value. In accordance with
Statement of Accounting Standards No. 107, "Disclosure About Fair Value
of Financial Instruments," rates available at balance sheet dates to
the Company are used to estimate the fair value of existing debt.
E. Trade Receivables - It is the Company's policy to record accounts
receivable net of an allowance for doubtful accounts. Management has
determined that no allowance is necessary as of December 31, 1996. Bad
debt expense was $34,752 and $18,742 for the years ended December 31,
1996 and 1995, respectively.
F. 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.
F-8
<PAGE>
KIDS STUFF, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Summary of Significant Accounting Policies and Reorganization (continued)
G. 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. Catalog expense was
$1,936,094 and $1,772,770 for the years ended December 31, 1996 and
1995, respectively.
H. Prepaid expenses include $43,782 relative to the public offering (see
Note 9) and $126,007 relative to the acquisition of the Natural Baby
Catalog (see Note 5).
I. Property and equipment are carried at cost and depreciated using the
straight-line method over their estimated useful lives ranging from
five to ten years. Depreciation expense amounted to $17,005 and $25,991
for the years ended December 31, 1996 and 1995, respectively.
Maintenance, repairs, and minor renewals are charged against earnings
when incurred. Additions and major renewals are capitalized.
J. The Company developed and maintains a mailing list of customers who
have purchased merchandise in the recent past. The cost of developing,
maintaining, and updating this list is expensed in the period incurred.
K. New Authoritative Pronouncements - 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.
In October 1995, Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation, was issued which establishes
accounting and reporting standards for stock-based compensation plans.
This standard encourages the adoption of the fair value-based method of
accounting for employee stock options or similar equity instruments,
but continues to allow the Company to measure compensation cost for
those equity instruments using the intrinsic value-based method of
accounting prescribed by Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees. Under the fair value-based
method, compensation cost is measured at the grant date based on the
value of the award. Under the intrinsic value-based method,
compensation cost is the excess, if any, of the quoted market price of
the stock at the grant date or other measurement date over the amount
the employee must pay to acquire the stock. The Company uses the
intrinsic value-based method for stock-based compensation to employees.
As a result, this standard does not have any effect to the Company's
financial statement other than to require disclosure of the pro forma
effect on net income of using the fair value-based method of
accounting. Management believes this effect to currently be immaterial.
F-9
<PAGE>
KIDS STUFF, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note 1. 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.
Management believes this is a reasonable basis of cost
allocation and that these expenses would not have been
materially different had the Company been on a stand-alone
basis.
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 continued to provide
through December 31, 1996. Duncan Hill charged the Company for
its allocated portion of these expenses on the basis of total
assets, which management believes to be a reasonable basis of
cost allocation. Management believes that, had the Company
been on a stand-alone basis, these expenses would not be
materially different. Amounts due to affiliate are a result of
the unpaid portion of these charges.
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 accounts receivable and inventory of the Company and
Duncan Hill's other subsidiaries are pledged as collateral
against an $800,000 line of credit held by Duncan Hill prior
to December 31, 1996. The balance on the line of credit was
$650,000 at December 31, 1996. 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 intercompany indebtedness owed
by the Company to Duncan Hill. Effective December 31, 1996,
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. (See Note 3.)
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 $56,065 and $46,336 for the years ended
December 31, 1996 and 1995, respectively.
F-10
<PAGE>
KIDS STUFF, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note 2. 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. At December 31,
1996, the Company has common stock of $.001 par value,
25,000,000 shares authorized, 3,700,000 shares issued and
outstanding.
Stockholders' equity reflects the reorganization for all
periods presented. Additionally, earnings per share were
calculated based on the 3,700,000 shares of common stock
issued in the reorganization for all periods presented.
B. Preferred
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.
Note 3. Note Payable - Line of Credit
Kids Stuff, Inc. has an $800,000 line of credit from United
Bank with an open term which is payable on demand, bearing
interest payable monthly at the bank's prime lending rate
(8.25% at December 31, 1996) plus 1% and had a balance of
$650,000 at December 31, 1996. The line is secured by assets
of the Company, as well as the assets of Duncan Hill and
another Duncan subsidiary, E. A. Carey of Ohio, Inc. The
repayment of the facility is guaranteed by Mr. Miller, the
Company's Chief Executive Officer. It is the policy of the
bank to review the credit facility, annually, commencing June
30, 1997, and to require that the Company
F-11
<PAGE>
KIDS STUFF, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note 3. Note Payable - Line of Credit (continued)
maintain a zero balance on the credit line for a period of
thirty consecutive days sometime during the course of each
year. The bank has agreed to waive the "zero balance" required
for the 1997 loan year ending June 30, 1997. The weighted
average interest rate for the years ended December 31, 1996
and 1995 was 9.3% and 9.7%, respectively.
<TABLE>
Note 4. Long-Term Debt - Related Parties
<S> <C>
A. Long-term debt - related parties consists of the following at
December 31, 1996:
Note Payable - Duncan Hill Company, Ltd. (parent company),
unsecured and payable in four annual principal payments plus
interest at 8.0%, matures June 2000. The first installment is for
$66,858 and the three remaining installments are for $100,000. $ 366,858
Note Payable - (bridge lenders - see Note 6), the entire
principal plus interest at 8.0%, payable on the earlier of
September 27, 1997 or the closing date of the initial public
offering of Company's securities. 125,000
Note Payable - (bridge lenders - see Note 6), the entire
principal plus interest at 8%, payable on September 27, 1997
or convertible, at the option of the holder into 1,500,000
Class A Warrants of the Company. 75,000
---------
566,858
Less current portion 266,858
---------
$ 300,000
=========
</TABLE>
B. Principal payments required to be made for the next five years
ending December 31 are as follows:
Year
----
1997 $ 266,858
1998 100,000
1999 100,000
2000 100,000
---------
$ 566,858
=========
F-12
<PAGE>
KIDS STUFF, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note 5. Acquisition of The Natural Baby Catalog
In May, 1996, The Natural Baby Company, Inc. (Baby Co.)
contracted to sell the assets of 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 filed the
registration statement on January 8, 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, upon the closing of a public offering, by
the Company for The Natural Baby Catalog consists of: a cash
payment in the amount of $1,075,000 to be made to the seller;
a cash payment in the amount of $210,777 in payment of a note
owed by Baby Co. in the principal amount of $197,603 together
with accrued interest in the amount of $13,174 through April
30, 1997; the assumption by the Company of Baby Co.'s accounts
payable incurred in the ordinary course of business which is
approximately $275,958 as of December 31, 1996; 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 (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 at
any time 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 eighth
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 not complete the
acquisition on or before January 3, 1997, as initially agreed
to, the Company agreed to pay an additional $350,000
(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.
F-13
<PAGE>
KIDS STUFF, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note 6. Recent Sales of Unregistered Securities
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.
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 (bridge loan) 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
described in Note 9. 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.
Note 7. Income Tax
The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standard No. 109, Accounting
for Income Taxes. The Company does not anticipate filing as
part of a consolidated group.
The Company had net operating loss carryforwards of
approximately $210,000 as of December 31, 1996 for tax
purposes, which represents activity from July 1, 1996 through
December 31, 1996. They expire in the year 2011 and are fully
reserved for book purposes. Tax net operating losses of the
Predecessor incurred prior to July 1996 reverted to the parent
company in the reorganization.
F-14
<PAGE>
KIDS STUFF, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note 8. Prior Period Adjustment
During 1996, the Company changed its accounting principle
utilized regarding internally-generated customer lists and
development costs. Prior to the change, the Company
capitalized and amortized these costs over their estimated
useful life. The Company now expenses these costs as incurred.
While the Company believes that both methods are in compliance
with generally accepted accounting principles, the change is
being made in conjunction with an initial public offering and
the Company expects to use the newly adopted policy in future
periods. The Company believes the new method to be preferable
because it better conforms to industry accounting practice for
publicly-traded companies. Additionally, the Company has
adjusted its financial statements to eliminate goodwill
associated with its 1990 acquisition of the Perfectly Safe
Catalog business because the transaction would be deemed to
have been between affiliated parties. The January 1, 1995
retained earnings and the related 1995 Statement of Income
have been restated for the effect of the following
adjustments:
<TABLE>
<CAPTION>
RETAINED 1995 NET INCOME (LOSS)
EARNINGS AMOUNT PER SHARE
-------- --------------------------
<S> <C> <C> <C>
As previously reported $ 234,503 $ (163,232) $ (.05)
Elimination of internally-generated
customer lists and development
costs (765,521) (336,660) (.09)
Elimination of the related deferred
tax liability 136,700 (37,100) (.01)
---------- ---------- ------
As adjusted $ (394,048) $ (536,992) $ (.15)
========== ========== ======
</TABLE>
Note 9. Public Offering- Subsequent Event
The Company filed a registration statement in January, 1997
containing two prospectuses: one relating to the offering by
the Company of 345,000 units at an offering price of $10 per
unit (including 45,000 units to cover over-allotments, if
any), each unit consisting of two shares of common stock,
$.001 par value, and one Class A Warrant; and one relating to
the offering by three bridge lenders of up to 1,500,000 Class
A Warrants. The common stock and warrants are immediately
separately transferable as of the date of the 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 fifth day prior
to the date on which the notice of redemption is given.
F-15
<PAGE>
KIDS STUFF, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note 10. Subsequent Event
During January 1997, the Company issued to its parent, Duncan
Hill Co., Ltd., 5,000,000 shares of Series A Preferred Stock,
at par value of $.001 per share, as a part of the
reorganization (See Note A). 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 11. Employment Agreement
The Company has entered into separate five-year employment
agreements with William L. Miller and Jeanne E. Miller,
effective January 1, 1997, pursuant to which Mr. Miller is to
serve as Chief Executive Officer of the Company and Mrs.
Miller is to serve as its Executive Vice President. The
employment agreements provide for an annual base salary of
$125,000 for Mr. Miller and $90,000 for Mrs. Miller, subject
to annual review for increase by the Company. The employment
agreements also provide for the eligibility of these
executives to receive annual cash bonuses under the Company's
Incentive Compensation Plan.
Each of Mr. Miller and Mrs. Miller was granted under their
respective employment agreements 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 commencing January 1,
1998, regardless of whether the executive is employed on such
dates by the Company. The vested options will be immediately
exercisable and will expire ten years from the date of the
agreement. 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.
F-16
<PAGE>
KIDS STUFF, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note 12. Incentive Plans
A. Incentive Compensation Plan
The Company's Incentive Compensation Plan (the "Plan") is
designed to motivate employee participants to achieve the
Company's annual strategic goals. Eligibility for
participation in the Plan is limited to the Chief Executive
Officer and the Executive Vice President of the Company, and
such other employees of the Company as may be designated by
the Board of Directors from time to time. For each fiscal year
of the Company, the Board will establish a bonus pool not to
exceed 10% of the Company's operating income. The amount of
such pool with respect to any year shall be determined
subsequent to the end of that year upon the determination of
the Company's operating income for that year. Each participant
in the Plan is eligible to receive from the bonus pool an
annual award of up to 50% of the participant's base salary.
B. 1997 Stock Incentive Plan
In March 1997, the Board of Directors recommended the adoption
of the Company's 1997 Long-Term Incentive Plan (Incentive
Plan), which will be shortly submitted to the stockholders for
approval. Under the Incentive Plan, the Compensation Committee
of the Board of Directors may grant stock incentives to key
employees and the directors of the Company pursuant to which a
total of 400,000 shares of Common Stock may be issued;
provided, however, that the maximum amount of Common Stock
with respect to which stock incentives may be granted to any
person during any calendar year shall be 20,000 shares, except
for a grant made to a recipient upon the recipients initial
hiring by the Company, in which case the number shall be a
maximum of 40,000 shares. These numbers are subject to
adjustment in the event of a stock split and similar events.
Stock incentive grants may be in the form of options, stock
appreciation rights, stock awards or a combination thereof.
F-17
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
Kids Stuff, Inc.
Canton, Ohio
We have audited the accompanying balance sheet of The Natural Baby
Company, Inc. as of December 31, 1996, and the related statements of income,
retained earnings, and cash flows for the years ended December 31, 1996 and
1995. 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, 1996, and the results of its operations and its
cash flows for the years ended December 31, 1996 and 1995, in conformity with
generally accepted accounting principles.
HAUSSER + TAYLOR
Canton, Ohio
January 22, 1997
F-18
<PAGE>
THE NATURAL BABY COMPANY, INC.
BALANCE SHEET
DECEMBER 31, 1996
ASSETS
- ------
CURRENT ASSETS
Cash $ 81,140
Accounts receivable - trade 36,463
Inventories 475,843
Deferred catalog expense 262,694
Prepaid expenses 15,266
---------
Total current assets 871,406
PROPERTY AND EQUIPMENT
Computer equipment 69,394
Vehicle 16,936
Furniture and fixtures 10,053
---------
96,383
Less accumulated depreciation 54,293
---------
42,090
OTHER ASSETS
Deposit 1,779
---------
$ 915,275
=========
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE>
THE NATURAL BABY COMPANY, INC.
BALANCE SHEET
DECEMBER 31, 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES
Notes payable - related parties $ 197,603
Accounts payable 275,958
Accrued distributions
to stockholders 140,000
Accrued bonus to stockholders 41,265
Accrued expenses 29,096
---------
Total current liabilities 683,922
STOCKHOLDERS' EQUITY
Common stock, no par value,
10 shares authorized,
issued and outstanding 100
Additional paid-in capital 10,000
Retained earnings 221,253
---------
Total stockholders' equity $ 231,353
---------
$ 915,275
=========
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE>
THE NATURAL BABY COMPANY, INC.
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
---- ----
SALES $ 6,451,215 $ 5,228,469
COST OF SALES 3,596,965 2,828,165
----------- -----------
GROSS PROFIT 2,854,250 2,400,304
SELLING EXPENSES 1,698,746 1,664,664
GENERAL AND
ADMINISTRATIVE
EXPENSES 601,777 507,348
----------- -----------
INCOME FROM
OPERATIONS 553,727 228,292
OTHER INCOME
(EXPENSE)
Interest (11,725) (14,499)
Miscellaneous 16,647 (1,060)
----------- -----------
4,922 (15,559)
----------- -----------
NET INCOME $ 558,649 $ 212,733
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE>
THE NATURAL BABY COMPANY, INC.
STATEMENTS OF RETAINED EARNINGS
YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
---- ----
BALANCE - BEGINNING $340,025 $127,292
ADDITION
Net income 558,649 212,733
-------- --------
898,674 340,025
DEDUCTION
Distributions 677,421 -
-------- --------
BALANCE - ENDING $221,253 $340,025
======== ========
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE>
<TABLE>
<CAPTION>
THE NATURAL BABY COMPANY, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income $ 558,649 $ 212,733
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation 12,782 9,558
(Increase) decrease in
accounts receivable - trade (6,545) 5,920
Decrease (increase) in inventories 45,410 (165,329)
(Increase) decrease in deferred
catalog expense (76,429) 72,648
(Increase) decrease in prepaid expenses (7,966) 19,574
Increase (decrease) in accounts payable
and accrued expenses 21,010 (51,983)
--------- ---------
Net cash provided by operating activities 546,911 103,121
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in property and equipment (4,397) (40,686)
CASH FLOWS FROM FINANCING ACTIVITIES
Payment on long-term debt - (26,648)
Proceeds from long-term borrowings - 40,000
Distributions to stockholders (537,421) -
--------- ---------
Net cash (used) provided by financing activities (537,421) 13,352
--------- ---------
NET INCREASE IN CASH 5,093 75,787
CASH - BEGINNING 76,047 260
--------- ---------
CASH - ENDING $ 81,140 $ 76,047
========= =========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Cash paid during the year for interest $ - $ 8,744
Non-cash financing activity -
accrued distributions to stockholders 140,000 -
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE>
THE NATURAL BABY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995
Summary of Significant Accounting Policies
A. Business Description - The Natural Baby Company, Inc. (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 - In management's opinion, accounts receivable as of
December 31, 1996 were collectible and no material uncollectible accounts
existed. As such, any allowance would be immaterial. Bad debt expense was
$6,578 and $32,386 for 1996 and 1995, respectively.
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 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. Catalog expense was $1,080,210 and
$1,058,976 for 1996 and 1995, respectively.
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 $12,782
and $9,558 for the years ended December 31, 1996 and 1995, respectively.
Maintenance, repairs and minor renewals are charged against earnings when
incurred. Additions and major renewals are capitalized.
G. Fair Value of Financial Instruments - The fair value of cash, accounts
receivable, accounts payable and other short-term obligations approximate
their carrying value because of the short maturities of those financial
instruments.
H. 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.
F-24
<PAGE>
THE NATURAL BABY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1995
Summary of Significant Accounting Policies (continued)
Note 1. Notes Payable - Related Parties
Notes payable totaling $197,603 at December 31, 1996 consist of
amounts due to a stockholder and several individuals related to the
stockholders. The notes are unsecured, bear interest at 5%, and have
no repayment terms.
The loan agreements do not specify payment requirements. However, it
is management's intention to repay the loans during 1997. Therefore,
the total balance of all loans is considered current as of December
31, 1996. Due to the short maturities of the notes, carrying value
approximates fair value.
Note 2. Lease Commitments
The Company leases facilities for office and warehouse operations
under noncancellable operating leases. The following is a schedule
of minimum future lease payments under noncancellable operating
leases for the years ending December 31:
1997 $21,344
1998 14,229
-------
$35,573
=======
Rental expense was $52,245 and $33,775 for the years ended December
31, 1996 and 1995, respectively.
F-25
<PAGE>
THE NATURAL BABY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1995
Note 3. Catalog Sale Contract
In May, 1996, the Company contracted to sell its catalog business to
Duncan Hill Co., Ltd., at which time Duncan Hill paid the Company
$25,000 towards the purchase price. Duncan Hill has assigned its
rights under that contract to Kids Stuff, Inc., a subsidiary of
Duncan Hill. The remaining purchase price to be paid by Kids Stuff,
Inc. for the Company's catalog business consists of: a cash payment
to the Company in the amount of $1,075,000; a cash payment in the
amount of $210,777 in payment of a note owed by the Company in the
principal amount of $197,603 together with accrued interest in the
amount of $13,174 through April 30, 1997; the assumption by Kids
Stuff, Inc. of the Company's accounts payable incurred in the
ordinary course of business which is $275,958 as of December 31,
1996; assumption of the Company'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 the
Company in the amount of $250,000.
The unpaid balance of the Convertible Note is convertible at any
time into unregistered shares of the Kids Stuff, Inc.'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 eighth anniversaries of the execution of
the Convertible Note.
The purchase price is based upon the Company's tangible net worth at
December 31, 1995 which was $350,125, and is subject to adjustment
in the event that the Company'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.
Unless the acquisition is completed on or before April 30, 1997, the
Company's contract to sell its catalog business to Kids Stuff, Inc.
will expire.
F-26
<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 Co., Inc.,
(ii) the sale of common stock to the public and (iii) the sale of common stock
and common stock warrants to private investors and a bridge loan from these
private investors.
The Unaudited Pro Forma Combined Financial Statements assume that these
transactions occurred at the beginning of the fiscal year ending December 31,
1996 for the Unaudited Pro Forma Combined Statements of Income and as of
December 31, 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 period nor do they purport to indicate the results of future
operations of the Company.
P-1
<PAGE>
<TABLE>
<CAPTION>
KIDS STUFF, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEETS
DECEMBER 31, 1996
KIDS STUFF NATURAL BABY PRO FORMA
HISTORICAL HISTORICAL COMBINED ADJUSTMENTS PRO FORMA
---------- ------------ -------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Current Assets:
Cash $ 248,648 $ 81,140 $ 329,788 (1,310,777) (1) $ 577,734
(100,000) (1)
2,234,505 (2)
(575,782) (3)
Accounts receivable 165,779 36,463 202,242 202,242
Inventories 496,395 475,842 972,238 972,238 972,238
Deferred catalog expense 277,469 262,694 540,163 540,163
Prepaid expenses 169,789 15,266 185,055 (169,789) (5) 15,266
---------- ---------- ---------- -------- ----------
Total Current Assets 1,358,080 871,406 2,229,486 2,307,643
Property and Equipment, Net of
Accumulated Depreciation 113,609 42,090 155,699 155,699
Other Assets, Net of
Accumulated Amortization
Customer lists 0 0 0 300,000 (1) 300,000
Goodwill 0 0 0 791,821 (1) 917,828
126,007 (5)
Other 0 1,779 1,779 1,779
---------- ---------- ---------- ----------
0 1,779 1,779 1,219,607
---------- ---------- ---------- ----------
Total Assets $1,471,689 $ 915,275 $2,386,964 $3,682,949
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
P-2
<PAGE>
<TABLE>
<CAPTION>
KIDS STUFF, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEETS
DECEMBER 31, 1996 (CONTINUED)
KIDS STUFF NATURAL BABY PRO FORMA
HISTORICAL HISTORICAL COMBINED ADJUSTMENTS PRO FORMA
---------- ------------ ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Current Liabilities:
Accounts payable $1,102,311 $ 275,958 $1,378,269 (350,000) (3) $1,049,487
(21,218) (5)
Current Portion of
Long-Term
Debt-Related Parties 266,858 197,603 464,461 (197,603) (1) 75,000
(66,858) (3)
(125,000) (3)
Line of Credit 650,000 0 650,000 650,000
Due to affiliates 137,070 0 137,070 (5,000) (4) 132,070
Accrued Distribution to
Stockholders 0 140,000 140,000 (140,000) (1) 0
Customer advances and other 5,630 70,361 75,991 75,991
---------- ----------- ---------- ----------
Total Current Liabilities 2,161,869 683,922 2,845,791 1,982,548
Long-Term Debt Payable to
Related Parties, net of
current portion 300,000 300,000 250,000 (1) 550,000
Stockholders' Equity
Common stock, $0.001 par value,
25,000,000 shares authorized,
4,300,000 issued and
outstanding 3,700 100 3,800 (100) (1) 4,300
600 (2)
Preferred Stock, $0.001 par value,
10,000,000 shares authorized,
5,000,000 issued and
outstanding 0 0 0 5,000 (4) $ 5,000
Additional paid-in capital 458,800 10,000 468,800 (10,000) (1) $2,593,781
2,233,905 (2)
(33,924) (3)
(65,000) (5)
Retained earnings (1,452,680) 221,253 (1,231,427) (221,253) (1) (1,452,680)
---------- ----------- ---------- --------- ----------
Total Stockholders'
Equity (990,180) 231,353 (758,827) 1,341,651
---------- ----------- ---------- ----------
Total Liabilities and
Stockholders' Equity $1,471,689 $ 915,275 $2,386,964 $3,682,949
========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
P-3
<PAGE>
<TABLE>
<CAPTION>
KIDS STUFF, INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
FISCAL YEAR ENDED DECEMBER 31, 1996
KIDS STUFF NATURAL BABY
HISTORICAL HISTORICAL PRO FORMA
---------- ------------ ------------
<S> <C> <C> <C>
Sales $6,638,995 $ 6,451,215 $13,090,210
Cost of Sales 4,204,321 3,596,965 7,801,286
---------- ----------- ------------
Gross Profit $2,434,674 $ 2,854,250 $ 5,288,924
Selling Expenses 2,193,219 1,698,746 3,891,965
General and Administrative Expenses 768,580 601,777 1,370,357
---------- ----------- ------------
Income (Loss) from Operations (527,125) $ 553,727 $ 26,602
Other Income 5,485 4,922 10,407
---------- ----------- ------------
Net (Loss) Income ($521,640) $ 558,649 $ 37,009
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
P-4
<PAGE>
KIDS STUFF, INC.
NOTES TO UNAUDITED PROFORMA COMBINED FINANCIAL STATEMENTS
(1) Adjustment for the acquisition of The Natural Baby Catalog., Inc. with a
cash payment of $1,310,777 and a note payable of $250,000. The Company
will acquire the assets of Natural Baby Catalog and the accounts payable.
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 $791,821, and a note payable to
the seller of The Natural Baby Catalog, of $250,000, the principal of
which is due in five equal annual installments with the first installment
due four years from the date of purchase. Prior thereto, only accrued
interest will be payable. Also includes expenses of $100,000 for the
consolidation of the operations of The Natural Baby Catalog.
(2) 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 $465,495.
(3) Adjustment for the repayment of bridge loan of $125,000, plus interest at
8%, payment of $300,000 towards accounts payable, and payment of note
payable to Duncan Hill of $66,858 plus interest at 8% to be paid on June
30, 1997.
(4) Adjustment for the issuance of 5,000,000 shares of Series A Preferred
Stock in January, 1997 to the Company's parent.
(5) Adjustment for the payment of expenses for the reorganization of Kids
Stuff, Inc. in the amount of $65,000, of which $43,782 is included in
prepaid expenses, and an adjustment of $126,007 of prepaid expenses
attributable to the purchase of The Natural Baby Catalog which will be
capitalized as goodwill upon the completion of the acquisition.
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 estimated to be approximately $50,000
on a quarterly basis which are not reflected in the Unaudited Pro Forma
Combined Financial Statements of Income. Also not reflected in the
Unaudited Pro Forma Combined Financial Statements are $50,000 of
additional annual payroll expense relating to the salaries of the
Company's two executive officers, as well as any additional compensation
that may be awarded under any incentive compensation plan.
P-5
<PAGE>
=========================================================
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 of an offer to buy the shares of Common Stock and
Warrants offered hereby by anyone in any 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..................................
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..........................
Business............................................
Management..........................................
Principal Stockholders..............................
Selling Securityholders.............................
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 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.
======================================================
======================================================
300,000 UNITS
Each Unit Consisting of Two Shares of
Common Stock and One Common Stock
Class A Purchase Warrant
KIDS STUFF, INC.
----------
PROSPECTUS
----------
VTR CAPITAL, INC.
______________________, 1997
======================================================
<PAGE>
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.
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS]
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED March 14, 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 Selling Securityholders are not affiliated with
the Company.
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
initial public offering will be $10.00 per Unit. The Company will receive net
proceeds of approximately $2,234,505 from the sale of the 300,000 Units included
in the underwritten public offering ($2,626,005 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.
Commencing in October, 1996, the Company sold 1,300,000 unregistered shares
of Common Stock for $.125 per share to eight private investors in order to
obtain equity bridge financing. Assuming that each of the two shares of Common
Stock comprising a $10 Unit is offered in the Company's public underwritten
offering is valued at $5.00 per share, and no value is attributed to a Warrant
included in a Unit, the 1,300,000 shares held by the eight private investors
have a hypothetical value of $6,500,000 for which they paid a total
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS]
of $162,500. See "RISK FACTORS - Unregistered Shares Eligible for Immediate and
Future Sale," on page ___.
Upon completion of the Company's underwritten public offering, the Company's
parent, Duncan Hill Co., Ltd., will own approximately 80% of the Company's
outstanding voting stock. See "RISK FACTORS - Control by Parent and Parent's
Controlling Stockholders," on page ____.
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," on
page ______. This is no assurance, however, that the Company's securities will
be approved for listing on the OTC Bulletin Board or elsewhere. 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," on
page _____.
----------
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," BEGINNING ON PAGE _____ 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.
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. Also does not
include up to 200,000 shares of Common Stock issuable upon the exercise of
stock purchase options granted under two executive employment agreements.
See "MANAGEMENT - Employment Agreements."
(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."
WARRANTS
SECURITIES TO BE OWNED
BEING OFFERED AFTER THE OFFERING
------------------------------------------------
NUMBER OF
WARRANTS OWNED
NAME PRIOR TO THE OFFERING NUMBER PERCENT(1)
- -----------------------------------------------------------------------------
Clinthill Investments, Ltd. 500,000 ---- ----
Kurt Cambell 15,000 ---- ----
M&M Specialties, Inc. 985,000 ---- ----
(1) Such percentage assumes that all Warrants offered hereby by such Selling
Securityholder are sold.
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 transactions 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.
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
Alt - 3
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS]
exemption from the 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 profits
realized or commissions received 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>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS]
======================================================
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 does not constitute an offer to sell or a
solicitation of an offer to buy the Warrants offered hereby
by anyone in any 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..................................
Risk Factors........................................
Concurrent Offering.................................
Plan of Distribution................................
Selling Securityholders.............................
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..........................
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.
======================================================
======================================================
UP TO 1,500,000 REDEEMABLE
CLASS A PURCHASE WARRANTS
KIDS STUFF, INC.
----------
PROSPECTUS
----------
_______________________, 1997
======================================================
<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
(other than an action by or in the right of the corporation) by reason of the
fact that the person 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
incurred by the person in good faith and in a manner the person 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 the person acted in good faith and in a manner the person
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect 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 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.
The employment agreements with William L. Miller and Jeanne E. Miller
each provide for their indemnification to the full extent permitted by law.
The Company's Certificate of Incorporation contains a provision
eliminating the personal monetary liability of directors to the extent allowed
under the General Corporation Law of the State of Delaware. Under the provision,
a stockholder is able to prosecute an action against a director for monetary
damages only if he can show a breach of the duty of loyalty, a failure to act in
good faith, intentional misconduct, a knowing violation of law, an improper
personal benefit or an illegal dividend or stock repurchase, as referred to in
the provision, and not "negligence" or "gross negligence" in satisfying his duty
of care. In addition, the provision applies only to claims against a director
arising out of his role as a director and not, if he is also an officer, his
role, as an officer or in any other capacity or to his responsibilities under
any other law, such as federal securities laws.
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.................................... $ 3,995
NASD Fees......................................... 2,000
Accounting fees and expenses* .................... 20,000
II-1
<PAGE>
Legal fees and expenses*.......................... 121,000
Blue Sky fees and expenses*....................... 60,000
Printing and engraving*........................... 60,000
Miscellaneous expenses*........................... 5,000
Transfer Agent*................................... 3,500
Underwriter's 3% Non-Accountable
Expense Allowance on 300,000 Units................ 90,000
Underwriter's Financial Consulting Fee............ 100,000
-------
TOTAL.................. $465,495
=======
- ----------
* 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 eight 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 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 Lock-up 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
10.11 Employment Agreement with William L. Miller
10.12 Employment Agreement with Jeanne E. Miller
10.13 Incentive Compensation Plan
10.14 Form of 1997 Long-Term Stock Incentive Plan (to be submitted for
stockholder's approval)
10.15 Amendment to Asset Purchase Agreement between the Company and its
Parent
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 Revised Financial Data Schedule
- ----------
+ Incorporated by reference to Form SB-2 filed with the Securities and
Exchange Commission on January 8, 1997.
* 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 14th day of March, 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.
SIGNATURE TITLE DATE
--------- ----- ----
/S/ WILLIAM L. MILLER Chairman of the Board, Chief Executive March 14, 1997
- --------------------- Officer and Treasurer
William L. Miller (Principal Executive and Financial
Officer)
/S/ JEANNE E. MILLER Executive Vice President and Director March 14, 1997
- ---------------------
Jeanne E. Miller
/S/ CLARK D. SWISHER Director March 14, 1997
- ---------------------
Clark D. Swisher
II-7
<PAGE>
INDEX TO EXHIBITS
3.04 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
4.04 Specimen Certificate for Warrants
4.06 Form of Underwriter's Lock-up Letter
10.09 Credit Facility with United National Bank and Trust Company
10.10 Lease for Company's principal offices and telemarketing center
10.11 Employment Agreement with William L. Miller
10.12 Employment Agreement with Jeanne E. Miller
10.13 Incentive Compensation Plan
10.14 Form of 1997 Long-Term Stock Incentive Plan (to be submitted for
stockholder's approval)
10.15 Amendment to Asset Purchase Agreement between the Company and its
Parent
23.01 Consent of Hausser + Taylor
27.00 Revised Financial Data Schedule
EXHIBIT 3.04
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
DESIGNATION OF "KIDS STUFF, INC.", FILED IN THIS OFFICE ON THE SECOND DAY OF
JANUARY, A.D. 1997, AT 3:30 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS FOR RECORDING.
[BACKGROUND]
GREAT SEAL OF THE STATE OF DELAWARE
LIBERTY AND INDEPENDENCE
1793-1847-1907
[CENTERED]
SECRETARY'S OFFICE /s/ EDWARD J. FREEL
SYMBOL -----------------------------------
1793 DELAWARE 1855 Edward J. Freel, Secretary of State
2646548 8100 AUTHENTICATION: 8271283
971002121 DATE: 01-04-97
<PAGE>
Page 2
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 4.01
NUMBER SHARES
KS KIDS STUFF, INC.
INCORPORATED UNDER THE LAWS CUSIP 49380U 10 0
OF THE STATE OF DELAWARE
SEE REVERSE FOR
CERTAIN DEFINITIONS
THIS CERTIFIES THAT
is the owner of
FULLY-PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK
OF THE PAR VALUE OF $.001 PER SHARE OF
- -------------------------------- KIDS STUFF, INC.-----------------------------
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized Attorney, upon surrender of this Certificate properly
endorsed.
This Certificate is not valid until countersigned and registered by the
Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
KIDS STUFF, INC.
CORPORATE SEAL
1996
DELAWARE
EXECUTIVE VICE PRESIDENT CHIEF EXECUTIVE OFFICER
[LANDSCAPED]
COUNTERSIGNED AND REGISTERED
AMERICAN STOCK TRANSFER & TRUST COMPANY
(NEW YORK, N.Y.) TRANSFER AGENT
AND REGISTRAR
By
AUTHORIZED OFFICER
(SEE REVERSE SIDE)
<PAGE>
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO
REQUEST THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF AND
THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR
RIGHTS.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not as tenants in
common
UNIF GIFT MIN ACT - ___________ Custodian _____________
(Cust) (Minor)
under Uniform Gifts to Minors Act_________________
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, _______________HEREBY SELL, ASSIGN AND TRANSFER UNTO
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[ ]
_______________________________________________________________________________
_______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OR ASSIGNEE)
_______________________________________________________________________________
_______________________________________________ Shares of the capital stock
represented by the within Certificate, and do hereby irrevocably constitute and
appoint _______________________________________________________________________
_______________________ Attorney to transfer the said stock on the books of the
within named Corporation, with full power of substitution in the premises.
DATED _______________________________
___________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON
THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND
MUST BE GUARANTEED BY AN ELIGIBLE
INSTITUTION (AS DEFINED IN RULE 17Ad-15
UNDER THE SECURITIES EXCHANGE ACT OF 1934)
WHICH MAY INCLUDE A COMMERCIAL BANK, TRUST
COMPANY OR SAVINGS ASSOCIATION, CREDIT
UNION OR MEMBER FIRM OF THE AMERICAN STOCK
EXCHAGNE, NEW YORK STOCK EXCHANGE, PACIFIC
STOCK EXCHANGE OR MIDWEST STOCK EXCHANGE.
EXHIBIT 4.02
NUMBER SHARES
PS001 KIDS STUFF, INC. 5,000,000
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
SEE REVERSE FOR
CERTAIN DEFINITIONS
THIS CERTIFIES THAT _______________________________________________IS THE
REGISTERED HOLDER OF ______________________________________________SHARES
OF SERIES A PREFERRED STOCK WITH A PAR VALUE OF $.001
TRANSFERABLE ONLY ON THE BOOKS OF THE CORPORATION BY THE HOLDER HEREOF IN
PERSON OR BY ATTORNEY UPON SURRENDER OF THIS CERTIFICATE PROPERLY ENDORSED.
IN WITNESS WHEREOF, THE SAID CORPORATION HAS CAUSED THIS CERTIFICATE TO BE
SIGNED BY ITS DULY AUTHORIZED OFFICERS AND ITS CORPORATE SEAL TO BE HEREUNTO
AFFIXED.
THIS SECOND DAY OF JANUARY A.D. 1997
------------------ ----------------------- --
KIDS STUFF, INC.
CORPORATE SEAL
WILLIAM MILLER, SECRETARY WILLIAM MILLER, PRESIDENT
(SEE REVERSE SIDE)
<PAGE>
The securities represented by this certificate have not been registered under
the Securities Act of 1933, as amended (the "Act"), or any state securities
laws, and may not be sold or transferred unless there is in effect with respect
to said shares a registration statement pursuant to the Act and state securities
laws, or unless the holder hereof shall have received a written opinion of
counsel satisfactory to the holder and the corporation that such sale or
transfer is exempt from the registration requirements of the Act and state
securities laws.
The Preferred Stock shall 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.
FOR VALUE RECEIVED, _______________HEREBY SELL, ASSIGN AND TRANSFER UNTO
_______________________________________________________________________________
_______________________________________________________________________________
Shares represented by the within Certificate, and do hereby irrevocably
constitute and appoint _______________________________________________________
Attorney to transfer the said Shares on the books of the within named
Corporation with full power of substitution in the premises.
DATED _________________________ ______
IN PRESENCE OF _________________________________
[LANDSCAPE]
NOTICE: THE SIGNATURE OF THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON
THE FACE OF THE CERTIFICATE, IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT, OR ANY CHANGE WHATEVER.
EXHIBIT 4.04
VOID AFTER , 2002
STOCK PURCHASE WARRANT CERTIFICATE FOR PURCHASE OF COMMON STOCK
NUMBER CLASS A WARRANTS
WA KIDS STUFF, INC.
CUSIP 49380U 11 8
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 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.
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 Certicate.
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 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.
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.
Date:
KIDS STUFF, INC
CORPORATE SEAL
DELAWARE 1996
EXECUTIVE VICE PRESIDENT CHIEF EXECUTIVE OFFICER
[LANDSCAPED]
COUNTERSIGNED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
AS WARRANT AGENT
By
AUTHORIZED OFFICER
(SEE REVERSE SIDE)
<PAGE>
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 identyifying 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
To Be Executed by the Registered Holder in Order to Assign Warrants
FOR VALUE RECEIVED, hereby sells, assigns and transfer unto
---------------------------------------------------------
(please insert taxpayer identification
or other identyifying 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 THIS 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.
EXHIBIT 4.06
VTR Capital Inc.
99 Wall Street
New York, NY 10005
RE: KIDS STUFF, INC.
Gentlemen:
The undersigned is the beneficial and record holder of shares of common
stock, par value $.001 per share ("Common Stock"), and/or other Securities
(together with Common Stock, the "Securities") of Kids Stuff, Inc., a Delaware
corporation (the "Company"). In connection with the proposed public offering of
Units, each Unit consisting of two (2) shares of Common Stock and one (1) Class
A Warrant, and in consideration of your acting as underwriter for such public
offering, the undersigned agrees to not directly or indirectly, for a period of
twenty four (24) months following the effective date of the registration
statement relating to such public offering, offer, sell (including by effecting
any short sale), loan, hypothecate, pledge, grant any option for the sale of,
acquire any option to dispose of, or otherwise dispose of any Securities without
obtaining your prior written consent (which consent may be withheld or granted
in your discretion). The undersigned acknowledges and agrees that in order to
enforce the covenants contained in this letter agreement, the Company will
impose stop-transfer instructions with respect to the Securities owned by the
undersigned until the end of such twenty four (24) month period.
Date: ___________________, 1997 ______________________________
Signature
______________________________
Print Name
UNITED BANK
UNITED NATIONAL BANK & TRUST CO
January 2, 1997
Mr. William L. Miller
P.O. Box 500
Hartville, Ohio 44632
Dear Mr. Miller:
Per our conversation on December 27, 1996, the $800,000 Line of Credit was
transferred from Duncan Hill to Kids Stuff, Inc. The approval included the
waiver of the thirty day annual clearance requirement thru the line's
review date of June 30, 1997.
If you have any questions, please give me a call.
Very truly yours,
Jeffery Hasapis
Vice President
JH:sg
<PAGE>
<TABLE>
<CAPTION>
NOTICE OF FINAL AGREEMENT
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
$800,000.00 12-31-1996 R-I009616 1465 LED [ILLEGIBLE]
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
<TABLE>
<S> <C> <C>
BORROWER: KIDS STUFF, INC. (TIN: 34-1843520) LENDER: UNITED NATIONAL BANK & TRUST CO.
7245 WHIPPLE AVE. N.W. P.O. BOX 24190
NORTH CANTON, OH 44720 220 MARKET AVENUE SOUTH
CANTON, OH 44702
</TABLE>
================================================================================
BY SIGNING THIS DOCUMENT EACH PARTY REPRESENTS AND AGREES THAT: (A) THE WRITTEN
LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES, (B) THERE ARE
NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES, AND (C) THE WRITTEN LOAN
AGREEMENT MAY NOT BE CONTRADICTED BY EVIDENCE OF ANY PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OR UNDERSTANDINGS OF THE PARTIES.
AS USED IN THIS NOTICE, THE FOLLOWING TERMS HAVE THE FOLLOWING MEANINGS:
LOAN. The term "Loan" means the following described loan: a Variable Rate
(1.000% over UNITED NATIONAL BANK BASE LENDING RATE. The Base Rate will be
determined by the Loan Committee and then reported to the Executive
Committee. The Base Rate will be established upon consideration of the
following factors: (1) The prime or base rate of money bank centers in
Cleveland, Pittsburgh and New York. (2) Competitive conditions for the
commercial loan market in the Bank's lending area. (3) The Bank's money
position and cost of funds. The Loan Committee shall periodically review
the Base Rate and make adjustments as needed reflecting the fluctuation in
the prime rate and pressures in the market. Debtor will then be notified
each time Bank changes the Base Rate., with an interest rate ceiling of
25.000%, making an initial rate of 9.250%), Nondisclosable Revolving Line
of Credit Loan to a Corporation for $800,000.00 due on demand.
PARTIES. The term "Parties" means UNITED NATIONAL BANK & TRUST CO. and any
and all entities or individuals who are obligated to repay the loan or have
pledged property as security for the Loan, including without limitation the
following:
BORROWER: Kids Stuff, Inc.
GUARANTOR #1: William L. Miller
GUARANTOR #2: E.A. Carey of Ohio, Inc.
GUARANTOR #3: Duncan Hill Co., LTD
LOAN AGREEMENT. The term "Loan Agreement" means one or more promises,
promissory notes, agreements, undertakings, security agreements, deeds of
trust or other documents, or commitments, or any combination of those
actions or documents, relating to the Loan, including without limitation
the following:
NECESSARY FORMS
Corporate Resolution to Borrow Corporate Resolution to Guarantee
Promissory Note / Change In Terms Agr. Commercial Guaranty
Commercial Guaranty - Entity Guarantors Security Agreement
UCC - 1 Agreement to Provide Insurance
Disbursement Request and Authorization Notice of Final Agreement
*Application
OPTIONAL FORMS
Notice of Insurance Requirements
================================================================================
EACH PARTY WHO SIGNS BELOW, OTHER THAN UNITED NATIONAL BANK & TRUST CO.,
ACKNOWLEDGES, REPRESENTS, AND WARRANTS TO UNITED NATIONAL BANK & TRUST CO. THAT
IT HAS RECEIVED, READ AND UNDERSTOOD THIS NOTICE OF FINAL AGREEMENT. THIS NOTICE
IS DATED DECEMBER 31, 1996.
BORROWER:
KIDS STUFF, INC.
BY: /s/ WILLIAM L. MILLER BY: /s/ JEANNE E. MILLER
---------------------------- ---------------------------
WILLIAM L. MILLER, PRESIDENT JEANNE E. MILLER, EXECUTIVE VICE PRESIDENT
GUARANTOR:
X /s/ WILLIAM L. MILLER
----------------------------
WILLIAM L. MILLER
<PAGE>
GUARANTOR:
E.A. CAREY OF OHIO, INC.
BY: /s/ WILLIAM L. MILLER BY: /s/ JEANNE E. MILLER
---------------------------- --------------------------------
WILLIAM L. MILLER, PRESIDENT JEANNE E. MILLER, VICE PRESIDENT
GUARANTOR:
DUNCAN HILL CO., LTD
BY: /s/ WILLIAM L. MILLER BY: /s/ JEANNE E. MILLER
--------------------------- ---------------------------------
WILLAM L. MILLER, PRESIDENT JEANNE E. MILLER, VICE PRESIDENT
LENDER:
UNITED NATIONAL BANK & TRUST CO.
BY: [ILLEGIBLE]
------------------------------------------
AUTHORIZED OFFICER
Leo E. Doyle, Sr. Vice Pres. Exec. Officer
<PAGE>
UNITED BANK
UNITED NATIONAL BANK & TRUST CO.
PROMISSORY NOTE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
$800,000.00 12-31-1996 R-I001185 1465 LED
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
<TABLE>
<S> <C> <C>
BORROWER: KIDS STUFF, INC. (TIN: 34-1843520) LENDER: UNITED NATIONAL BANK & TRUST CO.
7245 WHIPPLE AVE. N.W. P.O. BOX 24190
NORTH CANTON, OH 44720 220 MARKET AVENUE SOUTH
CANTON, OH 44702
</TABLE>
<TABLE>
======================================================================================================
<S> <C> <C>
PRINCIPAL AMOUNT: $800,000.00 INITIAL RATE: 9.250% DATE OF NOTE: DECEMBER 31, 1996
</TABLE>
PROMISE TO PAY. KIDS STUFF, INC. ("BORROWER") PROMISES TO PAY TO UNITED NATIONAL
BANK & TRUST CO. ("LENDER"), OR ORDER, IN LAWFUL MONEY OF THE UNITED STATES OF
AMERICA, ON DEMAND, THE PRINCIPAL AMOUNT OF EIGHT HUNDRED THOUSAND & 00/100
DOLLARS ($800,000.00) OR SO MUCH AS MAY BE OUTSTANDING, TOGETHER WITH INTEREST
ON THE UNPAID OUTSTANDING PRINCIPAL BALANCE OF EACH ADVANCE. INTEREST SHALL BE
CALCULATED FROM THE DATE OF EACH ADVANCE UNTIL REPAYMENT OF EACH ADVANCE. THE
INTEREST RATE WILL NOT INCREASE ABOVE 25.000%.
PAYMENT. BORROWER WILL PAY THIS LOAN IMMEDIATELY UPON LENDER'S DEMAND. IN
ADDITION, BORROWER WILL PAY REGULAR MONTHLY PAYMENTS OF ALL ACCRUED UNPAID
INTEREST DUE AS OF EACH PAYMENT DATE, BEGINNING JANUARY 30, 1997, WITH ALL
SUBSEQUENT INTEREST PAYMENTS TO BE DUE ON THE SAME DAY OF EACH MONTH AFTER THAT.
Interest on this Note is computed on a 365/360 simple interest basis; that is,
by applying the ratio of the annual interest rate over a year of 360 days,
multiplied by the outstanding principal balance, multiplied by the actual number
of days the principal balance is outstanding. Borrower will pay Lender at
Lender's address shown above or at such other place as Lender may designate in
writing. Unless otherwise agreed or required by applicable law, payments will be
applied first to any unpaid collection costs and any late charges, then to any
unpaid interest, and any remaining amount to principal.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from
time to time based on changes in an index which is the UNITED NATIONAL BANK BASE
LENDING RATE. The Base Rate will be determined by the Loan Committee and then
reported to the Executive Committee. The Base Rate will be established upon
consideration of the following factors: (1) The prime or base rate of money bank
centers in Cleveland, Pittsburgh and New York. (2) Competitive conditions for
the commercial loan market in the Bank's lending area. (3) The Bank's money
position and cost of funds. The Loan Committee shall periodically review the
Base Rate and make adjustments as needed reflecting the fluctuation in the prime
rate and pressures in the market. Debtor will then be notified each time Bank
changes the Base Rate. (the "Index"). The Index is not necessarily the lowest
rate charged by Lender on its loans and is set by Lender in its sole discretion.
If the Index becomes unavailable during the term of this loan, Lender may
designate a substitute index after notifying Borrower. Lender will tell Borrower
the current Index rate upon Borrower's request. Borrower understands that Lender
may make loans based on other rates as well. The interest rate change will not
occur more often than each day. THE INDEX CURRENTLY IS 8.250% PER ANNUM. THE
INTEREST RATE TO BE APPLIED TO THE UNPAID PRINCIPAL BALANCE OF THIS NOTE WILL BE
AT A RATE OF 1.000 PERCENTAGE POINT OVER THE INDEX, ADJUSTED IF NECESSARY FOR
THE MAXIMUM RATE LIMITATION DESCRIBED BELOW, RESULTING IN AN INITIAL RATE OF
9.250% PER ANNUM. NOTWITHSTANDING ANY OTHER PROVISION OF THIS NOTE, THE VARIABLE
INTEREST RATE OR RATES PROVIDED FOR IN THIS NOTE WILL BE SUBJECT TO THE
FOLLOWING MAXIMUM RATE. NOTICE: Under no circumstances will the interest rate on
this Note be more than (except for any higher default rate shown below) the
lesser of 25.000% per annum or the maximum rate allowed by applicable law.
PREPAYMENT; MINIMUM INTEREST CHARGE. In any event, even upon full prepayment of
this Note, Borrower understands that Lender is entitled to a MINIMUM INTEREST
CHARGE OF $75.00. Other than Borrower's obligation to pay any minimum interest
charge, Borrower may pay without penalty all or a portion of the amount owed
earlier than it is due. Early payments will not, unless agreed to by Lender in
writing, relieve Borrower of Borrower's obligation to continue to make payments
of accrued unpaid interest. Rather, they will reduce the principal balance due.
<PAGE>
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this Note or
any agreement related to this Note, or in any other agreement or loan Borrower
has with Lender. (c) Any representation or statement made or furnished to Lender
by Borrower or on Borrower's behalf is false or misleading in any material
respect either now or at the time made or furnished. (d) Borrower becomes
insolvent, a receiver is appointed for any part of Borrower's property, Borrower
makes an assignment for the benefit of creditors, or any proceeding is commenced
either by Borrower or against Borrower under any bankruptcy or insolvency laws.
(e) Any creditor tries to take any of Borrower's property on or in which Lender
has a lien or security interest. This includes a garnishment of any of
Borrower's accounts with Lender. (f) Any guarantor dies or any of the other
events described in this default section occurs with respect to any guarantor of
this Note. (g) A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of the
indebtedness is impaired. (h) Lender in good faith deems itself insecure.
If any default, other than a default in payment, is curable and if Borrower has
not been given a notice of a breach of the same provision of this Note within
the preceding twelve (12) months, it may be cured (and no event of default will
have occurred) if Borrower, after receiving written notice from Lender demanding
cure of such default: (a) cures the default within fifteen (15) days; or (b) if
the cure requires more than fifteen (15) days, immediately initiates steps which
Lender deems in Lender's sole discretion to be sufficient to cure the default
and thereafter continues and completes all reasonable and necessary steps
sufficient to produce compliance as soon as reasonably practical.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon default, including failure
to pay upon final maturity, Lender, at its option, may also, if permitted under
applicable law, increase the variable interest rate on this Note to 6.000
percentage points over the Index. The interest rate will not exceed the maximum
rate permitted by applicable law. Lender may hire or pay someone else to help
collect this Note if Borrower does not pay. Borrower also will pay Lender that
amount. This includes, subject to any limits under applicable law, Lender's
attorneys' fees and Lender's legal expenses whether or not there is a lawsuit,
including attorneys' fees and legal expenses for bankruptcy proceedings
(including efforts to modify or vacate any automatic stay or injunction),
appeals, and any anticipated post-judgment collection services. If not
prohibited by applicable law, Borrower also will pay any court costs, in
addition to all other sums provided by law. THIS NOTE HAS BEEN DELIVERED TO
LENDER AND ACCEPTED BY LENDER IN THE STATE OF OHIO. IF THERE IS A LAWSUIT,
BORROWER AGREES UPON LENDER'S REQUEST TO SUBMIT TO THE JURISDICTION OF THE
COURTS OF STARK COUNTY, THE STATE OF OHIO. LENDER AND BORROWER HEREBY WAIVE THE
RIGHT TO ANY JURY TRIAL IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM BROUGHT BY
EITHER LENDER OR BORROWER AGAINST THE OTHER. THIS NOTE SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF OHIO.
CONFESSION OF JUDGMENT. Borrower hereby irrevocably authorizes and empowers any
attorney-at-law, including an attorney hired by Lender, to appear in any court
of record and to confess judgment against Borrower for the unpaid amount of this
Note as evidenced by an affidavit signed by an officer of Lender setting forth
the amount then due, plus attorneys' fees as provided in this Note, plus costs
of suit, and to release all errors, and waive all rights of appeal. If a copy of
this Note, verified by an affidavit, shall have been filed in the proceeding, it
will not be necessary to file the original as a warrant of attorney. Borrower
waives the right to any stay of execution and the benefit of all exemption laws
now or hereafter in effect. No single exercise of the foregoing warrant and
power to confess judgment will be deemed to exhaust the power, whether or not
any such exercise shall be held by any court to be invalid, voidable, or void;
but the power will continue undiminished and may be exercised from time to time
as Lender may elect until all amounts owing on this Note have been paid in full.
Borrower waives any conflict of interest that an attorney hired by Lender may
have in acting on behalf of Borrower in confessing judgment against Borrower
while such attorney is retained by Lender. Borrower expressly consents to such
attorney acting for Borrower in confessing judgment.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $21.00 if Borrower
makes a payment on Borrower's loan and the check or preauthorized charge with
which Borrower pays is later dishonored.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA and Keogh accounts,
and all trust accounts for which the grant of a security interest would be
prohibited by law. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on this Note against any and
all such accounts.
<PAGE>
COLLATERAL. This Note is secured by Blanket lien on all business assets
including but limited to the customer mailing list including all additions and
substitutions thereto.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under
this Note may be requested either orally or in writing by Borrower or by an
authorized person. Lender may, but need not, require that all oral requests be
confirmed in writing. All communications, instructions, or directions by
telephone or otherwise to Lender are to be directed to Lender's office shown
above. The following party or parties are authorized to request advances under
the line of credit until Lender receives from Borrower at Lender's address shown
above written notice of revocation of their authority: WILLIAM L. MILLER,
PRESIDENT; AND JEANNE E. MILLER, EXECUTIVE VICE PRESIDENT. Borrower agrees to be
liable for all sums either: (a) advanced in accordance with the instructions of
an authorized person or (b) credited to any of Borrower's accounts with Lender.
The unpaid principal balance owing on this Note at any time may be evidenced by
endorsements on this Note or by Lender's internal records, including daily
computer print-outs. Lender will have no obligation to advance funds under this
Note if: (a) Borrower or any guarantor is in default under the terms of this
Note
<PAGE>
12-31-1996 PROMISSORY NOTE PAGE 2
LOAN NO R-I001185 (CONTINUED)
================================================================================
or any agreement that Borrower or any guarantor has with Lender, including any
agreement made in connection with the signing of this Note; (b) Borrower or any
guarantor ceases doing business or is insolvent; (c) any guarantor seeks, claims
or otherwise attempts to limit, modify or revoke such guarantor's guarantee of
this Note or any other loan with Lender; (d) Borrower has applied funds provided
pursuant to this Note for purposes other than those authorized by Lender; or (e)
Lender in good faith deems itself insecure under this Note or any other
agreement between Lender and Borrower.
GENERAL PROVISIONS. This Note is payable on demand. The inclusion of specific
default provisions or rights of Lender shall not preclude Lender's right to
declare payment of this Note on its demand. If any part of this Note cannot be
enforced, this fact will not affect the rest of the Note. In particular, this
section means (among other things) that Borrower does not agree or intend to
pay, and Lender does not agree or intend to contract for, charge, collect, take,
reserve or receive (collectively referred to herein as "charge or collect"), any
amount in the nature of interest or in the nature of a fee for this loan, which
would in any way or event (including demand, prepayment, or acceleration) cause
Lender to charge or collect more for this loan than the maximum Lender would be
permitted to charge or collect by federal law or the law of the State of Ohio
(as applicable). Any such excess interest or unauthorized fee shall, instead of
anything stated to the contrary, be applied first to reduce the principal
balance of this loan, and when the principal has been paid in full, be refunded
to Borrower. Lender may delay or forgo enforcing any of its rights or remedies
under this Note without losing them. Borrower and any other person who signs,
guarantees or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, protest and notice of dishonor. Upon any change
in the terms of this Note, and unless otherwise expressly stated in writing, no
party who signs this Note, whether as maker, guarantor, accommodation maker or
endorser, shall be released from liability. All such parties agree that Lender
may renew or extend (repeatedly and for any length of time) this loan, or
release any party or guarantor or collateral; or impair, fail to realize upon or
perfect Lender's security interest in the collateral; and take any other action
deemed necessary by Lender without the consent of or notice to anyone. All such
parties also agree that Lender may modify this loan without the consent of or
notice to anyone other than the party with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
NOTICE: FOR THIS NOTICE "YOU" MEANS THE BORROWER AND "HIS" MEANS LENDER.
WARNING - BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
OR ANY OTHER CAUSE.
BORROWER:
KIDS STUFF, INC.
BY: /s/ WILLIAM L. MILLER BY: /s/ JEANNE E. MILLER
---------------------------- ------------------------------
WILLIAM L. MILLER, PRESIDENT JEANNE E. MILLER, EXECUTIVE VICE PRESIDENT
<PAGE>
<TABLE>
<CAPTION>
UNITED BANK
UNITED NATIONAL BANK & TRUST CO.
DISBURSEMENT REQUEST AND AUTHORIZATION
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
$800,000.00 12-31-1996 R-I001185 1465 LED
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
<TABLE>
<S> <C> <C>
BORROWER: KIDS STUFF, INC. (TIN: 34-1843520) LENDER: UNITED NATIONAL BANK & TRUST CO.
7245 WHIPPLE AVE. N.W. P.O. BOX 24190
NORTH CANTON, OH 44720 220 MARKET AVENUE SOUTH
CANTON, OH 44702
</TABLE>
================================================================================
LOAN TYPE. This is a Variable Rate (1.000% over UNITED NATIONAL BANK BASE
LENDING RATE. The Base Rate will be determined by the Loan Committee and then
reported to the Executive Committee. The Base Rate will be established upon
consideration of the following factors: (1) The prime or base rate of money bank
centers in Cleveland, Pittsburgh and New York. (2) Competitive conditions for
the commercial loan market in the Bank's lending area. (3) The Bank's money
position and cost of funds. The Loan Committee shall periodically review the
Base Rate and make adjustments as needed reflecting the fluctuation in the prime
rate and pressures in the market. Debtor will then be notified each time Bank
changes the Base Rate, with an interest rate ceiling of 25.000%, making an
initial rate of 9.250%), Revolving Line of Credit Loan to a Corporation for
$800,000.00 due on demand.
PRIMARY PURPOSE OF LOAN. The primary purpose of this loan is for:
[ ] PERSONAL, FAMILY, OR HOUSEHOLD PURPOSES OR PERSONAL INVESTMENT.
[X] BUSINESS (INCLUDING REAL ESTATE INVESTMENT).
SPECIFIC PURPOSE. The specific purpose of this loan is: Working Capital.
DISBURSEMENT INSTRUCTIONS. Borrower understands that no loan proceeds will be
disbursed until all of Lender's conditions for making the loan have been
satisfied. Please disburse the loan proceeds of $800,000.00 as follows:
UNDISBURSED FUNDS: $800,000.00
--------------
NOTE PRINCIPAL: $800,000.00
FINANCIAL CONDITION. BY SIGNING THIS AUTHORIZATION BORROWER REPRESENTS AND
WARRANTS TO LENDER THAT THE INFORMATION PROVIDED ABOVE IS TRUE AND CORRECT AND
THAT THERE HAS BEEN NO MATERIAL ADVERSE CHANGE IN BORROWER'S FINANCIAL CONDITION
AS DISCLOSED IN BORROWER'S MOST RECENT FINANCIAL STATEMENT TO LENDER. THIS
AUTHORIZATION IS DATED DECEMBER 31, 1996.
BORROWER:
KIDS STUFF, INC.
BY: /s/ WILLIAM L. MILLER BY: /s/ JEANNE E. MILLER
---------------------------- ------------------------------------------
WILLIAM L. MILLER, PRESIDENT JEANNE E. MILLER, EXECUTIVE VICE PRESIDENT
<PAGE>
<TABLE>
<CAPTION>
COMMERCIAL GUARANTY
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
1465 LED
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
<TABLE>
<S> <C> <C> <C>
BORROWER: KIDS STUFF, INC. (TIN: 34-1843520) LENDER: UNITED NATIONAL BANK & TRUST CO.
7245 WHIPPLE AVE. N.W. P.O. BOX 24190
NORTH CANTON, OH 44720 220 MARKET AVENUE SOUTH
CANTON, OH 44702
GUARANTOR: DUNCAN HILL CO., LTD
7245 WHIPPLE AVE., N.W.
NORTH CANTON, OH 44720
</TABLE>
================================================================================
AMOUNT OF GUARANTY. THE AMOUNT OF THIS GUARANTY IS EIGHT HUNDRED THOUSAND &
00/100 DOLLARS ($800,000.00).
GUARANTY. FOR GOOD AND VALUABLE CONSIDERATION, DUNCAN HILL CO., LTD
("GUARANTOR") ABSOLUTELY AND UNCONDITIONALLY GUARANTEES AND PROMISES TO PAY TO
UNITED NATIONAL BANK & TRUST CO. ("LENDER") OR ITS ORDER, ON DEMAND, IN LEGAL
TENDER OF THE UNITED STATES OF AMERICA, THE INDEBTEDNESS (AS THAT TERM IS
DEFINED BELOW) OF KIDS STUFF, INC. ("BORROWER") TO LENDER ON THE TERMS AND
CONDITIONS SET FORTH IN THIS GUARANTY.
DEFINITIONS. The following words shall have the following meanings when used in
this Guaranty:
BORROWER. The word "Borrower" means Kids Stuff, Inc..
GUARANTOR. The word "Guarantor" means Duncan Hill Co., LTD.
GUARANTY. The word "Guaranty" means this Guaranty made by Guarantor for the
benefit of Lender dated December 31, 1996.
INDEBTEDNESS. The word "Indebtedness" means the Note, including (a) all
principal, (b) all interest, (c) all late charges, (d) all loan fees and
loan charges, and (e) all collection costs and expenses relating to the
Note or to any collateral for the Note. Collection costs and expenses
include without limitation all of Lender's attorneys' fees and Lender's
legal expenses, whether or not suit is instituted, and attorneys' fees and
legal expenses for bankruptcy proceedings (including efforts to modify or
vacate any automatic stay or injunction), appeals, and any anticipated
post-judgment collection services.
LENDER. The word "Lender" means UNITED NATIONAL BANK & TRUST CO., its
successors and assigns.
NOTE. The word "Note" means the promissory note or credit agreement dated
December 31, 1996, IN THE ORIGINAL PRINCIPAL AMOUNT OF $800,000.00 from
Borrower to Lender, together with all renewals of, extensions of,
modifications of, refinancings of, consolidations of, and substitutions for
the promissory note or agreement. NOTICE TO GUARANTOR: THE NOTE EVIDENCES A
REVOLVING LINE OF CREDIT FROM LENDER TO BORROWER.
RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Indebtedness.
MAXIMUM LIABILITY. THE MAXIMUM LIABILITY OF GUARANTOR UNDER THIS GUARANTY SHALL
NOT EXCEED AT ANY ONE TIME $ 800,000.00 PLUS ALL COSTS AND EXPENSES OF (A)
ENFORCEMENT OF THIS GUARANTY AND (B) COLLECTION AND SALE OF ANY COLLATERAL
SECURING THIS GUARANTY.
The above limitation on liability is not a restriction on the amount of the
Indebtedness of Borrower to Lender either in the aggregate or at any one time.
If Lender presently holds one or more guaranties, or hereafter receives
additional guaranties from Guarantor, the rights of Lender under all guaranties
shall be cumulative. This Guaranty shall not (unless specifically provided below
to the contrary) affect or invalidate any such other guaranties. The liability
of Guarantor will be the aggregate liability of Guarantor under the terms of
this Guaranty and any such other unterminated guaranties.
NATURE OF GUARANTY. Guarantor intends to guarantee at all times the performance
and prompt payment when due, whether at maturity or earlier by reason of
acceleration or otherwise, of all Indebtedness within the limits set forth in
the preceding section of this Guaranty. THIS GUARANTY COVERS A REVOLVING LINE OF
CREDIT AND GUARANTOR UNDERSTANDS AND AGREES THAT THIS GUARANTEE SHALL BE OPEN
AND CONTINUOUS UNTIL THE LINE OF CREDIT IS TERMINATED AND THE INDEBTEDNESS IS
PAID IN FULL, AS PROVIDED BELOW.
DURATION OF GUARANTY. This Guaranty will take effect when received by Lender
without the necessity of any acceptance by Lender, or any notice to Guarantor or
to Borrower, and will continue in full force until all Indebtedness shall have
been fully and finally paid and satisfied and all other obligations of Guarantor
under this Guaranty shall have been performed in full. Release of any other
guarantor or termination of any other guaranty of the Indebtedness shall not
affect the liability of Guarantor under this Guaranty. A revocation received by
Lender from any one or more Guarantors shall not affect the liability of any
remaining Guarantors under this Guaranty. THIS GUARANTY COVERS A REVOLVING LINE
OF CREDIT AND IT IS SPECIFICALLY ANTICIPATED THAT FLUCTUATIONS WILL OCCUR IN THE
AGGREGATE AMOUNT OF INDEBTEDNESS OWING FROM BORROWER TO LENDER. GRANTOR
SPECIFICALLY ACKNOWLEDGES AND AGREES THAT FLUCTUATIONS IN THE AMOUNT OF
INDEBTEDNESS, EVEN TO ZERO DOLLARS ($0.00), SHALL NOT CONSTITUTE A TERMINATION
OF THIS GUARANTY. GUARANTOR'S LIABILITY UNDER THIS GUARANTY SHALL TERMINATE ONLY
UPON (A) TERMINATION IN WRITING BY BORROWER AND LENDER OF THE LINE OF CREDIT,
(B) PAYMENT OF THE INDEBTEDNESS IN FULL IN LEGAL TENDER, AND (C) PAYMENT IN FULL
IN LEGAL TENDER OF ALL OTHER OBLIGATIONS OF GUARANTOR UNDER THIS GUARANTY.
GUARANTOR'S AUTHORIZATION TO LENDER. GUARANTOR AUTHORIZES LENDER, WITHOUT NOTICE
OR DEMAND AND WITHOUT LESSENING GUARANTOR'S LIABILITY UNDER THIS GUARANTY, FROM
TIME TO TIME: (A) TO MAKE ONE OR MORE ADDITIONAL SECURED OR UNSECURED LOANS TO
BORROWER, TO LEASE EQUIPMENT OR OTHER GOODS TO BORROWER, OR OTHERWISE TO EXTEND
ADDITIONAL CREDIT TO BORROWER; (B) TO ALTER, COMPROMISE, RENEW, EXTEND,
ACCELERATE, OR OTHERWISE CHANGE ONE OR MORE TIMES THE TIME FOR PAYMENT OR OTHER
TERMS OF THE INDEBTEDNESS OR ANY PART OF THE INDEBTEDNESS, INCLUDING INCREASES
AND DECREASES OF THE RATE OF INTEREST ON THE INDEBTEDNESS; EXTENSIONS MAY BE
REPEATED AND MAY BE FOR LONGER THAN THE ORIGINAL LOAN TERM; (C) TO TAKE AND HOLD
SECURITY FOR THE PAYMENT OF THIS GUARANTY OR THE INDEBTEDNESS, AND EXCHANGE,
ENFORCE, WAIVE, SUBORDINATE, FAIL OR DECIDE NOT TO PERFECT, AND RELEASE ANY SUCH
SECURITY, WITH OR WITHOUT THE SUBSTITUTION OF NEW COLLATERAL; (D) TO RELEASE,
SUBSTITUTE, AGREE NOT TO SUE, OR DEAL WITH ANY ONE OR MORE OF BORROWER'S
SURETIES, ENDORSERS, OR OTHER GUARANTORS ON ANY TERMS OR IN ANY MANNER LENDER
MAY CHOOSE; (E) TO DETERMINE HOW, WHEN AND WHAT APPLICATION OF PAYMENTS AND
CREDITS SHALL BE MADE ON THE INDEBTEDNESS; (F) TO APPLY SUCH SECURITY AND DIRECT
THE ORDER OR MANNER OF SALE THEREOF, INCLUDING WITHOUT LIMITATION, ANY
NONJUDICIAL SALE PERMITTED BY THE TERMS OF THE CONTROLLING SECURITY AGREEMENT OR
DEED OF TRUST, AS LENDER IN ITS DISCRETION MAY DETERMINE; (G) TO SELL, TRANSFER,
ASSIGN, OR GRANT PARTICIPATIONS IN ALL OR ANY PART OF THE INDEBTEDNESS; AND (H)
TO ASSIGN OR TRANSFER THIS GUARANTY IN WHOLE OR IN PART.
GUARANTOR'S REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants to
Lender that (a) no representations or agreements of any kind have been made to
Guarantor which would limit or qualify in any way the terms of this Guaranty;
(b) this Guaranty is executed at Borrower's request and not at the request of
Lender; (c) Guarantor has full power, right and authority to enter into this
Guaranty; (d) the provisions of this Guaranty do not conflict with or result in
a default under any agreement or other instrument binding upon Guarantor and do
not result in a violation of any law, regulation, court decree or order
applicable to Guarantor; (e) Guarantor has not and will not, without the prior
written consent of Lender, sell, lease, assign, encumber, hypothecate, transfer,
or otherwise dispose of all or substantially all of Guarantor's assets, or any
interest therein; (f) upon Lender's request, Guarantor will provide to Lender
financial and credit information in form acceptable to Lender, and all such
financial information which currently has been, and all future financial
information which will be provided to Lender is and will be true and correct in
all material respects and fairly present the financial condition of Guarantor as
of the dates the financial information is provided; (g) no material adverse
change has occurred in Guarantor's financial condition since the dale of the
most recent financial statements provided to Lender and no event has occurred
which may materially adversely affect Guarantor's financial condition; (h) no
litigation, claim, investigation, administrative proceeding or similar action
(including those for unpaid taxes) against Guarantor is pending or threatened;
(i) Lender has made no representation to Guarantor as to the creditworthiness of
Borrower; and (j) Guarantor has established adequate means of obtaining from
Borrower on a continuing basis information regarding Borrower's financial
condition. Guarantor agrees to keep adequately informed from such means of any
facts, events, or circumstances which might in any way affect Guarantor's risks
under this Guaranty, and Guarantor further agrees that, absent a request for
information, Lender shall have no obligation to disclose to Guarantor any
information or documents acquired by Lender in the course of its relationship
with Borrower.
GUARANTOR'S WAIVERS. Except as prohibited by applicable law, Guarantor waives
any right to require Lender (a) to continue lending money or to extend other
credit to Borrower; (b) to make any presentment, protest, demand, or notice of
any kind, including notice of any nonpayment of the Indebtedness or of any
nonpayment related to any collateral, or notice of any action or nonaction on
the part of Borrower, Lender, any surety, endorser, or other guarantor in
connection with the Indebtedness or in connection with the creation of new or
additional loans or obligations; (c) to resort for payment or to proceed
directly or at once against any person, including Borrower or any other
guarantor; (d) to proceed directly against or exhaust any collateral held by
Lender from Borrower, any other guarantor, or any other person; (e) to give
notice of the terms, time, and place of any public or private sale of personal
property security held by Lender from Borrower or to comply with any other
applicable provisions of the Uniform Commercial Code; (f) to pursue any other
remedy within Lender's power; or (g) to commit any act or omission of any kind,
or at any time, with respect to any matter whatsoever.
If now or hereafter (a) Borrower shall be or become insolvent, and (b) the
Indebtedness shall not at all times until paid be fully secured by collateral
<PAGE>
12-31-1996 COMMERCIAL GUARANTY PAGE 2
LOAN NO R-I001185 (CONTINUED)
================================================================================
pledged by Borrower, Guarantor hereby forever waives and relinquishes in favor
of Lender and Borrower, and their respective successors, any claim or right to
payment Guarantor may now have or hereafter have or acquire against Borrower, by
subrogation or otherwise, so that at no time shall Guarantor be or become a
"creditor" of Borrower within the meaning of 11 U.S.C. section 547(b), or any
successor provision of the Federal bankruptcy laws.
Guarantor also waives any and all rights or defenses arising by reason of (a)
any "one action" or "anti-deficiency" law or any other law which may prevent
Lender from bringing any action, including a claim for deficiency, against
Guarantor, before or after Lender's commencement or completion of any
foreclosure action, either judicially or by exercise of a power of sale; (b) any
election of remedies by Lender which destroys or otherwise adversely affects
Guarantor's subrogation rights or Guarantor's rights to proceed against Borrower
for reimbursement, including without limitation, any loss of rights Guarantor
may suffer by reason of any law limiting, qualifying, or discharging the
Indebtedness; (c) any disability or other defense of Borrower, of any other
guarantor, or of any other person, or by reason of the cessation of Borrower's
liability from any cause whatsoever, other than payment in full in legal tender,
of the Indebtedness; (d) any right to claim discharge of the Indebtedness on the
basis of unjustified impairment of any collateral for the Indebtedness; (e) any
statute of limitations, if at any time any action or suit brought by Lender
against Guarantor is commenced there is outstanding Indebtedness of Borrower to
Lender which is not barred by any applicable statute of limitations, or (f) any
defenses given to guarantors at law or in equity other than actual payment and
performance of the Indebtedness. If payment is made by Borrower, whether
voluntarily or otherwise, or by any third party, on the Indebtedness and
thereafter Lender is forced to remit the amount of that payment to Borrower's
trustee in bankruptcy or to any similar person under any federal or state
bankruptcy law or law for the relief of debtors, the Indebtedness shall be
considered unpaid for the purpose of enforcement of this Guaranty.
Guarantor further waives and agrees not to assert or claim at any time any
deductions to the amount guaranteed under this Guaranty for any claim of setoff,
counterclaim, counter demand, recoupment or similar right, whether such claim,
demand or right may be asserted by the Borrower, the Guarantor, or both.
GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS. Guarantor warrants and agrees
that each of the waivers set forth above is made with Guarantor's full knowledge
of its significance and consequences and that, under the circumstances, the
waivers are reasonable and not contrary to public policy or law. If any such
waiver is determined to be contrary to any applicable law or public policy, such
waiver shall be effective only to the extent permitted by law or public policy.
LENDER'S RIGHT OF SETOFF. In addition to all liens upon and rights of setoff
against the moneys, securities or other property of Guarantor given to Lender by
law, Lender shall have, with respect to Guarantor's obligations to Lender under
this Guaranty and to the extent permitted by law, a contractual possessory
security interest in and a right of setoff against, and Guarantor hereby
assigns, conveys, delivers, pledges, and transfers to Lender all of Guarantor's
right, title and interest in and to, all deposits, moneys, securities and other
property of Guarantor now or hereafter in the possession of or on deposit with
Lender, whether held in a general or special account or deposit, whether held
jointly with someone else, or whether held for safekeeping or otherwise,
excluding however all IRA, Keogh, and trust accounts. Every such security
interest and right of setoff may be exercised without demand upon or notice to
Guarantor. No security interest or right of setoff shall be deemed to have been
waived by any act or conduct on the part of Lender or by any neglect to exercise
such right of setoff or to enforce such security interest or by any delay in so
doing. Every right of setoff and security interest shall continue in full force
and effect until such right of setoff or security interest is specifically
waived or released by an instrument in writing executed by Lender.
SUBORDINATION OF BORROWER'S DEBTS TO GUARANTOR. Guarantor agrees that the
Indebtedness of Borrower to Lender, whether now existing or hereafter created,
shall be prior to any claim that Guarantor may now have or hereafter acquire
against Borrower, whether or not Borrower becomes insolvent. Guarantor hereby
expressly subordinates any claim Guarantor may have against Borrower, upon any
account whatsoever, to any claim that Lender may now or hereafter have against
Borrower. In the event of insolvency and consequent liquidation of the assets of
Borrower, through bankruptcy, by an assignment for the benefit of creditors, by
voluntary liquidation, or otherwise, the assets of Borrower applicable to the
payment of the claims of both Lender and Guarantor shall be paid to Lender and
shall be first applied by Lender to the Indebtedness of Borrower to Lender.
Guarantor does hereby assign to Lender all claims which it may have or acquire
against Borrower or against any assignee or trustee in bankruptcy of Borrower;
provided however, that such assignment shall be effective only for the purpose
of assuring to Lender full payment in legal tender of the Indebtedness. If
Lender so requests, any notes or credit agreements now or hereafter evidencing
any debts or obligations of Borrower to Guarantor shall be marked with a legend
that the same are subject to this Guaranty and shall be delivered to Lender.
Guarantor agrees, and Lender hereby is authorized, in the name of Guarantor,
from time to time to execute and file financing statements and continuation
statements and to execute such other documents and to take such other actions as
Lender deems necessary or appropriate to perfect, preserve and enforce its
rights under this Guaranty.
CONFESSION OF JUDGMENT. Guarantor hereby irrevocably authorizes and empowers any
attorney-at-law, including an attorney hired by Lender, to appear in any court
of record and to confess judgment against Guarantor for the unpaid amount of
this Guaranty as evidenced by an affidavit signed by an officer of Lender
setting forth the amount then due, plus attorneys' fees as provided in this
Guaranty, plus costs of suit, and to release all errors, and waive all rights of
appeal. If a copy of this Guaranty, verified by an affidavit, shall have been
filed in the proceeding, it will not be necessary to file the original as a
warrant of attorney. Guarantor waives the right to any stay of execution and
the benefit of all exemption laws now or hereafter in effect. No single exercise
of the foregoing warrant and power to confess judgment will be deemed to exhaust
the power, whether or not any such exercise shall be held by any court to be
invalid, voidable, or void; but the power will continue undiminished and may be
exercised from time to time as Lender may elect until all amounts owing on this
Guaranty have been paid in full. Guarantor waives any conflict of interest that
an attorney hired by Lender may have in acting on behalf of Guarantor in
confessing judgment against Guarantor while such attorney is retained by Lender.
Guarantor expressly consents to such attorney acting for Guarantor in confessing
judgment.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Guaranty:
AMENDMENTS. This Guaranty, together with any Related Documents, constitutes
the entire understanding and agreement of the parties as to the matters set
forth in this Guaranty. No alteration of or amendment to this Guaranty
shall be effective unless given in writing and signed by the party or
parties sought to be charged or bound by the alteration or amendment.
APPLICABLE LAW. This Guaranty has been delivered to Lender and accepted by
Lender in the State of Ohio. If there is a lawsuit, Guarantor agrees upon
Lender's request to submit to the jurisdiction of the courts of STARK
County, State of Ohio. Lender and Guarantor hereby waive the right to any
jury trial in any action, proceeding, or counterclaim brought by either
Lender or Guarantor against the other. This Guaranty shall be governed by
and construed in accordance with the laws of the State of Ohio.
ATTORNEYS' FEES; EXPENSES. Guarantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lender's legal
expenses, incurred in connection with the enforcement of this Guaranty.
Lender may pay someone else to help enforce this Guaranty, and Guarantor
shall pay the costs and expenses of such enforcement. Costs and expenses
include Lender's attorneys' fees and legal expenses whether or not there is
a lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection
services. Guarantor also shall pay all court costs and such additional fees
as may be directed by the court.
NOTICES. All notices required to be given by either party to the other
under this Guaranty shall be in writing, may be sent by telefacsimile, and
shall be effective when actually delivered or when deposited with a
nationally recognized overnight courier, or when deposited in the United
States mail, first class postage prepaid, addressed to the party to whom
the notice is to be given at the address shown above or to such other
addresses as either party may designate to the other in writing. If there
is more than one Guarantor, notice to any Guarantor will constitute notice
to all Guarantors. For notice purposes, Guarantor agrees to keep Lender
informed at all times of Guarantor's current address.
INTERPRETATION. In all cases where there is more than one Borrower or
Guarantor, then all words used in this Guaranty in the singular shall be
deemed to have been used in the plural where the context and construction
so require; and where there is more than one Borrower named in this
Guaranty or when this Guaranty is executed by more than one Guarantor, the
words "Borrower" and "Guarantor" respectively shall mean all and any one or
more of them. The words "Guarantor", "Borrower," and "Lender" include the
heirs, successors, assigns, and transferees of each of them. Caption
headings in this Guaranty are for convenience purposes only and are not to
be used to interpret or define the provisions of this Guaranty. If a court
of competent jurisdiction finds any provision of this Guaranty to be
invalid or unenforceable as to any person or circumstance, such finding
shall not render that provision invalid or unenforceable as to any other
persons or circumstances, and all provisions of this Guaranty in all other
respects shall remain valid and enforceable. If any one or more of Borrower
or Guarantor are corporations or partnerships, it is not necessary for
Lender to inquire into the powers of Borrower or Guarantor or of the
officers, directors, partners, or agents acting or purporting to act on
their behalf, and any Indebtedness made or created in reliance upon the
professed exercise of such powers shall be guaranteed under this Guaranty.
<PAGE>
WAIVER. Lender shall not be deemed to have waived any rights under this
Guaranty unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender of
a provision of this Guaranty shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Guaranty. No prior waiver by Lender, nor any
course of dealing between Lender and Guarantor, shall constitute a waiver
of any of Lender's rights or of any of Guarantor's obligations as to any
future transactions. Whenever the consent of Lender is required under this
Guaranty, the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in the
sole discretion of Lender.
<PAGE>
12-31-1996 COMMERCIAL GUARANTY PAGE 3
Loan No R-I001185 (CONTINUED)
================================================================================
EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS
GUARANTY AND AGREES TO ITS TERMS. IN ADDITION, EACH GUARANTOR UNDERSTANDS THAT
THIS GUARANTY IS EFFECTIVE UPON GUARANTOR'S EXECUTION AND DELIVERY OF THIS
GUARANTY TO LENDER AND THAT THE GUARANTY WILL CONTINUE UNTIL TERMINATED IN THE
MANNER SET FORTH IN THE SECTION TITLED "DURATION OF GUARANTY." NO FORMAL
ACCEPTANCE BY LENDER IS NECESSARY TO MAKE THIS GUARANTY EFFECTIVE. THIS GUARANTY
IS DATED DECEMBER 31,1996.
GUARANTOR:
BY: /s/ WILLIAM L. MILLER
---------------------------------
WILLIAM L. MILLER, PRESIDENT
BY: /s/ JEANNE E. MILLER
---------------------------------
JEANNE E. MILLER, VICE PRESIDENT
SIGNED, ACKNOWLEDGED DELIVERED IN THE PRESENCE OF:
X -----------------------------------
WITNESS
X -----------------------------------
WITNESS
================================================================================
<PAGE>
COMMERCIAL GUARANTY
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
1465 LED
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
<TABLE>
<S> <C> <C>
BORROWER: KIDS STUFF, INC. (TIN: 34-1843520) LENDER: UNITED NATIONAL BANK & TRUST CO.
7245 WHIPPLE AVE. N.W. P.O. BOX 24190
NORTH CANTON, OH 44720 220 MARKET AVENUE SOUTH
CANTON, OH 44702
GUARANTY: E.A. CAREY OF OHIO, INC.
7245 WHIPPLE AVE., N.W.
NORTH CANTON, OH 44720
</TABLE>
================================================================================
AMOUNT OF GUARANTY. THE AMOUNT OF THIS GUARANTY IS EIGHT HUNDRED THOUSAND &
00/100 DOLLARS ($800,000.00).
GUARANTY. FOR GOOD AND VALUABLE CONSIDERATION, E.A. CAREY OF OHIO, INC.
("GUARANTOR") ABSOLUTELY AND UNCONDITIONALLY GUARANTEES AND PROMISES TO PAY TO
UNITED NATIONAL BANK & TRUST CO. ("LENDER") OR ITS ORDER, ON DEMAND, IN LEGAL
TENDER OF THE UNITED STATES OF AMERICA, THE INDEBTEDNESS (AS THAT TERM IS
DEFINED BELOW) OF KIDS STUFF, INC. ("BORROWER") TO LENDER ON THE TERMS AND
CONDITIONS SET FORTH IN THIS GUARANTY.
DEFINITIONS. The following words shall have the following meanings when used in
this Guaranty:
BORROWER. The word "Borrower" means Kids Stuff, Inc.
GUARANTOR. The word "Guarantor" means E. A. Carey of Ohio, Inc.
GUARANTY. The word "Guaranty" means this Guaranty made by Guarantor for the
benefit of Lender dated December 31, 1996.
INDEBTEDNESS. The word "Indebtedness" means the Note, including (a) all
principal, (b) all interest, (c) all late charges, (d) all loan fees and
loan charges, and (e) all collection costs and expenses relating to the
Note or to any collateral for the Note. Collection costs and expenses
include without limitation all of Lender's attorneys' fees and Lender's
legal expenses, whether or not suit is instituted, and attorneys' fees and
legal expenses for bankruptcy proceedings (including efforts to modify or
vacate any automatic stay or injunction), appeals, and any anticipated
post-judgment collection services.
Lender. The word "Lender" means UNITED NATIONAL BANK & TRUST CO., its
successors and assigns.
Note. The word "Note" means the promissory note or credit agreement dated
December 31, 1996, IN THE ORIGINAL PRINCIPAL AMOUNT of $800,000.00 from
Borrower to Lender, together with all renewals of, extensions of,
modifications of, refinancings of, consolidations of, and substitutions for
the promissory note or agreement. NOTICE TO GUARANTOR: THE NOTE EVIDENCES A
REVOLVING LINE OF CREDIT FROM LENDER TO BORROWER.
RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Indebtedness.
MAXIMUM LIABILITY. THE MAXIMUM LIABILITY OF GUARANTOR UNDER THIS GUARANTY SHALL
NOT EXCEED AT ANY ONE TIME $800,000.00 PLUS ALL COSTS AND EXPENSES OF (A)
ENFORCEMENT OF THIS GUARANTY AND (B) COLLECTION AND SALE OF ANY COLLATERAL
SECURING THIS GUARANTY.
The above limitation on liability is not a restriction on the amount of the
Indebtedness of Borrower to Lender either in the aggregate or at any one time.
If Lender presently holds one or more guaranties, or hereafter receives
additional guaranties from Guarantor, the rights of Lender under all guaranties
shall be cumulative. This Guaranty shall not (unless specifically provided below
to the contrary) affect or invalidate any such other guaranties. The liability
of Guarantor will be the aggregate liability of Guarantor under the terms of
this Guaranty and any such other unterminated guaranties.
NATURE OF GUARANTY. Guarantor intends to guarantee at all times the performance
and prompt payment when due, whether at maturity or earlier by reason of
acceleration or otherwise, of all Indebtedness within the limits set forth in
the preceding section of this Guaranty. THIS GUARANTY COVERS A REVOLVING LINE OF
CREDIT AND GUARANTOR UNDERSTANDS AND AGREES THAT THIS GUARANTEE SHALL BE OPEN
AND CONTINUOUS UNTIL THE LINE OF CREDIT IS TERMINATED AND THE INDEBTEDNESS IS
PAID IN FULL, AS PROVIDED BELOW.
DURATION OF GUARANTY. This Guaranty will take effect when received by Lender
without the necessity of any acceptance by Lender, or any notice to Guarantor or
to Borrower, and will continue in full force until all Indebtedness shall have
been fully and finally paid and satisfied and all other obligations of Guarantor
under this Guaranty shall have been performed in full. Release of any other
guarantor or termination of any other guaranty of the Indebtedness shall not
affect the liability of Guarantor under this Guaranty. A revocation received by
Lender from any one or more Guarantors shall not affect the liability of any
remaining Guarantors under this Guaranty. THIS GUARANTY COVERS A REVOLVING LINE
OF CREDIT AND IT IS SPECIFICALLY ANTICIPATED THAT FLUCTUATIONS WILL OCCUR IN THE
AGGREGATE AMOUNT OF INDEBTEDNESS OWING FROM BORROWER TO LENDER. GRANTOR
SPECIFICALLY ACKNOWLEDGES AND AGREES THAT FLUCTUATION IN THE AMOUNT OF
INDEBTEDNESS, EVEN TO ZERO DOLLARS ($ 0.00), SHALL NOT CONSTITUTE A TERMINATION
OF THIS GUARANTY. GUARANTOR'S LIABILITY UNDER THIS GUARANTY SHALL TERMINATE ONLY
UPON (A) TERMINATION IN WRITING BY BORROWER AND LENDER OF THE LINE OF CREDIT,
(B) PAYMENT OF THE INDEBTEDNESS IN FULL IN LEGAL TENDER, AND (C) PAYMENT IN FULL
IN LEGAL TENDER OF ALL OTHER OBLIGATIONS OF GUARANTOR UNDER THIS GUARANTY.
GUARANTOR'S AUTHORIZATION TO LENDER. Guarantor authorizes Lender, WITHOUT NOTICE
OR DEMAND AND WITHOUT LESSENING GUARANTOR'S LIABILITY UNDER THIS GUARANTY, FROM
TIME TO TIME: (A) TO MAKE ONE OR MORE ADDITIONAL SECURED OR UNSECURED LOANS TO
BORROWER, TO LEASE EQUIPMENT OR OTHER GOODS TO BORROWER, OR OTHERWISE TO EXTEND
ADDITIONAL CREDIT TO BORROWER; (B) TO ALTER, COMPROMISE, RENEW, EXTEND,
ACCELERATE, OR OTHERWISE CHANGE ONE OR MORE TIMES THE TIME FOR PAYMENT OR OTHER
TERMS OF THE INDEBTEDNESS OR ANY PART OF THE INDEBTEDNESS, INCLUDING INCREASES
AND DECREASES OF THE RATE OF INTEREST ON THE INDEBTEDNESS, EXTENSIONS MAY BE
REPEATED AND MAY BE FOR LONGER THAN THE ORIGINAL LOAN TERM; (C) TO TAKE AND HOLD
SECURITY FOR THE PAYMENT OF THIS GUARANTY OR THE INDEBTEDNESS, AND EXCHANGE,
ENFORCE, WAIVE, SUBORDINATE, FAIL OR DECIDE NOT TO PERFECT, AND RELEASE ANY SUCH
SECURITY, WITH OR WITHOUT THE SUBSTITUTION OF NEW COLLATERAL; (D) TO RELEASE,
SUBSTITUTE, AGREE NOT TO SUE, OR DEAL WITH ANY ONE OR MORE OF BORROWER'S
SURETIES, ENDORSERS, OR OTHER GUARANTORS ON ANY TERMS OR IN ANY MANNER LENDER
MAY CHOOSE; (E) TO DETERMINE HOW, WHEN AND WHAT APPLICATION OF PAYMENTS AND
CREDITS SHALL BE MADE ON THE INDEBTEDNESS; (F) TO APPLY SUCH SECURITY AND DIRECT
THE ORDER OR MANNER OF SALE THEREOF, INCLUDING WITHOUT LIMITATION, ANY
NONJUDICIAL SALE PERMITTED BY THE TERMS OF THE CONTROLLING SECURITY AGREEMENT OR
DEED OF TRUST, AS LENDER IN ITS DISCRETION MAY DETERMINE; (G) TO SELL, TRANSFER,
ASSIGN, OR GRANT PARTICIPATIONS IN ALL OR ANY PART OF THE INDEBTEDNESS; AND (H)
TO ASSIGN OR TRANSFER THIS GUARANTY IN WHOLE OR IN PART.
GUARANTOR'S REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants to
Lender that (a) no representations or agreements of any kind have been made to
Guarantor which would limit or qualify in any way the terms of this Guaranty;
(b) this Guaranty is executed at Borrower's request and not at the request of
Lender; (c) Guarantor has full power, right and authority to enter into this
Guaranty; (d) the provisions of
<PAGE>
12-31-1996 COMMERCIAL GUARANTY Page 2
Loan No R-I001185 (Continued)
================================================================================
this Guaranty do not conflict with or result in a default under any agreement or
other instrument binding upon Guarantor and do not result in a violation of any
law, regulation, court decree or order applicable to Guarantor; (e) Guarantor
has not and will not, without the prior written consent of Lender, sell, lease,
assign, encumber, hypothecate, transfer, or otherwise dispose of all or
substantially all of Guarantor's assets, or any interest therein, (f) upon
Lender's request, Guarantor will provide to Lender financial and credit
information in form acceptable to Lender, and all such financial information
which currently has been, and all future financial information which will be
provided to Lender is and will be true and correct in all material respects and
fairly present the financial condition of Guarantor as of the dates the
financial information is provided; (g) no material adverse change has occurred
in Guarantor's financial condition since the date of the most recent financial
statements provided to Lender and no event has occurred which may materially
adversely affect Guarantor's financial condition; (h) no litigation, claim,
investigation, administrative proceeding or similar action (including those for
unpaid taxes) against Guarantor is pending or threatened; (i) Lender has made no
representation to Guarantor as to the creditworthiness of Borrower; and (j)
Guarantor has established adequate means of obtaining from Borrower on a
continuing basis information regarding Borrower's financial condition. Guarantor
agrees to keep adequately informed from such means of any facts, events, or
circumstances which might in any way affect Guarantor's risks under this
Guaranty, and Guarantor further agrees that, absent a request for information,
Lender shall have no obligation to disclose to Guarantor any information or
documents acquired by Lender in the course of its relationship with Borrower.
GUARANTOR'S WAIVERS, Except as prohibited by applicable law, Guarantor waives
any right to require Lender (a) to continue lending money or to extend other
credit to Borrower; (b) to make any presentment, protest, demand, or notice of
any kind, including notice of any nonpayment of the Indebtedness or of any
nonpayment related to any collateral, or notice of any action or nonaction on
the part of Borrower, Lender, any surety, endorser or other guarantor in
connection with the Indebtedness or in connection with the creation of new or
additional loans or obligations; (c) to resort for payment or to proceed
directly or at once against any person, including Borrower or any other
guarantor; (d) to proceed directly against or exhaust any collateral held by
Lender from Borrower, any other guarantor, or any other person; (e) to give
notice of the terms, time, and place of any public or private sale of personal
property security held by Lender from Borrower or to comply with any other
applicable provisions of the Uniform Commercial Code; (f) to pursue any other
remedy within Lender's power; or (g) to commit any act or omission of any kind,
or at any time, with respect to any matter whatsoever.
If now or hereafter (a) Borrower shall be or become insolvent, and (b) the
Indebtedness shall not at all times until paid be fully secured by collateral
pledged by Borrower, Guarantor hereby forever waives and relinquishes in favor
of Lender and Borrower, and their respective successors, any claim or right to
payment Guarantor may now have or hereafter have or acquire against Borrower, by
subrogation or otherwise, so that at no time shall Guarantor be or become a
"creditor" of Borrower within the meaning of 11 U.S.C. section 547(b), or any
successor provision of the Federal bankruptcy laws.
Guarantor also waives any and all rights or defenses arising by reason of (a)
any "one action" or "anti-deficiency" law or any other law which may prevent
Lender from bringing any action, including a claim for deficiency, against
Guarantor, before or after Lender's commencement or completion of any
foreclosure action, either judicially or by exercise of a power of sale; (b) any
election of remedies by Lender which destroys or otherwise adversely affects
Guarantor's subrogation rights or Guarantor's rights to proceed against Borrower
for reimbursement, including without limitation, any loss of rights Guarantor
may suffer by reason of any law limiting, qualifying, or discharging the
Indebtedness; (c) any disability or other defense of Borrower, of any other
guarantor, or of any other person, or by reason of the cessation of Borrower's
liability from any cause whatsoever, other than payment in full in legal tender,
of the Indebtedness; (d) any right to claim discharge of the Indebtedness on the
basis of unjustified impairment of any collateral for the Indebtedness; (e) any
statute of limitations, if at any time any action or suit brought by Lender
against Guarantor is commenced there is outstanding Indebtedness of Borrower to
Lender which is not barred by any applicable statute of limitations; or (f) any
defenses given to guarantors at law or in equity other than actual payment and
performance of the Indebtedness. If payment is made by Borrower, whether
voluntarily or otherwise, or by any third party, on the Indebtedness and
thereafter Lender is forced to remit the amount of that payment to Borrower's
trustee in bankruptcy or to any similar person under any federal or state
bankruptcy law or law for the relief of debtors, the Indebtedness shall be
considered unpaid for the purpose of enforcement of this Guaranty.
Guarantor further waives and agrees not to assert or claim at any time any
deductions to the amount guaranteed under this Guaranty for any claim of setoff,
counterclaim, counter demand, recoupment or similar right, whether such claim,
demand or right may be asserted by the Borrower, the Guarantor, or both.
GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS. Guarantor warrants and agrees
that each of the waivers set forth above is made with Guarantor's full knowledge
of its significance and consequences and that, under the circumstances, the
waivers are reasonable and not contrary to public policy or law. If any such
waiver is determined to be contrary to any applicable law or public policy, such
waiver shall be effective only to the extent permitted by law or public policy.
LENDER'S RIGHT OF SETOFF. In addition to all liens upon and rights of setoff
against the moneys, securities or other property of Guarantor given to Lender by
law, Lender shall have, with respect to Guarantor's obligations to Lender under
this Guaranty and to the extent permitted by law, a contractual possessory
security interest in and a right of setoff against, and Guarantor hereby
assigns, conveys, delivers, pledges, and transfers to Lender all of Guarantor's
right, title and interest in and to, all deposits, moneys, securities and other
property of Guarantor now or hereafter in the possession of or on deposit with
Lender, whether held in a general or special account or deposit, whether held
jointly with someone else, or whether held for safekeeping or otherwise,
excluding however all IRA, Keogh, and trust accounts. Every such security
interest and right of setoff may be exercised without demand upon or notice to
Guarantor. No security interest or right of setoff shall be deemed to have been
waived by any act or conduct on the part of Lender or by any neglect to exercise
such right of setoff or to enforce such security interest or by any delay in so
doing. Every right of setoff and security interest shall continue in full force
and effect until such right of setoff or security interest is specifically
waived or released by an instrument in writing executed by Lender.
SUBORDINATION OF BORROWER'S DEBTS TO GUARANTOR. Guarantor agrees that the
Indebtedness of Borrower to Lender, whether now existing or hereafter created,
shall be prior to any claim that Guarantor may now have or hereafter acquire
against Borrower, whether or not Borrower becomes insolvent. Guarantor hereby
expressly subordinates any claim Guarantor may have against Borrower, upon any
account whatsoever, to any claim that Lender may now or hereafter have against
Borrower. In the event of insolvency and consequent liquidation of the assets of
Borrower, through bankruptcy, by an assignment for the benefit of creditors, by
voluntary liquidation, or otherwise, the assets of Borrower applicable to the
payment of the claims of both Lender and Guarantor shall be paid to Lender and
shall be first applied by Lender to the Indebtedness of Borrower to Lender.
Guarantor does hereby assign to Lender all claims which it may have or acquire
against Borrower or against any assignee or trustee in bankruptcy of Borrower;
provided however, that such assignment shall be effective only for the purpose
of assuring to Lender full payment in legal tender of the Indebtedness. If
Lender so requests, any notes or credit agreements now or hereafter evidencing
any debts or obligations of Borrower to Guarantor shall be marked with a legend
that the same are subject to this Guaranty and shall be delivered to Lender.
Guarantor agrees, and Lender hereby is authorized, in the name of Guarantor,
from time to time to execute and file financing statements and continuation
statements and to execute such other documents and to take such other actions as
Lender deems necessary or appropriate to perfect, preserve and enforce its
rights under this Guaranty.
CONFESSION OF JUDGMENT. Guarantor hereby irrevocably authorizes and empowers any
attorney-at-law, including an attorney hired by Lender, to appear in any court
of record and to confess judgment against Guarantor for the unpaid amount of
this Guaranty as evidenced by an affidavit signed by an officer of Lender
setting forth the amount then due, plus attorneys' fees as provided in this
Guaranty, plus costs of suit, and to release all errors, and waive all rights of
appeal. If a copy of this Guaranty, verified by an affidavit, shall have been
filed in the proceeding, it will not be necessary to file the original as a
warrant of attorney. Guarantor waives the right to any stay of execution and the
benefit of all exemption laws now or hereafter in effect.
<PAGE>
12-31-1996 COMMERCIAL GUARANTY PAGE 3
LOAN NO R-I001185 (CONTINUED)
================================================================================
No single exercise of the foregoing warrant and power to confess judgment will
be deemed to exhaust the power, whether or not any such exercise shall be held
by any court to be invalid, voidable, or void; but the power will continue
undiminished and may be exercised from time to time as Lender may elect until
all amounts owing on this Guaranty have been paid in full. Guarantor waives any
conflict of interest that an attorney hired by Lender may have in acting on
behalf of Guarantor in confessing judgment against Guarantor while such attorney
is retained by Lender. Guarantor expressly consents to such attorney acting for
Guarantor in confessing judgment.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Guaranty:
AMENDMENTS. This Guaranty, together with any Related Documents, constitutes
the entire understanding and agreement of the parties as to the matters set
forth in this Guaranty. No alteration of or amendment to this Guaranty
shall be effective unless given in writing and signed by the party or
parties sought to be charged or bound by the alteration or amendment.
APPLICABLE LAW. This Guaranty has been delivered to Lender and accepted by
Lender in the State of Ohio. If there is a lawsuit, Guarantor agrees upon
Lender's request to submit to the jurisdiction of the courts of STARK
County, State of Ohio. Lender and Guarantor hereby waive the right to any
jury trial in any action, proceeding, or counterclaim brought by either
Lender or Guarantor against the other. This Guaranty shall be governed by
and construed in accordance with the laws of the State of Ohio.
ATTORNEYS' FEES; EXPENSES. Guarantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lender's legal
expenses, incurred in connection with the enforcement of this Guaranty.
Lender may pay someone else to help enforce this Guaranty, and Guarantor
shall pay the costs and expenses of such enforcement. Costs and expenses
include Lender's attorneys' fees and legal expenses whether or not there is
a lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection
services. Guarantor also shall pay all court costs and such additional fees
as may be directed by the court.
NOTICES. All notices required to be given by either party to the other
under this Guaranty shall be in writing, may be sent by telefacsimile, and
shall be effective when actually delivered or when deposited with a
nationally recognized overnight courier, or when deposited in the United
States mail, first class postage prepaid, addressed to the party to whom
the notice is to be given at the address shown above or to such other
addresses as either party may designate to the other in writing. If there
is more than one Guarantor, notice to any Guarantor will constitute notice
to all Guarantors. For notice purposes, Guarantor agrees to keep Lender
informed at all times of Guarantor's current address.
INTERPRETATION. In all cases where there is more than one Borrower or
Guarantor, then all words used in this Guaranty in the singular shall be
deemed to have been used in the plural where the context and construction
so require; and where there is more than one Borrower named in this
Guaranty or when this Guaranty is executed by more than one Guarantor, the
words "Borrower" and "Guarantor" respectively shall mean all and any one or
more of them. The words "Guarantor," "Borrower," and "Lender" include the
heirs, successors, assigns, and transferees of each of them. Caption
headings in this Guaranty are for convenience purposes only and are not to
be used to interpret or define the provisions of this Guaranty. If a court
of competent jurisdiction finds any provision of this Guaranty to be
invalid or unenforceable as to any person or circumstance, such finding
shall not render that provision invalid or unenforceable as to any other
persons or circumstances, and all provisions of this Guaranty in all other
respects shall remain valid and enforceable. If any one or more of Borrower
or Guarantor are corporations or partnerships, it is not necessary for
Lender to inquire into the powers of Borrower or Guarantor or of the
officers, directors, partners, or agents acting or purporting to act on
their behalf, and any Indebtedness made or created in reliance upon the
professed exercise of such powers shall be guaranteed under this Guaranty.
WAIVER. Lender shall not be deemed to have waived any rights under this
Guaranty unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender of
a provision of this Guaranty shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Guaranty. No prior waiver by Lender, nor any
course of dealing between Lender and Guarantor, shall constitute a waiver
of any of Lender's rights or of any of Guarantor's obligations as to any
future transactions. Whenever the consent of Lender is required under this
Guaranty, the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in the
sole discretion of Lender.
<PAGE>
EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS
GUARANTY AND AGREES TO ITS TERMS. IN ADDITION, EACH GUARANTOR UNDERSTANDS THAT
THIS GUARANTY IS EFFECTIVE UPON GUARANTOR'S EXECUTION AND DELIVERY OF THIS
GUARANTY TO LENDER AND THAT THE GUARANTY WILL CONTINUE UNTIL TERMINATED IN THE
MANNER SET FORTH IN THE SECTION TITLED "DURATION OF GUARANTY." NO FORMAL
ACCEPTANCE BY LENDER IS NECESSARY TO MAKE THIS GUARANTY EFFECTIVE. THIS GUARANTY
IS DATED DECEMBER 31, 1996.
NOTICE: FOR THIS NOTICE "YOU" MEANS THE, GUARANTOR AND "HIS" MEANS LENDER.
WARNING - BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
OR ANY OTHER CAUSE.
GUARANTOR:
E.A. CAREY OF OHIO, INC.
BY: /s/ WILLIAM L. MILLER BY: /s/ JEANNE E. MILLER
------------------------------- --------------------------------
WILLIAM L. MILLER, PRESIDENT JEANNE E. MILLER, VICE PRESIDENT
<PAGE>
COMMERCIAL GUARANTY
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
1465 LED
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
BORROWER: KIDS STUFF, INC. (TIN: 34-1843520) LENDER: UNITED NATIONAL BANK & TRUST CO.
7245 WHIPPLE AVE. N.W. P.O. BOX 24190
NORTH CANTON, OH 44720 220 MARKET AVENUE SOUTH
CANTON, OH 44702
GUARANTOR: WILLIAM L. MILLER
P.O. BOX 500
HARTVILLE, OH 44632-0500
</TABLE>
================================================================================
AMOUNT OF GUARANTY. THE AMOUNT OF THIS GUARANTY IS EIGHT HUNDRED THOUSAND &
00/100 DOLLARS ($800,000.00).
GUARANTY. FOR GOOD AND VALUABLE CONSIDERATION, WILLIAM L. MILLER ("GUARANTOR")
ABSOLUTELY AND UNCONDITIONALLY GUARANTEES AND PROMISES TO PAY TO UNITED NATIONAL
BANK & TRUST CO. ("LENDER") OR ITS ORDER, ON DEMAND, IN LEGAL TENDER OF THE
UNITED STATES OF AMERICA, THE INDEBTEDNESS (AS THAT TERM IS DEFINED BELOW) OF
KIDS STUFF, INC. ("BORROWER") TO LENDER ON THE TERMS AND CONDITIONS SET FORTH IN
THIS GUARANTY.
DEFINITIONS. The following words shall have the following meanings when used in
this Guaranty:
BORROWER. The word "Borrower" means Kids Stuff, Inc.
GUARANTOR. The word "Guarantor" means William L. Miller.
GUARANTY. The word "Guaranty" means this Guaranty made by Guarantor for the
benefit of Lender dated December 31, 1996.
INDEBTEDNESS. The word "Indebtedness" means the Note, including (a) all
principal, (b) all interest, (c) all late charges, (d) all loan fees and
loan charges, and (e) all collection costs and expenses relating to the
Note or to any collateral for the Note. Collection costs and expenses
include without limitation all of Lender's attorneys' fees and Lender's
legal expenses, whether or not suit is instituted, and attorneys' fees and
legal expenses for bankruptcy proceedings (including efforts to modify or
vacate any automatic stay or injunction), appeals, and any anticipated
post-judgment collection services.
LENDER. The word "Lender" means UNITED NATIONAL BANK & TRUST CO., its
successors and assigns.
NOTE. The word "Note" means the promissory note or credit agreement dated
December 31, 1996, IN THE ORIGINAL PRINCIPAL AMOUNT OF $800,000.00 from
Borrower to Lender, together with all renewals of, extensions of,
modifications of, refinancings of, consolidations of, and substitutions for
the promissory note or agreement. NOTICE TO GUARANTOR: THE NOTE EVIDENCES A
REVOLVING LINE OF CREDIT FROM LENDER TO BORROWER.
RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Indebtedness.
MAXIMUM LIABILITY. THE MAXIMUM LIABILITY OF GUARANTOR UNDER THIS GUARANTY SHALL
NOT EXCEED AT ANY ONE TIME $800,000.00 PLUS ALL COSTS AND EXPENSES OF (A)
ENFORCEMENT OF THIS GUARANTY AND (B) COLLECTION AND SALE OF ANY COLLATERAL
SECURING THIS GUARANTY.
The above limitation on liability is not a restriction on the amount of the
Indebtedness of Borrower to Lender either in the aggregate or at any one time.
If Lender presently holds one or more guaranties, or hereafter receives
additional guaranties from Guarantor, the rights of Lender under all guaranties
shall be cumulative. This Guaranty shall not (unless specifically provided below
to the contrary) affect or invalidate any such other guaranties. The liability
of Guarantor will be the aggregate liability of Guarantor under the terms of
this Guaranty and any such other unterminated guaranties.
NATURE OF GUARANTY. Guarantor intends to guarantee at all times the performance
and prompt payment when due, whether at maturity or earlier by reason of
acceleration or otherwise, of all Indebtedness within the limits set forth in
the preceding section of this Guaranty. THIS GUARANTY COVERS A REVOLVING LINE OF
CREDIT AND GUARANTOR UNDERSTANDS AND AGREES THAT THIS GUARANTEE SHALL BE OPEN
AND CONTINUOUS UNTIL THE LINE OF CREDIT IS TERMINATED AND THE INDEBTEDNESS IS
PAID IN FULL, AS PROVIDED BELOW.
<PAGE>
DURATION OF GUARANTY. This Guaranty will take effect when received by Lender
without the necessity of any acceptance by Lender, or any notice to Guarantor or
to Borrower, and will continue in full force until all Indebtedness shall have
been fully and finally paid and satisfied and all other obligations of Guarantor
under this Guaranty shall have been performed in full. Release of any other
guarantor or termination of any other guaranty of the Indebtedness shall not
affect the liability of Guarantor under this Guaranty. A revocation received by
Lender from any one or more Guarantors shall not affect the liability of any
remaining Guarantors under this Guaranty. THIS GUARANTY COVERS A REVOLVING LINE
OF CREDIT AND IT IS SPECIFICALLY ANTICIPATED THAT FLUCTUATIONS WILL OCCUR IN THE
AGGREGATE AMOUNT OF INDEBTEDNESS OWING FROM BORROWER TO LENDER. GRANTOR
SPECIFICALLY ACKNOWLEDGES AND AGREES THAT FLUCTUATIONS IN THE AMOUNT OF
INDEBTEDNESS, EVEN TO ZERO DOLLARS ($ 0.00), SHALL NOT CONSTITUTE A TERMINATION
OF THIS GUARANTY. GUARANTOR'S LIABILITY UNDER THIS GUARANTY SHALL TERMINATE ONLY
UPON (A) TERMINATION IN WRITING BY BORROWER AND LENDER OF THE LINE OF CREDIT,
(B) PAYMENT OF THE INDEBTEDNESS IN FULL IN LEGAL TENDER, AND (C) PAYMENT IN FULL
IN LEGAL TENDER OF ALL OTHER OBLIGATIONS OF GUARANTOR UNDER THIS GUARANTY.
GUARANTOR'S AUTHORIZATION TO LENDER. Guarantor authorizes Lender, WITHOUT NOTICE
OR DEMAND AND WITHOUT LESSENING GUARANTOR'S LIABILITY UNDER THIS GUARANTY, FROM
TIME TO TIME: (A) TO MAKE ONE OR MORE ADDITIONAL SECURED OR UNSECURED LOANS TO
BORROWER, TO LEASE EQUIPMENT OR OTHER GOODS TO BORROWER, OR OTHERWISE TO EXTEND
ADDITIONAL CREDIT TO BORROWER; (B) TO ALTER, COMPROMISE, RENEW, EXTEND,
ACCELERATE, OR OTHERWISE CHANGE ONE OR MORE TIMES THE TIME FOR PAYMENT OR OTHER
TERMS OF THE INDEBTEDNESS OR ANY PART OF THE INDEBTEDNESS, INCLUDING INCREASES
AND DECREASES OF THE RATE OF INTEREST ON THE INDEBTEDNESS; EXTENSIONS MAY BE
REPEATED AND MAY BE FOR LONGER THAN THE ORIGINAL LOAN TERM; (C) TO TAKE AND HOLD
SECURITY FOR THE PAYMENT OF THIS GUARANTY OR THE INDEBTEDNESS; AND EXCHANGE,
ENFORCE, WAIVE, SUBORDINATE, FAIL OR DECIDE NOT TO PERFECT, AND RELEASE ANY SUCH
SECURITY, WITH OR WITHOUT THE SUBSTITUTION OF NEW COLLATERAL; (D) TO RELEASE,
SUBSTITUTE, AGREE NOT TO SUE, OR DEAL WITH ANY ONE OR MORE OF BORROWER'S
SURETIES, ENDORSERS, OR OTHER GUARANTORS ON ANY TERMS OR IN ANY MANNER LENDER
MAY CHOOSE; (E) TO DETERMINE HOW, WHEN AND WHAT APPLICATION OF PAYMENTS AND
CREDITS SHALL BE MADE ON THE INDEBTEDNESS; (F) TO APPLY SUCH SECURITY AND DIRECT
THE ORDER OR MANNER OF SALE THEREOF, INCLUDING WITHOUT LIMITATION, ANY
NONJUDICIAL SALE PERMITTED BY THE TERMS OF THE CONTROLLING SECURITY AGREEMENT OR
DEED OF TRUST, AS LENDER IN ITS DISCRETION MAY DETERMINE; (G) TO SELL, TRANSFER,
ASSIGN, OR GRANT PARTICIPATIONS IN ALL OR ANY PART OF THE INDEBTEDNESS; AND (H)
TO ASSIGN OR TRANSFER THIS GUARANTY IN WHOLE OR IN PART.
GUARANTOR'S REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants to
Lender that (a) no representations or agreements of any kind have been made to
Guarantor which would limit or qualify in any way the terms of this Guaranty;
(b) this Guaranty is executed at Borrower's request and not at the request of
Lender; (c) Guarantor has full power, right and authority to enter into this
Guaranty; (d) the provisions of
<PAGE>
12-31-1996 COMMERCIAL GUARANTY PAGE 2
LOAN NO R-I001185 (CONTINUED)
================================================================================
this Guaranty do not conflict with or result in a default under any agreement or
other instrument binding upon Guarantor and do not result in a violation of any
law, regulation, court decree or order applicable to Guarantor; (e) Guarantor
has not and will not, without the prior written consent of Lender, sell, lease,
assign, encumber, hypothecate, transfer, or otherwise dispose of all or
substantially all of Guarantor's assets, or any interest therein; (f) upon
Lender's request, Guarantor will provide to Lender financial and credit
information in form acceptable to Lender, and all such financial information
which currently has been, and all future financial information which will be
provided to Lender is and will be true and correct in all material respects and
fairly present the financial condition of Guarantor as of the dates the
financial information is provided; (g) no material adverse change has occurred
in Guarantor's financial condition since the date of the most recent financial
statements provided to Lender and no event has occurred which may materially
adversely affect Guarantor's financial condition; (h) no litigation, claim,
investigation, administrative proceeding or similar action (including those for
unpaid taxes) against Guarantor is pending or threatened; (i) Lender has made no
representation to Guarantor as to the creditworthiness of Borrower; and (j)
Guarantor has established adequate means of obtaining from Borrower on a
continuing basis information regarding Borrower's financial condition. Guarantor
agrees to keep adequately informed from such means of any facts, events, or
circumstances which might in any way affect Guarantor's risks under this
Guaranty, and Guarantor further agrees that, absent a request for information,
Lender shall have no obligation to disclose to Guarantor any information or
documents acquired by Lender in the course of its relationship with Borrower.
GUARANTOR'S WAIVERS. Except as prohibited by applicable law, Guarantor waives
any right to require Lender (a) to continue lending money or to extend other
credit to Borrower; (b) to make any presentment, protest, demand, or notice of
any kind, including notice of any nonpayment of the Indebtedness or of any
nonpayment related to any collateral, or notice of any action or nonaction on
the part of Borrower, Lender, any surety, endorser, or other guarantor in
connection with the Indebtedness or in connection with the creation of new or
additional loans or obligations; (c) to resort for payment or to proceed
directly or at once against any person, including Borrower or any other
guarantor; (d) to proceed directly against or exhaust any collateral held by
Lender from Borrower, any other guarantor, or any other person; (e) to give
notice of the terms, time, and place of any public or private sale of personal
property security held by Lender from Borrower or to comply with any other
applicable provisions of the Uniform Commercial Code; (f) to pursue any other
remedy within Lender's power; or (g) to commit any act or omission of any kind,
or at any time, with respect to any matter whatsoever.
If now or hereafter (a) Borrower shall be or become insolvent, and (b) the
Indebtedness shall not at all times until paid be fully secured by collateral
pledged by Borrower, Guarantor hereby forever waives and relinquishes in favor
of Lender and Borrower, and their respective successors, any claim or right to
payment Guarantor may now have or hereafter have or acquire against Borrower, by
subrogation or otherwise, so that at no time shall Guarantor be or become a
"creditor" of Borrower within the meaning of 11 U.S.C. section 547(b), or any
successor provision of the Federal bankruptcy laws.
Guarantor also waives any and all rights or defenses arising by reason of (a)
any "one action" or "anti-deficiency" law or any other law which may prevent
Lender from bringing any action, including a claim for deficiency, against
Guarantor, before or after Lender's commencement or completion of any
foreclosure action, either judicially or by exercise of a power of sale, (b) any
election of remedies by Lender which destroys or otherwise adversely affects
Guarantor's subrogation rights or Guarantor's rights to proceed against Borrower
for reimbursement, including without limitation, any loss of rights Guarantor
may suffer by reason of any law limiting, qualifying, or discharging the
Indebtedness; (c) any disability or other defense of Borrower, of any other
guarantor, or of any other person, or by reason of the cessation of Borrower's
liability from any cause whatsoever, other than payment in full in legal tender,
of the Indebtedness; (d) any right to claim discharge of the Indebtedness on the
basis of unjustified impairment of any collateral for the Indebtedness; (e) any
statute of limitations, if at any time any action or suit brought by Lender
against Guarantor is commenced there is outstanding Indebtedness of Borrower to
Lender which is not barred by any applicable statute of limitations; or (f) any
defenses given to guarantors at law or in equity other than actual payment and
performance of the Indebtedness. If payment is made by Borrower, whether
voluntarily or otherwise, or by any third party, on the Indebtedness and
thereafter Lender is forced to remit the amount of that payment to Borrower's
trustee in bankruptcy or to any similar person under any federal or state
bankruptcy law or law for the relief of debtors, the Indebtedness shall be
considered unpaid for the purpose of enforcement of this Guaranty.
Guarantor further waives and agrees not to assert or claim at any time any
deductions to the amount guaranteed under this Guaranty for any claim of setoff,
counterclaim, counter demand, recoupment or similar right, whether such claim,
demand or right may be asserted by the Borrower, the Guarantor, or both.
<PAGE>
GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS. Guarantor warrants and agrees
that each of the waivers set forth above is made with Guarantor's full knowledge
of its significance and consequences and that, under the circumstances, the
waivers are reasonable and not contrary to public policy or law. If any such
waiver is determined to be contrary to any applicable law or public policy, such
waiver shall be effective only to the extent permitted by law or public policy.
LENDER'S RIGHT OF SETOFF. In addition to all liens upon and rights of setoff
against the moneys, securities or other property of Guarantor given to Lender by
law, Lender shall have, with respect to Guarantor's obligations to Lender under
this Guaranty and to the extent permitted by law, a contractual possessory
security interest in and a right of setoff against, and Guarantor hereby
assigns, conveys, delivers, pledges, and transfers to Lender all of Guarantor's
right, title and interest in and to, all deposits, moneys, securities and other
property of Guarantor now or hereafter in the possession of or on deposit with
Lender, whether held in a general or special account or deposit, whether held
jointly with someone else, or whether held for safekeeping or otherwise,
excluding however all IRA, Keogh, and trust accounts. Every such security
interest and right of setoff may be exercised without demand upon or notice to
Guarantor. No security interest or right of setoff shall be deemed to have been
waived by any act or conduct on the part of Lender or by any neglect to exercise
such right of setoff or to enforce such security interest or by any delay in so
doing. Every right of setoff and security interest shall continue in full force
and effect until such right of setoff or security interest is specifically
waived or released by an instrument in writing executed by Lender.
SUBORDINATION OF BORROWER'S DEBTS TO GUARANTOR. Guarantor agrees that the
Indebtedness of Borrower to Lender, whether now existing or hereafter created,
shall be prior to any claim that Guarantor may now have or hereafter acquire
against Borrower, whether or not Borrower becomes insolvent. Guarantor hereby
expressly subordinates any claim Guarantor may have against Borrower, upon any
account whatsoever, to any claim that Lender may now or hereafter have against
Borrower. In the event of insolvency and consequent liquidation of the assets of
Borrower, through bankruptcy, by an assignment for the benefit of creditors, by
voluntary liquidation, or otherwise, the assets of Borrower applicable to the
payment of the claims of both Lender and Guarantor shall be paid to Lender and
shall be first applied by Lender to the Indebtedness of Borrower to Lender.
Guarantor does hereby assign to Lender all claims which it may have or acquire
against Borrower or against any assignee or trustee in bankruptcy of Borrower;
provided however, that such assignment shall be effective only for the purpose
of assuring to Lender full payment in legal tender of the Indebtedness. If
Lender so requests, any notes or credit agreements now or hereafter evidencing
any debts or obligations of borrower to Guarantor shall be marked with a legend
that the same are subject to this Guaranty and shall be delivered to Lender.
Guarantor agrees, and Lender hereby is authorized, in the name of Guarantor,
from time to time to execute and file financing statements and continuation
statements and to execute such other documents and to take such other actions as
Lender deems necessary or appropriate to perfect, preserve and enforce its
rights under this Guaranty.
CONFESSION OF JUDGMENT. Guarantor hereby irrevocably authorizes and empowers any
attorney-at-law, including an attorney hired by Lender, to appear in any court
of record and to confess judgment against Guarantor for the unpaid amount of
this Guaranty as evidenced by an affidavit signed by an officer of Lender
setting forth the amount then due, plus attorneys' fees as provided in this
Guaranty, plus costs of suit, and to release all errors, and waive all rights of
appeal. If a copy of this Guaranty, verified by an affidavit, shall have been
filed in the proceeding, it will not be necessary to file the original as a
warrant of attorney. Guarantor waives the right to any stay of execution and the
benefit of all exemption laws now or hereafter in effect.
<PAGE>
12-31-1996 COMMERCIAL GUARANTY PAGE 3
LOAN NO R-I001185 (CONTINUED)
================================================================================
No single exercise of the foregoing warrant and power to confess judgment will
be deemed to exhaust the power, whether or not any such exercise shall be held
by any court to be invalid, voidable, or void; but the power will continue
undiminished and may be exercised from time to time as Lender may elect until
all amounts owing on this Guaranty have been paid in full. Guarantor waives any
conflict of interest that an attorney hired by Lender may have in acting on
behalf of Guarantor in confessing judgment against Guarantor while such attorney
is retained by Lender. Guarantor expressly consents to such attorney acting for
Guarantor in confessing judgment.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Guaranty:
AMENDMENTS. This Guaranty, together with any Related Documents, constitutes
the entire understanding and agreement of the parties as to the matters set
forth in this Guaranty. No alteration of or amendment to this Guaranty
shall be effective unless given in writing and signed by the party or
parties sought to be charged or bound by the alteration or amendment.
APPLICABLE LAW. This Guaranty has been delivered to Lender and accepted by
Lender in the State of Ohio. If there is a lawsuit, Guarantor agrees upon
Lender's request to submit to the jurisdiction of the courts of STARK
County, State of Ohio. Lender and Guarantor hereby waive the right to any
jury trial in any action, proceeding, or counterclaim brought by either
Lender or Guarantor against the other. This Guaranty shall be governed by
and construed in accordance with the laws of the State of Ohio.
ATTORNEYS' FEES; EXPENSES. Guarantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lender's legal
expenses incurred in connection with the enforcement of this Guaranty.
Lender may pay someone else to help enforce this Guaranty, and Guarantor
shall pay the costs and expenses of such enforcement. Costs and expenses
include Lender's attorneys' fees and legal expenses whether or not there is
a lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection
services. Guarantor also shall pay all court costs and such additional fees
as may be directed by the court.
NOTICES. All notices required to be given by either party to the other
under this Guaranty shall be in writing, may be sent by telefacsimile, and
shall be effective when actually delivered or when deposited with a
nationally recognized overnight courier, or when deposited in the United
States mail, first class postage prepaid, addressed to the party to whom
the notice is to be given at the address shown above or to such other
addresses as either party may designate to the other in writing. If there
is more than one Guarantor, notice to any Guarantor will constitute notice
to all Guarantors. For notice purposes, Guarantor agrees to keep Lender
informed at all times of Guarantor's current address.
INTERPRETATION. In all cases where there is more than one Borrower or
Guarantor, then all words used in this Guaranty in the singular shall be
deemed to have been used in the plural where the context and construction
so require; and where there is more than one Borrower named in this
Guaranty or when this Guaranty is executed by more than one Guarantor, the
words "Borrower" and "Guarantor" respectively shall mean all and any one or
more of them. The words "Guarantor," "Borrower," and "Lender" include the
heirs, successors, assigns, and transferees of each of them. Caption
headings in this Guaranty are for convenience purposes only and are not to
be used to interpret or define the provisions of this Guaranty. If a court
of competent jurisdiction finds any provision of this Guaranty to be
invalid or unenforceable as to any person or circumstance, such finding
shall not render that provision invalid or unenforceable as to any other
persons or circumstances, and all provisions of this Guaranty in all other
respects shall remain valid and enforceable. If any one or more of Borrower
or Guarantor are corporations or partnerships, it is not necessary for
Lender to inquire into the powers of Borrower or Guarantor or of the
officers, directors, partners, or agents acting or purporting to act on
their behalf, and any Indebtedness made or created in reliance upon the
professed exercise of such powers shall be guaranteed under this Guaranty.
<PAGE>
WAIVER. Lender shall not be deemed to have waived any rights under this
Guaranty unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender of
a provision of this Guaranty shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Guaranty. No prior waiver by Lender, nor any
course of dealing between Lender and Guarantor, shall constitute a waiver
of any of Lender's rights or of any of Guarantor's obligations as to any
future transactions. Whenever the consent of Lender is required under this
Guaranty, the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in the
sole discretion of Lender.
EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS
GUARANTY AND AGREES TO ITS TERMS. IN ADDITION, EACH GUARANTOR UNDERSTANDS THAT
THIS GUARANTY IS EFFECTIVE UPON GUARANTOR'S EXECUTION AND DELIVERY OF THIS
GUARANTY TO LENDER AND THAT THE GUARANTY WILL CONTINUE UNTIL TERMINATED IN THE
MANNER SET FORTH IN THE SECTION TITLED "DURATION OF GUARANTY." NO FORMAL
ACCEPTANCE BY LENDER IS NECESSARY TO MAKE THIS GUARANTY EFFECTIVE. THIS GUARANTY
IS DATED DECEMBER 31,1996.
NOTICE: FOR THIS NOTICE "YOU" MEANS THE GUARANTOR AND "HIS" MEANS LENDER.
WARNING - BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
OR ANY OTHER CAUSE.
GUARANTOR:
X /s/ WILLIAM L. MILLER
------------------------------
WILLIAM L. MILLER
<PAGE>
UNITED BANK
UNITED NATIONAL BANK & TRUST CO.
COMMERCIAL SECURITY AGREEMENT
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
$800,000,000 12-31-1996 R-I001185 1465 LED
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
BORROWER: KIDS STUFF, INC. (TIN: 34-1843520) LENDER: UNITED NATIONAL BANK & TRUST CO.
7245 WHIPPLE AVE. N.W. P.O. BOX 24190
NORTH CANTON, OH 44720 220 MARKET AVENUE SOUTH
CANTON, OH 44720
</TABLE>
================================================================================
THIS COMMERCIAL SECURITY AGREEMENT IS ENTERED INTO BETWEEN KIDS STUFF, INC.
(REFERRED TO BELOW AS "GRANTOR"); AND UNITED NATIONAL BANK & TRUST CO. (REFERRED
TO BELOW AS "LENDER"). FOR VALUABLE CONSIDERATION, GRANTOR GRANTS TO LENDER A
SECURITY INTEREST IN THE COLLATERAL TO SECURE THE INDEBTEDNESS AND AGREES THAT
LENDER SHALL HAVE THE RIGHTS STATED IN THIS AGREEMENT WITH RESPECT TO THE
COLLATERAL, IN ADDITION TO ALL OTHER RIGHTS WHICH LENDER MAY HAVE BY LAW.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All references
to dollar amounts shall mean amounts in lawful money of the United States of
America.
AGREEMENT. The word "Agreement" means this Commercial Security Agreement,
as this Commercial Security Agreement may be amended or modified from time
to time, together with all exhibits and schedules attached to this
Commercial Security Agreement from time to time.
COLLATERAL. The word "Collateral" means the following described property of
Grantor, whether now owned or hereafter acquired, whether now existing or
hereafter arising, and wherever located:
ALL INVENTORY, CHATTEL PAPER, ACCOUNTS, EQUIPMENT, GENERAL INTANGIBLES
AND FIXTURES, TOGETHER WITH THE FOLLOWING SPECIFICALLY DESCRIBED
PROPERTY: INCLUDING, BUT NOT LIMITED TO THE CUSTOMER MAILING LIST;
PATENTS, TRADEMARKS, COPYRIGHTS, INSURANCE PROCEEDS, LEASES AND MOTOR
VEHICLES NOW EXISTING OR HEREINAFTER ACQUIRED OR IN THE PROCEEDS
THEREOF
In addition, the word "Collateral" includes all the following, whether now
owned or hereafter acquired, whether now existing or hereafter arising, and
wherever located:
(a) All attachments, accessions, accessories, tools, parts, supplies,
increases, and additions to and all replacements of and substitutions
for any property described above.
(b) All products and produce of any of the property described in this
Collateral section.
(c) All accounts, general intangibles, instruments, rents, monies,
payments, and all other rights, arising out of a sale, lease, or other
disposition of any of the property described in this Collateral
section.
(d) All proceeds (including insurance proceeds) from the sale,
destruction, loss, or other disposition of any of the property
described in this Collateral section.
(e) All records and data relating to any of the property described in
this Collateral section, whether in The form of a writing, photograph,
microfilm, microfiche, or electronic media, together with all of
Grantor's right, title, and interest in and to all computer software
required to utilize, create, maintain, and process any such records or
data on electronic media.
<PAGE>
EVENT OF DEFAULT. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "Events of Default."
GRANTOR. The word "Grantor means Kids Stuff, Inc., its successors and
assigns
GUARANTOR. The word "Guarantor means and includes without limitation each
and all of the guarantors, sureties, and accommodation parties in
connection with the Indebtedness.
INDEBTEDNESS. The word "Indebtedness" means the indebtedness evidenced by
the Note, including all principal and interest, together with all other
indebtedness and costs and expenses for which Grantor is responsible under
this Agreement or under any of the Related Documents. In addition, the word
"Indebtedness" includes all other obligations, debts and liabilities, plus
interest thereon, of Grantor, or any one or more of them, to Lender, as
well as all claims by Lender against Grantor, or any one or more of them,
whether existing now or later; whether they are voluntary or involuntary,
due or not due, direct or indirect, absolute or contingent, liquidated or
unliquidated; whether Grantor may be liable individually or jointly with
others; whether Grantor may be obligated as guarantor, surely,
accommodation party or otherwise; whether recovery upon such indebtedness
may be or hereafter may become barred by any statute of limitations; and
whether such indebtedness may be or hereafter may become otherwise
unenforceable.
LENDER. The word "Lender" means UNITED NATIONAL BANK & TRUST CO., its
successors and assigns.
NOTE. The word "Note" means the note or credit agreement dated December 31,
1996, in the principal amount of $800,000.00 from Kids Stuff, Inc. to
Lender, together with all renewals of, extensions of, modifications of,
refinancings of, consolidations of and substitutions for the note or credit
agreement.
RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Indebtedness.
RIGHT OF SETOFF. Grantor hereby grants Lender a contractual possessory security
interest in and hereby assigns, conveys, delivers, pledges, and transfers all of
Grantor's right, title and interest in and to Grantor's accounts with Lender
(whether checking, savings, or some other account), including all accounts held
jointly with someone else and all accounts Grantor may open in The future,
excluding, however, all IRA and Keogh accounts, and all trust accounts for which
The grant of a security interest would be prohibited by law. Grantor authorizes
Lender, to the extent permitted by applicable law, to charge or setoff all
Indebtedness against any and all such accounts.
<PAGE>
OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender as follows:
ORGANIZATION. Grantor is a corporation which is duly organized, validly
existing, and in good standing under the laws of the State of Ohio. Grantor
has its chief executive office at 7245 Whipple Ave. N.W., North Canton, OH
44720. Grantor will notify Lender of any change in the location of
Grantor's chief executive office.
AUTHORIZATION. The execution, delivery, and performance of this Agreement
by Grantor have been duly authorized by all necessary action by Grantor and
do not conflict with, result in a violation of, or constitute a default
under (a) any provision of its articles of incorporation or organization,
or bylaws or code of regulations, or any agreement or other instrument
binding upon Grantor or (b) any law, governmental regulation, court decree,
or order applicable to Grantor.
PERFECTION OF SECURITY INTEREST. Grantor agrees to execute such financing
statements and to take whatever other actions are requested by Lender to
perfect and continue Lender's security interest in the Collateral. Upon
request of Lender, Grantor will deliver to Lender any and all of the
documents evidencing or constituting the Collateral, and Grantor will note
Lender's interest upon any and all chattel paper if not delivered to Lender
for possession by Lender. Grantor hereby appoints Lender as its irrevocable
attorney-in-fact for the purpose of executing any documents necessary to
perfect or to continue the security interest granted in this Agreement.
Lender may at any time, and without further authorization from Grantor,
file a carbon, photographic or other reproduction of any financing
statement or of this Agreement for use as a financing statement. Grantor
will reimburse Lender for all expenses for the perfection and the
continuation of the perfection of Lender's security interest in the
Collateral. Grantor promptly will notify Lender before any change in
Grantor's name including any change to the assumed business names of
Grantor. THIS IS A CONTINUING SECURITY AGREEMENT AND WILL CONTINUE IN
EFFECT EVEN THOUGH ALL OR ANY PART OF THE INDEBTEDNESS IS PAID IN FULL AND
EVEN THOUGH FOR A PERIOD OF TIME GRANTOR MAY NOT BE INDEBTED TO LENDER.
NO VIOLATION. The execution and delivery of this Agreement will not violate
any law or agreement governing Grantor or to which Grantor is a party, and
its certificate or articles of incorporation and bylaws or code of
regulations do not prohibit any term or condition of this Agreement.
ENFORCEABILITY OF COLLATERAL. To the extent the Collateral consists of
accounts, chattel paper, or general intangibles, the Collateral is
enforceable in accordance with its terms, is genuine, and complies with
applicable laws concerning form, content and manner of preparation and
execution, and all persons appearing to be obligated on the Collateral have
authority and capacity to contract and are in fact obligated as they appear
to be on the Collateral. At the time any account becomes subject to a
security interest in favor of Lender, the account shall be a good and valid
account representing an undisputed, bona fide indebtedness incurred by the
account debtor, for merchandise held subject to delivery
<PAGE>
12-31-1996 COMMERCIAL SECURITY AGREEMENT PAGE 2
LOAN NO R-I001185 (CONTINUED)
================================================================================
instructions or theretofore shipped or delivered pursuant to a contract of
sale, or for services theretofore performed by Grantor with or for the
account debtor; there shall be no setoffs or counterclaims against any such
account; and no agreement under which any deductions or discounts may be
claimed shall have been made with the account debtor except those disclosed
to Lender in writing.
LOCATION OF THE COLLATERAL. Grantor, upon request of Lender, will deliver
to Lender in form satisfactory to Lender a schedule of real properties and
Collateral locations relating to Grantor's operations, including without
limitation the following: (a) all real property owned or being purchased by
Grantor; (b) all real property being rented or leased by Grantor; (c) all
storage facilities owned, rented, leased, or being used by Grantor; and (d)
all other properties where Collateral is or may be located. Except in the
ordinary course of its business, Grantor shall not remove the Collateral
from its existing locations without the prior written consent of Lender.
REMOVAL OF COLLATERAL. Grantor shall keep the Collateral (or to the extent
the Collateral consists of intangible property such as accounts, the
records concerning the Collateral) at Grantor's address shown above, or at
such other locations as are acceptable to Lender. Except in the ordinary
course of its business, including the sales of inventory, Grantor shall not
remove the Collateral from its existing locations without the prior written
consent of Lender. To the extent that the Collateral consists of vehicles,
or other titled property, Grantor shall not take or permit any action which
would require application for certificates of title for the vehicles
outside the State of Ohio, without the prior written consent of Lender.
TRANSACTIONS INVOLVING COLLATERAL. Except for inventory sold or accounts
collected in the ordinary course of Grantor's business, Grantor shall not
sell, offer to sell, or otherwise transfer or dispose of the Collateral.
While Grantor is not in default under this Agreement, Grantor may sell
inventory, but only in the ordinary course of its business and only to
buyers who qualify as a buyer in the ordinary course of business. A sale in
the ordinary course of Grantor's business does not include a transfer in
partial or total satisfaction of a debt or any bulk sale. Grantor shall not
pledge, mortgage, encumber or otherwise permit the Collateral to be subject
to any lien, security interest, encumbrance, or charge, other than the
security interest provided for in this Agreement, without the prior written
consent of Lender. This includes security interests even if junior in right
to the security interests granted under this Agreement. Unless waived by
Lender, all proceeds from any disposition of the Collateral (for whatever
reason) shall be held in trust for Lender and shall not be commingled with
any other funds; provided however, this requirement shall not constitute
consent by Lender to any sale or other disposition. Upon receipt, Grantor
shall immediately deliver any such proceeds to Lender.
TITLE. Grantor represents and warrants to Lender that it holds good and
marketable title to the Collateral, free and clear of all liens and
encumbrances except for the lien of this Agreement. No financing statement
covering any of the Collateral is on file in any public office other than
those which reflect the security interest created by this Agreement or to
which Lender has specifically consented. Grantor shall defend Lender's
rights in the Collateral against the claims and demands of all other
persons.
COLLATERAL SCHEDULES AND LOCATIONS. As often as Lender shall require, and
insofar as the Collateral consists of accounts and general intangibles,
Grantor shall deliver to Lender schedules of such Collateral, including
such information as Lender may require, including without limitation names
and addresses of account debtors and agings of accounts and general
intangibles. Insofar as the Collateral consists of inventory and equipment,
Grantor shall deliver to Lender, as often as Lender shall require, such
lists, descriptions, and designations of such Collateral as Lender may
require to identify the nature, extent, and location of such Collateral.
Such information shall be submitted for Grantor and each of its
subsidiaries or related companies.
<PAGE>
MAINTENANCE AND INSPECTION OF COLLATERAL. Grantor shall maintain all
tangible Collateral in good condition and repair. Grantor will not commit
or permit damage to or destruction of the Collateral or any part of the
Collateral. Lender and its designated representatives and agents shall have
the right at all reasonable times to examine, inspect, and audit the
Collateral wherever located. Grantor shall immediately notify Lender of all
cases involving the return, rejection, repossession, loss or damage of or
to any Collateral; of any request for credit or adjustment or of any other
dispute arising with respect to the Collateral; and generally of all
happenings and events affecting the Collateral or the value or the amount
of the Collateral.
TAXES, ASSESSMENTS AND LIENS. Grantor will pay when due all taxes,
assessments and liens upon the Collateral, its use or operation, upon this
Agreement, upon any promissory note or notes evidencing the Indebtedness,
or upon any of the other Related Documents. Grantor may withhold any such
payment or may elect to contest any lien if Grantor is in good faith
conducting an appropriate proceeding to contest the obligation to pay and
so long as Lender's interest in the Collateral is not jeopardized in
Lender's sole opinion. If the Collateral is subjected to a lien which is
not discharged within fifteen (15) days, Grantor shall deposit with Lender
cash, a sufficient corporate surety bond or other security satisfactory to
Lender in an amount adequate to provide for the discharge of the lien plus
any interest, costs, attorneys' fees or other charges that could accrue as
a result of foreclosure or sale of the Collateral. In any contest Grantor
shall defend itself and Lender and shall satisfy any final adverse judgment
before enforcement against the Collateral. Grantor shall name Lender as an
additional obligee under any surety bond furnished in the contest
proceedings.
COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. Grantor shall comply promptly
with all laws, ordinances, rules and regulations of all governmental
authorities, now or hereafter in effect, applicable to the ownership,
production, disposition, or use of the Collateral. Grantor may contest in
good faith any such law, ordinance or regulation and withhold compliance
during any proceeding, including appropriate appeals, so long as Lender's
interest in the Collateral, in Lender's opinion, is not jeopardized.
HAZARDOUS SUBSTANCES. Grantor represents and warrants that the Collateral
never has been, and never will be so long as this Agreement remains a lien
on the Collateral, used for the generation, manufacture, storage,
transportation, treatment, disposal, release or threatened release of any
hazardous waste or substance, as those terms are defined in the
Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund
Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"),
the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et
seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901,
et seq., or other applicable state or Federal laws, rules, or regulations
adopted pursuant to any of the foregoing. The terms "hazardous waste" and
"hazardous substance" shall also include, without limitation, petroleum and
petroleum by-products or any fraction thereof and asbestos. The
representations and warranties contained herein are based on Grantor's due
diligence in investigating the Collateral for hazardous wastes and
substances. Grantor hereby (a) releases and waives any future claims
against Lender for indemnity or contribution in the event Grantor becomes
liable for cleanup or other costs under any such laws, and (b) agrees to
indemnify and hold harmless Lender against any and all claims and losses
resulting from a breach of this provision of this Agreement. This
obligation to indemnify shall survive the payment of the Indebtedness and
the satisfaction of this Agreement.
MAINTENANCE OF CASUALTY INSURANCE. Grantor shall procure and maintain all
risks insurance, including without limitation fire, theft and liability
coverage together with such other insurance as Lender may require with
respect to the Collateral, in form, amounts, coverages and basis reasonably
acceptable to Lender and issued by a company or companies reasonably
acceptable to Lender. Grantor, upon request of Lender, will deliver to
Lender from time to time the policies or certificates of insurance in form
satisfactory to Lender, including stipulations that coverages will not be
cancelled or diminished without at least ten (10) days' prior written
notice to Lender and not including any disclaimer of the insurer's
liability for failure to give such a notice. Each insurance policy also
shall include an endorsement providing that coverage in favor of Lender
will not be impaired in any way by any act, omission or default of Grantor
or any other person. In connection with all policies covering assets in
which Lender holds or is offered a security interest, Grantor will provide
Lender with such loss payable or other endorsements as Lender may require.
In no event shall the insurance be in an amount less than the amount agreed
upon in the Agreement to Provide Insurance. If Grantor at any time fails to
obtain or maintain any insurance as required under this Agreement, Lender
may (but shall not be obligated to) obtain such insurance as Lender deems
appropriate, including if it so chooses "single interest insurance," which
will cover only Lender's interest in the Collateral.
<PAGE>
APPLICATION OF INSURANCE PROCEEDS. Grantor shall promptly notify Lender of
any loss or damage to the Collateral. Lender may make proof of loss if
Grantor fails to do so within fifteen (15) days of the casualty. All
proceeds of any insurance on the Collateral, including accrued proceeds
thereon, shall be held by Lender as part of the Collateral. If Lender
consents to repair or replacement of the damaged or destroyed Collateral,
Lender shall, upon satisfactory proof of expenditure, pay or reimburse
Grantor from the proceeds for the reasonable cost of repair or restoration.
If Lender does not consent to repair or replacement of the Collateral,
Lender shall retain a sufficient amount of the proceeds to pay all of the
Indebtedness, and shall pay the balance to Grantor. Any proceeds which have
not been disbursed within six (6) months after their receipt and which
Grantor has not committed to the repair or restoration of the Collateral
shall be used to prepay the Indebtedness.
INSURANCE RESERVES. Lender may require Grantor to maintain with Lender
reserves for payment of insurance premiums, which reserves shall be created
by monthly payments from Grantor of a sum estimated by Lender to be
sufficient to produce, at least fifteen (15) days before the premium due
date, amounts at least equal to the insurance premiums to be paid. If
fifteen (15) days before payment is due, the reserve funds are
insufficient, Grantor shall upon demand pay any deficiency to Lender. The
reserve funds shall be held by Lender as a general deposit and shall
constitute a non-interest-bearing account which Lender may satisfy by
payment of the insurance premiums required to be paid by Grantor as they
become due. Lender does not hold the reserve funds in trust for Grantor,
and Lender is not the agent of Grantor for payment of the insurance
premiums required to be paid by Grantor. The responsibility for the payment
of premiums shall remain Grantor's sole responsibility.
INSURANCE REPORTS. Grantor, upon request of Lender, shall furnish to Lender
reports on each existing policy of insurance showing such information as
Lender may reasonably request including the following: (a) the name of the
insurer; (b) the risks insured; (c) the amount of the policy; (d) the
property insured; (e) the then current value on the basis of which
insurance has been obtained and the manner of determining that value; and
(f) the expiration date of the policy. In addition, Grantor shall upon
request by Lender (however not more often than annually) have an
independent appraiser satisfactory to Lender determine, as applicable, the
cash value or replacement cost of the Collateral.
GRANTOR'S RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS. Until default and except
as otherwise provided below with respect to accounts. Grantor may have
possession of the tangible personal property and beneficial use of all the
Collateral and may use it in any lawful manner
<PAGE>
12-31-1996 COMMERCIAL SECURITY AGREEMENT PAGE 3
LOAN NO R-I001185 (CONTINUED)
================================================================================
not inconsistent with this Agreement or the Related Documents, provided that
Grantor's right to possession and beneficial use shall not apply to any
Collateral where possession of the Collateral by Lender is required by law to
perfect Lender's security interest in such Collateral. Until otherwise noticed
by Lender, Grantor may collect any of the Collateral consisting of accounts. At
any time and even though no Event of Default exists, Lender may exercise its
rights to collect the accounts and to notify account debtors to make payments
directly to Lender for application to the indebtedness. If Lender at any time
has possession of any Collateral, whether before or after an Event of Default,
Lender shall be deemed to have exercised reasonable care in the custody and
preservation of the Collateral if Lender takes such action for that purpose as
Grantor shall request or as Lender, in Lender's sole discretion, shall deem
appropriate under the circumstances, but failure to honor any request by Grantor
shall not of itself be deemed to be a failure to exercise reasonable care.
Lender shall not be required to take any steps necessary to preserve any rights
in the Collateral against prior parties, nor to protect, preserve or maintain
any security interest given to secure the indebtedness.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, including without limitation
all taxes, liens, security interests, encumbrances, and other claims, at any
time levied or placed on the Collateral. Lender also may (but shall not be
obligated to) pay all costs for insuring, maintaining and preserving the
Collateral. All such expenditures incurred or paid by Lender for such purposes
will then bear interest at the rate charged under the Note from the date
incurred or paid by Lender to the date of repayment by Grantor. All such
expenses shall become a part of the Indebtedness and, at Lender's option, will
(a) be payable on demand, (b) be added to the balance of the Note and be
apportioned among and be payable with any installment payments to become due
during either (i) the term of any applicable insurance policy or (ii) the
remaining term of the Note, or (c) be treated as a balloon payment which will be
due and payable at the Note's maturity. This Agreement also will secure payment
of these amounts. Such right shall be in addition to all other rights and
remedies to which Lender may be entitled upon the occurrence of an Event of
Default.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
DEFAULT ON INDEBTEDNESS. Failure of Grantor to make any payment when due on
the Indebtedness.
OTHER DEFAULTS. Failure of Grantor to comply with or to perform any other
term, obligation, covenant or condition contained in this Agreement or in
any of the Related Documents or in any other agreement between Lender and
Grantor.
FALSE STATEMENTS. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Grantor under this Agreement, the
Note or the Related Documents is false or misleading in any material
respect, either now or at the time made or furnished.
DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related Documents
ceases to be in full force and effect (including failure of any collateral
documents to create a valid and perfected security interest or lien) at any
time and for any reason.
INSOLVENCY. The dissolution or termination of Grantor's existence as a
going business, the insolvency of Grantor, the appointment of a receiver
for any part of Grantor's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Grantor.
<PAGE>
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Grantor or by any
governmental agency against the Collateral or any other collateral securing
the indebtedness. This includes a garnishment of any of Grantor's deposit
accounts with Lender. However, this Event of Default shall not apply if
there is a good faith dispute by Grantor as to the validity or
reasonableness of the claim which is the basis of the creditor or
forfeiture proceeding and if Grantor gives Lender written notice of the
creditor or forfeiture proceeding and deposits with Lender monies or a
surety bond for the creditor or forfeiture proceeding, in an amount
determined by Lender, in its sole discretion, as being an adequate reserve
or bond for the dispute.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with respect
to any Guarantor of any of the indebtedness or such Guarantor dies or
becomes incompetent. Lender, at its option, may, but shall not be required
to, permit the Guarantor's estate to assume unconditionally the obligations
arising under the guaranty in a manner satisfactory to Lender, and, in
doing so, cure the Event of Default.
ADVERSE CHANGE. A material adverse change occurs in Grantor's financial
condition, or Lender believes the prospect of payment or performance of the
indebtedness is impaired.
INSECURITY. Lender, in good faith, deems itself insecure.
RIGHT TO CURE. If any default, other than a Default on indebtedness, is
curable and if Grantor has not been given a prior notice of a breach of the
same provision of this Agreement, it may be cured (and no Event of Default
will have occurred) if Grantor, after Lender sends written notice demanding
cure of such default, (a) cures the default within fifteen (15) days; or
(b), if the cure requires more than fifteen (15) days, immediately
initiates steps which Lender deems in Lender's sole discretion to be
sufficient to cure the default and thereafter continues and completes all
reasonable and necessary steps sufficient to produce compliance as soon as
reasonably practical.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender shall have all the rights of a secured
party under the Ohio Uniform Commercial Code. In addition and without
limitation, Lender may exercise any one or more of the following rights and
remedies:
ACCELERATE INDEBTEDNESS. Lender may declare the entire Indebtedness,
including any prepayment penalty which Grantor would be required to pay,
immediately due and payable, without notice.
ASSEMBLE COLLATERAL. Lender may require Grantor to deliver to Lender all or
any portion of the Collateral and any and all certificates of title and
other documents relating to the Collateral. Lender may require Grantor to
assemble the Collateral and make it available to Lender at a place to be
designated by Lender. Lender also shall have full power to enter upon the
property of Grantor to take possession of and remove the Collateral. If the
Collateral contains other goods not covered by this Agreement at the time
of repossession, Grantor agrees Lender may take such other goods, provided
that Lender makes reasonable efforts to return them to Grantor after
repossession.
SELL THE COLLATERAL. Lender shall have full power to sell, lease, transfer,
or otherwise deal with the Collateral or proceeds thereof in its own name
or that of Grantor. Lender may sell the Collateral at public auction or
private sale. Unless the Collateral threatens to decline speedily in value
or is of a type customarily sold on a recognized market, Lender will give
Grantor reasonable notice of the time after which any private sale or any
other intended disposition of the Collateral is to be made. The
requirements of reasonable notice shall be met if such notice is given at
least ten (10) days before the time of the sale or disposition. All
expenses relating to the disposition of the Collateral, including without
limitation the expenses of retaking, holding, insuring, preparing for sale
and selling the Collateral, shall become a part of the indebtedness secured
by this Agreement and shall be payable on demand, with interest at the Note
rate from date of expenditure until repaid.
APPOINT RECEIVER. To the extent permitted by applicable law, Lender shall
have the following rights and remedies regarding the appointment of a
receiver: (a) Lender may have a receiver appointed as a matter of right,
(b) the receiver may be an employee of Lender and may serve without bond,
and (c) all fees of the receiver and his or her attorney shall become part
of the indebtedness secured by this Agreement and shall be payable on
demand, with interest at the Note rate from date of expenditure until
repaid.
<PAGE>
COLLECT REVENUES, APPLY ACCOUNTS. Lender, either itself or through a
receiver, may collect the payments, rents, income, and revenues from the
Collateral. Lender may at any time in its discretion transfer any
Collateral into its own name or that of its nominee and receive the
payments, rents, income, and revenues therefrom and hold the same as
security for the indebtedness or apply it to payment of the indebtedness in
such order of preference as Lender may determine. Insofar as the Collateral
consists of accounts, general intangibles, insurance policies, instruments,
chattel paper, choses in action, or similar property, Lender may demand,
collect, receipt for, settle, compromise, adjust, sue for, foreclose, or
realize on the Collateral as Lender may determine, whether or not
indebtedness or Collateral is then due. For these purposes, Lender may, on
behalf of and in the name of Grantor, receive, open and dispose of mail
addressed to Grantor; change any address to which mail and payments are to
be sent; and endorse notes, checks, drafts, money orders, documents of
title, instruments and items pertaining to payment, shipment, or storage of
any Collateral. To facilitate collection, Lender may notify account debtors
and obligors on any Collateral to make payments directly to Lender.
OBTAIN DEFICIENCY. If Lender chooses to sell any or all of the Collateral,
Lender may obtain a judgment against Grantor for any deficiency remaining
on the indebtedness due to Lender after application of all amounts received
from the exercise of the rights provided in this Agreement. Grantor shall
be liable for a deficiency even if the transaction described in this
subsection is a safe of accounts or chattel paper.
OTHER RIGHTS AND REMEDIES. Lender shall have all the rights and remedies of
a secured creditor under the provisions of the Uniform Commercial Code, as
may be amended from time to time. In addition, Lender shall have and may
exercise any or all other rights and remedies it may have available at law,
in equity, or otherwise.
CUMULATIVE REMEDIES. All of Lender's rights and remedies, whether evidenced
by this Agreement or the Related Documents or by any other writing, shall
be cumulative and may be exercised singularly or concurrently. Election by
Lender to pursue any remedy shall not exclude pursuit of any other remedy,
and an election to make expenditures or to take action to perform an
obligation of Grantor under this Agreement, after Grantor's failure to
perform, shall not affect Lender's right to declare a default and to
exercise its remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Agreement. No alteration of or amendment to this
Agreement shall be effective unless given in writing and signed by
<PAGE>
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Loan No R-I001185 (Continued)
================================================================================
the party or parties sought to be charged or bound by the alteration or
amendment.
APPLICABLE LAW. This Agreement has been delivered to Lender and accepted by
Lender in the State of Ohio. If there is a lawsuit, Grantor agrees upon
Lender's request to submit to the jurisdiction of the courts of the State
of Ohio. Lender and Grantor hereby waive the right to any jury trial in any
action, proceeding, or counterclaim brought by either Lender or Grantor
against the other. This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio.
ATTORNEYS' FEES; EXPENSES. Grantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lender's legal
expenses, incurred in connection with the enforcement of this Agreement.
Lender may pay someone else to help enforce this Agreement, and Grantor
shall pay the costs and expenses of such enforcement. Costs and expenses
include Lender's attorneys' fees and legal expenses whether or not there is
a lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection
services. Grantor also shall pay all court costs and such additional fees
as may be directed by the court.
CAPTION HEADINGS. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
MULTIPLE PARTIES; CORPORATE AUTHORITY. All obligations of Grantor under
this Agreement shall be joint and several, and all references to Grantor
shall mean each and every Grantor. This means that each of the persons
signing below is responsible for all obligations in this Agreement.
NOTICES. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile, and shall be effective when
actually delivered or when deposited with a nationally recognized overnight
courier or deposited in the United States mail, first class, postage
prepaid, addressed to the party to whom the notice is to be given at the
address shown above. Any party may change its address for notices under
this Agreement by giving formal written notice to the other parties,
specifying that the purpose of the notice is to change the party's address.
To the extent permitted by applicable law, if there is more than one
Grantor, notice to any Grantor will constitute notice to all Grantors. For
notice purposes, Grantor will keep Lender informed at all times of
Grantor's current address(es).
POWER OF ATTORNEY. Grantor hereby appoints Lender as its true and lawful
attorney-in-fact, irrevocably, with full power of substitution to do the
following: (a) to demand, collect, receive, receipt for, sue and recover
all sums of money or other property which may now or hereafter become due,
owing or payable from the Collateral; (b) to execute, sign and endorse any
and all claims, instruments receipts, checks, drafts or warrants issued in
payment for the Collateral; (c) to settle or compromise any and all claims
arising under the Collateral, and, in the place and stead of Grantor, to
execute and deliver its release and settlement for the claim; and (d) to
file any claim or claims or to take any action or institute or take part in
any proceedings, either in its own name or in the name of Grantor, or
otherwise, which in the discretion of Lender may seem to be necessary or
advisable. This power is given as security for the indebtedness, and the
authority hereby conferred is and shall be irrevocable and shall remain in
full force and effect until renounced by Lender.
SEVERABILITY. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity however, if the offending provision
cannot be so modified, it shall be stricken and all other provisions of
this Agreement in all other respects shall remain valid and enforceable.
<PAGE>
SUCCESSOR INTERESTS. Subject to the limitations set forth above on transfer
of the Collateral, this Agreement shall be binding upon and inure to the
benefit of the parties, their successors and assigns.
WAIVER. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender of
a provision of this Agreement shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Agreement. No prior waiver by Lender, nor any
course of dealing between Lender and Grantor, shall constitute a waiver of
any of Lender's rights or of any of Grantor's obligations as to any future
transactions. Whenever the consent of Lender is required under this
Agreement, the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in the
sole discretion of Lender.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY
AGREEMENT, AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS DATED DECEMBER
31, 1996.
GRANTOR:
KIDS STUFF, INC.
BY: /s/ WILLIAM L. MILLER BY: /s/ JEANNE E. MILLER
---------------------------- ------------------------------------------
WILLIAM L. MILLER, PRESIDENT JEANNE E. MILLER, EXECUTIVE VICE PRESIDENT
<PAGE>
UNITED BANK
UNITED NATIONAL BANK & TRUST CO.
COMMERCIAL SECURITY AGREEMENT
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
$800,000.00 12-31-1996 R-I001185 1465 LED
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
BORROWER: DUNCAN HILL CO., LTD. (TIN: 34-1843520) LENDER: UNITED NATIONAL BANK & TRUST CO.
7245 WHIPPLE AVE. N.W. P.O. BOX 24190
NORTH CANTON, OH 44720 220 MARKET AVENUE SOUTH
CANTON, OH 44702
</TABLE>
================================================================================
THIS COMMERCIAL SECURITY AGREEMENT IS ENTERED INTO BETWEEN E.A. CAREY OF OHIO,
INC. (REFERRED TO BELOW AS "GRANTOR"); AND UNITED NATIONAL BANK & TRUST CO.
(REFERRED TO BELOW AS "LENDER"). FOR VALUABLE CONSIDERATION, GRANTOR GRANTS TO
LENDER A SECURITY INTEREST IN THE COLLATERAL TO SECURE THE INDEBTEDNESS AND
AGREES THAT LENDER SHALL HAVE THE RIGHTS STATED IN THIS AGREEMENT WITH RESPECT
TO THE COLLATERAL, IN ADDITION TO ALL OTHER RIGHTS WHICH LENDER MAY HAVE BY LAW.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All references
to dollar amounts shall mean amounts in lawful money of the United States of
America.
AGREEMENT. The word "Agreement" means this Commercial Security Agreement,
as this Commercial Security Agreement may be amended or modified from time
to time, together with all exhibits and schedules attached to this
Commercial Security Agreement from time to time.
COLLATERAL. The word "Collateral" means the following described property of
Grantor, whether now owned or hereafter acquired, whether now existing or
hereafter arising, and wherever located:
ALL INVENTORY, CHATTEL PAPER, ACCOUNTS, EQUIPMENT, GENERAL
INTANGIBLES AND FIXTURES, TOGETHER WITH THE FOLLOWING SPECIFICALLY
DESCRIBED PROPERTY: INCLUDING, BUT NOT LIMITED TO THE CUSTOMER
MAILING LIST; PATENTS, TRADEMARKS, COPYRIGHTS, INSURANCE PROCEEDS,
LEASES AND MOTOR VEHICLES NOW EXISTING OR HEREINAFTER ACQUIRED OR IN
THE PROCEEDS THEREOF;
In addition, the word "Collateral" includes all the following, whether now
owned or hereafter acquired, whether now existing or hereafter arising, and
wherever located:
(a) All attachments, accessions, accessories, tools, parts, supplies,
increases, and additions to and all replacements of and substitutions
for any property described above.
(b) All products and produce of any of the property described in this
Collateral section.
(c) All accounts, general intangibles, instruments rents, monies,
payments, and all other rights, arising out of a sale, lease, or other
disposition of any of the property described in this Collateral
section.
(d) All proceeds (including insurance proceeds) from the sale,
destruction, loss, or other disposition of any of the property
described in this Collateral section.
(e) All records and data relating to any of the property described in
this Collateral section, whether in the form of a writing, photograph,
microfilm, microfiche, or electronic media together with all of
Grantor's right, title, and interest in and to all computer software
required to utilize, create, maintain, and process any such records
or data on electronic media.
EVENT OF DEFAULT. The words "Event of Default" mean and include without
limitation any of the Events of Default set' forth below in the section
titled "Events of Default."
GRANTOR. The word "Grantor" means Duncan Hill Co. LTD., its successors and
assigns
GUARANTOR. The word "Guarantor" means and includes without limitation each
and all of the guarantors, sureties, and accommodation parties in
connection with the Indebtedness.
INDEBTEDNESS. The word "Indebtedness" means the indebtedness evidenced by
the Note, including all principal and interest, together with all other
indebtedness and costs and expenses for which Grantor is responsible under
this Agreement or under any of the Related Documents. In addition, the word
"Indebtedness," includes all other obligations, debts and liabilities, plus
interest thereon, of Grantor, or any one or more of them, to Lender, as
well as all claims by Lender against Grantor or any one or more of them
whether existing now or later; whether they are voluntary or involuntary,
due or not due direct or indirect, absolute or contingent, liquidated or
unliquidated; whether Grantor may be liable individually or jointly with
others; whether Grantor may be obligated as guarantor, surety,
accommodation party or otherwise; whether recovery upon such indebtedness
may be or hereafter may become barred by any statute of limitations; and
whether such indebtedness (may be or hereafter may become otherwise
unenforceable.
LENDER. The word "Lender" means UNITED NATIONAL BANK & TRUST CO., its
successors and assigns.
NOTE. The word "Note" means the note or credit agreement dated December 31,
1996, in the principal amount of $800 000.00 from E.A. Carey of Ohio, Inc.
to Lender, together with all renewals, of, extensions of, modifications of,
refinancings of, consolidations of and substitutions for the note or credit
agreement.
RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Indebtedness.
RIGHT OF SETOFF. Grantor hereby grants Lender a contractual possessory security
interest in and hereby assigns, conveys, delivers, pledges, and transfers all of
Grantor's right, title and interest in and to Grantor's accounts with Lender
(whether checking, savings, or some other account), including all accounts held
jointly with someone else and all accounts Grantor may open in the future,
excluding, however, all IRA and Keogh accounts, and all trust accounts for which
the grant of a security interest would be prohibited by law. Grantor authorizes
Lender, to the extent permitted by applicable law, to charge or setoff all
Indebtedness against any and all such accounts.
OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender as follows:
ORGANIZATION. Grantor is a corporation which is duly organized, validly
existing, and in good standing under the laws of the State of Ohio. Grantor
has its chief Executive office at 7245 Whipple Ave. N.W., North Canton, OH
44720. Grantor will notify Lender of any change in the location of
Grantor's chief Executive office.
AUTHORIZATION. The execution, delivery, and performance of this Agreement
by Grantor have been duly authorized by all necessary action by Grantor and
do not conflict with, result in a violation of, or constitute a default
under (a) any provision of its articles of incorporation or organization,
or bylaws or code of regulations, or any agreement or other instrument
binding upon Grantor or (b) any law, governmental regulation, court decree,
or order applicable to Grantor.
PERFECTION OF SECURITY INTEREST. Grantor agrees to execute such financing
statements and to take whatever other actions are requested by Lender to
perfect and continue Lender's security interest in the Collateral. Upon
request of Lender Grantor will deliver to Lender any and all of the
documents evidencing or constituting the Collateral, and Grantor will note
Lender's interest upon any and all chattel paper if not delivered to Lender
for possession by Lender. Grantor hereby appoints Lender as its irrevocable
attorney-in-fact for the purpose of executing any documents necessary to
perfect or to continue the security interest granted in this Agreement.
Lender may at any time, and without further authorization from Grantor file
a carbon, photographic or other reproduction of any financing statement or
of this Agreement for use as a financing statement. Grantor will reimburse
Lender for all expenses for the perfection and the continuation of the
perfection of Lender's security interest in the Collateral. Grantor
promptly will notify Lender before any change in Grantor's name including
any change to the assumed business names of Grantor. THIS IS A CONTINUING
SECURITY AGREEMENT AND WILL CONTINUE IN EFFECT EVEN THOUGH ALL OR ANY PART
OF THE INDEBTEDNESS IS PAID IN FULL AND EVEN THOUGH FOR A PERIOD OF TIME
GRANTOR MAY NOT BE INDEBTED TO LENDER.
NO VIOLATION. The execution and delivery of this Agreement will not violate
any law or agreement governing Grantor or to which Grantor is a party, and
its certificate or articles of incorporation and bylaws or code of
regulations do not prohibit any term or condition of this Agreement.
ENFORCEABILITY OF COLLATERAL. To the extent the Collateral consists of
accounts, chattel paper, or general intangibles, the Collateral is
enforceable in accordance with its terms, is genuine, and complies with
applicable laws concerning form, content and manner of preparation and
execution, and all persons appearing to be obligated on the Collateral have
authority and capacity to contract and are in fact obligated as they appear
to be on the Collateral. At the time any account becomes subject to a
security interest in favor of Lender, the account shall be a good and valid
account repreenting an undisputed, bona fide indebtedness incurred by the
account debtor, for merchandise held subject to delivery
<PAGE>
12-31-1996 COMMERCIAL SECURITY AGREEMENT PAGE 2
LOAN NO R-I001185 (CONTINUED)
================================================================================
instructions or theretofore shipped or delivered pursuant to a contract of
sale, or for services theretofore performed by Grantor with or for the
account debtor; there shall be no setoffs or counterclaims against any such
account and no agreement under which any deductions or discounts may be
claimed shall have been made with the account debtor except those disclosed
to Lender in writing.
LOCATION OF THE COLLATERAL. Grantor, upon request of Lender, will deliver
to Lender in form satisfactory to Lender a schedule of real properties and
Collateral locations relating to Grantor's operations, including without
limitation the following: (a) all real property owned or being purchased by
Grantor; (b) all real property being rented or leased by Grantor; (c) all
storage facilities owned, rented, leased, or being used by Grantor; and (d)
all other properties where Collateral is or may be located. Except in the
ordinary course of its business, Grantor shall not remove the Collateral
from its existing locations without the prior written consent of Lender.
REMOVAL OF COLLATERAL. Grantor shall keep the Collateral (or to the extent'
the Collateral consists of intangible, property such as accounts, the
records concerning the Collateral) at Grantors address shown above, or at
such other locations as are acceptable to Lender. Except in the ordinary
course of its business, including the sales of inventory, Grantor shall not
remove the Collateral from its existing locations without the prior written
consent of Lender. To the extent that the Collateral consists of vehicles,
or other titled properly, Grantor shall not take or permit any action which
would require application for certificates of title for the vehicles,
outside the State of Ohio, without the prior written consent of Lender.
TRANSACTIONS INVOLVING COLLATERAL. Except for inventory sold or accounts
collected in the ordinary course of Grantor's business, Grantor shall not
sell, offer to sell, or otherwise transfer or dispose of the Collateral.
While Grantor is not in default under this Agreement, Grantor may sell
inventory, but only in the ordinary course of its business and only to
buyers who qualify as a buyer in the ordinary course of business. A sale in
the ordinary course of Grantor's business does not include a transfer in
partial or total satisfaction of a debt or any bulk sale. Grantor shall not
pledge, mortgage, encumber or otherwise permit the Collateral to be subject
to any lien, security interest, encumbrance, or charge, other than the
security interest provided for in this Agreement, without the prior written
consent of Lender. This includes security interests even if junior in right
to the security interests granted under this Agreement. Unless waived by
Lender, all proceeds from any disposition of the Collateral (for whatever
reason) shall be held in trust for Lender and shall not be commingled with
any other funds; provided however, this requirement shall not constitute
consent by Lender to any sale or other disposition. Upon receipt, Grantor
shall immediately deliver any such proceeds to Lender.
TITLE. Grantor represents and warrants to Lender that it holds good and
marketable title to the Collateral, free and clear of all liens and
encumbrances except for the lien of this Agreement. No financing statement
covering any of the Collateral is on file in any public office other than
those which reflect the security interest created by this Agreement or to
which Lender has specifically consented. Grantor shall defend Lender s
rights in the Collateral against the claims and demands of all other
persons.
COLLATERAL SCHEDULES AND LOCATIONS. As often as Lender shall require and
insofar as the Collateral consists of accounts and general intangibles,
Grantor shall deliver to Lender schedules of such Collateral, including
such information as Lender may require, including without limitation names
and addresses of account debtors and agings of accounts and general
intangibles. Insofar as the Collateral consists of inventory and equipment,
Grantor shall deliver to Lender, as often as Lender shall require, such
lists, descriptions, and designations of such Collateral as Lender may
require to identify the nature, extent and, location of such Collateral.
Such information shall be submitted for Grantor and each of its
subsidiaries or related companies.
<PAGE>
MAINTENANCE AND INSPECTION OF COLLATERAL. Grantor shall maintain all
tangible Collateral in good condition and repair. Grantor will not commit
or permit damage to or destruction of the Collateral or any part of the
Collateral. Lender and its designated representatives and agents shall have
the right at all reasonable times to examine, inspect, and audit the
Collateral wherever located. Grantor shall immediately notify Lender of all
cases involving the return, rejection, repossession, loss or damage of or
to any Collateral; of any request for credit or adjustment or of any other
dispute arising with respect to the Collateral; and generally of all
happenings and events affecting the Collateral or the value or the amount
of the Collateral.
TAXES ASSESSMENTS AND LIENS. Grantor will pay when due all taxes,
assessments and liens upon the Collateral, its use or operation, upon this
Agreement, upon any promissory note or notes evidencing the Indebtedness,
or upon any of the other Related Documents. Grantor may withhold any such
payment or may elect to contest any lien if Grantor is in good faith
conducting an appropriate proceeding to contest the obligation to pay and
so long as Lender's interest in the Collateral is not jeopardized in
Lender's sole opinion. If the Collateral is subjected to a lien which is
not discharged within fifteen (15) days, Grantor shall deposit with Lender
cash, a sufficient corporate surety bond or other security satisfactory to
Lender in an amount adequate to provide for the discharge of the lien plus
any interest, costs, attorneys' fees or other charges that could accrue as
a result of foreclosure or sale of the Collateral. In any contest Grantor
shall defend itself and Lender and shall satisfy any final adverse judgment
before enforcement against the Collateral. Grantor shall name Lender as an
additional obligee under any surety bond furnished in the contest
proceedings.
COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. Grantor shall comply promptly
with all laws, ordinances, rules and regulations of all governmental
authorities, now or hereafter in effect, applicable to the ownership,
production, disposition, or use of the Collateral. Grantor may contest in
good faith any such law, ordinance or regulation and withhold compliance
during any proceeding, including appropriate appeals, so long as Lender's
interest in the Collateral, in Lender's opinion, is not jeopardized.
HAZARDOUS SUBSTANCES. Grantor represents and warrants that the Collateral
never has been, and never will be so long as this Agreement remains a lien
on the Collateral, used for the generation, manufacture, storage,
transportation, treatment, disposal, release, or threatened release of any
hazardous waste or substance, as those terms are defined in the
Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA") the Superfund
Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA") the
Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq.,
the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et
seq., or other applicable slate or Federal laws rules or regulations
adopted pursuant to any of the foregoing. The terms "hazardous waste" and
"hazardous substance" shall also include, without limitation, petroleum and
petroleum by-products or any fraction thereof and asbestos. The
representations and warranties contained herein are based on Grantor's due
diligence in investigating the Collateral for hazardous wastes and
substances. Grantor hereby (a) releases and waives any future claims
against Lender for indemnity or contribution in the event Grantor becomes
liable for cleanup or other costs under any such laws, and (b) agrees to
indemnify and hold harmless Lender against any and all claims and losses
resulting from a breach of this provision of this Agreement. This
obligation to indemnify shall survive the payment of the Indebtedness and
the satisfaction of this Agreement.
MAINTENANCE OF CASUALTY INSURANCE. Grantor shall procure and maintain all
risks insurance, including without limitation fire, theft and liability
coverage together with such other insurance as Lender may require with
respect to the Collateral, in form, amounts, coverages and basis reasonably
acceptable to Lender and issued by a company or companies reasonably
acceptable to Lender. Grantor, upon request of Lender, will deliver to
Lender from time to time the policies or certificates of insurance in form
satisfactory to Lender, including stipulations that coverages will not be
cancelled or diminished without at least ten (10) days' prior written
notice to Lender and not including any disclaimer of the insurer's
liability for failure to give such a notice. Each insurance policy also
shall include an endorsement providing that coverage in favor of Lender
will not be impaired in any way by any act, omission or default of Grantor
or any other person. In connection with all policies covering assets in
which Lender holds or is offered a security interest, Grantor will provide
Lender with such loss payable or other endorsements as Lender may require.
In no event shall the insurance be in an amount less than the amount agreed
upon in the Agreement to Provide Insurance. If Grantor at any time fails to
obtain or maintain any insurance as required under this Agreement, Lender
may (but shall not be obligated to) obtain such insurance as Lender deems
appropriate, including if it so chooses "single interest insurance", which
will cover only Lender's interest in the Collateral.
<PAGE>
APPLICATION OF INSURANCE PROCEEDS. Grantor shall promptly notify Lender of
any loss or damage to the Collateral. Lender may make proof of loss if
Grantor fails to do so within fifteen (15) days of the casualty. All
proceeds of any insurance on the Collateral, including accrued proceeds
thereon, shall be held by Lender as part of the Collateral. If Lender
consents to repair or replacement of the damaged or destroyed Collateral,
Lender shall, upon satisfactory proof of expenditure, pay or reimburse
Grantor from the proceeds for the reasonable cost of repair or restoration.
If Lender does not consent to repair or replacement of the Collateral,
Lender shall retain a sufficient amount of the proceeds to pay all of the
Indebtedness, and shall pay the balance to Grantor. Any proceeds which have
not been disbursed within six (6) months after their receipt and which
Grantor has not committed to the repair or restoration of the Collateral
shall be used to prepay the Indebtedness.
INSURANCE RESERVES. Lender may require Grantor to maintain with Lender
reserves for payment of insurance premiums, which reserves shall be created
by monthly payments from Grantor of a sum estimated by Lender to be
sufficient to produce, at least fifteen (15) days before the premium due
date, amounts at least equal to the insurance premiums to be paid. If
fifteen (15) days before payment is due, the reserve funds are
insufficien,t Grantor shall upon demand pay any deficiency to Lender. The
reserve funds shall be held by Lender as a general deposit and shall
constitute a non-interest-bearing account which Lender may satisfy by
payment of the insurance premiums required to be paid by Grantor as they
become due. Lender does not hold the reserve funds in trust for Grantor,
and Lender is not the agent of Grantor for payment of the insurance
premiums required to be paid by Grantor. The responsibility for the payment
of premiums shall remain Grantor's sole responsibility.
INSURANCE REPORTS. Grantor, upon request of Lender, shall furnish to Lender
reports on each existing policy of insurance showing such information as
Lender may reasonably request including the following: (a) the name of the
insurer; (b) the risks insured; (c) the amount of the policy; (d) the
property insured; (e) the then current value on the basis of which
insurance has been obtained and the manner of determining that value; and
(f) the expiration date of the policy. In addition, Grantor shall upon
request by Lender (however not more often than annually) have an
independent appraiser satisfactory to Lender determine, as applicable, the
cash value or replacement cost of the Collateral.
GRANTOR'S RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS. Until default and except
as otherwise provided below with respect to accounts, Grantor may have
possession of the tangible personal property and beneficial use of all the
Collateral and may use it in any lawful manner
<PAGE>
12-31-1996 COMMERCIAL SECURITY AGREEMENT PAGE 3
LOAN NO R-I001185 (CONTINUED)
================================================================================
not inconsistent with this Agreement or the Related Documents, provided that
Grantor's right to possession and beneficial use shall not apply to any
Collateral where possession of the Collateral by Lender is required by law to
perfect Lender's security interest in such Collateral. Until otherwise notified
by Lender, Grantor may collect any of the Collateral consisting of accounts. At
any time and even though no Event of Default exists, Lender may exercise its
rights to collect the accounts and to notify account debtors to make payments
directly to Lender for application to the Indebtedness. If Lender at any time
has possession of any Collateral, whether before or after an Event of Default,
Lender shall be deemed to have exercised reasonable care in the custody and
preservation of the Collateral if Lender takes such action for that purpose as
Grantor shall request or as Lender, in Lender's sole discretion, shall deem
appropriate under the circumstances, but failure to honor any request by Grantor
shall not of itself be deemed to be a failure to exercise reasonable care.
Lender shall not be required to take any steps necessary to preserve any rights
in the Collateral against prior parties, nor to protect, preserve or maintain
any security interest given to secure the Indebtedness.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, including without limitation
all taxes, liens, security interests, encumbrances, and other claims, at any
time levied or placed on the Collateral. Lender also may (but shall not be
obligated to) pay all costs for insuring, maintaining and preserving the
Collateral. All such expenditures incurred or paid by Lender for such purposes
will then bear interest at the rate charged under the Note from the date
incurred or paid by Lender to the date of repayment by Grantor. All such
expenses shall become a part of the Indebtedness and, at Lender's option, will
(a) be payable on demand, (b) be added to the balance of the Note and be
apportioned among and be payable with any installment payments to become due
during either (i) the term of any applicable insurance policy or (ii) the
remaining term of the Note, or (c) be treated as a balloon payment which will be
due and payable at the Note's maturity. This Agreement also will secure payment
of these amounts. Such right shall be in addition to all other rights and
remedies to which Lender may be entitled upon the occurrence of an Event of
Default.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
DEFAULT ON INDEBTEDNESS. Failure of Grantor to make any payment when due on
the Indebtedness.
OTHER DEFAULTS. Failure of Grantor to comply with or to perform any other
term, obligation, covenant or condition contained in this Agreement or in
any of the Related Documents or in any other agreement between Lender and
Grantor.
FALSE STATEMENTS. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Grantor under this Agreement, the
Note or the Related Documents is false or misleading in any material
respect, either now or at the time made or furnished.
DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related Documents
ceases to be in full force and effect (including failure of any collateral
documents to create a valid and perfected security interest or lien) at any
time and for any reason.
INSOLVENCY. The dissolution or termination of Grantors existence as a going
business, the insolvency of Grantor, the appointment of a receiver for any
part of Grantors property, any assignment for the benefit of creditors, any
type of creditor workout, or the commencement of any proceeding under any
bankruptcy or insolvency laws by or against Grantor.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Grantor or by any
governmental agency against the Collateral or any other collateral securing
the Indebtedness. This includes a garnishment of any of Grantor's deposit
accounts with Lender. However, this Event of Default shall not apply if
there is a good faith dispute by Grantor as to the validity or
reasonableness of the claim which is the basis of the creditor or
forfeiture proceeding and if Grantor gives Lender written notice of the
creditor or forfeiture proceeding and deposits with Lender monies or a
surety bond for the creditor or forfeiture proceeding, in an amount
determined by Lender, in its sole discretion, as being an adequate reserve
or bond for the dispute.
<PAGE>
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with respect
to any Guarantor of any of the Indebtedness or such Guarantor dies or
becomes incompetent. Lender, at its option, may, but shall not be required
to, permit the Guarantor's estate to assume unconditionally the obligations
arising under the guaranty in a manner satisfactory to Lender, and, in
doing so, cure the Event of Default.
ADVERSE CHANGE. A material adverse change occurs in Grantor's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired.
INSECURITY. Lender, in good faith, deems itself insecure.
RIGHT TO CURE. If any default, other than a Default on Indebtedness, is
curable and if Grantor has not been given a prior notice of a breach of the
same provision of this Agreement, it may be cured (and no Event of Default
will have occurred) if Grantor, after Lender sends written notice demanding
cure of such default, (a) cures the default within fifteen (15) days; or
(b), if the cure requires more than fifteen (15) days, immediately
initiates steps which Lender deems in Lenders sole discretion to be
sufficient to cure the default and thereafter continues and completes all
reasonable and necessary steps sufficient to produce compliance as soon as
reasonably practical.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender shall have all the rights of a secured
party under the Ohio Uniform Commercial Code. In addition and without
limitation, Lender may exercise any one or more of the following rights and
remedies:
ACCELERATE INDEBTEDNESS. Lender may declare the entire Indebtedness,
including any prepayment penalty which Grantor would be required to pay,
immediately due and payable, without notice.
ASSEMBLE COLLATERAL. Lender may require Grantor to deliver to Lender all or
any portion of the Collateral and any and all certificates of title and
other documents relating to the Collateral. Lender may require Grantor to
assemble the Collateral and make it available to Lender at a place to be
designated by Lender. Lender also shall have full power to enter upon the
property of Grantor to take possession of and remove the Collateral. If the
Collateral contains other goods not covered by this Agreement at the time
of repossession, Grantor agrees Lender may take such other goods, provided
that Lender makes reasonable efforts to return them to Grantor after
repossession.
SELL THE COLLATERAL. Lender shall have full power to sell, lease, transfer,
or otherwise deal with the Collateral or proceeds thereof in its own name
or that of Grantor. Lender may sell the Collateral at public auction or
private sale. Unless the Collateral threatens to decline speedily in value
or is of a type customarily sold on a recognized market, Lender will give
Grantor reasonable notice of the time after which any private sale or any
other intended disposition of the Collateral is to be made. The
requirements of reasonable notice shall be met if such notice is given at
least ten (10) days before the time of the sale or disposition. All
expenses relating to the disposition of the Collateral, including without
limitation the expenses of retaking, holding, insuring, preparing for sale
and selling the Collateral, shall become a part of the Indebtedness secured
by this Agreement and shall be payable on demand, with interest at the Note
rate from date of expenditure until repaid.
APPOINT RECEIVER. To the extent permitted by applicable law, Lender shall
have the following rights and remedies regarding the appointment of a
receiver: (a) Lender may have a receiver appointed as a matter of right,
(b) the receiver may be an employee of Lender and may serve without bond,
and (c) all fees of the receiver and his or her attorney shall become part
of the Indebtedness secured by this Agreement and shall be payable on
demand, with interest at the Note rate from date of expenditure until
repaid.
<PAGE>
COLLECT REVENUES, APPLY ACCOUNTS. Lender, either itself or through a
receiver, may collect the payments, rents, income, and revenues from the
Collateral. Lender may at any time in its discretion transfer any
Collateral into its own name or that of its nominee and receive the
payments, rents, income, and revenues therefrom and hold the same as
security for the Indebtedness or apply it to payment of the Indebtedness in
such order of preference as Lender may determine. Insofar as the Collateral
consists of accounts, general intangibles, insurance policies, instruments,
chattel paper, choses in action, or similar property, Lender may demand,
collect, receipt for, settle, compromise, adjust, sue for, foreclose, or
realize on the Collateral as Lender may determine, whether or not
Indebtedness or Collateral is then due. For these purposes, Lender may, on
behalf of and in the name of Grantor, receive, open and dispose of mail
addressed to Grantor; change any address to which mail and payments are to
be sent, and endorse notes, checks, drafts, money orders, documents of
title, instruments and items pertaining to payment, shipment, or storage of
any Collateral. To facilitate collection, Lender may notify account debtors
and obligors on any Collateral to make payments directly to Lender.
OBTAIN DEFICIENCY. If Lender chooses to sell any or all of the Collateral,
Lender may obtain a judgment against Grantor for any deficiency remaining
on the Indebtedness due to Lender after application of all amounts received
from the exercise of the rights provided in this Agreement. Grantor shall
be liable for a deficiency even if the transaction described in this
subsection is a sale of accounts or chattel paper.
OTHER RIGHTS AND REMEDIES. Lender shall have all the rights and remedies of
a secured creditor under the provisions of the Uniform Commercial Code, as
may be amended from time to time. In addition, Lender shall have and may
exercise any or all other rights and remedies it may have available at law,
in equity, or otherwise.
CUMULATIVE REMEDIES. All of Lenders rights and remedies, whether evidenced
by this Agreement or the Related Documents or by any other writing, shall
be cumulative and may be exercised singularly or concurrently. Election by
Lender to pursue any remedy shall not exclude pursuit of any other remedy,
and an election to make expenditures or to take action to perform an
obligation of Grantor under this Agreement, after Grantor's failure to
perform, shall not affect Lender's right to declare a default and to
exercise its remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Agreement. No alteration of or amendment to this
Agreement shall be effective unless given in writing and signed by
<PAGE>
12-31-1996 COMMERCIAL SECURITY AGREEMENT PAGE 4
LOAN NO R-I001185 (CONTINUED)
================================================================================
the party or parties sought to be charged or bound by the alteration or
amendment.
APPLICABLE LAW. This Agreement has been delivered to Lender and accepted by
Lender in the State of Ohio. If there is a lawsuit, Grantor agrees upon
Lender's request to submit to the jurisdiction of the courts of the State
of Ohio. Lender and Grantor hereby waive the right to any jury trial in any
action, proceeding, or counterclaim brought by either Lender or Grantor
against the other. This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio.
ATTORNEYS' FEES; EXPENSES. Grantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lender's legal
expenses, incurred in connection with the enforcement of this Agreement.
Lender may pay someone else to help enforce this Agreement and Grantor
shall pay the costs and, expenses of such enforcement. Costs and expenses
include Lender's attorneys' fees and legal expenses whether or not there is
a lawsuit, including attorneys fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection
services. Grantor also shall pay all court costs and such additional fees
as may be directed by the court.
CAPTION HEADINGS. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
MULTIPLE PARTIES; CORPORATE AUTHORITY. All obligations of Grantor under
this Agreement shall be joint and several, and all references to Grantor
shall mean each and every Grantor. This means that each of the persons
signing below is responsible for all obligations in this Agreement.
NOTICES. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile, and shall be effective when
actually delivered or when deposited with a nationally recognized overnight
courier or deposited in the United States mail, first class, postage
prepaid, addressed to the party to whom the notice is to be given at the
address shown above. Any party may change its address for notices under
this Agreement by giving formal written notice to the other parties
specifying that the purpose of the notice is to change the party's address.
To the extent permitted by applicable law, if there is more than one
Grantor, notice to any Grantor will constitute notice to all Grantors. For
notice purposes, Grantor will keep Lender informed at all times of
Grantor's current address(es).
POWER OF ATTORNEY. Grantor hereby appoints Lender as its true and lawful
attorney-in-fact, irrevocably, with full power of substitution to do the
following: (a) to demand, collect, receive receipt for, sue and recover all
sums of money or other property which may now or hereafter become due,
owing or payable from the Collateral; (b) to execute, sign and endorse any
and all claims, instruments, receipts, checks, drafts or warrants issued in
payment for the Collateral; (c) to settle or compromise any and all claims
arising under the Collateral, and, in the place and stead of Grantor, to
execute and deliver its release and settlement for the claim; and (d) to
file any claim or claims or to take any action or institute or take part in
any proceedings, either in its own name or in the name of Grantor, or
otherwise, which in the discretion of Lender may seem to be necessary or
advisable. This power is given as security for the Indebtedness, and the
authority hereby conferred is and shall be irrevocable and shall remain in
full force and effect until renounced by Lender.
SEVERABILITY. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending provision
cannot be so modified, it shall be stricken and all other provisions of
this Agreement in all other respects shall remain valid and enforceable.
<PAGE>
SUCCESSOR INTERESTS. Subject to the limitations set forth above on transfer
of the Collateral, this Agreement shall be binding upon and inure to the
benefit of the parties, their successors and assigns.
WAIVER. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender of
a provision of this Agreement shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Agreement. No prior waiver by Lender, nor any
course of dealing between Lender and Grantor, shall constitute a waiver of
any of Lender's rights or of any of Grantor's obligations as to any future
transactions. Whenever the consent of Lender is required under this
Agreement, the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in the
sole discretion of Lender.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY
AGREEMENT AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS DATED DECEMBER 31
1996.
GRANTOR:
E.A. CAREY OF OHIO, INC.
<TABLE>
<S> <C>
BY: /s/ WILLIAM L. MILLER BY: /s/ JEANNE E. MILLER
-------------------------------- ----------------------------------
WILLIAM L. MILLER, PRESIDENT JEANNE E. MILLER, EXECUTIVE VICE PRESIDENT
</TABLE>
<PAGE>
UNITED BANK
UNITED NATIONAL BANK & TRUST CO.
COMMERCIAL SECURITY AGREEMENT
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
$800,000,000 12-31-1996 R-I001185 1465 LED
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
BORROWER: E.A. CAREY OF OHIO, INC. (TIN: 34-1843520) LENDER: UNITED NATIONAL BANK & TRUST CO.
7245 WHIPPLE AVE. N.W. P.O. BOX 24190
NORTH CANTON, OH 44720 220 MARKET AVENUE SOUTH
CANTON, OH 44702
</TABLE>
================================================================================
THIS COMMERCIAL SECURITY AGREEMENT IS ENTERED INTO BETWEEN E.A. CAREY OF OHIO,
INC. (REFERRED TO BELOW AS" GRANTOR"); AND UNITED NATIONAL BANK & TRUST CO.
(REFERRED TO BELOW AS "LENDER"). FOR VALUABLE CONSIDERATION, GRANTOR GRANTS TO
LENDER A SECURITY INTEREST IN THE COLLATERAL TO SECURE THE INDEBTEDNESS AND
AGREES THAT LENDER SHALL HAVE THE RIGHTS STATED IN THIS AGREEMENT WITH RESPECT
TO THE COLLATERAL IN ADDITION TO ALL OTHER RIGHTS WHICH LENDER MAY HAVE BY LAW.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All references
to dollar amounts shall mean amounts in lawful money of the United States of
America.
AGREEMENT. The word "Agreement" means this Commercial Security Agreement,
as this Commercial Security Agreement may be amended or modified from time
to time, together with all exhibits and schedules attached to this
Commercial Security Agreement from time to time.
COLLATERAL. The word "Collateral" means the following described property of
Grantor, whether now owned or hereafter acquired, whether now existing or
hereafter arising, and wherever located:
ALL INVENTORY, CHATTEL PAPER, ACCOUNTS, EQUIPMENT, GENERAL INTANGIBLES
AND FIXTURES, TOGETHER WITH THE FOLLOWING SPECIFICALLY DESCRIBED
PROPERTY: INCLUDING, BUT NOT LIMITED TO THE CUSTOMER MAILING LIST;
PATENTS, TRADEMARKS, COPYRIGHTS, INSURANCE PROCEEDS, LEASES AND MOTOR
VEHICLES NOW EXISTING OR HEREINAFTER ACQUIRED OR IN THE PROCEEDS
THEREOF;
In addition, the word "Collateral" includes all the following, whether now
owned or hereafter acquired, whether now existing or hereafter arising,
and wherever located:
(a) All attachments, accessions, accessories, tools, parts, supplies,
increases, and additions to and all replacements of and substitutions
for any property described above.
(b) All products and produce of any of the property described in this
Collateral section.
(c) All accounts, general intangibles, instruments, rents, monies,
payments, and all other rights, arising out of a sale, lease, or other
disposition of any of the property described in this Collateral
section.
(d) All proceeds (including insurance proceeds) from the sale,
destruction, loss, or other disposition of any of the property
described in this Collateral section.
(e) All records and data relating to any of the property described in
this Collateral section, whether in the form of a writing, photograph,
microfilm, microfiche, or electronic media, together with all of
Grantor's right, title, and interest in and to all computer software
required to utilize, create, maintain, and process any such records or
data on electronic media.
EVENT OF DEFAULT. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "Events of Default."
GRANTOR. The word "Grantor" means E.A. Carey of Ohio, Inc., its successors
and assigns
GUARANTOR. The word "Guarantor" means and includes without limitation each
and all of the guarantors, sureties, and accommodation parties in
connection with the Indebtedness.
INDEBTEDNESS. The word "Indebtedness" means the indebtedness evidenced by
the Note, including all principal and interest, together with all other
indebtedness and costs and expenses for which Grantor is responsible under
this Agreement or under any of the Related Documents. In addition, the word
"Indebtedness" includes all other obligations, debts and liabilities, plus
interest thereon, of Grantor, or any one or more of them, to Lender, as
well as all claims by Lender against Grantor, or any one or more of them,
whether existing now or later; whether they are voluntary or involuntary,
due or not due, direct or indirect, absolute or contingent, liquidated or
unliquidated; whether Grantor may be liable individually or jointly with
others; whether Grantor may be obligated as guarantor, surety,
accommodation party or otherwise; whether recovery upon such indebtedness
may be or hereafter may become barred by any statute of limitations; and
whether such indebtedness may be or hereafter may become otherwise
unenforceable.
LENDER. The word "Lender" means UNITED NATIONAL BANK & TRUST CO., its
successors and assigns.
NOTE. The word "Note" means the note or credit agreement dated December 31,
1996, in the principal amount of $800,000.00 from E.A. carey of Ohio, Inc.,
LTD. to Lender, together with all renewals, of, extensions of,
modifications of, refinancings of, consolidations of and substitutions for
the note or credit agreement.
RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments agreements and documents, whether now
or hereafter existing, executed in connection with the Indebtedness.
RIGHT OF SETOFF. Grantor hereby grants Lender a contractual possessory security
interest, in and hereby assigns, conveys, delivers, pledges and transfers all of
Grantor's right, title and interest in and to Grantor's accounts with Lender
(whether checking, savings, or some other account), including all accounts held
jointly with someone else and all accounts Grantor may open in the future,
excluding, however, all IRA and Keogh accounts, and all trust accounts for which
the grant of a security interest would be prohibited by law. Grantor authorizes
Lender, to the extent permitted by applicable law, to charge or setoff all
Indebtedness against any and all such accounts.
OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender as follows:
ORGANIZATION. Grantor is a corporation which is duly organized, validly
existing, and in good standing under the laws of the State of Ohio. Grantor
has its chief Executive office at 7245 Whipple Ave. N.W., North Canton, OH
44720. Grantor will notify Lender of any change in the location of
Grantor's chief Executive office.
AUTHORIZATION. The execution, delivery, and performance of this Agreement
by Grantor have been duly authorized by all necessary action by Grantor and
do not conflict with, result in a violation of, or constitute a default
under (a) any provision of its articles of incorporation or organization,
or bylaws or code of regulations, or any agreement or other instrument
binding upon Grantor or (b) any law, governmental regulation, court decree,
or order applicable to Grantor.
PERFECTION OF SECURITY INTEREST. Grantor agrees to execute such financing
statements and to take whatever other actions are requested by Lender to
perfect and continue Lender's security interest in the Collateral. Upon
request of Lender, Grantor will deliver to Lender any and all of the
documents evidencing or constituting the Collateral, and Grantor will note
Lender's interest upon any and all chattel paper if not delivered to Lender
for possession by Lender. Grantor hereby appoints Lender as its irrevocable
attorney-in-fact for the purpose of executing any documents necessary to
perfect or to continue the security interest granted in this Agreement.
Lender may at any time, and without further authorization from Grantor,
file a carbon, photographic or other reproduction of any financing
statement or of this Agreement for use as a financing statement. Grantor
will reimburse Lender for all expenses for the perfection and the
continuation of the perfection of Lender's security interest in the
Collateral. Grantor promptly will notify Lender before any change in
Grantor's name including any change to the assumed business names of
Grantor. THIS IS A CONTINUING SECURITY AGREEMENT AND WILL CONTINUE IN
EFFECT EVEN THOUGH ALL OR ANY PART OF THE INDEBTEDNESS IS PAID IN FULL AND
EVEN THOUGH FOR A PERIOD OF TIME GRANTOR MAY NOT BE INDEBTED TO LENDER.
NO VIOLATION. The execution and delivery of this Agreement will not violate
any law or agreement governing Grantor or to which Grantor is a party, and
its certificate or articles of incorporation and bylaws or code of
regulations do not prohibit any term or condition of this Agreement.
ENFORCEABILITY OF COLLATERAL. To the extent the Collateral consists of
accounts, chattel paper, or general intangibles, the Collateral is
enforceable in accordance with its terms, is genuine, and complies with
applicable laws concerning form, content and manner of preparation and
execution, and all persons appearing to be obligated on the Collateral have
authority and capacity to contract and are in fact obligated as they appear
to be on the Collateral. At the time any account becomes subject to a
security interest in favor of Lender, the account shall be a good and valid
account representing an undisputed, bona fide indebtedness incurred by the
account debtor, for merchandise held subject to delivery
<PAGE>
12-31-1996 COMMERCIAL SECURITY AGREEMENT PAGE 2
LOAN NO R-I001185 (CONTINUED)
================================================================================
instructions or theretofore shipped or delivered pursuant to a contract of
sale, or for services theretofore performed by Grantor with or for the
account debtor; there shall be no setoffs or counterclaims against any such
account and no agreement under which any deductions or discounts may be
claimed shall have been made with the account debtor except those disclosed
to Lender in writing.
LOCATION OF THE COLLATERAL. Grantor, upon request of Lender, will deliver
to Lender in form satisfactory to Lender a schedule of real properties and
Collateral locations relating to Grantor's operations, including without
limitation the following: (a) all real property owned or being purchased by
Grantor; (b) all real property being rented or leased by Grantor; (c) all
storage facilities owned, rented, leased, or being used by Grantor; and (d)
all other properties where Collateral is or may be located. Except in the
ordinary course of its business, Grantor shall not remove the Collateral
from its existing locations without the prior written consent of Lender.
REMOVAL OF COLLATERAL. Grantor shall keep the Collateral (or to the extent'
the Collateral consists of intangible property such as accounts, the
records concerning the Collateral) at Grantor's address shown above, or at
such other locations as are acceptable to Lender. Except in the ordinary
course of its business, including the sales of inventory, Grantor shall not
remove the Collateral from its existing locations without the prior written
consent of Lender. To the extent that the Collateral consists of vehicles,
or other titled properly, Grantor shall not take or permit any action which
would require application for certificates of title for the vehicles
outside the State of Ohio, without the prior written consent of Lender.
TRANSACTIONS INVOLVING COLLATERAL. Except for inventory sold or accounts
collected in the ordinary course of Grantor's business, Grantor shall not
sell, offer to sell, or otherwise transfer or dispose of the Collateral.
While Grantor is not in default under this Agreement, Grantor may sell
inventory, but only in the ordinary course of its business and only to
buyers who qualify as a buyer in the ordinary course of business. A sale in
the ordinary course of Grantor's business does not include a transfer in
partial or total satisfaction of a debt or any bulk sale. Grantor shall not
pledge, mortgage, encumber or otherwise permit the Collateral to be subject
to any lien, security interest, encumbrance, or charge, other than the
security interest provided for in this Agreement, without the prior written
consent of Lender. This includes security interests even if junior in right
to the security interests granted under this Agreement. Unless waived by
Lender all proceeds from any disposition of the Collateral (for whatever
reason) shall be held in trust for Lender and shall not be commingled with
any other funds; provided however, this requirement shall not constitute
consent by Lender to any sale or other disposition. Upon receipt, Grantor
shall immediately deliver any such proceeds to Lender.
TITLE. Grantor represents and warrants to Lender that it holds good and
marketable title to the Collateral, free and clear of all liens and
encumbrances except for the lien of this Agreement. No financing statement
covering any of the Collateral is on file in any public office other than
those which reflect the security interest created by this Agreement or to
which Lender has specifically consented. Grantor shall defend Lender's
rights in the Collateral against the claims and demands of all other
persons.
COLLATERAL SCHEDULES AND LOCATIONS. As often as Lender shall require, and
insofar as the Collateral consists of accounts and general intangibles,
Grantor shall deliver to Lender schedules of such Collateral, including
such information as Lender may require, including without limitation names
and addresses of account debtors and agings of accounts and general
intangibles. Insofar as the Collateral consists of inventory and equipment,
Grantor shall deliver to Lender, as often as Lender shall require, such
lists, descriptions, and designations of such Collateral as Lender may
require to identify the nature, extent, and location of such Collateral.
Such information shall be submitted for Grantor and each of its
subsidiaries or related companies.
<PAGE>
MAINTENANCE AND INSPECTION OF COLLATERAL. Grantor shall maintain all
tangible Collateral in good condition and repair. Grantor will not commit
or permit damage to or destruction of the Collateral or any part of the
Collateral. Lender and its designated representatives and agents shall have
the right at all reasonable times to examine, inspect, and audit the
Collateral wherever located. Grantor shall immediately notify Lender of all
cases involving the return, rejection, repossession, loss or damage of or
to any Collateral; of any request for credit or adjustment or of any other
dispute arising with respect to the Collateral; and generally of all
happenings and events affecting the Collateral or the value or the amount
of the Collateral.
TAXES ASSESSMENTS AND LIENS. Grantor will pay when due all taxes,
assessments and liens upon the Collateral, its use or operation, upon this
Agreement, upon any promissory note or notes evidencing the Indebtedness,
or upon any of the other Related Documents. Grantor may withhold any such
payment or may elect to contest any lien if Grantor is in good faith
conducting an appropriate proceeding to contest the obligation to pay and
so long as Lender's interest in the Collateral is not jeopardized in
Lender's sole opinion. If the Collateral is subjected to a lien which is
not discharged within fifteen (15) days, Grantor shall deposit with Lender
cash, a sufficient corporate surety bond or other security satisfactory to
Lender in an amount adequate to provide for the discharge of the lien plus
any interest, costs, attorneys' fees or other charges that could accrue as
a result of foreclosure or sale of the Collateral. In any contest Grantor
shall defend itself and Lender and shall satisfy any final adverse judgment
before enforcement against the Collateral. Grantor shall name Lender as an
additional obligee under any surety bond furnished in the contest
proceedings.
COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. Grantor shall comply promptly
with all laws, ordinances, rules and regulations of all governmental
authorities, now or hereafter in effect, applicable to the ownership,
production, disposition, or use of the Collateral. Grantor may contest in
good faith any such law, ordinance or regulation and withhold compliance
during any proceeding, including appropriate appeals, so long as Lender s
interest in the Collateral, in Lender's opinion, is not jeopardized.
HAZARDOUS SUBSTANCES. Grantor represents and warrants that the Collateral
never has been, and never will be so long as this Agreement remains a lien
on the Collateral, used for the generation manufacture, storage,
transportation, treatment, disposal, release or threatened release of any
hazardous waste or substance, as those terms are defined in the
Comprehensive Environmental Response, Compensation, and Liability Act of
1980 as amended 42 U.S.C. Section 9601, et seq. ("CERCLA") the Superfund
Amendments and Reauthorization Act of 1986 Pub. L. No. 99-499 ("SARA") the
Hazardous Materials Transportation Act 49 U.S.C. Section 1801, et seq., the
Resource Conservation and Recovery Act 42 U.S.C. Section 6901, et seq., or
other applicable slate or Federal laws' rules or regulations adopted
pursuant to any of the foregoing. The terms "hazardous waste" and
"hazardous substance" shall also include, without limitation, petroleum and
petroleum by-products or any fraction thereof and asbestos. The
representations and warranties contained herein are based on Grantor's due
diligence in investigating the Collateral for hazardous wastes and
substances. Grantor hereby (a) releases and waives any future claims
against Lender for indemnity or contribution in the event Grantor becomes
liable for cleanup or other costs under any such laws, and (b) agrees to
indemnify and hold harmless Lender against any and all claims and losses
resulting from a breach of this provision of this Agreement. This
obligation to indemnify shall survive the payment of the Indebtedness and
the satisfaction of this Agreement.
MAINTENANCE OF CASUALTY INSURANCE. Grantor shall procure and maintain all
risks insurance, including without limitation fire, theft and liability
coverage together with such other insurance as Lender may require with
respect to the Collateral, in form, amounts, coverages and basis reasonably
acceptable to Lender and issued by a company or companies reasonably
acceptable to Lender. Grantor, upon request of Lender, will deliver to
Lender from time to time the policies or certificates of insurance in form
satisfactory to Lender, including stipulations that coverages will not be
cancelled or diminished without at least ten (10) days, prior written
notice to Lender and not including any disclaimer of the insurer's
liability for failure to give such a notice. Each insurance policy also
shall include an endorsement providing that coverage in favor of Lender
will not be impaired in any way by any act omission or default of Grantor
or any other person. In connection with, all policies covering assets in
which Lender holds or is offered a security interest, Grantor will provide
Lender with such loss payable or other endorsements as Lender may require.
In no event shall the insurance be in an amount less than the amount agreed
upon in the Agreement to Provide Insurance. If Grantor at any time fails to
obtain or maintain any insurance as required under this Agreement Lender
may (but shall not be obligated to) obtain such insurance as Lender deems
appropriate, including if it so chooses "single interest insurance", which
will cover only Lenders interest in the Collateral.
<PAGE>
APPLICATION OF INSURANCE PROCEEDS. Grantor shall promptly notify Lender of
any loss or damage to the Collateral. Lender may make proof of loss if
Grantor fails to do so within fifteen (15) days of the casualty. All
proceeds of any insurance on the Collateral, including accrued proceeds
thereon, shall be held by Lender as part of the Collateral. If Lender
consents to repair or replacement of the damaged or destroyed Collateral,
Lender shall, upon satisfactory proof of expenditure, pay or reimburse
Grantor from the proceeds for the reasonable cost of repair or restoration.
If Lender does not consent to repair or replacement of the Collateral,
Lender shall retain a sufficient amount of the proceeds to pay all of the
Indebtedness, and shall pay the balance to Grantor. Any proceeds which have
not been disbursed within six (6) months after their receipt and which
Grantor has not committed to the repair or restoration of the Collateral
shall be used to prepay the Indebtedness.
INSURANCE RESERVES. Lender may require Grantor to maintain with Lender
reserves for payment of insurance premiums, which reserves shall be created
by monthly payments from Grantor of a sum estimated by Lender to be
sufficient to produce, at least fifteen (15) days before the premium due
date, amounts at least equal to the insurance premiums to be paid. If
fifteen (15) days before payment is due, the reserve funds are
insufficient, Grantor shall upon demand pay any deficiency to Lender. The
reserve funds shall be held by Lender as a general deposit and shall
constitute a non-interest-bearing account which Lender may satisfy by
payment of the insurance premiums required to be paid by Grantor as they
become due. Lender does not hold the reserve funds in trust for Grantor,
and Lender is not the agent of Grantor for payment of the insurance
premiums required to be paid by Grantor. The responsibility for the payment
of premiums shall remain Grantor's sole responsibility.
INSURANCE REPORTS. Grantor upon request of Lender shall furnish to Lender
reports on each existing policy of insurance showing such information as
Lender may reasonably request including the following: (a) the name of the
insurer; (b) the risks insured; (c) the amount of the policy; (d) the
property insured; (e) the then current value on the basis of which
insurance has been obtained and the manner of determining that value; and
(f) the expiration date of the policy. In addition Grantor shall upon
request by Lender (however not more often than annually) have an
independent appraiser satisfactory to Lender determine, as applicable, the
cash value or replacement cost of the Collateral.
GRANTOR'S RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS. Until default and except
as otherwise provided below with respect to accounts, Grantor may have
possession of the tangible personal property and beneficial use of all the
Collateral and may use it in any lawful manner
<PAGE>
12-31-1996 COMMERCIAL SECURITY AGREEMENT PAGE 3
LOAN NO R-I001185 (CONTINUED)
================================================================================
not inconsistent with this Agreement or the Related Documents, provided that
Grantor's right to possession and beneficial use shall not apply to any
Collateral where possession of the Collateral by Lender is required by law to
perfect Lender's security interest in such Collateral. Until otherwise notified
by Lender, Grantor may collect any of the Collateral consisting of accounts. At
any time and even though no Event of Default exists, Lender may exercise its
rights to collect the accounts and to notify account debtors to make payments
directly to Lender for application to the Indebtedness. If Lender at any time
has possession of any Collateral, whether before or after an Event of Default,
Lender shall be deemed to have exercised reasonable care in the custody and
preservation of the Collateral if Lender takes such action for that purpose as
Grantor shall request or as Lender, in Lender's sole discretion, shall deem
appropriate under the circumstances, but failure to honor any request by Grantor
shall not of itself be deemed to be a failure to exercise reasonable care.
Lender shall not be required to take any steps necessary to preserve any rights
in the Collateral against prior parties, nor to protect, preserve or maintain
any security interest given to secure the Indebtedness.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, including without limitation
all taxes, liens, security interests, encumbrances, and other claims, at any
time levied or placed on the Collateral. Lender also may (but shall not be
obligated to) pay all costs for insuring, maintaining and preserving the
Collateral. All such expenditures incurred or paid by Lender for such purposes
will then bear interest at the rate charged under the Note from the date
incurred or paid by Lender to the date of repayment by Grantor. All such
expenses shall become a part of the Indebtedness and, at Lender's option, will
(a) be payable on demand, (b) be added to the balance of the Note and be
apportioned among and be payable with any installment payments to become due
during either (i) the term of any applicable insurance policy or (ii) the
remaining term of the Note, or (c) be treated as a balloon payment which will be
due and payable at the Note's maturity. This Agreement also will secure payment
of these amounts. Such right shall be in addition to all other rights and
remedies to which Lender may be entitled upon the occurrence of an Event of
Default.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
DEFAULT ON INDEBTEDNESS. Failure of Grantor to make any payment when due on
the Indebtedness.
OTHER DEFAULTS. Failure of Grantor to comply with or to perform any other
term, obligation, covenant or condition contained in this Agreement or in
any of the Related Documents or in any other agreement between Lender and
Grantor.
FALSE STATEMENTS. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Grantor under this Agreement, the
Note or the Related Documents is false or misleading in any material
respect, either now or at the time made or furnished.
DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related Documents
ceases to be in full force and effect (including failure of any collateral
documents to create a valid and perfected security interest or lien) at any
time and for any reason.
INSOLVENCY. The dissolution or termination of Grantor's existence as a
going business, the insolvency of Grantor the appointment of a receiver for
any part of Grantor's properly, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Grantor.
<PAGE>
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Grantor or by any
governmental agency against the Collateral or any other collateral securing
the Indebtedness. This includes a garnishment of any of Grantor's deposit
accounts with Lender. However, this Event of Default shall not apply if
there is a good faith dispute by Grantor as to the validity or
reasonableness of the claim which is the basis of the creditor or
forfeiture proceeding and if Grantor gives Lender written notice of the
creditor or forfeiture proceeding and deposits with Lender monies or a
surety bond for the creditor or forfeiture proceeding, in an amount
determined by Lender, in its sole discretion, as being an adequate reserve
or bond for the dispute.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with respect
to any Guarantor of any of the Indebtedness or such Guarantor dies or
becomes incompetent. Lender, at its option, may, but shall not be required
to, permit the Guarantor's estate to assume unconditionally the obligations
arising under the guaranty in a manner satisfactory to Lender, and, in
doing so, cure the Event of Default.
ADVERSE CHANGE. A material adverse change occurs in Grantor's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired.
INSECURITY. Lender, in good faith, deems itself insecure.
RIGHT TO CURE. If any default, other than a Default on Indebtedness, is
curable and if Grantor has not been given a prior notice of a breach of the
same provision of this Agreement, it may be cured (and no Event of Default
will have occurred) if Grantor, after Lender sends written notice demanding
cure of such default, (a) cures the default within fifteen (15) days; or
(b), if the cure requires more than fifteen (15) days, immediately
initiates steps which Lender deems in Lender's sole discretion to be
sufficient to cure the default and thereafter continues and completes all
reasonable and necessary steps sufficient to produce compliance as soon as
reasonably practical.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender shall have all the rights of a secured
party under the Ohio Uniform Commercial Code. In addition and without
limitation, Lender may exercise any one or more of the following rights and
remedies:
ACCELERATE INDEBTEDNESS. Lender may declare the entire Indebtedness,
including any prepayment penalty which Grantor would be required to pay,
immediately due and payable, without notice.
ASSEMBLE COLLATERAL. Lender may require Grantor to deliver to Lender all or
any portion of the Collateral and any and all certificates of title and
other documents relating to the Collateral. Lender may require Grantor to
assemble the Collateral and make it available to Lender at a place to be
designated by Lender. Lender also shall have full power to enter upon the
property of Grantor to take possession of and remove the Collateral. If the
Collateral contains other goods not covered by this Agreement at the time
of repossession, Grantor agrees Lender may take such other goods, provided
that Lender makes reasonable efforts to return them to Grantor after
repossession.
SELL THE COLLATERAL. Lender shall have full power to sell, lease, transfer,
or otherwise deal with the Collateral or proceeds thereof in its own name
or that of Grantor. Lender may sell the Collateral at public auction or
private sale. Unless the Collateral threatens to decline speedily in value
or is of a type customarily sold on a recognized marker, Lender will give
Grantor reasonable notice of the time after which any private sale or any
other intended disposition of the Collateral is to be made. The
requirements of reasonable notice shall be met if such notice is given at
least ten (10) days before the time of the sale or disposition. All
expenses relating to the disposition of the Collateral, including without
limitation the expenses of retaking, holding, insuring, preparing for sale
and selling the Collateral, shall become a part of the Indebtedness secured
by this Agreement and shall be payable on demand, with interest at the Note
rate from date of expenditure until repaid.
APPOINT RECEIVER. To the extent permitted by applicable law, Lender shall
have the following rights and remedies regarding the appointment of a
receiver: (a) Lender may have a receiver appointed as a matter of right,
(b) the receiver may be an employee of Lender and may serve without bond,
and (c) all fees of the receiver and his or her attorney shall become part
of the Indebtedness secured by this Agreement and shall be payable on
demand, with interest at the Note rate from date of expenditure until
repaid.
<PAGE>
COLLECT REVENUES, APPLY ACCOUNTS. Lender, either itself or through a
receiver, may collect the payments, rents, income, and revenues from the
Collateral. Lender may at any time in its discretion transfer any
Collateral into its own name or that of its nominee and receive the
payments, rents, income, and revenues therefrom and hold the same as
security for the Indebtedness or apply it to payment of the Indebtedness in
such order of preference as Lender may determine. Insofar as the Collateral
consists of accounts, general intangibles, insurance policies, instruments,
chattel paper, choses in action, or similar property, Lender may demand,
collect, receipt for, settle, compromise, adjust, sue for, foreclose, or
realize on the Collateral as Lender may determine, whether or not
Indebtedness or Collateral is then due. For these purposes, Lender may, on
behalf of and in the name of Grantor, receive, open and dispose of mail
addressed to Grantor; change any address to which mail and payments are to
be sent, and endorse notes, checks, drafts, money orders, documents of
title, instruments and items pertaining to payment, shipment, or storage of
any Collateral. To facilitate collection, Lender may notify account debtors
and obligors on any Collateral to make payments directly to Lender.
OBTAIN DEFICIENCY. If Lender chooses to sell any or all of the Collateral,
Lender may obtain a judgment against Grantor for any deficiency remaining
on the Indebtedness due to Lender after application of all amounts received
from the exercise of the rights provided in this Agreement. Grantor shall
be liable for a deficiency even if the transaction described in this
subsection is a sale of accounts or chattel paper.
OTHER RIGHTS AND REMEDIES. Lender shall have all the rights and remedies of
a secured creditor under the provisions of the Uniform Commercial Code, as
may be amended from time to time. In addition, Lender shall have and may
exercise any or all other rights and remedies it may have available at law,
in equity, or otherwise.
CUMULATIVE REMEDIES. All of Lender's rights and remedies, whether evidenced
by this Agreement or the Related Documents or by any other writing, shall
be cumulative and may be exercised singularly or concurrently. Election by
Lender to pursue any remedy shall not exclude pursuit of any other remedy,
and an election to make expenditures or to take action to perform an
obligation of Grantor under this Agreement, after Grantor's failure to
perform, shall not affect Lender's right to declare a default and to
exercise its remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Agreement. No alteration of or amendment to this
Agreement shall be effective unless given In writing and signed by
<PAGE>
12-31-1996 COMMERCIAL SECURITY AGREEMENT PAGE 4
LOAN NO R-I001185 (CONTINUED)
================================================================================
the party or parties sought to be charged or bound by the alteration or
amendment.
APPLICABLE LAW. This Agreement has been delivered to Lender and accepted by
Lender in the State of Ohio. If there is a lawsuit, Grantor agrees upon
Lender's request to submit to the jurisdiction of the courts of the State
of Ohio. Lender and Grantor hereby waive the right to any jury trial in any
action, proceeding, or counterclaim brought by either Lender or Grantor
against the other. This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio.
ATTORNEYS FEES; EXPENSES. Grantor agrees to pay upon demand all of Lender's
costs and expenses, including attorneys' fees and Lender's legal expenses,
incurred in connection with the enforcement of this Agreement. Lender may
pay someone else to help enforce this Agreement, and Grantor shall pay the
costs and expenses of such enforcement. Costs and expenses include Lender's
attorneys' fees and legal expenses whether or not there is a lawsuit,
including attorneys fees and legal expenses for bankruptcy proceedings (and
including efforts to modify or vacate any automatic stay or injunction),
appeals, and any anticipated post-judgment collection services. Grantor
also shall pay all court costs and such additional fees as may be directed
by the court.
CAPTION HEADINGS. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
MULTIPLE PARTIES; CORPORATE AUTHORITY. All obligations of Grantor under
this Agreement shall be joint and several and all references to Grantor
shall mean each and every Grantor. This means that each of the persons
signing below is responsible for all obligations in this Agreement.
NOTICES. All notices required to be given under this Agreement shall be
given in writing may be sent by telefacsimile and shall be effective when
actually delivered or when deposited with a nationally recognized overnight
courier or deposited in the United States mail first class postage prepaid
addressed to the party to whom the notice is to be given at the address
shown above. Any party may change its address for notices under this
Agreement by giving formal written notice to the other parties specifying
that the purpose of the notice is to change the party's address. To the
extent permitted by applicable law, if there is more than one Grantor
notice to any Grantor will constitute notice to all Grantors. For notice
purposes Grantor will keep Lender informed at all times of Grantor's
current address(es).
POWER OF ATTORNEY. Grantor hereby appoints Lender as its true and lawful
attorney-in-fact irrevocably with full power of substitution to do the
following: (a) to demand collect receive receipt for sue and recover all
sums of money or other property which may now or hereafter become due owing
or payable from the Collateral; (b) to execute sign and endorse any and all
claims instruments receipts checks drafts or warrants issued in payment for
the Collateral; (c) to settle or compromise any and all claims arising
under the Collateral and in the place and stead of Grantor to execute and
deliver its release and settlement for the claim; and (d) to file any claim
or claims or to take any action or institute or take part in any
proceedings either in its own name or in the name of Grantor or otherwise
which in the discretion of Lender may seem to be necessary or advisable.
This power is given as security for the Indebtedness and the authority
hereby conferred is and shall be irrevocable and shall remain in full force
and effect until renounced by Lender.
<PAGE>
SEVERABILITY. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however if the offending provision
cannot be so modified, it shell be stricken and all other provisions of
this Agreement in all other respects shall remain valid and enforceable.
SUCCESSOR INTERESTS. Subject to the limitations set forth above on transfer
of the Collateral this Agreement shall be binding upon and inure to the
benefit of the parties their successors and assigns.
WAIVER. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender of
a provision of this Agreement shall not prejudice or constitute a waiver of
Lenders right otherwise to demand strict compliance with that provision or
any other provision of this Agreement. No prior waiver by Lender nor any
course of dealing between Lender and Grantor shall constitute a waiver of
any of Lenders rights or of any of Grantors obligations as to any future
transactions. Whenever the consent of Lender is required under this
Agreement the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in the
sole discretion of Lender.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY
AGREEMENT, AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS DATED DECEMBER 31,
1996.
GRANTOR:
E.A. CAREY OF OHIO, INC.
<TABLE>
<S> <C>
BY: /s/ WILLIAM L. MILLER BY: /s/ JEANNE E. MILLER
-------------------------------- ----------------------------------
WILLIAM L. MILLER, PRESIDENT JEANNE E. MILLER, EXECUTIVE VICE PRESIDENT
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CORPORATE RESOLUTION TO GUARANTEE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
$800,000.00 12-31-1996 R-I001185 1465 LED
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
BORROWER: KIDS STUFF INC. (TIN: 32-1843520) LENDER: UNITED NATIONAL BANK & TRUST CO.
7245 WHIPPLE AVE. N.W. P.O. BOX 24190
NORTH CANTON, OH 44720 220 MARKET AVENUE SOUTH
CANTON, OH 44702
GUARANTOR: DUNCAN HILL CO., LTD
7245 WHIPPLE AVE. N.W.
NORTH CANTON, OH 44720
</TABLE>
================================================================================
I, THE UNDERSIGNED SECRETARY OR ASSISTANT SECRETARY OF DUNCAN HILL CO., LTD
(THE "CORPORATION"), HEREBY CERTIFY THAT the Corporation is organized and
existing under and by virtue of the laws of the State of Ohio with its principal
office at 7245 Whipple Ave. N.W., North Canton, OH 44720.
I FURTHER CERTIFY that at a meeting of the Directors of the Corporation, duly
called and held ON DECEMBER 31, 1996, at which a quorum was present and voting,
or by other duly authorized corporate action in lieu of a meeting, the following
resolutions were adopted:
BE IT RESOLVED, that ANY TWO (2) of the following named officers, employees, or
agents of this Corporation, whose actual signatures are shown below:
NAMES POSITIONS ACTUAL SIGNATURES
William L. Miller President /s/ WILLIAM L. MILLER
Jeanne E. Miller Vice President /s/ JEANNE E. MILLER
acting for and on behalf of the Corporation and as its act and deed be, and they
hereby are, authorized and empowered:
GUARANTY. To guarantee or act as surety for loans or other financial
accommodations to Kids Stuff, Inc. from UNITED NATIONAL BANK & TRUST CO.
("Lender") on such guarantee or surety terms as may be agreed upon between
the officers or employees of this Corporation and Lender and in such sum or
sums of money as in their judgment should be guaranteed or assured, not
exceeding, however, at any one time the amount of EIGHT HUNDRED THOUSAND &
00/100 DOLLARS ($ 800,000.00), in addition to such sum or sums of money as
may be currently guaranteed by the Corporation to Lender (the "Guaranty").
GRANT SECURITY. To mortgage, pledge, transfer, endorse, hypothecate, or
otherwise encumber and deliver to Lender, as security for the Guaranty, any
property now or hereafter belonging to the Corporation or in which the
Corporation now or hereafter may have an interest, including without
limitation all real property and all personal property (tangible or
intangible) of the Corporation. Such property may be mortgaged, pledged,
transferred, endorsed, hypothecated, or encumbered at the time such loans
are obtained or such indebtedness is incurred, or at any other time or
times, and may be either in addition to or in lieu of any property
theretofore mortgaged, pledged, transferred, endorsed, hypothecated, or
encumbered. The provisions of these resolutions authorizing or relating to
the pledge, mortgage, transfer, endorsement, hypothecation, granting of a
security interest in, or in any way encumbering, the assets of the
Corporation shall include, without limitation, doing so in order to lend
collateral security for the indebtedness, now or hereafter existing, and of
any nature whatsoever, of Kids Stuff, Inc. to Lender. The Corporation has
considered the value to itself of lending collateral in support of such
indebtedness, and the Corporation represents to Lender that the Corporation
is benefited by doing so.
<PAGE>
EXECUTE SECURITY DOCUMENTS. To execute and deliver to Lender the forms of
mortgage, deed of trust, pledge agreement, hypothecation agreement, and
other security agreements and financing statements which may be submitted by
Lender, and which shall evidence the terms and conditions under and pursuant
to which such liens and encumbrances, or any of them, are given; and also to
execute and deliver to Lender any other written instruments, any chattel
paper, or any other collateral, of any kind or nature, which they may in
their discretion deem reasonably necessary or proper in connection with or
pertaining to the giving of the liens and encumbrances. Notwithstanding the
foregoing, any one of the above authorized persons may execute, deliver, or
record financing statements.
FURTHER ACTS. To do and perform such other acts and things and to execute
and deliver such other documents and agreements, INCLUDING AGREEMENTS
WAIVING THE RIGHT TO A TRIAL BY JURY AND CONFESSING JUDGMENT AGAINST THE
CORPORATION, as they may in their discretion deem reasonably necessary or
proper in order to carry into effect the provisions of these Resolutions.
BE IT FURTHER RESOLVED, that the Corporation will notify Lender in writing at
Lender's address shown above (or such other addresses as Lender may designate
from time to time) prior to any (a) change in the name of the Corporation, (b)
change in the assumed business name(s) of the Corporation, (c) change in the
management of the Corporation, (d) change in the authorized signer(s), (e)
conversion of the Corporation to a new or different type of business entity, or
(f) change in any other aspect of the Corporation that directly or indirectly
relates to any agreements between the Corporation and Lender. No change in the
name of the Corporation will take effect until after Lender has been notified.
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these
resolutions and performed prior to the passage of these Resolutions are hereby
ratified and approved, that these Resolutions shall remain in full force and
effect and Lender may rely on these Resolutions until written notice of their
revocation shall have been delivered to and received by Lender. Any such notice
shall not affect any of the Corporation's agreements or commitments in effect at
the time notice is given.
I FURTHER CERTIFY that the officers, employees, and agents named above are duly
elected, appointed, or employed by or for the Corporation, as the case may be,
and occupy the positions set opposite their respective names; that the foregoing
Resolutions now stand of record on the books of the Corporation; and that the
Resolutions are in full force and effect and have not been modified or revoked
in any manner whatsoever.
IN TESTIMONY WHEREOF, I HAVE HEREUNTO SET MY HAND ON DECEMBER 31, 1996 AND
ATTEST THAT THE SIGNATURES SET OPPOSITE THE NAMES LISTED ABOVE ARE THEIR GENUINE
SIGNATURES.
CERTIFIED TO AND ATTESTED BY:
X /S/ ILLEGIBLE
----------------------
X
----------------------
NOTE: In case the Secretary or other certifying officer is designated by
the foregoing resolutions as one of the signing officers, it is advisable to
have this certificate signed by a second Officer or Director of the Corporation.
<PAGE>
<TABLE>
<CAPTION>
CORPORATE RESOLUTION TO GUARANTEE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
$800,000.00 12-31-1996 R-1001185 1465 LED
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
BORROWER: KIDS STUFF INC. (TIN: 34-1843520) LENDER: UNITED NATIONAL BANK & TRUST CO.
7245 WHIPPLE AVE. N.W. P.O. BOX 24190
NORTH CANTON, OH 44720 220 MARKET AVENUE SOUTH
CANTON, OH 44702
GUARANTOR: E.A CAREY OF OHIO, INC.
7245 WHIPPLE AVE. N.W.
NORTH CANTON, OH 44720
</TABLE>
================================================================================
I, THE UNDERSIGNED SECRETARY OR ASSISTANT SECRETARY OF E.A. CAREY OF OHIO, INC.
(THE "CORPORATION"), HEREBY CERTIFY THAT the Corporation is organized and
existing under and by virtue of the laws of the State of Ohio with its principal
office at 7245 Whipple Ave. N.W., North Canton, OH 44720.
I FURTHER CERTIFY that at a meeting of the Directors of the Corporation, duly
called and held ON DECEMBER 31, 1996, at which a quorum was present and voting,
or by other duly authorized corporate action in lieu of a meeting, the following
resolutions were adopted:
BE IT RESOLVED, that ANY TWO (2) of the following named officers, employees, or
agents of this Corporation, whose actual signatures are shown below:
NAMES POSITIONS ACTUAL SIGNATURES
----- --------- -----------------
William L. Miller President /s/ WILLIAM L. MILLER
Jeanne E. Miller Vice President /s/ JEANNE E. MILLER
acting for and on behalf of the Corporation and as its act and deed be, and they
hereby are, authorized and empowered:
GUARANTY. To guarantee or act as surety for loans or other financial
accommodations to Kids Stuff, Inc. from UNITED NATIONAL BANK & TRUST CO.
("Lender") on such guarantee or surety terms as may be agreed upon between
the officers or employees of this Corporation and Lender and in such sum or
sums of money as in their judgment should be guaranteed or assured, not
exceeding, however, at any one time the amount of EIGHT HUNDRED THOUSAND &
00/100 DOLLARS ($800,000.00), in addition to such sum or sums of money as
may be currently guaranteed by the Corporation to Lender (the "Guaranty").
GRANT SECURITY. To mortgage, pledge, transfer, endorse, hypothecate, or
otherwise encumber and deliver to Lender, as security for the Guaranty, any
property now or hereafter belonging to the Corporation or in which the
Corporation now or hereafter may have an interest, including without
limitation all real property and all personal property (tangible or
intangible) of the Corporation. Such property may be mortgaged, pledged,
transferred, endorsed, hypothecated, or encumbered at the time such loans
are obtained or such indebtedness is incurred, or at any other time or
times, and may be either in addition to or in lieu of any property
theretofore mortgaged, pledged, transferred, endorsed, hypothecated, or
encumbered. The provisions of these Resolutions authorizing or relating to
the pledge, mortgage, transfer, endorsement, hypothecation, granting of a
security interest in, or in any way encumbering, the assets of the
Corporation shall include, without limitation, doing so in order to lend
collateral security for the indebtedness, now or hereafter existing, and of
any nature whatsoever, of Kids Stuff, Inc. to Lender. The Corporation has
considered the value to itself of lending collateral in support of such
indebtedness, and the Corporation represents to Lender that the Corporation
is benefited by doing so.
<PAGE>
EXECUTE SECURITY DOCUMENTS. To execute and deliver to Lender the forms of
mortgage, deed of trust, pledge agreement, hypothecation agreement, and
other security agreements and financing statements which may be submitted by
Lender, and which shall evidence the terms and conditions under and pursuant
to which such liens and encumbrances, or any of them, are given; and also to
execute and deliver to Lender any other written instruments, any chattel
paper, or any other collateral, of any kind or nature, which they may in
their discretion deem reasonably necessary or proper in connection with or
pertaining to the giving of the liens and encumbrances. Notwithstanding the
foregoing, any one of the above authorized persons may execute, deliver, or
record financing statements.
FURTHER ACTS. To do and perform such other acts and things and to execute
and deliver such other documents and agreements, INCLUDING AGREEMENTS
WAIVING THE RIGHT TO A TRIAL BY JURY AND CONFESSING JUDGMENT AGAINST THE
CORPORATION, as they may in their discretion deem reasonably necessary or
proper in order to carry into effect the provisions of these Resolutions.
BE IT FURTHER RESOLVED, that the Corporation will notify Lender in writing at
Lender's address shown above (or such other addresses as Lender may designate
from time to time) prior to any (a) change in the name of the Corporation, (b)
change in the assumed business name(s) of the Corporation, (c) change in the
management of the Corporation, (d) change in the authorized signer(s), (e)
conversion of the Corporation to a new or different type of business entity, or
(f) change in any other aspect of the Corporation that directly or indirectly
relates to any agreements between the Corporation and Lender. No change in the
name of the Corporation will take effect until after Lender has been notified.
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these
Resolutions and performed prior to the passage of these Resolutions are hereby
ratified and approved, that these Resolutions shall remain in full force and
effect and Lender may rely on these Resolutions until written notice of their
revocation shall have been delivered to and received by Lender. Any such notice
shall not affect any of the Corporation's agreements or commitments in effect at
the time notice is given.
I FURTHER CERTIFY that the officers, employees, and agents named above are duly
elected, appointed, or employed by or for the Corporation, as the case may be,
and occupy the positions set opposite their respective names; that the foregoing
Resolutions now stand of record on the books of the Corporation; and that the
Resolutions are in full force and effect and have not been modified or revoked
in any manner whatsoever.
IN TESTIMONY WHEREOF, I HAVE HEREUNTO SET MY HAND ON DECEMBER 31, 1996 AND
ATTEST THAT THE SIGNATURES SET OPPOSITE THE NAMES LISTED ABOVE ARE THEIR GENUINE
SIGNATURES.
CERTIFIED TO AND ATTESTED BY:
X /S/ ILLEGIBLE
----------------------
X ----------------------
NOTE: In case the Secretary or other certifying officer is designated by
the foregoing resolutions as one of the signing officers, it is advisable to
have this certificate signed by a second Officer or Director of the Corporation.
<PAGE>
<TABLE>
<CAPTION>
CORPORATE RESOLUTION TO BORROW
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
$800,000.00 12-31-1996 R-I001185 1465 LED
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item
BORROWER: KIDS STUFF INC. (TIN: 34-1843520) LENDER: UNITED NATIONAL BANK & TRUST CO.
7245 WHIPPLE AVE. N.W. P.O. BOX 24190
NORTH CANTON, OH 44720 220 MARKET AVENUE SOUTH
CANTON, OH 44702
</TABLE>
================================================================================
I, THE UNDERSIGNED SECRETARY OR ASSISTANT SECRETARY OF KIDS STUFF, INC. (THE
"CORPORATION"), HEREBY CERTIFY THAT the Corporation is organized and existing
under and by virtue of the laws of the State of Ohio as a corporation for
profit, with its principal office at 7245 Whipple Ave. N.W., North Canton, OH
44720, and is duly authorized to transact business in the State of Ohio.
I FURTHER CERTIFY that at a meeting of the Directors of the Corporation, duly
called and held ON DECEMBER 3l, 1996, at which a quorum was present and voting,
or by other duly authorized corporate action in lieu of a meeting, the following
resolutions were adopted:
BE IT RESOLVED, that ANY TWO (2) of the following named officers, employees, or
agents of this Corporation, whose actual signatures are shown below:
NAMES POSITIONS ACTUAL SIGNATURES
----- --------- -----------------
William L. Miller President /s/ WILLIAM L. MILLER
Jeanne E. Miller Executive Vice President /s/ JEANNE E. MILLER
acting for and on behalf of the Corporation and as its act and deed be, and they
hereby are, authorized and empowered:
BORROW MONEY. To borrow from time to time from UNITED NATIONAL BANK & TRUST
CO. ("Lender"), on such terms as may be agreed upon between the Corporation
and Lender, such sum or sums of money as in their judgment should be
borrowed, without limitation.
EXECUTE NOTES. To execute and deliver to Lender the promissory note or
notes, or other evidence of credit accommodations of the Corporation, on
Lender's forms, at such rates of interest and on such terms as may be
agreed upon, evidencing the sums of money so borrowed or any indebtedness
of the Corporation to Lender, and also to execute and deliver to Lender one
or more renewals, extensions, modifications, refinancings, consolidations,
or substitutions for one or more of the notes, any portion of the notes, or
any other evidence of credit accommodions.
GRANT SECURITY. To mortgage, pledge, transfer, endorse, hypothecate, or
otherwise encumber and deliver to Lender, as security for the payment of
any loans or credit accommoditions so obtained, any promissory notes so
executed (including any amendments to or modifications, renewals, and
extensions of such promissory notes), or any other or further indebtedness
of the Corporation to Lender at any time owing, however the same may be
evidenced, any property now or hereafter belonging to the Corporation or in
which the Corporation now or hereafter may have an interest, including
without limitation all real property and all personal property (tangible or
intangible) of the Corporation. Such property may be mortgaged, pledged,
transferred, endorsed, hypothecated, or encumbered at the time such loans
are obtained or such indebtedness is incurred, or at any other time or
times, and may be either in addition to or in lieu of any property
theretofore mortgaged, pledged, transferred, endorsed, hypothecated, or
encumbered.
EXECUTE SECURITY DOCUMENTS. To execute and deliver to Lender the forms of
mortgage, deed of trust, pledge agreement, hypothecation agreement, and
other security agreements and financing statements which may be submitted
by Lender, and which shall evidence the terms and conditions under and
pursuant to which such liens and encumbrances, or any of them, are given;
and also to execute and deliver to Lender any other written instruments,
any chattel paper, or any other collateral, of any kind or nature, which
they may in their discretion deem reasonably necessary or proper in
connection with or pertaining to the giving of the liens and encumbrances.
Notwithstanding the foregoing, any one of the above authorized persons may
execute, deliver, or record financing statements.
<PAGE>
NEGOTIATE ITEMS. To draw, endorse, and discount with Lender all drafts,
trade acceptances, promissory notes, or other evidences of indebtedness
payable to or belonging to the Corporation in which the Corporation may
have an interest, and either to receive cash for the same or to cause such
proceeds to be credited to the account of the Corporation with Lender, or
to cause such other disposition of the proceeds derived therefrom as they
may deem advisable.
LEVELS OF AUTHORITY. Notwithstanding any other provision of these
Resolutions, the following provisions shall apply with respect to levels of
authority: President, Executive Vice President.
FURTHER ACTS. In the case of lines of credit, to designate additional or
alternate individuals as being authorized to request advances thereunder,
and in all cases, to do and perform such other acts and things, to pay any
and all fees and costs, and to execute and deliver such other documents and
agreements, INCLUDING AGREEMENTS WAIVING THE RIGHT TO A TRIAL BY JURY AND
CONFESSING JUDGMENT AGAINST THE CORPORATION, as they may in their
discretion deem reasonably necessary or proper in order to carry into
effect the provisions of these Resolutions. The following person or persons
currently are authorized to request advances and authorize payments under
the line of credit until Lender receives written notice of revocation of
their authority: William L. Miller, President; and Jeanne E. Miller,
Executive Vice President.
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these
Resolutions and performed prior to the passage of these Resolutions are hereby
ratified and approved, that these Resolutions shall remain in full force and
effect and Lender may rely on these Resolutions until written notice of their
revocation shall have been delivered to and received by Lender. Any such notice
shall not affect any of the Corporation's agreements or commitments in effect at
the time notice is given.
BE IT FURTHER RESOLVED, that the Corporation will notify Lender in writing at
Lender's address shown above (or such other addresses as Lender may designate
from time to time) prior to any (a) change in the name of the Corporation, (b)
change in the assumed business name(s) of the Corporation, (c) change in the
management of the Corporation, (d) change in the authorized signer(s), (e)
conversion of the Corporation to a new or different type of business entity, or
(f) change in any other aspect of the Corporation that directly or indirectly
relates to any agreements between the Corporation and Lender. No change in the
name of the Corporation will take effect until after Lender has been notified.
I FURTHER CERTIFY that the officers, employees, and agents named above are duly
elected, appointed, or employed by or for the Corporation, as the case may be,
and occupy the positions set opposite their respective names; that the foregoing
Resolutions now stand of record on the books of the Corporation; and that the
Resolutions are in full force and effect and have not been modified or revoked
in any manner whatsoever. The Corporation has no corporate seal, and therefore,
no seal is affixed to this certificate.
IN TESTIMONY WHEREOF, I HAVE HEREUNTO SET MY HAND ON DECEMBER 31, 1996 AND
ATTEST THAT THE SIGNATURES SET OPPOSITE THE NAMES LISTED ABOVE ARE THEIR
GENUINE SIGNATURES.
CERTIFIED TO AND ATTESTED BY:
X /S/ ILLEGIBLE
----------------------
X
----------------------
NOTE: In case the Secretary or other certifying officer is designated by
the foregoing resolutions as one of the signing officers, it is advisable to
have this certificate signed by a second Officer or Director of the Corporation.
<PAGE>
<TABLE>
<CAPTION>
AGREEMENT TO PROVIDE INSURANCE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
$800,000.00 12-31-1996 R-I001185 1465 LED
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
BORROWER: KIDS STUFF INC. (TIN: 34-1843520) LENDER: UNITED NATIONAL BANK & TRUST CO.
7245 WHIPPLE AVE. N.W. P.O. BOX 24190
NORTH CANTON, OH 44720 220 MARKET AVENUE SOUTH
CANTON, OH 44702
</TABLE>
================================================================================
INSURANCE REQUIREMENTS. Kids Stuff, Inc. ("Grantor") understands that
insurance coverage is required in connection with the extending of a loan or the
providing of other financial accommodations to Grantor by Lender. These
requirements are set forth in the security documents. The following minimum
insurance coverages must be provided on the following described collateral (the
"Collateral"):
COLLATERAL: ALL INVENTORY, EQUIPMENT AND FIXTURES, INCLUDING, BUT NOT LIMITED TO
THE CUSTOMER MAILING LIST; PATENTS, TRADEMARKS, COPYRIGHTS,
INSURANCE PROCEEDS, LEASES AND MOTOR VEHICLES NOW EXISTING OR
HEREINAFTER ACQUIRED OR IN THE PROCEEDS THEREOF;
TYPE. All risks, including fire, theft and liability.
AMOUNT. $800,000.00.
BASIS. Replacement value.
ENDORSEMENTS. Lender's loss payable clause with stipulation that
coverage will not be cancelled or diminished without a minimum of
ten (10) days' prior written notice to Lender.
INSURANCE COMPANY. Grantor may obtain insurance from any insurance company
Grantor may choose that is reasonably acceptable to Lender. Grantor understands
that credit may not be denied solely because insurance was not purchased through
Lender.
INSURANCE MAILING ADDRESS. All documents and other materials relating to
insurance for this loan should be mailed, delivered or directed to the following
address:
UNITED NATIONAL BANK & TRUST
ATTN: LOAN SUPPORT
624 MARKET AVENUE NORTH
CANTON, OH 44702
FAILURE TO PROVIDE INSURANCE. Grantor agrees to deliver to Lender, fifteen (15)
days from the date of this Agreement, evidence of the required insurance as
provided above, with an effective date of December 31, 1996, or earlier. Grantor
acknowledges and agrees that if Grantor fails to provide any required insurance
or fails to continue such insurance in force, Lender may do so at Grantor's
expense as provided in the applicable security document. The cost of any such
insurance, at the option of Lender, shall be payable on demand or shall be added
to the indebtedness as provided in the security document. GRANTOR ACKNOWLEDGES
THAT IF LENDER SO PURCHASES ANY SUCH INSURANCE, THE INSURANCE WILL PROVIDE
LIMITED PROTECTION AGAINST PHYSICAL DAMAGE TO THE COLLATERAL, UP TO THE BALANCE
OF THE LOAN; HOWEVER, GRANTOR'S EQUITY IN THE COLLATERAL MAY NOT BE INSURED. IN
ADDITION, THE INSURANCE MAY NOT PROVIDE ANY PUBLIC LIABILITY OR PROPERTY DAMAGE
INDEMNIFICATION AND MAY NOT MEET THE REQUIREMENTS OF ANY FINANCIAL
RESPONSIBILITY LAWS.
<PAGE>
AUTHORIZATION. For purposes of insurance coverage on the Collateral, Grantor
authorizes Lender to provide to any person (including any insurance agent or
company) all information Lender deems appropriate, whether regarding the
Collateral, the loan or other financial accommodations, or both.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS AGREEMENT TO
PROVIDE INSURANCE AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED DECEMBER
31, 1996.
GRANTOR:
KIDS STUFF, INC.
By: /s/ WILLIAM L. MILLER By: /s/ JEANNE E. MILLER
---------------------------- ---------------------------
WILLIAM L. MILLER, PRESIDENT JEANNE E. MILLER, EXECUTIVE
VICE PRESIDENT
FOR LENDER USE ONLY
INSURANCE VERIFICATION
DATE:___________________________________ PHONE: (216) 455-1904
AGENT'S NAME: LEONARD INSURANCE
ADDRESS: 220 MARKET AVE. S., CANTON, OHIO 44702
INSURANCE COMPANY: CINCINNATI INSURANCE
POLICY NUMBER(S): CPP5003933AWR
EFFECTIVE DATES:______________________________________________________
COMMENTS:_____________________________________________________________
<PAGE>
<TABLE>
<CAPTION>
NOTICE OF INSURANCE REQUIREMENTS
<S> <C> <C> <C> <C> <C> <C> <C>
LOAN DATE LOAN NO CALL COLLATERAL CUSTOMER NO OFFICER INITIALS
12-31-1996 R-1001185 1465 LED
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
BORROWER: KIDS STUFF INC. (TIN: 34-1843520) LENDER: UNITED NATIONAL BANK & TRUST CO.
7245 WHIPPLE AVE. N.W. P.O. BOX 24190
NORTH CANTON, OH 44720 220 MARKET AVENUE SOUTH
CANTON, OH 44702
</TABLE>
================================================================================
TO: LEONARD INSURANCE
CINCINNATI INSURANCE
220 MARKET AVE. S.
CANTON, OHIO 44702 DATE: December 31, 1996
DEAR INSURANCE AGENT:
RE: POLICY NUMBER(S): CPP5003933AWR
KIDS STUFF, INC. ("GRANTOR") IS OBTAINING A LOAN FROM UNITED NATIONAL BANK &
TRUST CO. PLEASE SEND APPROPRIATE EVIDENCE OF INSURANCE TO UNITED NATIONAL BANK
& TRUST CO., TOGETHER WITH THE REQUESTED ENDORSEMENTS, ON THE FOLLOWING
PROPERTY, WHICH BORROWER IS GIVING AS SECURITY FOR THE LOAN.
COLLATERAL: ALL INVENTORY, EQUIPMENT AND FIXTURES, INCLUDING, BUT NOT LIMITED TO
THE CUSTOMER MAILING LIST; PATENTS, TRADEMARKS, COPYRIGHTS,
INSURANCE PROCEEDS, LEASES AND MOTOR VEHICLES NOW EXISTING OR
HEREINAFTER ACQUIRED OR IN THE PROCEEDS THEREOF;.
TYPE. All risks, including fire, theft and liability.
AMOUNT. $800,000.00.
BASIS. Replacement value.
ENDORSEMENTS. Lender's loss payable clause with stipulation that
coverage will not be cancelled or diminished without a minimum of
ten (10) days' prior written notice to Lender.
BORROWER:
KIDS STUFF, INC.
BY: /s/ WILLIAM L. MILLER /s/ JEANNE E. MILLER
---------------------------- ---------------------------
WILLIAM L. MILLER, PRESIDENT JEANNE E. MILLER, EXECUTIVE
VICE PRESIDENT
MAIL TO:
UNITED NATIONAL BANK & TRUST
ATTN: LOAN SUPPORT
624 MARKET AVENUE NORTH
CANTON, OH 44702
<PAGE>
<TABLE>
<CAPTION>
This FINANCING STATEMENT is presented to a filing officer for filing pursuant to
the Uniform Commercial Code.
<S> <C> <C>
1 Debtor(s) (Last Name First) and Address(es) 2 Secured Party(ies) and Address(es) 3 For Filing Officer
E.A. CAREY OF OHIO, INC. UNITED NATIONAL BANK & TRUST CO. (Date, Time, Number, and Filing Office)
7245 WHIPPLE AVE. N.W. P.O. BOX 24190
NORTH CANTON, OH 44720 220 MARKET AVENUE SOUTH
CANTON, OH 44702
4 This financing statement covers the following types (or items) of property:
ALL INVENTORY, CHATTEL PAPER, ACCOUNTS, EQUIPMENT, GENERAL INTANGIBLES AND
FIXTURES; TOGETHER WITH THE FOLLOWING SPECIFICALLY DESCRIBED PROPERTY:
INCLUDING, BUT NOT LIMITED TO THE CUSTOMER MAILING LIST; PATENTS, TRADEMARKS,
COPYRIGHTS, INSURANCE PROCEEDS, LEASES AND MOTOR VEHICLES NOW EXISTING OR
HEREINAFTER ACQUIRED OR IN THE PROCEEDS THEREOF; WHETHER ANY OF THE FOREGOING IS
OWNED NOW OR ACQUIRED LATER; ALL ACCESSIONS, ADDITIONS, REPLACEMENTS, AND
SUBSTITUTIONS RELATING TO ANY OF THE FOREGOING; ALL RECORDS OF ANY KIND RELATING
TO ANY OF THE FOREGOING; ALL PROCEEDS RELATING TO ANY OF THE FOREGOING
(INCLUDING INSURANCE, GENERAL INTANGIBLES AND OTHER ACCOUNTS PROCEEDS).
Check [X] if covered: [X] Products of Collateral are also covered No. of additional sheets presented:
Filed with: STARK COUNTY RECORDER
E.A. Carey of Ohio, Inc. (USE WHICHEVER SIGNATURE LINE IS APPLICABLE)
WILLIAM L. MILLER, PRESIDENT AND JEANNE E. MILLER, VICE PRESIDENT UNITED NATIONAL BANK & TRUST CO.
By: /s/ WILLIAM L. MILLER By:
-------------------------- ---------------------------------
Signature(s) of Debtor(s) Signature(s) of Secured Party(ies)
By:___________________________ Leo E. Doyle, Senior Vice President &
& Executive Officer
</TABLE>
- --------------------------------------------------------------------------------
(1) FILING OFFICER COPY - ALPHABETICAL
STANDARD FORM - UNIFORM COMMERCIAL CODE - FORM UCC-1
<PAGE>
<TABLE>
<CAPTION>
This FINANCING STATEMENT is presented to a filing officer for filing pursuant to
the Uniform Commercial Code.
<S> <C> <C>
1 Debtor(s) (Last Name First) and Address(es) 2 Secured Party(ies) and Address(es) 3 For Filing Officer
E.A. CAREY OF OHIO, INC. UNITED NATIONAL BANK & TRUST CO. (Date, Time, Number, and Filing Office)
7245 WHIPPLE AVE. N.W. P.O. BOX 24190
NORTH CANTON, OH 44720 220 MARKET AVENUE SOUTH
CANTON, OH 44702
4 This financing statement covers the following types (or items) of property:
ALL INVENTORY, CHATTEL PAPER, ACCOUNTS, EQUIPMENT, GENERAL INTANGIBLES AND
FIXTURES; TOGETHER WITH THE FOLLOWING SPECIFICALLY DESCRIBED PROPERTY:
INCLUDING, BUT NOT LIMITED TO THE CUSTOMER MAILING LIST; PATENTS, TRADEMARKS,
COPYRIGHTS, INSURANCE PROCEEDS, LEASES AND MOTOR VEHICLES NOW EXISTING OR
HEREINAFTER ACQUIRED OR IN THE PROCEEDS THEREOF; WHETHER ANY OF THE FOREGOING IS
OWNED NOW OR ACQUIRED LATER; ALL ACCESSIONS, ADDITIONS, REPLACEMENTS, AND
SUBSTITUTIONS RELATING TO ANY OF THE FOREGOING; ALL RECORDS OF ANY KIND RELATING
TO ANY OF THE FOREGOING; ALL PROCEEDS RELATING TO ANY OF THE FOREGOING
(INCLUDING INSURANCE, GENERAL INTANGIBLES AND OTHER ACCOUNTS PROCEEDS).
Check [X] if covered: [X] Products of Collateral are also covered No. of additional sheets presented:
Filed with: SECRETARY OF STATE OF OHIO
E.A. Carey of Ohio, Inc. (USE WHICHEVER SIGNATURE LINE IS APPLICABLE)
WILLIAM L. MILLER, PRESIDENT AND JEANNE E. MILLER, VICE PRESIDENT UNITED NATIONAL BANK & TRUST CO.
By: /s/ WILLIAM L. MILLER By:
-------------------------- ---------------------------------
Signature(s) of Debtor(s) Signature(s) of Secured Party(ies)
By:___________________________ Leo E. Doyle, Senior Vice President &
Executive Officer
</TABLE>
- --------------------------------------------------------------------------------
(1) FILING OFFICER COPY - ALPHABETICAL
STANDARD FORM - UNIFORM COMMERCIAL CODE - FORM UCC-1
<PAGE>
<TABLE>
<CAPTION>
This FINANCING STATEMENT is presented to a filing officer for filing pursuant to
the Uniform Commercial Code.
<S> <C> <C>
1 Debtor(s) (Last Name First) and Address(es) 2 Secured Party(ies) and Address(es) 3 For Filing Officer
DUNCAN HILL CO., LTD UNITED NATIONAL BANK & TRUST CO. (Date, Time, Number, and Filing Office)
7245 WHIPPLE AVE. N.W. P.O. BOX 24190
NORTH CANTON, OH 44720 220 MARKET AVENUE SOUTH
CANTON, OH 44702
4 This financing statement covers the following types (or items) of property:
ALL INVENTORY, CHATTEL PAPER, ACCOUNTS, EQUIPMENT, GENERAL INTANGIBLES AND
FIXTURES; TOGETHER WITH THE FOLLOWING SPECIFICALLY DESCRIBED PROPERTY:
INCLUDING, BUT NOT LIMITED TO THE CUSTOMER MAILING LIST; PATENTS, TRADEMARKS,
COPYRIGHTS, INSURANCE PROCEEDS, LEASES AND MOTOR VEHICLES NOW EXISTING OR
HEREINAFTER ACQUIRED OR IN THE PROCEEDS THEREOF; WHETHER ANY OF THE FOREGOING IS
OWNED NOW OR ACQUIRED LATER; ALL ACCESSIONS, ADDITIONS, REPLACEMENTS, AND
SUBSTITUTIONS RELATING TO ANY OF THE FOREGOING; ALL RECORDS OF ANY KIND RELATING
TO ANY OF THE FOREGOING; ALL PROCEEDS RELATING TO ANY OF THE FOREGOING
(INCLUDING INSURANCE, GENERAL INTANGIBLES AND OTHER ACCOUNTS PROCEEDS).
Check [X] if covered: [X] Products of Collateral are also covered No. of additional sheets presented:
Filed with: STARK COUNTY RECORDER
Duncan Hill Co., LTD (USE WHICHEVER SIGNATURE LINE IS APPLICABLE)
WILLIAM L. MILLER, PRESIDENT AND JEANNE E. MILLER, VICE PRESIDENT UNITED NATIONAL BANK & TRUST CO.
BY: /s/ WILLIAM L. MILLER By:
-------------------------- ---------------------------------
Signature(s) of Debtor(s) Signature(s) of Secured Party(ies)
By:___________________________ Leo E. Doyle, Senior Vice President &
Executive Officer
</TABLE>
- --------------------------------------------------------------------------------
(1) FILING OFFICER COPY - ALPHABETICAL
STANDARD FORM - UNIFORM COMMERCIAL CODE - FORM UCC-1
<PAGE>
<TABLE>
<CAPTION>
This FINANCING STATEMENT is presented to a filing officer for filing pursuant to
the Uniform Commercial Code.
<S> <C> <C>
1 Debtor(s) (Last Name First) and Address(es) 2 Secured Party(ies) and Address(es) 3 For Filing Officer
DUNCAN HILL CO., LTD UNITED NATIONAL BANK & TRUST CO. (Date, Time, Number, and Filing Office)
7245 WHIPPLE AVE. N.W. P.O. BOX 24190
NORTH CANTON, OH 44720 220 MARKET AVENUE SOUTH
CANTON, OH 44702
4 This financing statement covers the following types (or items) of property:
ALL INVENTORY, CHATTEL PAPER, ACCOUNTS, EQUIPMENT, GENERAL INTANGIBLES AND
FIXTURES; TOGETHER WITH THE FOLLOWING SPECIFICALLY DESCRIBED PROPERTY:
INCLUDING, BUT NOT LIMITED TO THE CUSTOMER MAILING LIST; PATENTS, TRADEMARKS,
COPYRIGHTS, INSURANCE PROCEEDS, LEASES AND MOTOR VEHICLES NOW EXISTING OR
HEREINAFTER ACQUIRED OR IN THE PROCEEDS THEREOF; WHETHER ANY OF THE FOREGOING IS
OWNED NOW OR ACQUIRED LATER; ALL ACCESSIONS, ADDITIONS, REPLACEMENTS, AND
SUBSTITUTIONS RELATING TO ANY OF THE FOREGOING; ALL RECORDS OF ANY KIND RELATING
TO ANY OF THE FOREGOING; ALL PROCEEDS RELATING TO ANY OF THE FOREGOING
(INCLUDING INSURANCE, GENERAL INTANGIBLES AND OTHER ACCOUNTS PROCEEDS).
Check [X] if covered: [X] Products of Collateral are also covered No. of additional sheets presented:
Filed with: SECRETARY OF STATE OF OHIO
Duncan Hill Co., LTD. (USE WHICHEVER SIGNATURE LINE IS APPLICABLE)
WILLIAM L. MILLER, PRESIDENT AND JEANNE E. MILLER, VICE PRESIDENT UNITED NATIONAL BANK & TRUST CO.
BY: WILLIAM L. MILLER By:
-------------------------- ---------------------------------
Signature(s) of Debtor(s) Signature(s) of Secured Party(ies)
By:___________________________ Leo E. Doyle, Senior Vice President &
Executive Officer
</TABLE>
- --------------------------------------------------------------------------------
(1) FILING OFFICER COPY - ALPHABETICAL
STANDARD FORM - UNIFORM COMMERCIAL CODE - FORM UCC-1
<PAGE>
<TABLE>
<CAPTION>
This FINANCING STATEMENT is presented to a filing officer for filing pursuant to
the Uniform Commercial Code.
<S> <C> <C>
1 Debtor(s) (Last Name First) and Address(es) 2 Secured Party(ies) and Address(es) 3 For Filing Officer
KIDS STUFF, INC. UNITED NATIONAL BANK & TRUST CO. (Date, Time, Number, and Filing Office)
7245 WHIPPLE AVE. N.W. P.O. BOX 24190
NORTH CANTON, OH 44720 220 MARKET AVENUE SOUTH
CANTON, OH 44702
4 This financing statement covers the following types (or items) of property:
ALL INVENTORY, CHATTEL PAPER, ACCOUNTS, EQUIPMENT, GENERAL INTANGIBLES AND
FIXTURES; TOGETHER WITH THE FOLLOWING SPECIFICALLY DESCRIBED PROPERTY:
INCLUDING, BUT NOT LIMITED TO THE CUSTOMER MAILING LIST; PATENTS, TRADEMARKS,
COPYRIGHTS, INSURANCE PROCEEDS, LEASES AND MOTOR VEHICLES NOW EXISTING OR
HEREINAFTER ACQUIRED OR IN THE PROCEEDS THEREOF; WHETHER ANY OF THE FOREGOING IS
OWNED NOW OR ACQUIRED LATER; ALL ACCESSIONS, ADDITIONS, REPLACEMENTS, AND
SUBSTITUTIONS RELATING TO ANY OF THE FOREGOING; ALL RECORDS OF ANY KIND RELATING
TO ANY OF THE FOREGOING; ALL PROCEEDS RELATING TO ANY OF THE FOREGOING
(INCLUDING INSURANCE, GENERAL INTANGIBLES AND OTHER ACCOUNTS PROCEEDS).
Check [X] if covered: [X] Products of Collateral are also covered No. of additional sheets presented:
Filed with: STARK COUNTY RECORDER
Kids Stuff, Inc. (USE WHICHEVER SIGNATURE LINE IS APPLICABLE)
WILLIAM L. MILLER, PRESIDENT AND JEANNE E. MILLER, VICE PRESIDENT UNITED NATIONAL BANK & TRUST CO.
BY: /s/ WILLIAM L. MILLER By:
-------------------------- ---------------------------------
Signature(s) of Debtor(s) Signature(s) of Secured Party(ies)
By:___________________________ Leo E. Doyle, Senior Vice President &
Executive Officer
</TABLE>
- --------------------------------------------------------------------------------
(1) FILING OFFICER COPY - ALPHABETICAL
STANDARD FORM - UNIFORM COMMERCIAL CODE - FORM UCC-1
<PAGE>
<TABLE>
<CAPTION>
This FINANCING STATEMENT is presented to a filing officer for filing pursuant to
the Uniform Commercial Code.
<S> <C> <C>
1 Debtor(s) (Last Name First) and Address(es) 2 Secured Party(ies) and Address(es) 3 For Filing Officer
KIDS STUFF, INC. UNITED NATIONAL BANK & TRUST CO. (Date, Time, Number, and Filing Office)
7245 WHIPPLE AVE. N.W. P.O. BOX 24190
NORTH CANTON, OH 44720 220 MARKET AVENUE SOUTH
CANTON, OH 44702
4 This financing statement covers the following types (or items) of property:
ALL INVENTORY, CHATTEL PAPER, ACCOUNTS, EQUIPMENT, GENERAL INTANGIBLES AND
FIXTURES; TOGETHER WITH THE FOLLOWING SPECIFICALLY DESCRIBED PROPERTY:
INCLUDING, BUT NOT LIMITED TO THE CUSTOMER MAILING LIST; PATENTS, TRADEMARKS,
COPYRIGHTS, INSURANCE PROCEEDS, LEASES AND MOTOR VEHICLES NOW EXISTING OR
HEREINAFTER ACQUIRED OR IN THE PROCEEDS THEREOF; WHETHER ANY OF THE FOREGOING IS
OWNED NOW OR ACQUIRED LATER; ALL ACCESSIONS, ADDITIONS, REPLACEMENTS, AND
SUBSTITUTIONS RELATING TO ANY OF THE FOREGOING; ALL RECORDS OF ANY KIND RELATING
TO ANY OF THE FOREGOING; ALL PROCEEDS RELATING TO ANY OF THE FOREGOING
(INCLUDING INSURANCE, GENERAL INTANGIBLES AND OTHER ACCOUNTS PROCEEDS).
Check [X] if covered: [X] Products of Collateral are also covered No. of additional sheets presented:
Filed with: SECRETARY OF STATE OF OHIO
Kids Stuff, Inc. (USE WHICHEVER SIGNATURE LINE IS APPLICABLE)
WILLIAM L. MILLER, PRESIDENT AND JEANNE E. MILLER, VICE PRESIDENT UNITED NATIONAL BANK & TRUST CO.
BY: /s/ WILLIAM L. MILLER By:
-------------------------- ---------------------------------
Signature(s) of Debtor(s) Signature(s) of Secured Party(ies)
By:___________________________ Leo E. Doyle, Senior Vice President &
Executive Officer
</TABLE>
- --------------------------------------------------------------------------------
(1) FILING OFFICER COPY - ALPHABETICAL
STANDARD FORM - UNIFORM COMMERCIAL CODE - FORM UCC-1
EXHIBIT 10.10
OSTENDORF
MORRIS
[LOGO]
COLLIERS
International
STANDARD OFFICE LEASE
OSTENDORF-MORRIS COMPANY
LEASE AGREEMENT (herein called the "Lease") entered into as of the__day
of__ , 199_ , between Sun Life Assurance Co. of Canada a Corporation (herein
called "Lessor"), and Duncan Hill Co., Ltd a corporation (herein
called "Lessee").
WITNESSETH:
1. DEMISE. For the rent and term and upon the terms, conditions,
limitations and provisions hereinafter set forth, Lessor leases to Lessee and
Lessee hires from Lessor approximately 6,170 rentable square feet of office
space and 1,200 rentable square feet of retail space (herein called the
"Premises") and identified as Suite Number 406 and a portion of Suite 4408
respectively, as shown outlined and crosshatched in Black, on Exhibit A and
Exhibit B, respectively, attached hereto, in the building known as Belden
Village Tower (herein called the "Building") located at 4450 Belden Village
Street, N.W., Canton, Ohio, 44718.
2. TERM. The term of this Lease shall be two (2) years , beginning on the
1st day of October, 1996, and ending on the 30th day of September, 1998,
unless sooner terminated as hereinafter provided.
3. USE. Lessee shall use and occupy the premises only for office use and
retail sales and for no other purposes.
4. ANNUAL BASE RENT. Lessee shall pay Lessor as rent for the premises, the
sum AS SHOWN ON ATTACHED RIDER ONE PARAGRAPH 41 , payable in advance, without
deduction or set-off, in legal tender of the United States of America, on the
first day of each and every calendar month of the term, at the offices of
Ostendorf-Morris Company (hereinafter called the "Company"), The Diamond
Building, 1100 Superior Avenue, Cleveland, Ohio 44114, or at such other place as
Lessor may, from time to time, in writing designate. Any rent or other sums
payable by Lessee to Lessor under this Lease which are not paid within five (5)
days after they first become due, will be subject to a late charge of five
1
<PAGE>
percent (5%) of the amount due. Such late charges will be due and payable as
additional rent on or before the next day on which an installment of rent is
due. Any rent, late charges or other sums payable by Lessee to Lessor under this
Lease which are not paid when due will bear interest at a rate equal to eighteen
percent (18%) per annum, such interest to commence on the date that said payment
was first due and payable, or, at the Lessor's election, if a late charge is
assessed, fifteen (15) days after the date said payment was first due and
payable. Such interest will be due and payable as additional rent on or before
the next installment of rent and will accrue until paid from the date thereof.
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6. SECURITY DEPOSIT. Lessee has deposited with Lessor the sum of Six
Thousand One Hundred Ninety Eight and 75/100 Dollars ($ 6,198.75) as security
(herein called the "security deposit" for the full and faithful performance of
every term and provision of this Lease by Lessee. If Lessee defaults in the
performance of any term or provision hereof, including failure to pay any rent,
adjustments to rent, additional rent or other charges which Lessee is or becomes
obligated to pay, or Lessor otherwise suffers any loss, cost, expense or damage
as a result of any default by Lessee hereunder, Lessor may apply the security
deposit in respect to such default. If all or any portion of the security
deposit is so applied, upon demand by Lessor or Company, Lessee shall
immediately deposit with Lessor a sum sufficient to restore the security deposit
to Lessor in full, and failure to do so shall constitute a further default
hereunder. Upon the expiration of the term of this Lease, provided Lessee has
fully performed every term and provision hereof, the security deposit (or amount
thereof then on deposit with Lessor) shall be returned to Lessee. In the event
of any sale of the Building during the term hereof, Lessor may transfer the
security deposit to the new
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owner, and upon such transfer, shall be relieved of any obligation for
return of the security deposit to Lessee. Lessor shall be under no obligation to
segregate the security deposit from its own funds and the security deposit shall
not bear interest.
7. BUILDING SERVICES FOR SUITE 406 ONLY. Provided Lessee is not in default
under any of the terms and provisions of this Lease, and except as otherwise
provided below as to Lessee's obligation to pay for certain services, Lessor
shall furnish Lessee with the following services:
(a) cleaning, janitor and window washing services standard for the
Building;
(b) heating or air-conditioning, subject to the terms hereof, on business
days, from 8:00 A.M. to 6:00 P.M., and on Saturdays, from 8:00 A.M. to 12:00
Noon, standard for the Building. Lessee shall pay for all heating and
air-conditioning requested and furnished prior to or following such hours at
rates to be established from time to time by Lessor, subject to all governmental
rules, regulations and guidelines applicable thereto. All requests for heating
or air-conditioning prior to or following such hours, must be submitted, in
writing, to the Company no later than 2:00 P.M. on the last prior business day;
Lessor shall pay all utilities for HVAC and electric service.
(c) water at standard Building temperatures for normal sanitary purposes
only. Lessee shall pay, at standard Building rates, for water used for other
than normal sanitary purposes and for water wasted;
(d) passenger elevator service on business days, from 8:00 A.M. to 8:00
P.M., and on Saturdays, from 8:00 A.M. to 6:00 P.M.; elevator service via at
least one (1) car per elevator bank at all other times;
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The term "business days", as used in this Paragraph 7, shall mean Monday to
Friday, inclusive, excluding (1) Saturdays (except such portion thereof as is
stipulated specifically in subparagraphs (b) and (d) of this Paragraph 7), (2)
Sundays, and (3) all days observed by the Federal and State governments as legal
holidays.
Lessee shall pay Lessor's charges for water, electrical and other services
within ten (10) days after the rendering by Lessor or Company of each statement
on account thereof.(INCLUDED IN BASE RENT). Failure to pay such charges when
due, or to pay any rent or other charge hereunder when due, shall entitle
Lessor, upon not less than five (5) days' written notice, to discontinue
furnishing water, electrical or other services to Lessee. No discontinuance of
services shall be deemed an eviction or disturbance of Lessee's use and
occupancy of the premises, nor render Lessor liable to Lessee for damages, nor
relieve Lessee from the performance of Lessee's covenants and agreements
hereunder.
Lessee agrees that Lessor shall not be liable for damages, by abatement of
Rent or otherwise, for failure to furnish or delay in furnishing any service, or
for any diminution in the quality or quantity thereof, when such failure or
delay or diminution is occasioned, in whole or in part, by any strike, lockout
or other labor trouble, by inability to secure electricity, gas, water, or other
fuel at the Building after reasonable effort so to do, by any accident or
casualty whatsoever, by act or default of Lessee or other parties, or by any
other cause beyond Lessor's reasonable control; and such failures or delays or
diminution shall not be deemed to constitute an eviction or disturbance of the
Lessee's use and possession of the premises or relieve the Lessee from paying
Rent or performing any of its obligations under this Lease. Lessor also reserves
the right to temporarily suspend, delay, or discontinue furnishing any of the
services to be provided by Lessor under this Lease, without abatement or
diminution in Rent and without any liability to Lessee as a result thereof, for
such inspections, cleaning, repairs, replacements, alterations, improvements or
renewals as may, in Lessor's judgment, be desirable or necessary to be made;
provided that such services shall not, to the extent reasonably feasible, be
suspended for such purposes during Lessee's normal business hours unless Lessor
shall, to the extent reasonably possible under the circumstance, have given
Lessee advance notice of any proposed suspension of services.
8. POSSESSION. Taking possession by Lessee shall be conclusive evidence as
against Lessee that the premises were in good order and satisfactory condition
when Lessee took possession. No representation respecting the condition of the
premises or the Building has been made by Lessor to Lessee unless contained
herein; and no promise of Lessor to prepare, alter, or improve the premises for
Lessee's use and occupancy shall be binding upon Lessor unless contained herein
or in Lessor's Work Letter, which Work Letter, if any, has been signed by Lessor
and Lessee and is attached hereto and made a part hereof.
If Lessor is required to perform any space preparation work in the premises
pursuant to a Work Letter, Lessee's obligation to pay the rent reserved
hereunder shall commence upon the date that Lessor has substantially completed
the work specified therein and has so notified Lessee, in writing, or if
Lessor's space preparation work has been delayed due to an act or omission of
Lessee, then at such earlier dare as the work would have been completed but for
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such act or omission. If such date shall be other than the first day of a
calendar month, the rent for such month shall be prorated on a per-diem basis.
If, with Lessor's consent, Lessee is allowed to occupy or enter the
premises prior to the date of the commencement of the term of this Lease, then
all provisions hereof shall be in full force and effect as soon as Lessee
occupies the premises, and Lessee shall immediately commence paying rent on a
per-diem basis to the date of commencement of the term.
If Lessor shall be unable to deliver possession of the premises on the date
of the commencement of the term hereby created because of the holding over of
any tenant, or tenants, or for any other cause beyond Lessor's reasonable
control, then the payment of rent shall not commence until the date possession
of the premises is delivered to Lessee. Lessee agrees to accept such allowance
and abatement of rent as liquidated damages, in full satisfaction for the
failure of Lessor to deliver possession on the date of the commencement of the
term, and to the exclusion of all claims and rights which Lessee might otherwise
have by reason of delivery of possession not being made on that date. Failure to
deliver possession on the date of commencement of the term shall not, in any
event, extend or be deemed to extend, the term of this Lease. Unfinished extra
work, if any, undertaken by Lessor for Lessee shall not be considered in
determining the date of delivery of possession to Lessee.
This Lease does not grant any possessory or other rights to light or air
over property except over public streets kept open by public authority, and
Lessor shall not be liable to Lessee for any expense, injury, loss, or damages
resulting from work done in or upon, or by reason of the use of, any adjacent or
nearby building, land, street, or alley.
Lessor and Lessee agree that (a) Lessee shall have the right to place in
the premises, at such locations therein as Lessee may, from time to time,
determine without overloading floors, Lessee's furniture, trade fixtures and
standard business office machines and equipment; and (b) the foregoing types of
personal property shall be and remain the property of Lessee, and may be removed
by Lessee at any time during the lease term, upon its expiration, or upon its
earlier termination in any manner, Lessee, however, agreeing to repair, at
Lessee's expense, any damage to the premises or the Building caused by such
removal.
9. SURRENDER OF POSSESSION. Upon the expiration of the term or upon the
termination of Lessee's right of possession, whether by lapse of time or at the
option of Lessor as herein provided, Lessee shall, at Lessee's sole cost and
expense, forthwith surrender the premises to Lessor in good order, repair and
condition, ordinary wear excepted, and shall, at Lessee's sole cost and expense,
if Lessor so requires, restore the premises to the condition existing at the
beginning of the term. Any interest of Lessee in the alterations, improvements,
and additions to the premises made or paid for by Lessor or Lessee shall,
without compensation to Lessee, become Lessor's property at the termination of
this Lease by lapse of time or otherwise, and such alterations, improvements,
and additions (including floor coverings) shall be relinquished to Lessor in
good condition, ordinary wear excepted. Prior to the termination of the term of
Lessee's right of possession, Lessee shall remove its office furniture, trade
fixtures, office equipment, and all other items of Lessee's property on the
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premises. Lessee shall pay to Lessor, upon demand, the cost of repairing
any damage to the premises and to the Building caused by any such removal. If
Lessee shall fail or refuse to remove any such property from the premises,
Lessee shall be conclusively presumed to have abandoned the same, and title
thereto shall thereupon pass to Lessor without any cost either by set-off,
credit, allowance, or otherwise, and Lessor may, at its option, accept the title
to such property or, at Lessee's expense, may (a) remove the same or any part in
any manner that Lessor shall choose, repairing any damage to the premises caused
by such removal, and (b) store, destroy, or otherwise dispose of the same
without incurring liability to Lessee or any other person.
10. USE AND OCCUPANCY. In the use and occupancy of the premises, Lessee
shall:
(a) comply with all laws, ordinances, rules, regulations, and orders of any
governmental authorities having jurisdiction over the premises or over the use
and occupancy thereof;
(b) keep and maintain the premises in good order, condition and repair, and
promptly make all repairs or replacements becoming necessary during the term,
including, but without limitation, repairs or replacements of doors, glass
(which shall be replaced with glass of the same size and quality), electrical,
plumbing and sewage lines, equipment and fixtures within, and solely serving the
premises, interior walls, floor covering and ceilings and building appliances of
every kind;
(c) at Lessee's expense, promptly cause to be repaired by a contractor
approved by Lessor any damage to the Building or the premises which results or
arises from Lessee's use and occupancy of the premises;
(d) not install in the premises any apparatus or equipment which shall
interfere with or impair the maintenance or operation of any building system,
including, without limitation, the electrical, plumbing, heating, ventilating,
and air-conditioning systems;
(e) except with the prior written consent of Lessor, not install in the
premises any additional or supplementary air-conditioning equipment; and
(f) not conduct any activity or install in the premises any apparatus or
equipment which shall result (i) in the cancellation of any insurance covering
or relating to the Building, or (ii) without Lessor's prior written approval, in
any increase in insurance premiums in respect of any insurance covering or
relating to the Building. If Lessee shall conduct any activity or install any
apparatus or equipment which shall result in an increase in insurance premiums,
Lessee shall forthwith reimburse Lessor for the amount of the increase in the
insurance premiums;
(g) not to place, permit, or suffer any lien to attach to this Lease or the
leasehold estate created hereby;
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(h) not permit any so-called hazardous or toxic wastes or substances (as
defined under any applicable law) to be placed or maintained within the premises
or the Building unless otherwise approved by Lessor in writing.
In the event that Lessee does not timely perform its repair, replacement or
maintenance obligations hereunder, Lessor may, but shall not be obligated to,
perform any such repairs or replacements, or maintain the premises and the cost
and expense of such repair, replacement or maintenance shall be borne by Lessee
as additional rent hereunder due and payable with the next due installment of
rent.
11. ACCESS TO BUILDING. Lessee, for Lessee and for Lessee's agents,
employees, and invitees, agrees that all such persons desiring to enter or leave
the Building at other than normal business hours in the Building from Monday to
Saturday, both inclusive, and during all hours on Sundays and on all days
observed by the Federal and State governments as legal holidays, shall use such
entrances or exits as may be designated by Lessor, and shall comply with
Building security regulations established from time to time by Lessor with
respect to identification, registration and method of signaling for admission,
so as to establish the right of such persons to enter or to leave the Building.
12. COMMON AREAS. Lessee and Lessee's agents, employees and invitees shall
have the right to use, in common with Lessor and Lessor's tenants and the
agents, employees, and invitees of each, the public sidewalks, entrances,
lobbies, vestibules, stairways, corridors, elevators, public toilets, and other
public areas of the Building, subject, however, to applicable Building rules,
regulations, and security measures; and Lessee and Lessee's agents, employees,
and invitees shall not obstruct or litter, or use for storage, temporary or
otherwise, or for the display of merchandise or services, or for any purpose
other than the intended or normal purpose, any of the public sidewalks,
entrances, lobbies, vestibules, stairways, corridors, elevators, public toilets,
and other public areas of the Building; and no floor mats or runners shall be
placed by Lessee in any Building corridor, lobby or vestibule. Lessee shall not,
at any time, place, leave, or discard any rubbish, paper, articles, or other
objects of any kind whatsoever outside the doors of the premises or in the
corridors or other common areas of the Building.
13. ALTERATIONS AND ADDITIONS. (a) Lessee shall not, without the prior
written consent of Lessor, which consent shall be at Lessor's sole discretion,
make any alterations, improvements, or additions to the premises.
Notwithstanding Lessor's consent to any alteration, improvement or addition to
the premises, Lessor shall retain the option, upon the termination of this
Lease, of requiring Lessee, at its sole cost and expense, to remove any or all
of said alterations, improvements or additions and repair all the damage caused
by such removal. If Lessor consents to any alterations, improvements, or
additions, Lessor may impose such conditions with respect thereto as Lessor
deems appropriate, including, without limitation, requiring Lessee to furnish
Lessor with insurance against liabilities which may arise out of such work and
plans and specifications and permits necessary for such work. The work necessary
to make any alterations, improvements, or additions to the premises, whether
prior
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to or subsequent to the Commencement Date, shall be done at Lessee's
expense by contractors hired by Lessor, or the Company, except to the extent
Lessor gives its prior written consent to Lessee's hiring its own contractors,
which consent shall be solely within Lessor's discretion. If Lessor shall so
desire, Lessee shall submit to Lessor's or the Company's reasonable supervision
of Lessee's work at Lessee's expense. Lessee shall also pay Lessor for all other
costs and expenses arising in connection with such work, including, without
limitation, additional janitorial, elevator, security, and utility expense.
Lessee shall promptly pay to Lessor, the Company, or the Lessee's contractors,
as the case may be, when due, the cost of all such work, supervision, and other
charges.
(b) Upon completion of such work, or from time to time as Lessor may reasonably
require, Lessee shall deliver to Lessor, if payment is made directly to
contractors, evidence of payment, contractors' affidavits and full and final
waivers of all liens for labor, services, or materials all in form satisfactory
to Lessor. Lessee shall defend and hold Lessor harmless from all costs, damages,
liens and expenses related to such work Lessee further covenants and agrees not
to suffer or permit any mechanics or materialmen liens or any other liens to be
placed against the Building or premises with respect to work or services claimed
to have been performed for, or materials claimed to have been furnished to, the
Lessee or the premises. If any lien shall at any time be filed against the
Building or premises in connection with such work, services, or materials,
Lessee shall immediately cause it to be released and removed of record. If
Lessee fails to do so, Lessor may, at Lessor's option, cause the same to be
released and removed of record using funds from the security deposit provided
for in Paragraph 6 of this Lease. If such funds are insufficient for such
purpose, Lessor may, at Lessor's option, advance such additional funds for such
purpose. In addition to Lessee's obligation to replenish the security deposit as
provided in Paragraph 6, Lessee shall immediately, upon demand, pay Lessor the
amount of any such additional funds so advanced.
(c) All work done by Lessee, or its contractors, pursuant to this Lease shall be
done in a first-class workmanlike manner using only good grades of materials,
and shall comply with all insurance requirements and all applicable laws and
ordinances and rules and regulations of governmental departments or agencies.
All such work shall be performed so as not to interfere with or impair the use
and enjoyment of the Building by Lessor and other tenants, and Lessor may
require all or a portion of such world be performed outside business hours.
Subject to Lessor's option contained in the second sentence of subparagraph a)
of this Paragraph 13, all additions, alterations, fixtures, and improvements
(temporary or permanent) in and upon the premises, whether installed by Lessee
or Lessor, shall become Lessor's property, and shall remain upon, and be
surrendered with the premises without disturbance or injury upon the termination
of this Lease by lapse of time or otherwise, all without payment or credit to
Lessee.
14 ASSIGNMENT AND SUBLETTING. (a) Lessee shall not sublet the premises or
any part thereof, not assign this Lease or any interest therein, nor permit any
business to be operated in or from the premises by any person, firm or
corporation other than Lessee, without, in each case, first obtaining the prior
written consent of Lessor, which consent may be given or withheld in Lessor's
sole discretion. Any attempt to assign this Lease or to sublet all or any
portion of the premises, without Lessor's prior written consent, shall be void
and, at
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Lessor's option, shall constitute an event of default under this Lease.
Any merger, consolidation, liquidation, or sale of substantially all of the
assets of Lessee, or any other assignment, transfer, mortgage, pledge or
encumbrance of this Lease or any interest therein, whether voluntary,
involuntary, by operation of law or otherwise, shall constitute an assignment of
this Lease.
(b) Lessor may impose such conditions to its consent to any subletting or
assignment (which may be withheld by Lessor in its sole discretion) as it may
determine, and notwithstanding any consent to assignment or subletting, both
Lessee and its guarantor, if any, will continue to be liable under this Lease
with the same force and effect as though no assignment or sublease had been
made. If Lessee requests Lessor to consent to any assignment or sublease, Lessee
shall provide Lessor with the name, address, and a description of the business
of the proposed assignee or subtenant and its most recent financial statement
and such other evidence of financial responsibility as Lessor may request.
(c) Consent by Lessor to any assignment or subletting shall be consent only
as to that particular assignment and subletting, and not to any further
assignment or subletting. In the event Lessor consents to any assignment, both
Lessee and the assignee shall be primarily liable to Lessor hereunder.
(d) In the event any such proposed assignment or sublease provides for, or
Lessee otherwise receives, rent, additional rent, or other consideration in
excess of that provided for in this Lease, Lessee agrees that in the event
Lessor grants its consent, Lessee shall pay Lessor the amount of such excess as
it is received by, or becomes due to, Lessee. Any violation hereof shall be
deemed a material breach of this Lease, as well as an event of default
hereunder.
(e) In the event of any assignment or subletting, whether or not consented
to by Lessor, any ophons to renew this Lease or expand the premises shall
terminate without further action.
(f) Lessee shall submit any request for Lessor's consent to a sublease or
assignment in writing together with a non-refundable fee of $300.00 to cover
Lessor's consideration of the request.
15 RECAPTURE. (a) Within thirty (30) days after receiving Lessee's request
for Lessor's consent to an assignment of this Lease and the requisite
accompanying information, Lessor shall have the right to (i) grant its consent,
subject to such conditions as it may determine, (ii) withhold its consent, or
(iii) terminate this Lease, on a date reasonably determined by the Lessor, and
release Lessee from its future obligations hereunder.
(b) Within thirty (30) days after receiving Lessee's request for Lessor's
consent to a sublease of all or any portion of the premises and the requisite
accompanying information, Lessor shall have the right to (i) grant its consent,
subject to such conditions as it may determine, (ii) withhold its consent, or
(iii) elect to remove that portion of the premises
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proposed to be sublet from this Lease, on a date reasonably determined by
the Lessor, in which event this Lease shall be terminated and suspended as to
such proposed sublet space only and rent for the balance of the premises shall
be adjusted from the date of such suspension on the basis of the remaining
square feet compared to the total square feet in the premises prior to such
suspension, all as determined by Lessor.
16. HOLDING OVER. If Lessee shall remain in possession of the premises
after the expiration of the term of this Lease, then Lessee shall be a tenant
from month to month, and such tenancy shall otherwise be subject to all of the
terms, provisions, covenants, and agreements of this Lease, except that rent
shall be a rate equal to one hundred fifty percent (150%) of the Adjusted Annual
Rental due hereunder over the last twelve (12) months determined on a monthly
basis, and, if Lessor shall suffer any damage or loss as a result of such
holdover, such as losses or damages which may result from Lessor's inability to
timely deliver the premises to a subsequent tenant of the premises, Lessee shall
promptly pay the amount thereof to Lessor.
17. RIGHTS RESERVED BY LESSOR. Lessor reserves the following rights:
(a) to change the street address of the Building; the name of the Building;
the unit number of the premises; and the arrangement or location of entrances,
passageways, doors, doorways, corridors, elevators, stairs, toilets, or other
public parts of the Building without liability to Lessee;
(b) to designate all sources furnishing sign painting, lettering, vending
machines, towel or toilet supplies, or other similar services required in the
premises;
(c) to enter the premises during the last ninety (90) days of the term,
provided Lessee shall have removed substantially all of Lessee's property from
the premises, for the purpose of altering, remodeling, repairing, renovating, or
otherwise preparing the premises for tenanting to others;
(d) to grant anyone the exclusive privilege of conducting any particular
business or activity in the Building;
(e) to enter the premises at all reasonable times (1) for the making of
such inspections, repairs, alterations, improvements, or additions of, or to,
the premises or the Building as Lessor may deem necessary or desirable; (2) to
exhibit the premises to others, and (3) for any purpose whatsoever related to
the safety, protection, preservation, or improvement of the premises or of the
Building or of Lessor's interest therein;
(f) at any time or times, Lessor, either voluntarily or pursuant to
governmental requirement, may, at Lessor's expense, make repairs, alterations,
or improvements in or to the Building or any part thereof, and, during such
times, may temporarily close entrances, doors, corridors, elevators, or other
public facilities; and
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(g) to charge Lessee any additional expense (including overtime or premium
costs incurred by Lessor) in the event repairs, alterations, decorating, or
other work in the premises or the Building are, at Lessee's request, not made
during ordinary business hours.
Lessor may exercise all or any of the foregoing rights hereby reserved
without being deemed guilty of an eviction or disturbance of Lessee's use and
occupancy, without being liable in any manner to Lessee, and without elimination
or abatement of rent, or payment of other compensation, and such acts shall in
no way affect this Lease.
18. REMEDIES OF LESSOR. All rights and remedies of Lessor herein set forth
are in addition to any and all rights: and remedies which are or may be
available to Lessor at law or in equity.
(a) If Lessee shall fail to pay any rent reserved herein when due, or fails
to pay Lessor's charges for water, electrical, or other services within ten (10)
days after the rendition of a statement, or defaults in the prompt and full
performance of any of Lessee's covenants and agreements hereunder, or if the
leasehold interest of Lessee be levied upon, under execution or be attached, or
if Lessee makes an assignment for the benefit of creditors, or if a receiver be
appointed for any property of Lessee, or if Lessee abandons the premises, then,
and in any such event, Lessor may, if Lessor so elects, and with or without
notice of such election and with or without demand whatsoever, forthwith
terminates this Lease and the Lessee's right to possession of the premises, or
Lessor may, without terminating this Lease, terminate Lessee's right to
possession of the premises. Lessee hereby waives Lessee's right to trial by jury
in connection with any proceedings by Lessor to enforce any of its rights
against Lessee under this Lease, including, without limitation, any proceedings
to remove Lessee from the premises.
(b) Upon the filing of a petition by or against Lessee under the United
States Bankruptcy Code, (the "Code"), Lessee, as debtor and as debtor in
possession, and any trustee who may be appointed shall (i) timely perform each
and every obligation of Lessee under this Lease until such time as this Lease is
either rejected or assumed by order of the United States Bankruptcy Court; (ii)
pay monthly in advance on the first day of each month as reasonable compensation
for use and occupancy of the premises an amount equal to the Rent and other
charges otherwise due pursuant to this Lease; (iii) provide adequate assurance
of future performance under the Lease; (iv) reject or assume this Lease within
sixty (60) days of the filing of such petition under the Code, and (v) do all
other things of benefit to Lessor otherwise required or permitted under the
Code. Lessee, as debtor and as debtor in possession, and any trustee, shall be
deemed to have rejected this Lease in the event of the failure to comply with
any of the above. Included within and in addition to any other conditions or
obligations imposed upon Lessee or its successor in the event of assumption
and/or assignment is the prior written consent of any mortgagee to which this
Lease has been assigned as collateral security.
(c) Upon termination of this Lease, or upon the termination of Lessee's
right to possession without termination of the Lease, Lessee shall surrender
possession and vacate the
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premises immediately, and Lessor may enter into and repossess the premises
with or without process of law and remove all persons and property therefrom in
the same manner and with the same right as if this Lease had not been made, and
for the purpose of such entry and repossession, Lessee waives any notices
provided by law or otherwise to be given in connection therewith.
(d) If Lessee abandons the premises, or if Lessor elects to terminate
Lessee's right to possession only, without terminating the Lease as above
provided, Lessor may remove from the premises any and all property found therein
and such repossession shall not release Lessee from Lessee's obligation to pay
the rent reserved herein. After any such repossession by Lessor without
termination of the Lease, Lessor shall make reasonable efforts to relet the
premises, or any part thereof, as agent of Lessee to any person, firm, or
corporation and for such time and upon such terms as Lessor, in Lessor's sole
discretion, may determine. Lessor may make repairs, alterations, and additions
in and to the premises and redecorate the same to the extent deemed by Lessor
necessary or desirable, and Lessee shall, upon demand, pay the cost thereof,
together with Lessor's expense (including any broker's commission) of reletting.
If the rents collected by Lessor upon any such reletting are not sufficient to
pay monthly the full amount of all rent reserved herein, together with the costs
of such repairs, alterations, additions, redecorating, and expenses, Lessee
shall pay to Lessor the amount of each monthly deficiency upon demand.
(e) Any and all property which may be removed from the premises by Lessor
may be handled, removed, stored, or otherwise disposed of by Lessor at the risk
and expense of Lessee, and Lessor shall, in no event, be responsible for the
preservation or safekeeping thereof. Lessee shall pay to Lessor, upon demand,
any and all expenses incurred in such removal and all storage charges against
such property so long as the same shall be in Lessor's possession or under
Lessor's control. If any property shall remain in the premises or in the
possession of Lessor and shall not be removed by Lessee within a period of ten
(10) days from and after the time when the premises are either abandoned by
Lessee or repossessed by Lessor under the terms of this Lease, the properly
shall conclusively be deemed to have been forever abandoned by Lessee.
(f) Lessor and Lessee agree that all of the goods, chattels, trade
fixtures, and other personal property belonging to Lessee which are or may be
put into the premises during the term, whether exempt or not from sale under
execution or attachment, shall, at all times, be bound with a lien in favor of
Lessor, and shall be chargeable for all rents hereunder and for the fulfillment
of the other covenants and agreements of Lessee herein contained. In the event
that Lessee shall have abandoned the premises, or in the event of any default of
Lessee hereunder, Lessor shall have the right to sell all or any part of said
property at public or private sale, without giving notice to Lessee or any
notice of sale, all notices required by statute or otherwise being hereby
expressly waived, and to apply the proceeds of such sale, first to the payment
of all costs and expenses of conducting the same, or caring for or storing said
property; second, toward the payment of any indebtedness which may be or may
become due from Lessee to Lessor; and, third, to pay to Lessee, on demand, in
writing, any surplus remaining after all indebtedness of Lessee to Lessor has
been fully paid.
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(g) In addition to all other rights and remedies of Lessor hereunder, if
Lessee fails to timely perform any of its obligations hereunder, including,
without limitation, monetary obligations, and whether or not Lessor has
terminated this Lease or Lessee's right to possession of the premises, or
either, Lessor may elect to accelerate and make immediately due and payable all
of the rent, additional rent, adjusted rent and any other charges or fees which
are due or may become due hereunder for the remainder of the term of this Lease.
Lessee agrees that Lessor may file suit to recover any sums due under this Lease
from time to time and that no suit or recovery of any portion due Lessor
hereunder shall be any defense to any subsequent action brought for any amount
not theretofore reduced to judgment in favor of Lessor.
19. LOSS OR DAMAGE TO PROPERTY. (a) All personal property belonging to
Lessee or to any other person located in or about the premises or the Building
shall be there at the sole risk of Lessee or such other person, and neither
Lessor nor Lessor's Company or employees shall be liable for the theft or
misappropriation thereof, nor for any damage or injury thereto, nor for damage
or injury to Lessee, to other persons, or to property caused by water, snow,
frost, steam, heat, cold, dampness, falling plaster, sewers or sewerage, gas,
odors, noise, the bursting or leaking of pipes, plumbing, electrical wiring, and
equipment and fixtures of all kinds, or by any act or neglect of other tenants
or occupants of the Building, or of any other person, or caused in any manner
whatsoever, unless the same shall solely and proximately result from the
negligence of Lessor or Lessor's Company or employees. Lessee will protect,
indemnify, and save harmless Lessor or Lessor's Company or employees from all
losses, costs, or damages sustained by reason of any act or other occurrence
causing injury to any person or property due directly or indirectly to the use
of the premises or any part thereof by Lessee, except losses, costs, or damages
solely and proximately resulting from the negligence of Lessor or Lessor's
Company or employees.
(b) Lessee shall indemnify and save Lessor and mortgagees of the Building
harmless from and against any clean-up costs, remedial or restoration work,
claims, judgments, damages, penalties, fines, costs, liabilities or losses,
including, without limitation, diminution in value of the premises, damages for
the loss or restriction on use of space within the Building, damages due to
adverse impact on marketing of space in the Building, and attorneys',
consultants' and experts' fees, which arise during or after the term of this
Lease as a result of any hazardous or toxic substances being generated or
disposed of in or on, or brought to, the Building by Lessee or any other
occupant of the Premises.
20. INSURANCE. Lessee shall, during the term of this Lease and at Lessee's
own expense, carry comprehensive general liability insurance with a combined
single limit of at least One Million Dollars ($1,000,000) for all injuries to or
death of persons and loss of or damage to property in any one occurrence, and
insurance at no less than the replacement value of (i) all alterations,
additions and improvements Lessee may make to the premises, and (ii) all of the
personal property that Lessee brings within the premises. Such insurance policy
shall name Lessor, the Company and, if requested by Lessor, any mortgagee of
Lessor as additional insureds, and shall contain a provision requiring that
the policy shall not be modified,
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<PAGE>
cancelled, or terminated without at least thirty (30) days prior written
notice to Lessor and the Company, and, if requested by Lessor, any mortgagee of
Lessor. At least twenty (20) days prior to the time such insurance is first
required to be carried by Lessee and thereafter at least thirty (30) days prior
to the expiration of any such policy, Lessee shall deliver to Lessor a
certificate of insurance validly stamped by the issuing insurance carrier
evidencing both the payment of all premiums due thereon and the coverage
outlined above.
21. WAIVER OF SUBROGATION. In the event either party hereto requests a
waiver of subrogation with respect to the Building, premises, and property
therein or occurrences thereon, and if such waiver can be written without
additional premium, or with an additional premium if the party making the
request agrees to pay such additional premium for the other party, as well as
any additional premium for the requesting party's insurance, then there shall
exist mutual waivers of subrogation and each party hereto will waive any and
every claim which arises or may arise in its favor and against the other party
hereto, or anyone claiming through or under them, by way of subrogation or
otherwise, during the term of this Lease or any extension or renewal thereof for
any and all loss of, or damage to, any of its property (whether or not such loss
or damage is caused by the fault or negligence of the other party or anyone for
whom such other party may be responsible), which loss or damage is covered (or
required to be covered hereunder) by valid and collectible fire and extended
coverage insurance policies, to the extent that such loss or damage is recovered
or recoverable under insurance policies required to be carried hereunder or
insurance policies actually carried by the party, and further provided that the
aforesaid waiver shall not affect any "deductibles" on such policies. Such
waivers shall be in addition to, and not in limitation or derogation of, any
other waiver or release contained in this Lease with respect to any loss or
damage to property of the parties hereto. Each party hereto will then
immediately give to each insurance company which has issued to it policies of
fire and extended coverage insurance written notice of the terms of such mutual
waivers, and to have such insurance policies properly endorsed, if necessary, to
prevent the invalidation of such insurance coverages by reason of such waivers.
Upon request, each party shall provide the other party with confirmation from
its insurance company(ies) of compliance with the terms of this Paragraph.
22. UNTENANTABILITY. If the premises or the Building are made unfit for
occupancy by fire or other casualty, acts of God, or other cause, Lessor may
elect (a) to terminate this Lease as of the date when the premises or the
Building are so made unfit for occupancy, by written notice to Lessee within
ninety (90) days after that date, or (b) to repair, restore, or rehabilitate the
premises or the Building at Lessor's expense within one hundred eighty (180)
days after Lessor is enabled to take possession of all damaged areas and to
undertake reconstruction or repairs; and if Lessor elects so to repair, restore,
or rehabilitate the premises or the Building, this Lease shall not terminate,
but rent shall be abated on a per-diem basis to the extent and for the period
that the premises are unfit for occupancy. In the event Lessor shall proceed
under (b) above and shall not substantially complete the work within said one
hundred eighty (180) day period (excluding from said period loss of time
resulting from delays beyond the reasonable control of Lessor) either Lessor or
Lessee may then terminate this Lease, as of the last day of such one hundred
eighty (180) day period, by
15
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written notice to the other not later than ten (10) days after the
expiration of said one hundred eighty (180) day period, computed as herein
provided, and Lessor shall have no liability to Lessee for failure to restore,
repair, or rehabilitate the premises. In the event of termination of this Lease
pursuant to this Paragraph, rent shall be apportioned on a per-diem basis to and
including the effective date of such termination. Except as provided in this
Paragraph, neither party hereto shall have the right to terminate this Lease by
reason of damage to, or destruction of, the premises or the Building.
23. ESTOPPEL CERTIFICATE BY LESSEE. Lessee agrees that from time to time,
upon not less than ten (10) days' prior request by Lessor, Lessee will deliver
to Lessor (without cost or expense to Lessor or such other party designated by
Lessor) a statement, in writing, certifying (a) that this Lease is unmodified
and in full force and effect (or if there have been modifications, that the same
is in full force and effect as modified, and identifying the modifications), (b)
the dates to which the Rent and other charges have been paid, (c) that, so far
as the person making the certificate knows, Lessor is not in default under any
provision of this Lease, and, if Lessor is in default, specifying each such
default of which the person making the certificate may have knowledge, and (d)
such other information as is reasonably requested by Lessor, it being understood
that any such statement so delivered may be relied upon by any landlord under
any ground or underlying lease, or any prospective purchaser, mortgagee, or any
assignee of any mortgage on the Building.
24. SUBORDINATION OF LEASE. Lessor shall have the right at any time, and
from time to time, to place upon the Building and the land of which the premises
are a part, a mortgage or mortgages which, together with all renewals,
extensions, modifications, and replacements thereof, shall be wholly prior to
the rights of Lessee and this Lease. It is the intention of the parties that
such priority shall be established automatically and that no separate instrument
shall be required to effectuate such subordination of this Lease. Lessee will,
however, at any time and from time to time, upon request of Lessor, promptly
execute and deliver to Lessor, without expense to Lessor, any and all
instruments deemed by Lessor necessary or advisable to subject and subordinate
this Lease and all rights given Lessee hereunder to such mortgage or mortgages.
In the event any proceedings are brought for the foreclosure of any such
mortgage, Lessee covenants that it will, to the extent of the Lessor's interest
affected by such foreclosure, attorn to the purchaser upon any such foreclosure
sale and recognize such purchaser as Lessor under this Lease. Lessee agrees to
execute and delivery to Lessor, without expense to Lessor, at any time and from
time to time, upon the request of Lessor or of any such holder, any instrument
which, in the sole judgment of Lessor, may be necessary or appropriate in any
such foreclosure proceeding or otherwise to evidence such attornment. Lessee
hereby appoints Lessor and the holder of any such mortgage or either of them,
the attorney-in-fact irrevocably, of Lessee to execute and deliver for and on
behalf of Lessee any such instrument. Lessee further waives the provisions of
any statute or rule of law, now or hereafter in effect, which may give or
purport to give Lessee any right or election to terminate or otherwise adversely
affect this Lease and the obligation of Lessee hereunder in the event any such
foreclosure proceeding is brought, and agrees that this Lease shall not be
affected in any way whatsoever by any such foreclosure proceeding.
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<PAGE>
25. EMINENT DOMAIN. Lessee agrees with Lessor that if the whole or any part
of the premises shall be appropriated, condemned, taken, or otherwise acquired
by any public or quasi-public authority under power of eminent domain,
condemnation, or other proceedings, this Lease and the estate hereby created
shall terminate and wholly expire on the date legal title shall vest in the
appropriator or condemnor, and all rent shall be prorated and adjusted as of
that date. In no event whatsoever shall Lessee have any claim against Lessor by
reason of any appropriation, condemnation, or taking of the whole or any part of
the premises or of the Building, nor shall Lessee have any claim to the amount,
or any portion thereof, that may be awarded as compensation or as damages or
paid as a result of such appropriation and taking; provided, however, that
Lessee shall have the right, to the extent the same does not reduce Lessor's
award of compensation and damages, to bring a separate action against the
condemning authority (but not against Lessor) for the recovery of Lessee's
moving expenses, displacement expenses, loss of business, and damage to Lessee's
personal property which is removable hereunder.
26. NO WAIVER. (a) No receipt of money by Lessor from Lessee with knowledge
of default or breach of any covenants of this Lease, or after the termination of
any suit, or after final judgment for possession of the premises, shall be
deemed a waiver of such default or breach, nor shall it reinstate, continue, or
extend the term of this Lease or effect any such notice, demand, or suit.
(b) No delay on the part of Lessor in exercising any right, power, or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, power, or privilege preclude any other, or
further, exercise thereof or the exercise of any other right, power, or
privilege.
(c) No act done or thing said by Lessor or Lessor's Company or employees
shall constitute a cancellation, termination, or modification of this Lease, or
a waiver of any covenant, agreement, or condition hereof, nor relieve Lessee
from Lessee's obligation to pay the rents reserved herein. Any waiver or release
by Lessor and any cancellation, termination, or modification of this Lease must
be in writing signed by Lessor.
27. EXPENSES OF ENFORCEMENT. Lessee shall pay, upon demand, all of Lessor's
costs, charges and expenses, including, without limitation, attorneys' fees and
out-of-pocket expenses of counsel, Company and others retained by Lessor
incurred in enforcing Lessee's obligations hereunder or incurred by Lessor in
any litigation, negotiation or transaction in which Lessee causes Lessor to
become involved or concerned.
QUIET ENJOYMENT. If Lessee shall (1) pay all rent reserved and all charges
for services stipulated herein to be paid by Lessee to Lessor, and (2) well and
faithfully keep, perform, and observe all of the covenants, agreements, and
conditions herein stipulated to be kept, performed, and observed by Lessee,
Lessee shall, at all times during the term of this
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Lease, have peaceable and quiet enjoyment of the premises without hindrance
of Lessor or any person lawfully claiming under Lessor, subject, however, to the
terms of this Lease and to any underlying lease or to any mortgage to which this
Lease is or has become subordinate.
29. NOTICES. In every instance where it shall be necessary or desirable for
Lessor to serve any notice or demand upon Lessee, such notice or demand shall be
deemed sufficiently given or made if, in writing, it is mailed to Lessee by
registered or certified United States mail, postage prepaid, addressed to Lessee
at the Building of which the premises are a part, or at such alternative address
as may be set forth at the end of this paragraph, and the time of giving or
making such notice or demand shall be deemed to be the time when the same was
mailed as herein provided. Any notice by Lessee to Lessor must be sent by
registered or certified United States mail, postage prepaid, addressed to Lessor
in care of:
Sun Life Assurance Co. of Canada
c/o Ostendorf-Morris Company
The Diamond Building
1100 Superior Avenue
Cleveland, OH 44114
or at such other place as Lessor or the Company may, from time to time,
designate in writing. Wherever in this Lease, in connection with the breach,
default, or performance of any of the terms, provisions, covenants, and
agreements of Lessee, no period of time or notice is required by the terms
hereof, no notice shall be required as a prerequisite to the exercise of any
right or remedy of Lessor.
ALTERNATIVE ADDRESS FOR LESSEE:
72 East Drive, P.O. 500
Congress Lake
Hartville, OH 44632
Phone # 330-877-2398
30. RULES AND REGULATIONS. Lessee and Lessee's agents, employees, and
invitees shall faithfully observe, and strictly comply with, the Rules and
Regulations appearing at the end of this Lease and made a part hereof, and with
such further reasonable Rules and Regulations as Lessor may, notice to Lessee,
from time to time adopt and promulgate. Nothing in this Lease contained shall be
construed to impose upon Lessor any duty or obligation to enforce the Rules and
Regulations (as distinguished from the covenants and agreements) in any other
lease as against any other lessee, and Lessor shall not be liable to Lessee for
violation of the same by any other lessee or the Company, employees, or invitees
of such other lessee.
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31. REPRESENTATIVE CAPACITY. In the absence of fraud, no person, firm, or
corporation, or the heirs, personal representatives, successors and assigns,
respectively, thereof, signing this Lease as Company, administrator, executor,
trustee, or in any other representative capacity, shall ever be deemed or held
individually liable hereunder for any reason or cause whatsoever.
32. OFFER BY COMPANY. This Lease is offered to Lessee by the Company solely
in the capacity of a broker and is subject to Lessor's acceptance, and Lessee
has executed this Lease upon the understanding that this Lease shall not in any
way bind Lessor until such time as it has been accepted and signed by Lessor and
an executed counterpart delivered to Lessee.
33. BROKER. Lessee represents and warrants to Lessor, and Lessor represents
and warrants to Lessee that, other than the Company, no broker negotiated or was
instrumental in negotiating or consummating this Lease. Lessor agrees to pay
all fees and commissions, if any, which may become due to Company by reason of
this Lease and renewals or expansions thereof. Lessor and Lessee agree to
indemnify and hold the other harmless from all damages, liability and expenses,
including, without limitation, expenses and reasonable attorneys, fees, arising
from any claims or demands of any broker or finder for any commission or fee
alleged to be due based upon the conduct or action on said indemnifying party.
34. RECORDING. This Lease shall not be filed for record or recorded. If
Lessee shall so request, Lessor shall provide Lessee with a Memorandum of Lease
satisfying all applicable statutory requirements which Lessee may then file for
record and have recorded.
35. PARTIES BOUND. The covenants, agreements, and conditions contained in
this Lease shall bind and inure to the benefit of Lessor and Lessee and their
respective heirs, legal representatives, successors and assigns, subject,
however, to the provisions hereof requiring the consent of Lessor to any
assignment of this Lease or subletting of the premises.
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37. APPLICATION OF PAYMENTS. Lessor shall have the right to apply payments
received from Lessee pursuant to this Lease (regardless of Lessee's designation
of such payments) to satisfy any obligations of Lessee hereunder, in such order
and amounts as Lessor, in its sole discretion, may elect.
38. LIMITATION ON LESSOR'S LIABILITY. It is expressly understood and agreed
by Lessee that none of Lessor's covenants, undertakings, or agreements are made
or intended as personal covenants, undertakings or agreements by Lessor, and any
liability for damage or breach or nonperformance by Lessor shall be collectible
only out of Lessor's interest in the Building, and no personal liability its
assumed by, nor at any time may be asserted against, Lessor or any of its
officers, Company, employees, legal representatives, successors or assigns, all
such liability, if any, being expressly waived and released by Lessee. Lessee
acknowledges that Lessor has the right to transfer its interest in the land and
Building and in this Lease, and Lessee agrees that in the event of any such
transfer, Lessor shall automatically be released from all liability under this
Lease and Lessee agrees to look solely to such transferee for the performance of
Lessor's obligations hereunder.
39. HEADINGS. The captions of paragraphs and subparagraphs are for
convenience only and shall not be deemed to limit, construe, affect, or alter
the meaning of such paragraphs or subparagraphs.
40. ENTIRE AGREEMENT. This Lease, together with the rider attached hereto,
contains the entire agreement of the parties hereto as to the subject matter
hereof, and there are no agreements, promises, covenants, warranties, or
representations other than as set forth herein. The rider attached hereto, and
which is made a part hereof, is particularly identified as Rider Number 1, and
consists of 4 page(s). Exhibits lettered A and B are also attached hereto and
made a part hereof.
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IN WITNESS WHEREOF, Lessor and Lessee have respectively signed triplicate
counterparts of this First Lease Amendment as of day, month, and year first
above written.
Signed and acknowledged LESSOR
in the presence of:
Sun Life Assurance Company
of Canada
/s/ KIMBERLY A. MARCHETTI /s/ GEORGE M. COLLINS
- ---------------------------------- ----------------------------------
/s/ KIMBERLY A. MARCHETTI For President
- ----------------------------------
Printed Name
/s/ JOYCE T. BOWEN /s/ THOMAS V. PEDULLA
- ---------------------------------- ----------------------------------
Joyce T. Bowen For Secretary
- ----------------------------------
Printed Name
LESSEE
Duncan Hill Co., Ltd.
/s/ WILLIAM L. MILLER /s/ ILLEGIBLE
- ---------------------------------- ----------------------------------
President
- ----------------------------------
Printed Name
/s/ JEANNE E. MILLER /s/ ILLEGIBLE
- ---------------------------------- ----------------------------------
Vice President
- ----------------------------------
Printed Name
WITNESSES:
/s/ JOYCE L. DUNCAN
- -----------------------
Joyce L. Duncan
/s/ ILLEGIBLE
- -----------------------
Illegible
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<PAGE>
ACKNOWLEDGMENT FOR LESSEE
CORPORATE
- ---------
STATE OF OHIO )
) SS:
COUNTY OF STARK )
BEFORE ME, a Notary Public in and for said County and State, personally
appeared the above-named Duncan Hill Co., Ltd., by William Miller, its President
and by Jeanne Miller, its Vice President, who acknowledged that they did sign
the foregoing instrument and that the same is the free authorized act and deed
of the corporation and their free act and deed personally and as officers of the
corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal at Canton, Ohio, this 13 day of September, 1996.
/s/ JOYCE L. DUNCAN
--------------------------
Notary Public
(Notarial Seal)
My commission expires ______________
JOYCE L. DUNCAN
Notary Public, State of Ohio
My Commission Expires
May 5, 1999
<PAGE>
ACKNOWLEDGMENT POR LESSOR
CORPORATE
- ---------
STATE OF MASSACHUSETTS
Commonwealth of Massachusetts )
County of Norfolk ) SS
On this 23rd day of September 1996 before me appeared George M. Collins and
Thomas V. Pedulla both to me known to be acting for the President and Secretary
respectively of the Sun Life Assurance Company of Canada, the corporation that
executed the annexed instrument, and acknowledged the said instrument to be the
free and voluntary act and deed of said corporation, for the uses and purposes
therein mentioned, and on oath stated that they were authorized to execute said
instrument, and that the seal affixed is the corporate seal of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year first above written.
/s/ KIMBERLY A. MARCHETTI
-----------------------------------------
Notary Public Kimberly A. Marchetti
Notary Public
My Commission Expires: JUNE 15, 2001
------------------
_________________________________________
Notary Public
(Notarial Seal)
My commission expires ___________________
<PAGE>
RULES AND REGULATIONS
Wherever in these Rules and Regulations the word "Lessee" is used, it shall
be taken to apply to and include the Lessee and his agents, employees, invitees,
licensees, subtenants, and contractors, and is to be deemed of such number and
gender as the circumstances require. The word "Lessor" shall be taken to include
the employees and agents of Lessor.
WINDOWS AND PROJECTIONS. Nothing shall be affixed to or projected beyond
the outside of the Building by Lessee without the prior written consent of
Lessor. If Lessee desires, and Lessor permits, blinds, shades, awnings, or other
form of window covering, ventilating equipment, or similar devices, they shall
be furnished and installed at the expense of Lessee and must be of such shape,
color, material, and make as are approved by Lessor. Lessee shall not place or
permit to be placed any article of any kind on the window ledges, and shall not
throw or drop, or permit to be thrown or dropped, any article from any window of
the Building.
ADVERTISING AND SIGNS. Unless expressly permitted by Lessor, no sign,
advertisement, notice, or other lettering shall be inscribed, painted, or
affixed on any part of the outside or inside of the Building, or otherwise
exhibited so as to be visible from outside the premises, except on the doors of
the leased premises, and then only of subject matter and in such color, size,
style, and material as shall conform to the specifications of Lessor. Lessor
reserves the right to remove all other signs or lettering, without notice to
Lessee, at the expense of Lessee. Any newspaper, magazine, or other advertising
done from the premises, or referring to the premises or the Building, which, in
the opinion of Lessor, is objectionable, shall be immediately discontinued upon
notice from Lessor.
BICYCLES AND ANIMALS. Unless expressly permitted by Lessor, no bicycle or
other vehicle, and no fish, bird, or animal shall be brought or permitted to be
in the Building or any part thereof.
CLOSING AND LOCKING DOORS AND WINDOWS. Unless expressly permitted by
Lessor, all doors to the premises are to be kept closed at all times except when
in actual use for entrance to or exit from the premises. Lessee shall be
responsible for the locking of doors and the closing of windows in and to the
premises. Lessee shall be responsible for any damage or loss resulting from
violation of this rule.
MACHINERY. Unless Lessor gives prior written consent in each and every
instance, Lessee shall not install or operate any steam or internal combustion
engine, boiler, machinery, refrigerating or heating device or air-conditioning
apparatus in or about the premises, or carry on any mechanical business therein.
All equipment of any electrical or mechanical nature shall be placed in settings
which absorb and prevent vibration, noise, or annoyance, or the spillage or
leakage of fluids, oils, or grease on the floors of the leased premises.
<PAGE>
USE. Lessee shall not illegally sell or store therein any spirituous, malt,
or vinous Iiquors, or any narcotic drugs; shall not exhibit, sell, or offer for
sale on the premises or in the Building anything whatsoever except such as are
essentially connected with the stated use of the premises.
FURNITURE OR EQUIPMENT REMOVAL. Moving or delivery of furniture, trade
fixtures and equipment, and freight by or for Lessee shall be done at such times
and in such manner as may be required by Lessor. Lessee shall list with Lessor
any and all furniture, trade fixtures and equipment, and similar articles to be
removed from the Building, and the list must be approved at the office of the
Building before Building employees will permit any article to be removed. Lessor
reserves the right, but shall not be obligated, to inspect all articles being
moved in or out of the Building; and Lessor shall not be liable to Lessee or to
any other person for loss of, or damage to, any furniture, trade fixtures and
equipment, or other personal property from any cause.
UNSIGHTLY PLACEMENT OF EQUIPMENT. Unless expressly permitted by Lessor,
Lessee shall not place or allow anything to be against or near exterior windows,
the glass or corridor partitions, or doors of the premises which may diminish
the light in, or be unsightly, from halls, corridors, or the exterior of the
Building.
LOCKS. Unless expressly permitted by Lessor, no additional locks or similar
devices shall be attached to any door, and no keys other than those provided by
Lessor shall be made for any door. If more than two keys for one lock are
desired by Lessee, Lessor shall provide the same upon payment therefor by
Lessee; Lessee shall obtain keys from Lessor only and from no other source. Upon
termination of this Lease or of Lessee's possession, Lessee shall surrender all
keys to the premises and shall provide Lessor with the then-current combinations
for any combination locks or safes, cabinets, and vaults.
NOISES AND OTHER NUISANCES. Lessee shall not make or permit any noise or
odor that is objectionable to Lessor or to other occupants of the Building to
emanate from the premises, and shall not create or maintain a nuisance therein,
and shall not disturb, solicit, or canvass any occupant of the Building, and
shall not do any act tending to injure the reputation of the Building. Lessee
shall not install or operate any phonograph, musical instrument, radio or
television receiver or similar device in the Building without prior approval of
Lessor. The use thereof, if permitted, shall be subject to control by Lessor to
the end that others shall not be disturbed or annoyed.
SAFES OR HEAVY ARTICLES. Lessee shall not overload any floor or otherwise
impair the structural integrity of the Building. Lessor may, but shall not be
required to, direct the routing, time of movement, and placement of safes and
other heavy articles. Safes, furniture, and all large articles shall be brought
into the premises or removed therefrom at the Lessee's sole risk and
responsibility. Any damage done to the Building by reason of a safe or other
heavy article of Lessee being brought into, stored in, or removed from the
premises shall be repaired at Lessee's sole expense.
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<PAGE>
SOLICITORS. Lessor reserves the right, but shall not be held obligated, to
exclude or eject from the Building any or all solicitors, canvassers or
peddlers, and any persons conducting themselves in such manner as, in the sole
judgment of Lessor, constitutes an annoyance to any of the tenants of the
Building or an interference with Lessor's operation of the Building, or who are
otherwise undesirable.
FLAMMABLE MATERIALS. No article of an extra hazardous nature and no
explosive shall be brought into the premises or into the Building. The storage
and use of all flammable and volatile materials and substances necessary in
Lessee's business operations shall be in conformity with applicable laws, rules,
and regulations of all duly-constituted public authorities.
LODGING. The premises hereby leased shall not be used for lodging or
sleeping purposes, and no cooking of food shall be done therein.
ADDITIONAL RULES. Lessor reserves the right to make such other and further
Rules and Regulations as in Lessor's judgment may, from time to time, be needful
or desirable for the safety, care, cleanliness, and efficient operation of the
Building, and for the preservation of good order therein.
3
<PAGE>
RIDER NUMBER ONE
THIS RIDER NUMBER ONE, COMPRISING PARAGRAPH 41 to 48, INCLUSIVE, IS ANNEXED TO
AND FORMS A PART OF THE LEASE AGREEMENT DATED AS OF THE _________ DAY OF
______________________ BETWEEN SUN LIFE OF CANADA, AS LESSOR, AND DUNCAN HILL
GROUP, LTD AS LESSEE, COVERING SUITE 406 OF THE BELDEN VILLAGE TOWER, 4450
BELDEN VILLAGE STREET, N.W., CANTON, OH 44718.
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41. ANNUAL BASE RENT FOR SUITE 406:
a) Beginning October 1, 1996, Lessee shall pay to Lessor as rent for the
premises for year one the annual sum of Sixty Four Thousand Seven Hundred
Eighty Five and no/100 dollars ($64,785.00) payable in monthly installments
of Five Thousand Three Hundred Ninety Eight and 75/100 dollars ($5,398.75);
b) Beginning October 1, 1997, Lessee shall pay to Lessor as rent for the
premises for year two the annual sum of Sixty Seven Thousand Eight Hundred
Seventy and no/100 dollars ($67,870.00) payable in monthly installments of
Five Thousand Six Hundred Fifty Five and 83/100 dollars($5,655.83);
42. ANNUAL BASE RENT FOR SUITE 4408:
a) Beginning November 1, 1996, Lessee shall pay to Lessor as rent for the
premises for year one the annual sum of Nine Thousand Six Hundred and no/100
dollars ($9,600.00) payable in monthly installments of Eight Hundred and
nol100 dollars ($800.00).
b) Beginning October 1, 1997, Lessee shall pay to Lessor as rent for the
premises for year two the annual sum of Nine Thousand Six Hundred and no/100
dollars ($9,600.00) payable in monthly installments of Eight Hundred and
no/100 dollars ($800.00).
43. SPACE PREPARATION - SUITE 406: Lessor, at Lessor's sole expense, shall
provide the following improvements to suite 406:
a) Replace brown cove base with gray cove base.
b) Paint entire suite with color selected by Lessee from building standard
selection.
c) Clean carpet in entire suite and repair "rolls", if possible, in three (3)
offices.
d) Replace damaged, bowed, missing or stained ceiling tile.
e) Provide door hardware and doors where missing.
f) Install electrical wall plates where missing.
g) Open three (3) offices into one (1) conference area in suite 407. Install two
(2) doors and frames into suite 406 and install demising wall separating the
conference area from the balance of suite
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407. Paint conference room, install new carpeting selection from building
standard selection book.
h) Complete construction of public corridor.
i) Lessor shall, at its expense, install ceiling terminations where missing.
j) Lessor shall relocate one (1) HVAC vent in reception area.
k) Lessor shall repair wall at window million in one office.
l) Lessor shall finish construction and level unfinished floor in the old suite
#409.
Lessee acknowledges that some of the above items will be completed after Lessee
has taken occupancy and will cooperate with Lessor and Lessor's contractors in
order to complete said improvements.
44. SPACE PREPARATION - SUITE 4408 (First Floor Retail): Lessee is responsible
for suite construction and all Jackson Twp. and Stark County permits and
drawings. Lessor to approve final working drawings prior to commencement of
construction. Lessor, at Lessor's sole expense, shall sprinkle the entire space
and construct a wall to demise said premises. Lessor, at Lessor's sole expense
shall install a corridor wall from Lessee's space to rear existing entrance
door. Lessee and Lessee's architect and contractors will cooperate with Lessor
and Lessor's architect and contractors in scheduling Lessee's construction, to
allow for installation of fire suppression system and demising walls.
45. SUITE 4408 UTILITIES: Lessee shall pay to Lessor a seventy five percent
(75%) proration of the utilities for Suite 4408 (on a monthly basis) including
electric, gas, water and sewer.
46. RIGHT OF FIRST OFFER: Lessee shall have the right of first offer on vacant
contiguous fourth floor office space.
47. MAINTENANCE OF SUITE 4408 BY LESSEE: Lessor shall be under no obligation to
make repairs, alterations, or improvements in or to the premises except those
herein specifically agreed to be made or performed by Lessor.
All of the obligations of Lessee under this Paragraph 47 are in addition to
those obligations of Lessee set forth in Paragraph 10 or elsewhere in this
Lease.
Lessee, at Lessee's expense, shall keep and maintain the interior (including,
without limitation, the electrical; lighting, plumbing, heating, and any
air-conditioning or ventilating systems serving the premises, and any
installations made by Lessee which serve the premises, but which extend from
other portions of the Building, all door and window hardware and glass) of the
premises in good order, condition and repair.
In furtherance of, and not in limitation of, Lessee's obligation to keep and
maintain the premises in good order, condition and repair, Lessee agrees with
the Lessor that Lessee, at Lessee's expense:
a. will arrange for and provide all janitor, porter or cleaning
(including, without limitation, cleaning of interior windows and door
glass cleaning, all on a schedule reasonably satisfactory to the
Lessor) services necessary for the premises;
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b. will keep the premises in a clean, slightly and sanitary condition,
complying with all applicable requirements of Jackson Twp. and/or
Stark County, Ohio, and through Lessee's own employees or by means of
a competent exterminating service, free from vermin and rodents;
c. will keep open and clean all grease traps and all sewer and/or
discharge lines from the premises to the building primary sewer lines;
d. will permit Lessor, Lessor's Agent, contractors and employees access
to the premises at all reasonable times for the making of inspections,
repairs for which Lessor is responsible under this lease, alteration,
or improvements or additions of, or to, the Building or the premises;
e. will receive those shipments of food merchandise and any other items
being delivered through the Building's rear receiving area.
Lessee shall permit no waste, damage, or injury to the premises, not do, or
permit to be done, on the premises any act or thing which will invalidate or be
in conflict with any fire insurance policies or increase the rate for insurance
covering the Building, or which shall, or might, subject Lessor to any liability
or responsibility for injury to any person or persons, or to property, by reason
of any business or operation being carried on by Lessee in the premises.
48. EXTENSION PRIVILEGE OF LESSEE: Provided that Lessee is not then in default
under this Lease Agreement, Lessor hereby grants to Lessee the privilege of
extending, subject to the provisions of this paragraph, the term of this Lease
Agreement for two periods of one (1) year each, commencing on the first day
following the Lease Termination Date and ending twelve (12) months thereafter
(which said one {1} year period is hereinafter called "said extended term"),
for, upon and under all of the covenants, (excepting those relating to the
amount of Annual Base Rent to be paid by Lessee), agreements and conditions in
this Lease contained; and the amount of Annual Base Rent be paid by Lessee
during said extended terms shall be determined in accordance with the provisions
of subparagraphs (c) and (d) below:
a. Lessee shall exercise the extension privilege granted by subparagraph
(a) above by giving to Lessor not later than six (6) months prior to
the Lease Termination Date written notice of Lessee's election so to
extend the term of the Lease.
b. If Lessee does not notify Lessor, in accordance with subparagraph (a)
above, then Lessor shall be under no obligation to negotiate with
Lessee with respect to said extension, and Lessor, without liability
to Lessee, may lease said premises to any person, firm or corporation
for a term to commence after the Lease Termination Date. Furthermore,
Lessor shall be under no obligation, as outlined in Paragraph 17e
above, to provide Lessee prior notice for the purposes of showing or
exhibiting said space to prospects.
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c. During the first extended term for suite 406, Lessee shall pay to
lessor the annual sum of Seventy One Thousand Three Hundred Eighty and
50/100 dollars ($71,380.50) per year payable in equal monthly
installments of Five Thousand Nine Hundred Forty Eight and 38/100
dollars ($5,948.38).
During the first extended term for suite 4408, Lessee shall pay to
Lessor the annual sum of Nine Thousand Six Hundred and no/100 Dollars
($9,600.00), payable in equal monthly installments of Eight Hundred
and no/100 dollars ($800.00).
d. During the second extended term for suite 406, Lessee shall pay to
Lessor the annual sum of Seventy Four Thousand Four Hundred Eighty
Four and no/lO0 dollars ($74,040.00) payable in equal monthly
installments of Six Thousand Two Hundred seven and no/100 dollars
($6,170.00).
During the second extended term for suite 4408, Lessee shall pay to
Lessor the annual sum of Nine Thousand Six Hundred and no/100 dollars
($9,600.00), payable in equal monthly installments of Eight Hundred
and no/100 dollars ($800.00).
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NOTICE TO PROSPECTIVE REAL ESTATE PURCHASERS/TENANTS
In Ohio, real estate licensees are required to disclose which party they
represent in a real estate transaction. Under Ohio law, a real estate licensee
is considered to be an agent of the owner of real estate unless there is an
agreement to the contrary and that agreement is disclosed to all parties.
Some of the duties of the licensee, as the agent of the owner, are to:
Treat all parties to a transaction honestly `
Offer the property without regard to race, color, religion, sex, ancestry,
national origin or handicap
Promote the best interest of the owner
Obtain the best price for the owner
Fully disclose to the owner all facts which might affect or influence a
decision
Present all offers to the owner
As a buyer, if you choose to have a real estate broker represent you as your
agent, you should enter into a written contract that clearly establishes the
obligations of both you and your agent and specifies how your agent will be
compensated.
Under Ohio law, the disclosure statement below must be submitted to the
prospective purchaser/tenant in each transaction. This form has been approved by
the Ohio Real Estate Commission for use by Ohio real estate licensees. Please
sign below.
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AGENCY DISCL0SURE STATEMENT
The listing broker and all agents associated with the listing broker
represent the owner.
The T.K. HARRIS COMMERCIAL REAL ESTATE and JERRY BLAKE represent (please
(Selling Broker) (Selling Agent)
check one): the purchaser/tenant [X] ; the owner[ ].
If a broker/agent is representing both the purchaser/tenant and the owner as
a dual agent, he/she must attach a copy of the agreement signed by the
purchaser/tenant and owner acknowledging their agreement to this arrangement.
By signing below, the parties confirm that they have received, read and
understood the information in this Agency Disclosure Form and that this form
was provided to them before signing a contract to purchase/lease real estate.
/s/ ILLEGIBLE 9/9/96 /s/ ILLEGIBLE 9/23/96
------------------------------------ ------------------------------------
Purchaser/Tenant Date Owner Date
/s/ ILLEGIBLE 9/9/96
------------------------------------ ------------------------------------
Purchaser/Tenant Date Owner Date
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Any questions regarding the role or responsibilities of real estate brokers or
agents in Ohio can be directed to an attorney or to:
STATE OF OHIO
DEPARTMENT OF COMMERCE
DIVISION OF REAL ESTATE
Telephone: 614/466-4100
EXHIBIT 10.11
EXECUTIVE EMPLOYMENT AGREEMENT
This Agreement is made as of the 1st day of January, 1997, between KIDS
STUFF, INC., an Ohio Corporation with its principal offices at 4450 Belden
Village Street, N.W., Suite 406, Canton, Ohio 44718 (the "Company") and William
L. Miller residing at P.O. Box 500, 72 East Drive, Hartville, Ohio 44632 (the
"Executive").
AGREEMENT
In consideration of the mutual agreements set forth herein, the
parties, intending to be legally bound, agree as follows:
1. EMPLOYMENT.
a) POSITION. The Company hereby agrees to continue the
employment of Executive, and Executive hereby accepts continued employment by
the Company as Chairman of the Board and Chief Executive Officer of the Company.
b) PERFORMANCE. Except as set forth below, Executive agrees to
devote his full time, energies and attention to the performance of his duties
and functions hereunder, to exercise his best efforts, judgment, skills, and
talents exclusively in the business and affairs of the Company and, in the
performance thereof, to comply with the policies of and be subject to the
direction of the Board of Directors of the Company. Notwithstanding the above,
the Company recognizes and acknowledges that Executive will continue to serve as
the Chief Executive Officer of Duncan Hill Co., Ltd. during the term of this
Agreement. Additionally, Executive may serve as an employee or officer of other
subsidiaries or affiliates of Duncan Hill Co., Ltd. Executive shall devote such
time to Duncan Hill Co., Ltd., subsidiaries or affiliates of Duncan Hill Co.,
Ltd. as he deems appropriate. Executive shall be entitled to the compensation
set forth below regardless of the percentage of working hours that Executive
devotes to the affairs of the Company.
c) RESPONSIBILITIES. Executive shall be responsible for the
duties assigned to him by the Board of Directors or by an executive officer of
the Company with authority to assign duties and shall be subject and report to
the Board of Directors and/or any such other executive officer. Executive is
engaged to act as the Company's Chairman of the Board and Chief Executive
Officer and shall perform all of the usual duties inherent in such positions as
well as such other duties as may from time to time be delegated to him by the
Board of Directors.
<PAGE>
2. COMPENSATION.
a) BASE SALARY. The Company agrees to pay Executive and
Executive agrees to accept as compensation for all of his services, a base
salary payable in accordance with the Company's standard payroll policy at the
annual rate of $125,000. The Board of Directors or the Compensation Committee of
the Board of Directors shall review the Executive's performance on an annual
basis and shall determine, in its discretion, whether to increase the base
salary.
b) BONUSES. Executive shall be eligible to receive, in
addition to his base salary, an annual cash bonus under the Company's bonus
program for key management personnel administered by the Board of Directors or
the Compensation Committee of the Board of Directors under which a cash bonus
will be payable based upon the Company's performance and Executive's personal
performance, with a range of bonus from 0 to 50% of Executive's prior year's
base salary.
c) OPTION GRANTS. The Company hereby grants options to
purchase 100,000 shares of the Company's Common Stock (the Option). The Options
are not exercisable on the date hereof. The Options shall vest and become
exercisable with respect to options to purchase 25,000 shares of Common Stock on
each of the first four anniversary dates of this Agreement. The Options will
vest and become exercisable on such dates regardless of whether Executive is
employed on such dates by the Company. The Options will expire and be
nonexercisable ten years from the date hereof.
The exercise price of the Option shall be $5.00 per share of Common
Stock, subject to adjustment as set forth below. The exercise price for vested
options may be decreased if (i) the Company meets certain performance goals, and
(ii) Executive timely elects to "lock-in" a lower exercise price with respect to
his vested options.
The exercise price for vested options may be reduced by $1.00 per share
for each $500,000 of pretax net income of the Company for the prior fiscal year.
The Company shall report to Executive, promptly upon audited financial
statements for the prior fiscal year becoming available, the pretax net income
of the Company for that year. Executive shall have thirty (30) days in which to
decide, with respect to his vested options for which an alternative exercise
price has not previously been locked-in, whether to adjust the exercise price of
such vested options based upon the pretax income of the Company for the prior
year. FOR EXAMPLE, if the Company has $1,100,000 of pretax net income for the
year ended December 31, 1997, the Company shall report such net income to
Executive in 1998. Executive will have to decide, within thirty (30) days of
receipt of the financial information, whether to modify or "lock-in" an amended
exercise price for the vested options (with the original grant date of January
1, 1997, options to purchase 25,000 shares of Common Stock would be vested at
that time). The exercise price for such vested options could be lowered to $3.00
per share and locked-in with respect to the underlying shares (two $500,000
increments of pretax net profit (no additional adjustment for the $100,000
partial increment)).
If Executive locks-in the new exercise price, that price will be the
exercise price for those shares for the entire term of the option. However,
Executive may determine not to so lock-in the
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exercise price. In that event, Executive may, in the subsequent year(s), elect
to lock-in a new exercise price for ALL vested options with respect to which
alternate exercise price has not previously been locked-in. In no event shall
Executive be allowed to lock-in a new exercise price subsequent to any election
that Executive can make to lock-in a new exercise price based on the Company's
pretax net income for the year ending December 31, 2001.
3. EXPENSES. The Company shall pay or reimburse Executive during his
employment hereunder for all reasonable travel and other expenses incurred by
Executive in the performance of his duties and obligations hereunder upon
submission of appropriate supporting documentation. In addition, the Company
shall pay or reimburse Executive during his employment for expenses incurred by
Executive in personal financial and legal counseling (including income tax
preparation and counseling, financial planning, financial counseling and
financial management and legal services on personal matters) in amounts not to
exceed in the aggregate $5,000 annually, and supplemental medical/dental
expenses up to the maximum of $1,500 annually. To the extent reimbursement by
the Company of any of Executive's expenses set forth in the preceding sentence
results in taxable income to Executive, the Company shall pay Executive, in
addition, an amount sufficient to gross-up such expenses so that Executive shall
not bear any personal out-of-pocket expenses with respect thereto. The Company
shall also, during the term hereof, provide Executive with a Company automobile
for his exclusive use, of a make and model mutually agreed upon by Executive and
the Company from time to time, at the Company's expense.
4. BENEFIT PLANS. Executive shall be entitled to participate in all of
the Company sponsored employee benefit plans.
5. VACATION. Executive shall be entitled to at least one month of
vacation during each twelve-month period of his employment hereunder.
6. INDEMNIFICATION. The Company shall to the full extent permitted by
law and not inconsistent with the provisions of the Certificate of Incorporation
and By-laws of the Company indemnify Executive if Executive shall become, or
shall be threatened with becoming, a party to any action, suit, or proceeding by
reason of his acting as an officer, agent, or employee of the Company, and such
indemnification shall not be deemed exclusive of any other rights to which
Executive may be entitled as a matter of law or in accordance with any
agreement, document, instrument, or under any policy of insurance carried by the
Company and such indemnification shall survive termination of this Agreement.
7. CONFIDENTIAL INFORMATION.
a) Executive acknowledges that the information, observations
and data regarding the Company and its subsidiaries obtained by him during the
course of his employment, either before or after the effective date of the
Agreement, are the property of the Company. Therefore, Executive agrees that he
will not disclose to any unauthorized person or use for his own account or for
the benefit of any third party (other than the Company and its subsidiaries) any
of such information,
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observations or data without the prior express written approval of the Board of
Directors of the Company. Notwithstanding the foregoing, Executive may disclose
information, observations or data to the extent that (a) the same become
generally known to and available for use by the public other than as a result of
acts or omissions to act by Executive in violation of this paragraph 7 or (b)
such disclosure is required by law or legal process. Executive agrees to deliver
to the Company, at the termination of his employment, all memoranda, notes,
plans, records, reports and other documents (and copies thereof) relating to the
Company and its subsidiaries, which he may then possess or have under his
control, provided, however, that Executive may retain copies of his director
files, initial public offering files and Company presentation files.
b) Except as may be otherwise provide in Paragraph 1,
Executive shall not during the term of this Agreement engage in, or otherwise,
whether or not such business or organization now is or shall then be competing
with the Company, or invest in the securities (other than a portfolio
investment, including without limitation investment in mutual funds, not
exceeding 2% of outstanding securities of a firm listed on a national stock
exchange or traded in the Nasdaq Stock Market) of any other business or
organization if such business or organization now is or shall then be competing
with the Company; provided, however, that Executive may serve on the board of
directors or the board of trustees of other businesses or organizations with the
approval of the Board of Directors of the Company.
c) For a period of one year subsequent to the later to occur
of (i) the termination of Executives employment with Kids Stuff, or (ii) the
termination of any consulting arrangement between Kids Stuff and Executive,
Executive shall not compete directly or indirectly be associated with, or act as
an independent contractor or consultant to, or be a director, officer, employee,
owner, or partner of, any other business or organization that competes with the
business of the Company as then conducted. Nothing contained herein will be
deemed to require the Company to enter into a consulting agreement with the
Executive upon termination of Executives employment with the Company.
8. TERM AND TERMINATION.
a) TERM. The term of this Agreement shall commence on
January 1, 1997 and shall terminate on December 31, 2002 unless earlier
terminated as provided in Section 8(b) below.
b) TERMINATION.
(i) This Agreement and Executive's employment
hereunder may be terminated by the Company at any time with Cause (as
hereinafter defined) on 30 days prior written notice.
(ii) This Agreement and Executive's employment
hereunder may be terminated by Executive on 30 days prior written notice upon
the occurrence of any one of the following events: (1) The failure of the
Company to elect or reelect or to appoint or reappoint
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Executive to the office of Chief Executive Officer; (2) A material change by the
Company in Executive's functions, duties, or responsibilities which change would
cause Executive's position with the Company to become of less dignity,
responsibility or scope from the position and responsibilities described in
Section 1 hereof; (3) The liquidation or dissolution, or consolidation, merger
or other business combination (including assumption of control by a shareholder
or consortium of shareholders) of the Company, or transfer of all or
substantially all of its assets, unless any such consolidation, merger or other
business combination does not adversely affect Executive's position or the
dignity or responsibilities of Executive, in Executive's judgment; and (4) Any
material breach of this Agreement by the Company. PROVIDED, HOWEVER, that this
Section 8(b)(ii) shall not be effective unless Executive's beneficial ownership
of the Company's outstanding voting capital stock (within the meaning of Section
13(d) of the Securities Exchange Act of 1934) is less than 50% of the Company's
total outstanding voting capital stock.
c) EFFECT OF TERMINATION. Upon termination of this Agreement
neither party shall have any further obligation to the other party, except as
provided in Section 8(d) below and under the provisions of any outstanding stock
options held by Executive at the time of termination, and except that the
provisions of Sections 6 and 7(a) if applicable, shall survive termination of
the Agreement.
d) PAYMENTS TO EXECUTIVE ON TERMINATION.
(i) In the event that this Agreement is terminated
by the Company without Cause or Executive terminates this Agreement pursuant to
Section 8(b)(ii), the Company shall pay in a lump sum on the date of termination
severance compensation to Executive in the amount derived by multiplying the
factor 2.99 by the sum of Executive's salary and bonus paid in the year prior to
the year of termination.
(ii) In the event this Agreement expires and
Executive is not rehired in the same position under the terms and conditions of
a new executive employment agreement acceptable to Executive and the Company
superseding this Agreement, the Company shall pay in a lump sum on the date of
termination severance compensation to Executive in an amount equal to the sum of
Executive's salary and bonus paid in the year ending December 31, 2002.
(iii) In the event Executive dies or becomes disabled
(as hereinafter defined) during the term hereof, the Company shall pay severance
compensation to Executive, or his estate, as the case may be, in the amount
derived by multiplying the factor 2.99 by the sum of Executive's salary and
bonus paid in the year prior to the year in which the death or disability
occurs, reduced to a lesser amount determined by multiplying said amount by a
fraction, the numerator of which is the number of whole or partial months
remaining from the date of death or disability, as the case may be, to December
31, 2002 and the denominator is 60; provided, however, that such severance
compensation shall in no event be less than Executive's salary and bonus paid in
the year prior to the year in which Executive dies or becomes disabled. Such
severance compensation shall be paid in a lump sum as soon as practicable
following the date of death or disability. The Company also agrees to maintain
in force during the term of this Agreement policy on the life of Executive in
face amount
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equal to two times base salary as of the date hereof, the proceeds of which will
be paid to Executive's estate.
(iv) In addition to the severance payment provided in
subparagraphs (i), (ii) or (iii) above, Executive's participation in the
Company-sponsored employee health benefit plan shall be continued at Company
expense for a maximum period of eighteen months so long as Executive is alive
and is not elsewhere earlier employed on a full time basis.
e) DEFINITIONS. For the purposes of this Agreement:
(i) Cause shall mean acts of moral turpitude, and
the willful repeated or habitual neglect of Executive's obligations under this
Agreement, the misuse of corporate funds, the failure to manage the business of
the Company in accordance with normal business practices, or the material breach
of this Agreement.
(ii) Disabled shall mean the physical or mental
inability of Executive to perform his duties hereunder for a period of three
consecutive months as determined by an independent physician chosen by the
Company and approved by Executive.
(iii) Fair Market Value of the Company's stock on the
applicable date shall mean the mean of the highest and lowest quoted selling
prices of such stock on the composite tape of the Nasdaq SmallCap Market (or
such other national market or exchange on which the Company's common stock is
then traded) on the applicable date, or if the Company's common stock was not
traded on such exchange on such date, on the next preceding date on which the
common stock was traded.
f) REPLACEMENT. Notwithstanding the above, the Board of
Directors, with the consent of Executive, may hire a replacement to serve as the
Chairman of the Board and Chief Executive Officer of the Company. Executive
shall assist in the orderly transition of duties and responsibilities for such
period as is mutually agreed upon by the Company and Executive. During such
transition period, Executive shall be entitled to all benefits and compensation
provided for herein. At the conclusion of the transition period, Executive's
employment with the Company shall cease. Executive shall receive the severance
compensation set forth in Section 8(d)(ii) upon termination of his employment
and shall be entitled to received the health plan benefits set forth in Section
8(d)(iv) thereafter.
9. CHANGE OF CONTROL; EXECUTIVE'S STOCK OPTIONS. In the event any
person other than Executive, Duncan Hill Co., Ltd., Jeanne E. Miller or their
affiliates, by any means of purchase or acquisition, becomes the "beneficial
owner" (as defined in Rule 13d-3 promulgated by the Securities and Exchange
Commission under the Securities Exchange Act of 1934, or any successor provision
thereto) of more than 50% of the outstanding shares of the Company's common
stock, or commences a tender offer pursuant to Regulation 14-C promulgated by
the Securities and Exchange Commission under the Securities Exchange Act of
1934, or any successor provision thereto, which, if successful,
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would result in such person becoming the beneficial owner of more than 50% of
such shares, then all of Executive's options to purchase common stock of the
Company outstanding at the time of the event and which were granted six months
or more prior to the event shall immediately become exercisable in full and upon
the written election of Executive, given to the Company within 180 days of the
event, the Company shall repurchase for cash all or any part of the options as
specified in the written election, at a price per share equal to the difference
between the Fair Market Value of the Company's stock on the date of the event
and the option exercise price per share.
In the event of the execution of an agreement of reorganization, merger
or consolidation of the Company with one or more corporations as a result of
which the Company is not to be the surviving corporation or the execution of an
agreement of sale or transfer of all or substantially all of the assets of the
Company, then all of Executive's options to purchase common stock of the Company
outstanding at the time of the event and which were granted six months or more
prior to the event shall immediately become exercisable in full and upon the
written election of Executive given to the Company within 180 days of the event,
the Company shall repurchase for cash all or any part of the options as
specified in the written election, at a price per share equal to the difference
between the Fair Market Value of the Company's stock on the execution date and
the option exercise price per share.
10. MISCELLANEOUS.
a) SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision.
b) SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties hereto, the heirs and legal
representatives of Executive, and the successors and assigns of the Company,
except that Executive may not assign this Agreement or any of Executive's duties
or services hereunder.
c) NO WAIVERS. The failure of either party to insist upon the
strict performance of any of the terms, conditions, and provisions of this
Agreement shall not be construed as a waiver or relinquishment of future
compliance therewith, and said terms, conditions, and provisions shall remain in
full force and effect. No waiver of any term or condition of this Agreement on
the part of either party shall be effective for any purpose whatsoever unless
such waiver is in writing and signed by such party.
d) MODIFICATION. This Agreement may not be changed, amended,
or modified except by a writing signed by both parties.
e) NOTICES. Any notice, request, demand, waiver, consent,
approval, or other communication which is required to be or may be given under
this Agreement shall be in writing and shall be deemed given only if delivered
to the party personally or sent to the party by registered or certified mail,
return receipt requested, postage prepaid, to the parties at the addresses set
forth herein
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or to such other address as either party may designate from time to time by
notice to the other party sent in like manner.
f) GOVERNING LAW. This Agreement constitutes the entire
agreement between the parties and shall be governed by and construed in
accordance with the laws of the State of Ohio applicable to agreements made and
to be performed solely within such state.
g) HEADINGS. The section headings contained in this Agreement
are for reference purposes only and shall not be deemed to be a part of this
Agreement or to affect the construction or interpretation of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused the Agreement to be
executed as of the day and year first above written.
KIDS STUFF, INC.
By: /s/ JEANNE E. MILLER
------------------------------
Title: Executive Vice President
---------------------------
EXECUTIVE:
By: /s/ WILLIAM L. MILLER
------------------------------
Print Name: WILLIAM L. MILLER
----------------------
8
EXHIBIT 10.12
EXECUTIVE EMPLOYMENT AGREEMENT
This Agreement is made as of the 1st day of January, 1997, between KIDS
STUFF, INC., an Ohio Corporation with its principal offices at 4450 Belden
Village Street, N.W., Suite 406, Canton, Ohio 44718 (the "Company") and Jeanne
E. Miller residing at P.O. Box 500, 72 East Drive, Hartville, Ohio 44632 (the
"Executive").
AGREEMENT
In consideration of the mutual agreements set forth herein, the
parties, intending to be legally bound, agree as follows:
1. EMPLOYMENT.
a) POSITION. The Company hereby agrees to continue the
employment of Executive, and Executive hereby accepts continued employment by
the Company as Executive Vice President, Director of Merchandising and Catalog
Development of the Company.
b) PERFORMANCE. Executive agrees to devote her full time,
energies and attention to the performance of her duties and functions hereunder,
to exercise her best efforts, judgment, skills, and talents exclusively in the
business and affairs of the Company and, in the performance thereof, to comply
with the policies of and be subject to the direction of the Board of Directors
of the Company.
c) RESPONSIBILITIES. Executive shall be responsible for the
duties assigned to her by the Board of Directors or by an executive officer of
the Company with authority to assign duties and shall be subject and report to
the Board of Directors and/or any such other executive officer. Executive is
engaged to act as the Executive Vice President, Director of Merchandising and
Catalog Development and shall perform all of the usual duties inherent in such
positions as well as such other duties as may from time to time be delegated to
her by the Board of Directors.
2. COMPENSATION.
a) BASE SALARY. The Company agrees to pay Executive and
Executive agrees to accept as compensation for all of her services, a base
salary payable in accordance with the Company's standard payroll policy at the
annual rate of $90,000. The Board of Directors or the Compensation Committee of
the Board of Directors shall review the Executives performance on an annual
basis and shall determine, in its discretion, whether to increase the base
salary.
b) BONUSES. Executive shall be eligible to receive, in
addition to her base salary, an annual cash bonus under the Company's bonus
program for key management personnel administered by the Board of Directors or
the Compensation Committee of the Board of Directors
<PAGE>
under which a cash bonus will be payable based upon the Company's performance
and Executive's personal performance, with a range of bonus from 0 to 50% of
Executive's prior year's base salary.
c) OPTION GRANTS. The Company hereby grants options to
purchase 100,000 shares of the Company's Common Stock (the Option). The Options
are not exercisable on the date hereof. The Options shall vest and become
exercisable with respect to options to purchase 25,000 shares of Common Stock on
each of the first four anniversary dates of this Agreement. The Options will
vest and become exercisable on such dates regardless of whether Executive is
employed on such dates by the Company. The Options will expire and be
nonexercisable ten years from the date hereof.
The exercise price of the Option shall be $5.00 per share of Common
Stock, subject to adjustment as set forth below. The exercise price for vested
options may be decreased if (i) the Company meets certain performance goals, and
(ii) Executive timely elects to "lock-in" a lower exercise price with respect to
her vested options.
The exercise price for vested options may be reduced by $1.00 per share
for each $500,000 of pretax net income of the Company for the prior fiscal year.
The Company shall report to Executive, promptly upon audited financial
statements for the prior fiscal year becoming available, the pretax net income
of the Company for that year. Executive shall have thirty (30) days in which to
decide, with respect to her vested options for which an alternative exercise
price has not previously been locked-in, whether to adjust the exercise price of
such vested options based upon the pretax income of the Company for the prior
year. FOR EXAMPLE, if the Company has $1,100,000 of pretax net income for the
year ended December 31, 1997, the Company shall report such net income to
Executive in 1998. Executive will have to decide, within thirty (30) days of
receipt of the financial information, whether to modify or "lock-in" an amended
exercise price for the vested options (with the original grant date of January
1, 1997, options to purchase 25,000 shares of Common Stock would be vested at
that time). The exercise price for such vested options could be lowered to $3.00
per share and locked-in with respect to the underlying shares (two $500,000
increments of pretax net profit (no additional adjustment for the $100,000
partial increment)).
If Executive locks-in the new exercise price, that price will be the
exercise price for those shares for the entire term of the option. However,
Executive may determine not to so lock-in the exercise price. In that event,
Executive may, in the subsequent year(s), elect to lock-in a new exercise price
for ALL vested options with respect to which alternate exercise price has not
previously been locked-in. In no event shall Executive be allowed to lock-in a
new exercise price subsequent to any election that Executive can make to lock-in
a new exercise price based on the Company's pretax net income for the year
ending December 31, 2001.
3. EXPENSES. The Company shall pay or reimburse Executive during her
employment hereunder for all reasonable travel and other expenses incurred by
Executive in the performance of her duties and obligations hereunder upon
submission of appropriate supporting documentation. In addition, the Company
shall pay or reimburse Executive during her employment for expenses incurred by
Executive in personal financial and legal counseling (including income tax
preparation and
2
<PAGE>
counseling, financial planning, financial counseling and financial management
and legal services on personal matters) in amounts not to exceed in the
aggregate $5,000 annually, and supplemental medical/dental expenses up to the
maximum of $1,500 annually. To the extent reimbursement by the Company of any of
Executive's expenses set forth in the preceding sentence results in taxable
income to Executive, the Company shall pay Executive, in addition, an amount
sufficient to gross-up such expenses so that Executive shall not bear any
personal out-of-pocket expenses with respect thereto. The Company shall also,
during the term hereof, provide Executive with a Company automobile for her
exclusive use, of a make and model mutually agreed upon by Executive and the
Company from time to time, at the Company's expense.
4. BENEFIT PLANS. Executive shall be entitled to participate in all of
the Company sponsored employee benefit plans.
5. VACATION. Executive shall be entitled to at least one month of
vacation during each twelve-month period of her employment hereunder.
6. INDEMNIFICATION. The Company shall to the full extent permitted by
law and not inconsistent with the provisions of the Certificate of Incorporation
and By-laws of the Company indemnify Executive if Executive shall become, or
shall be threatened with becoming, a party to any action, suit, or proceeding by
reason of her acting as an officer, agent, or employee of the Company, and such
indemnification shall not be deemed exclusive of any other rights to which
Executive may be entitled as a matter of law or in accordance with any
agreement, document, instrument, or under any policy of insurance carried by the
Company and such indemnification shall survive termination of this Agreement.
7. CONFIDENTIAL INFORMATION.
a) Executive acknowledges that the information, observations
and data regarding the Company and its subsidiaries obtained by her during the
course of her employment, either before or after the effective date of the
Agreement, are the property of the Company. Therefore, Executive agrees that she
will not disclose to any unauthorized person or use for her own account or for
the benefit of any third party (other than the Company and its subsidiaries) any
of such information, observations or data without the prior express written
approval of the Board of Directors of the Company. Notwithstanding the
foregoing, Executive may disclose information, observations or data to the
extent that (a) the same become generally known to and available for use by the
public other than as a result of acts or omissions to act by Executive in
violation of this paragraph 7 or (b) such disclosure is required by law or legal
process. Executive agrees to deliver to the Company, at the termination of her
employment, all memoranda, notes, plans, records, reports and other documents
(and copies thereof) relating to the Company and its subsidiaries, which she may
then possess or have under her control, provided, however, that Executive may
retain copies of her director files, initial public offering files and Company
presentation files.
3
<PAGE>
b) Except as may be otherwise provide in Paragraph 1,
Executive shall not during the term of this Agreement engage in, or otherwise,
whether or not such business or organization now is or shall then be competing
with the Company, or invest in the securities (other than a portfolio
investment, including without limitation investment in mutual funds, not
exceeding 2% of outstanding securities of a firm listed on a national stock
exchange or traded in the Nasdaq Stock Market) of any other business or
organization if such business or organization now is or shall then be competing
with the Company; provided, however, that Executive may serve on the board of
directors or the board of trustees of other businesses or organizations with the
approval of the Board of Directors of the Company.
c) For a period of one year subsequent to the later to occur
of (i) the termination of Executive's employment with Kids Stuff, or (ii) the
termination of any consulting arrangement between Kids Stuff and Executive,
Executive shall not compete directly or indirectly be associated with, or act as
an independent contractor or consultant to, or be a director, officer, employee,
owner, or partner of, any other business or organization that competes with the
business of the Company as then conducted. Nothing contained herein will be
deemed to require the Company to enter into a consulting agreement with the
Executive upon termination of Executives employment with the Company.
8. TERM AND TERMINATION.
a) TERM. The term of this Agreement shall commence on January
1, 1997 and shall terminate on December 31, 2002 unless earlier terminated as
provided in Section 8(b) below.
b) TERMINATION.
(i) This Agreement and Executive's employment
hereunder may be terminated by the Company at any time with Cause (as
hereinafter defined) on 30 days prior written notice.
(ii) This Agreement and Executive's employment
hereunder may be terminated by Executive on 30 days prior written notice upon
the occurrence of any one of the following events: (1) The failure of the
Company to elect or reelect or to appoint or reappoint Executive to the office
of Executive Vice President; (2) A material change by the Company in Executive's
functions, duties, or responsibilities which change would cause Executive's
position with the Company to become of less dignity, responsibility or scope
from the position and responsibilities described in Section 1 hereof; (3) The
liquidation or dissolution, or consolidation, merger or other business
combination (including assumption of control by a shareholder or consortium of
shareholders) of the Company, or transfer of all or substantially all of its
assets, unless any such consolidation, merger or other business combination does
not adversely affect Executive's position or the dignity or responsibilities of
Executive, in Executive's judgment; and (4) Any material breach of this
Agreement by the Company. PROVIDED, HOWEVER, that this Section 8(b)(ii) shall
not be effective unless Executive's beneficial ownership of the Company's
outstanding voting capital stock (within the meaning of Section 13(d) of the
Securities Exchange Act of 1934) is less than 50% of the Company's total
outstanding voting capital stock.
4
<PAGE>
c) EFFECT OF TERMINATION. Upon termination of this Agreement
neither party shall have any further obligation to the other party, except as
provided in Section 8(d) below and under the provisions of any outstanding stock
options held by Executive at the time of termination, and except that the
provisions of Sections 6 and 7(a), if applicable, shall survive termination of
the Agreement.
d) PAYMENTS TO EXECUTIVE ON TERMINATION.
(i) In the event that this Agreement is terminated by
the Company without Cause or Executive terminates this Agreement pursuant to
Section 8(b)(ii), the Company shall pay in a lump sum on the date of termination
severance compensation to Executive in the amount derived by multiplying the
factor 2.99 by the sum of Executive's salary and bonus paid in the year prior to
the year of termination.
(ii) In the event this Agreement expires and
Executive is not rehired in the same position under the terms and conditions of
a new executive employment agreement acceptable to Executive and the Company
superseding this Agreement, the Company shall pay in a lump sum on the date of
termination severance compensation to Executive in an amount equal to the sum of
Executive's salary and bonus paid in the year ending December 31, 2002.
(iii) In the event Executive becomes disabled (as
hereinafter defined) during the term hereof, the Company shall pay severance
compensation to Executive in the amount derived by multiplying the factor 2.99
by the sum of Executive's salary and bonus paid in the year prior to the year in
which the disability occurs, reduced to a lesser amount determined by
multiplying said amount by a fraction, the numerator of which is the number of
whole or partial months remaining from the date of death or disability, as the
case may be, to December 31, 2002 and the denominator is 60; provided, however,
that such severance compensation shall in no event be less than Executive's
salary and bonus paid in the year prior to the year in which Executive becomes
disabled. Such severance compensation shall be paid in a lump sum as soon as
practicable following the date of disability. The Company also agrees to
maintain in force during the term of this Agreement a life insurance policy on
the life of Executive in face amount equal to five times base salary as of the
date hereof, the proceeds of which will be paid to Executive's estate.
(iv) In addition to the severance payment provided in
subparagraphs (i), (ii) or (iii) above, Executive's participation in the
Company-sponsored employee health benefit plan shall be continued at Company
expense for a maximum period of eighteen months so long as Executive is alive
and is not elsewhere earlier employed on a full time basis.
e) DEFINITIONS. For the purposes of this Agreement:
(i) Cause shall mean acts of moral turpitude, and the
willful repeated or habitual neglect of Executive's obligations under this
Agreement, the misuse of corporate funds, the
5
<PAGE>
failure to manage the business of the Company in accordance with normal business
practices, or the material breach of this Agreement.
(ii) Disabled shall mean the physical or mental
inability of Executive to perform her duties hereunder for a period of three
consecutive months as determined by an independent physician chosen by the
Company and approved by Executive.
(iii) Fair Market Value of the Company's stock on the
applicable date shall mean the mean of the highest and lowest quoted selling
prices of such stock on the composite tape of the Nasdaq SmallCap Market (or
such other national market or exchange on which the Company's common stock is
then traded) on the applicable date, or if the Company's common stock was not
traded on such exchange on such date, on the next preceding date on which the
common stock was traded.
9. CHANGE OF CONTROL; EXECUTIVE'S STOCK OPTIONS. In the event any
person other than Executive, Duncan Hill Co., Ltd., or William L. Miller or
their affiliates, by any means of purchase or acquisition, becomes the
"beneficial owner" (as defined in Rule 13d-3 promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934, or any successor
provision thereto) of more than 50% of the outstanding shares of the Company's
common stock, or commences a tender offer pursuant to Regulation 14-C
promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934, or any successor provision thereto, which, if successful,
would result in such person becoming the beneficial owner of more than 50% of
such shares, then all of Executive's options to purchase common stock of the
Company outstanding at the time of the event and which were granted six months
or more prior to the event shall immediately become exercisable in full and upon
the written election of Executive, given to the Company within 180 days of the
event, the Company shall repurchase for cash all or any part of the options as
specified in the written election, at a price per share equal to the difference
between the Fair Market Value of the Company's stock on the date of the event
and the option exercise price per share.
In the event of the execution of an agreement of reorganization, merger
or consolidation of the Company with one or more corporations as a result of
which the Company is not to be the surviving corporation or the execution of an
agreement of sale or transfer of all or substantially all of the assets of the
Company, then all of Executive's options to purchase common stock of the Company
outstanding at the time of the event and which were granted six months or more
prior to the event shall immediately become exercisable in full and upon the
written election of Executive given to the Company within 180 days of the event,
the Company shall repurchase for cash all or any part of the options as
specified in the written election, at a price per share equal to the difference
between the Fair Market Value of the Company's stock on the execution date and
the option exercise price per share.
6
<PAGE>
10. MISCELLANEOUS.
a) SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision.
b) SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties hereto, the heirs and legal
representatives of Executive, and the successors and assigns of the Company,
except that Executive may not assign this Agreement or delegate any of
Executive's duties or services hereunder.
c) NO WAIVERS. The failure of either party to insist upon the
strict performance of any of the terms, conditions, and provisions of this
Agreement shall not be construed as a waiver or relinquishment of future
compliance therewith, and said terms, conditions, and provisions shall remain in
full force and effect. No waiver of any term or condition of this Agreement on
the part of either party shall be effective for any purpose whatsoever unless
such waiver is in writing and signed by such party.
d) MODIFICATION. This Agreement may not be changed, amended,
or modified except by a writing signed by both parties.
e) NOTICES. Any notice, request, demand, waiver, consent,
approval, or other communication which is required to be or may be given under
this Agreement shall be in writing and shall be deemed given only if delivered
to the party personally or sent to the party by registered or certified mail,
return receipt requested, postage prepaid, to the parties at the addresses set
forth herein or to such other address as either party may designate from time to
time by notice to the other party sent in like manner.
f) GOVERNING LAW. This Agreement constitutes the entire
agreement between the parties and shall be governed by and construed in
accordance with the laws of the State of Ohio applicable to agreements made and
to be performed solely within such state.
g) HEADINGS. The section headings contained in this Agreement
are for reference purposes only and shall not be deemed to be a part of this
Agreement or to affect the construction or interpretation of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused the Agreement to be
executed as of the day and year first above written.
KIDS STUFF, INC.
By: /s/ WILLIAM L. MILLER
------------------------------
7
<PAGE>
Title: Chief Executive Officer
---------------------------
EXECUTIVE:
By: /s/ JEANNE E. MILLER
---------------------------
Print Name: JEANNE E. MILLER
----------------------
8
EXHIBIT 10.13
KIDS STUFF, INC.
INCENTIVE COMPENSATION PLAN
I. PURPOSE
The purpose of the Kids Stuff, Inc. Incentive Compensation Plan (the
"Plan") is to provide certain key management employees ("Participants")
of Kids Stuff, Inc. (the "Company") with bonus compensation based upon
Board of Directors (the "Board") discretion and the achievement of
performance goals.
II. ADMINISTRATION OF PLAN
The Plan shall be administered by the Board. The Board shall have full
power and authority to administer and interpret the Plan and to
establish rules for its administration. The Board, in making any
determination under or referred to in the Plan, shall be entitled to
rely on opinions, reports or statement of officers, employees, legal
counsel and the public accountants of the Company. The Compensation
Committee of the Board, upon its establishment, shall make
recommendations to the Board as to those employees who should
participate in the Plan, the performance objectives of each participant
and the amount each Participant should receive. Until the Compensation
Committee is established by the Board, the Board shall perform the
foregoing functions.
III. ELIGIBILITY
Eligibility for participation in the Plan is limited to the Chief
Executive Officer and Executive Vice President of the Company, and such
other employees of the Company as may be designated by the Board from
time to time.
IV. EFFECTIVE DATE OF PLAN
The Plan shall go into effect as of the date on which it is approved by
the Board.
V. AWARDS
For each fiscal year of the Company, the Board shall establish a Bonus
Pool, which shall equal an amount, determined by the Board, not to
exceed 10% of the Company's Operating Income. The amount of such pool
with respect to any year shall be determined subsequent to the end of
that year upon the determination of the Operating Income for that year.
Each Participant is eligible to receive from the Bonus Pool an annual
award of up to 50% of the Participant's base annual salary, as
determined by the Board. For this purpose, "Operating Income" shall
mean the Company's income from operations before
<PAGE>
taxes, depreciation and amortization, as determined by the independent
auditors then retained by the Company to audit its financial
statements. No Participant who is a member of the Board shall be
eligible to participate in the determination of an award for himself or
herself.
VI. DETERMINATION AND PAYMENT OF AWARD
Awards shall be determined and paid in cash by the Board as soon as
practicable after the Company's financial statements for the calendar
year are available to the Board. To be eligible to receive payment of
an award under the Plan, the Participant must be actively employed by
the Company on the payment date.
VII. MISCELLANEOUS
A. No Participant shall have any claim or right to be granted an
award under the Plan and there shall be no obligation of
behalf of the Company for uniformity of treatment among
Participants. Awards under the Plan may not be attached,
assigned or alienated in any manner.
B. Neither the Plan nor any action taken hereunder shall be
construed as giving any Participant any right to be retained
in the employ of the Company.
C. The Company shall have the right to deduct from any award to
be paid under the Plan any federal, state or local taxes
required by law to be withheld with respect to such payment.
D. The Plan shall be governed by the laws of the State of Ohio
and by applicable federal laws.
E. The Board of Directors of the Company may modify or terminate
the Plan at any time, except that no modification shall affect
awards previously granted. Any such modification shall be
effective at such date as the Board may determine.
2
EXHIBIT 10.14
KIDS STUFF, INC.
1997 LONG-TERM STOCK INCENTIVE PLAN
1. PURPOSES: The purposes of this Plan are (a) to secure for the
Company the benefits of incentives inherent in ownership of Common Stock by
Directors and Eligible Employees, (b) to encourage Directors and Eligible
Employees to increase their interest in the future growth and prosperity of the
Company and to stimulate and sustain constructive and imaginative thinking by
Directors and Eligible Employees, (c) to further the identity of interest of
those who hold positions of major responsibility in the Company and its
Subsidiaries with the interests of the Company's shareholders, (d) to induce the
employment or continued employment of Eligible Employees and (e) to enable the
Company to compete with other organizations offering similar or other incentives
in obtaining and retaining the services of competent directors and employees.
2. DEFINITIONS: Unless otherwise required by the context, the following
terms when used in this Plan shall have the meanings set forth in this section
2.
BOARD OF DIRECTORS: The Board of Directors of the Company.
CHANGE OF CONTROL: The event which shall be deemed to have occurred if
either (i) after the date this Plan is adopted by the Company's shareholders,
without prior approval of the Board, any "person" becomes a beneficial owner,
directly or indirectly, of securities of the Company representing 20% or more of
the combined voting power of the Company's then outstanding securities; or (ii)
without prior approval of the Board, as a result of, or in connection with, or
within two years following, a tender or exchange offer for the voting stock of
the Company, a merger or other business combination to which the Company is a
party, the sale or other disposition of all or substantially all of the assets
of the Company, a reorganization of the Company, or a proxy contest in
connection with the election of members of the Board of Directors, the persons
who were directors of the Company immediately prior to any of such transactions
cease to constitute a majority of the Board of Directors or of the board of
directors of any successor to the Company (except for resignations due to death,
disability or normal retirement). For purposes of this definition, a person
shall be deemed the "beneficial owner" of any securities (i) which such person
or any of its Affiliates or Associates beneficially owns, directly or
indirectly; or (ii) which such person or any of its Affiliates or Associates,
has directly or indirectly, (1) the right to acquire (whether such right is
exercisable immediately or only after the passage of time), pursuant to any
agreement, arrangement or understanding or upon the exercise of conversion
rights, exchange rights, warrants or options, or otherwise, or (2) the right to
vote pursuant to any agreement, arrangement or understanding; or (iii) which are
beneficially owned, directly or indirectly, by any other person with which such
person or any of its Affiliates or Associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or disposing of any
securities. For purposes of this definition, a "person" shall mean any
individual, firm, company, partnership, other entity or group, and the terms
"Affiliate" or "Associate" shall have the respective meanings ascribed to such
terms in Rule 12b-2 of the General Rules and Regulations promulgated by the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as
in effect on the date the Plan is approved by the shareholders of the Company
and becomes effective.
<PAGE>
COMMITTEE: The Committee of the Board of Directors designated to
administer this Plan pursuant to the provisions of section 12.
COMMON STOCK: The Common Stock of the Company, 001 par value per share
COMPANY: Kids Stuff, Inc., a Delaware corporation.
DIRECTOR: Any person serving as a director of the Company.
ELIGIBLE EMPLOYEE: An employee of the Company or of a Subsidiary who in
the opinion of the Committee can contribute significantly to the growth and
successful operations of the Company or a Subsidiary. The recommendation of the
grant of a Stock Incentive to an employee by the Committee shall be deemed a
determination by the Committee that such employee is an Eligible Employee.
FAIR MARKET VALUE: As applied to any date, the mean of the highest bid
and the lowest asked prices of a share of Common Stock on the Nasdaq SmallCap
Market (or any stockmarket or exchange on which the Company's Common Stock may
be listed in the future or any other market on which the Company Stock is traded
or which provides readily available quotations with respect to the Common Stock)
for the trading date immediately prior to the date for which the valuation is to
be effective; provided, however, that, if the Common Stock is not so quoted,
Fair Market Value shall be determined in accordance with the method approved by
the Board of Directors, and, provided further, if any of the foregoing methods
of determining Fair Market Value shall not be consistent with the regulations of
the Secretary of the Treasury or his delegate at the time applicable to a Stock
Incentive of the type involved, Fair Market Value in the case of such Stock
Incentive shall be determined in accordance with such regulations and shall mean
the value as so determined.
INCENTIVE COMPENSATION: Bonuses, extra and other compensation payable
in addition to a salary or other base amount, whether contingent or
discretionary or required to be paid pursuant to an agreement, resolution or
arrangement, and whether payable currently, or on a deferred basis, in cash,
Common Stock or other property, awarded by the Company or a Subsidiary prior or
subsequent to the date of the approval and adoption of this Plan by the
shareholders of the Company.
INCENTIVE OPTION: An option granted under this Plan which is designated
to be an incentive stock option under the provisions of Section 422 of the
Internal Revenue Code of 1986, as amended; and any provisions elsewhere in this
Plan or in any such Incentive Option which would prevent such option from being
an incentive stock option may be deleted and/or voided retroactively to the date
of the granting of such option, by action of the Committee.
NONQUALIFIED OPTION: An option granted under this Plan which is not an
incentive stock option under the provisions of Section 422 of the Internal
Revenue Code of 1986, as amended; and which is exercisable even though there is
outstanding an Incentive Option which was granted before the granting of the
Nonqualified Option to the same participant. Such Nonqualified Option shall not
be affected by any actions taken retroactively as provided above with respect to
Incentive Options.
OPTION: An option to purchase shares of Common Stock.
PERFORMANCE OBJECTIVES: Stated criteria which may, but need not be set
forth in a Stock Incentive at the discretion of the Committee, the successful
attainment of which is specified in the Stock Incentive as a condition precedent
to the issuance, transfer or retention of some or all of the shares of Common
Stock
2
<PAGE>
covered by the Stock Incentive. Performance Objectives may be personal and/or
corporate in nature and shall include, but shall not be limited to, objectives
determined by reference to or changes in (a) the Fair Market Value, book value
or earnings per share of Common Stock, or (b) sales and revenues, income,
profits and losses, return on capital employed, or net worth of the Company (on
a consolidated or unconsolidated basis) or of any or more of its groups,
divisions, Subsidiaries or departments, or (c) a combination of two or more of
the foregoing or other factors.
PLAN: The 1997 Long-Term Stock Incentive Plan herein set forth as the
same may from time to time be amended.
STOCK APPRECIATION RIGHT (SAR): A right to receive cash, shares of
Common Stock, or a combination thereof, as the case may be, having an aggregate
value equal to the excess of the Fair Market Value of one share of Common Stock
on the date of exercise of such right over the Fair Market Value of one such
share on the date of grant of such right.
STOCK AWARD: An issuance or transfer of shares of Common Stock at the
time the Stock Incentive is granted or as soon thereafter as practicable, or an
undertaking to issue or transfer such shares in the future.
STOCK INCENTIVE: A stock incentive granted under this Plan in one of
the forms provided for in section 3.
SUBSIDIARY: A company or other entity designated by the Committee in
which the Company has a significant equity interest, except that, with respect
to grants of Incentive Options, the term "Subsidiary" shall be deemed to mean a
company or other form of business association of which shares (or other
ownership interests) having 50% or more of the voting power are owned or
controlled, directly or indirectly, by the Company.
3. GRANTS OF STOCK INCENTIVES:
(a) Subject to the provisions of this Plan, the Committee may at any
time, or from time to time, grant Stock Incentives under this Plan to, and only
to, Directors and Eligible Employees.
(b) Stock Incentives may be granted in the following forms:
(i) an Option, or
(ii) a SAR, or
(iii) a Stock Award, or
(iv) a combination of an Option, a SAR, and/or a Stock
Award.
(c) Stock Incentives contingently granted prior to the approval of this
Plan by the Company's shareholders but subject to such approval shall be deemed
to be granted hereunder as of the date of such shareholder approval.
3
<PAGE>
4. STOCK SUBJECT TO THIS PLAN:
(a) The maximum aggregate number of shares of Common Stock subject to
Stock Incentives that may be granted to participants in the Plan shall be
400,000. Shares of Common Stock subject to Stock Incentives granted under this
Plan may be either authorized but unissued shares or shares held in the
Company's treasury, or any combination thereof, in the discretion of the
Committee.
(b) The maximum amount of Common Stock with respect to which Stock
Incentives may be granted to any person during any calendar year shall be 20,000
shares; provided, however, that in the event of a grant made to a recipient upon
the recipient's initial hiring by the Company, such limitation shall be
increased to 40,000 shares.
(c) The number of shares of Common Stock which may be granted under the
Plan as Stock Awards in any calendar year shall not exceed 80,000.
5. OPTIONS: Stock Incentives in the form of Options shall be subject to
the following provisions:
(a) Upon the exercise of an Option, the purchase price shall be paid in
cash or, unless otherwise provided by the Committee (and subject to such terms
and conditions as are specified in the Option or by the Committee), in shares of
Common Stock delivered to the Company by the optionee or by the withholding of
shares issuable upon exercise of the Option or in a combination of such payment
methods. Shares of Common Stock thus delivered or withheld shall be valued at
their Fair Market Value on the date of the exercise. The purchase price per
share shall be not less than 100% of the Fair Market Value of a share of Common
Stock on the date the Option is granted.
(b) Each Option shall be exercisable in full or in part not less than
six months after the date the Option is granted, or may become exercisable in
one or more installments at such later time or times as the Committee shall
determine. Unless otherwise provided in the Option, an Option, to the extent it
is or becomes exercisable, may be exercised at any time in whole or in part
until the expiration or termination of the Option. Any term or provision in any
outstanding Option specifying that the Option not be immediately exercisable or
that it be exercisable in installments may be modified at any time during the
life of the Option by the Committee, provided, however, no such modifications of
an outstanding Option shall, without the consent of the optionee, adversely
affect any Option theretofore granted to the optionee.
(c) Each Option shall be exercisable during the life of the optionee
only by the optionee and, after the optionee's death, only by the optionee's
estate or by a person who acquired the right to exercise the Option by will or
the laws of descent and distribution. An Option, to the extent that it shall not
have been exercised, shall terminate at the close of business on the thirtieth
day following the date the optionee ceases to be an employee or Director of the
Company or a Subsidiary, unless, with respect to an employee, the optionee
ceases to be an employee because of resignation with the consent of the
Committee (which consent may be given before or after resignation), or by reason
of death or incapacity of an employee or Director, or retirement of an employee
under a retirement plan of the Company or a Subsidiary. Except as provided in
the next sentence, if the optionee ceases to be an employee by reason of such
resignation, the Option shall terminate three months after the optionee ceases
to be an employee. If the optionee ceases to be an employee or Director by
reason of death, incapacity, or retirement of an employee, or if the optionee
should die during the three-month period referred to in the preceding sentence,
the Option shall terminate fifteen months after the optionee ceases to be an
employee or Director. Where an Option is exercised more than three months after
the optionee ceased to be an employee or Director, the Option may be exercised
only to the extent it could have been exercised on the date three months after
the optionee
4
<PAGE>
ceased to be an employee or Director. A leave of absence for military or
governmental service or for other purposes shall not, if approved by the
Committee, be deemed a termination of employment within the meaning of this
paragraph (c). Notwithstanding the foregoing provisions of this paragraph (c) or
any other provisions of this Plan, no Option shall be exercisable after
expiration of the term for which the Option was granted, which shall in no event
exceed ten years.
(d) Options shall be granted for such lawful consideration as the
Committee shall determine.
(e) No Option nor any right thereunder may be assigned or transferred
by the optionee except by will or the laws of descent and distribution.
Subsequent to the death of the optionee, if so provided in the Option or if so
authorized by the Committee and subject to such terms and conditions as are
specified in the Option or by the Committee, the Company shall have the right,
upon or without the request of the holder of the Option and at any time or from
time to time, to cancel all or a portion of the Option then subject to exercise
and either (i) pay the holder an amount of money equal to the excess, if any, of
the Fair Market Value, at such time or times, of the shares subject to the
portion of the Option so cancelled over the aggregate purchase price of such
shares, or (ii) issue or transfer shares of Common Stock to the holder with a
Fair Market Value, at such time or times, equal to such excess.
(f) Each Option shall be evidenced by a written instrument, which shall
contain such terms and conditions (including, without limitation, Performance
Objectives), and shall be in such form, as the Committee may determine, provided
the Option is consistent with this Plan and incorporates it by reference.
Notwithstanding the preceding sentence, an Option if so recommended by the
Committee, may include restrictions and limitations in addition to those
provided for in this Plan.
(g) Any federal, state or local withholding taxes payable by an
optionee upon the exercise of an Option shall be paid in cash or, unless
otherwise provided by the Committee, by the surrender of shares of Common Stock
or the withholding of shares of Common Stock to be issued to the optionee, or in
any combination thereof, or in such other form as the Committee may authorize
from time to time. All such shares so surrendered or withheld shall be valued at
Fair Market Value on the date they are surrendered to the Company or authorized
to be withheld.
(h) Options may be either Incentive Options or Nonqualified Options at
the discretion of the Committee. Options not otherwise designated shall be
Nonqualified Options. Notwithstanding any other provisions herein, the following
provisions shall apply to Incentive Options: (i) the exercise price of any
Incentive Option granted to any person who on the date of grant owns (within the
meaning of Section 425(d) of the Internal Revenue Code) stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Company or any Subsidiary shall not be less than 110% of the Fair Market Value
of the stock on the date of grant; (ii) the maximum term of any Incentive Option
granted hereunder shall be ten years, except that the maximum term of any
Incentive Option granted to a person described in section 5(h)(i) above shall be
five years; (iii) no Incentive Option may be granted subsequent to the tenth
anniversary of the date of shareholder approval of this Plan; (iv) Incentive
Options may only be granted to persons who are employees of the Company or any
Subsidiary within the meaning of the Internal Revenue Code; and (v) Incentive
Options may not be granted with respect to more than an aggregate of 400,000
shares of Common Stock under this Plan.
6. STOCK APPRECIATION RIGHTS: Stock Incentives in the form of Stock
Appreciation Rights (SAR's) shall be subject to the following provisions:
(a) Each SAR shall be evidenced by a written instrument (the "SAR
Agreement") specifying the number of shares of Common Stock to which it relates
and containing such other terms and conditions
5
<PAGE>
(which may, but need not, include Performance Objectives), and shall be in such
form as the Committee may determine, provided the SAR is consistent with this
Plan and incorporates it by reference.
(b) Each SAR Agreement shall specify the period during which the
pertinent SAR(s) may be exercised and shall provide that the SAR(s) shall expire
at the end of such period (or periods); provided that such expiration date shall
not be later than ten years from the date of grant thereof. Except as otherwise
provided herein, any SAR must be exercised during the period of the holder's
employment with the Company or while the holder is a Director. Each SAR may be
exercisable in full or in part in one or more installments at such time or times
as the Committee shall determine. Unless otherwise provided in the SAR
Agreement, a SAR, to the extent it is or becomes exercisable, may be exercised
at any time in whole or in part until the expiration or termination of the SAR.
Any term or provisions in any outstanding SAR specifying that the SAR not be
immediately exercisable or that it is to be exercisable in installments may be
modified at any time during the life of the SAR by the Committee, provided,
however, no such modifications of any outstanding SAR shall, without the consent
of the grantee adversely affect any SAR theretofore granted the grantee.
(c) Each SAR shall be exercisable during the life of the grantee only
by the grantee and, after the grantee's death, only by the grantee's estate or
by a person who acquired the right to exercise the SAR by will or the laws of
descent and distribution. A SAR, to the extent that it shall not have been
exercised, shall terminate at the close of business on the thirtieth day
following the date the grantee ceases to be an employee or Director of the
Company or a Subsidiary, unless, with respect to an employee, the grantee ceases
to be an employee because of resignation with the consent of the Committee
(which consent may be given before or after resignation), or by reason of death
or incapacity of an employee or Director, or retirement of an employee under a
retirement plan of the Company or a Subsidiary. Except as provided in the next
sentence, if the grantee ceases to be an employee by reason of such resignation,
the SAR shall terminate three months after the grantee ceases to be an employee.
If the grantee ceases to be an employee or Director by reason of death,
incapacity, or retirement of an employee, or if the grantee should die during
the three-month period referred to in the preceding sentence, the SAR shall
terminate fifteen months after the grantee ceases to be an employee or Director.
Where a SAR is exercised more than three months after the grantee ceased to be
an employee or Director, the SAR may be exercised only to the extent it could
have been exercised on the date three months after the grantee ceased to be an
employee or Director. A leave of absence for military or governmental service or
for other purposes shall not, if approved by the Committee, be deemed a
termination of employment within the meaning of this paragraph (c).
(d) No SAR may be assigned or transferred by the grantee except by will
or the laws of descent and distribution.
(e) If the form of consideration to be received upon exercise of the
SAR is not specified in the agreement governing the SAR, upon the exercise
thereof, the holder may request the form of consideration to be received in
satisfaction of such SAR, which may be in shares of Common Stock (valued at Fair
Market Value on the date of exercise of the SAR), or in cash, or partly in cash
and partly in shares of Common Stock, as the holder shall request; provided,
however, that the Committee, in its sole discretion, may consent to or
disapprove any request of the grantee to receive cash in full or partial
settlement of such SAR.
(f) Any federal, state or local withholding taxes payable by the
grantee upon the exercise of a SAR shall be paid in cash or, unless otherwise
provided by the Committee, by the surrender of shares of Common Stock in the
case of a SAR to be paid in the form of Common Stock, or by the withholding of
shares of Common Stock to be issued to the grantee, or in any combination
thereof, or in such other form as the Committee may authorize from time to time.
All such shares so surrendered or withheld shall be valued at Fair Market Value
on the date they are surrendered to the Company or authorized to be withheld.
6
<PAGE>
7. STOCK AWARDS: Stock Incentives in the form of Stock Awards shall be
subject to the following provisions:
(a) A Stock Award shall be granted only in payment of Incentive
Compensation that has been earned or as Incentive Compensation to be earned,
including, without limitation, Incentive Compensation awarded concurrently with
or prior to the grant of the Stock Award.
(b) For the purposes of this Plan, in determining the value of a Stock
Award, all shares of Common Stock subject to such Stock Award shall be valued at
not less than 100% of the Fair Market Value of such shares on the date such
Stock Award is granted, regardless of whether or when such shares are issued or
transferred to the Eligible Employee or Director and whether or not such shares
are subject to restrictions which affect their value.
(c) Shares of Common Stock subject to a Stock Award may be issued or
transferred to the Eligible Employee or Director at the time the Stock Award is
granted, or at any time subsequent thereto, or in installments from time to
time, as the Committee shall determine. In the event that any such issuance or
transfer shall not be made to the Eligible Employee or Director at the time the
Stock Award is granted, the Committee may provide for payment to such Eligible
Employee or Director, either in cash or in shares of Common Stock from time to
time or at the time or times such shares shall be issued or transferred to such
Eligible Employee or Director, of amounts not exceeding the dividends which
would have been payable to such Eligible Employee or Director in respect of such
shares (as adjusted under section 9) if they had been issued or transferred to
such Eligible Employee or Director at the time such Stock Award was granted. Any
amount payable in shares of Common Stock under the terms of a Stock Award may,
at the discretion of the Company, be paid in cash, on each date on which
delivery of shares would otherwise have been made, in an amount equal to the
Fair Market Value on such date of the shares which would otherwise have been
delivered.
(d) A Stock Award shall be subject to such terms and conditions,
including, without limitation, restrictions on sale or other disposition of the
Stock Award or of the shares issued or transferred pursuant to such Stock Award,
as the Committee shall determine; provided, however, that upon the issuance or
transfer of shares pursuant to a Stock Award, the recipient shall, with respect
to such shares, be and become a shareholder of the Company fully entitled to
receive dividends, to vote and to exercise all other rights of a shareholder
except to the extent otherwise provided in the Stock Award. The Committee may,
in its sole discretion, but shall not be required to, specify in any Stock Award
that the issuance, transfer and/or retention of some or all of the shares of
Common Stock covered by the Stock Award shall be subject to the attainment of
Performance Objectives. Each Stock Award shall be evidenced by a written
instrument in such form as the Committee shall determine, provided such written
instrument is consistent with this Plan and incorporates it by reference.
(e) In the event the holder of shares of Common Stock subject to a
Stock Award dies prior to the time such shares are no longer subject to
forfeiture pursuant to the terms of the Stock Award, the estate of such holder
may retain such shares subject to the restrictions set forth in the Stock Award.
8. COMBINATIONS OF STOCK AWARDS AND OPTIONS: Stock Incentives
authorized by paragraph (b)(iv) of section 3 in the form of combinations of
Options, SAR's and/or Stock Awards, shall be subject to the following
provisions:
(a) A Stock Incentive may be a combination of any form of Option with
any form of SAR and/or with any form of Stock Award; provided, however, that the
terms and conditions of such Stock Incentive pertaining to an Option are
consistent with section 5, the terms and conditions of such Stock
7
<PAGE>
Incentive pertaining to a SAR are consistent with section 6, and the terms and
conditions of such Stock Incentive pertaining to a Stock Award are consistent
with section 7.
(b) Such combination Stock Incentive shall be subject to such other
terms and conditions as the Committee may determine, including, without
limitation, a provision terminating in whole or in part a portion thereof upon
the exercise in whole or in part of another portion thereof. Such combination
Stock Incentive shall be evidenced by a written instrument in such form as the
Committee shall determine, provided it is consistent with this Plan and
incorporates it by reference.
9. ADJUSTMENT PROVISIONS: In the event that any recapitalization,
reclassification, forward or reverse split of shares of Common Stock, or any
similar transaction shall be effected, or the outstanding shares of Common Stock
are, in connection with a merger or consolidation of the Company or a sale by
the Company of all or a part of its assets, exchanged for a different number of
class of shares of stock or other securities of the Company or for shares of the
stock or other securities of any other company, or a record date for
determination of holders of Common Stock entitled to receive a dividend payable
in Common Stock shall occur, (a) the number and class of shares or other
securities that may be issued or transferred pursuant to Stock Incentives or
with respect to which a cash payment pursuant to the Stock Incentive is
determinable, (b) the number and class of shares or other securities which have
not been issued or transferred under outstanding Stock Incentives, (c) the
purchase price to be paid per share or other security under outstanding Options,
and (d) the price to be paid by the Company or a Subsidiary for shares or other
securities issued or transferred pursuant to Stock Incentives which are subject
to a right of the Company or a Subsidiary to reacquire such shares or other
securities, shall in each case be equitably adjusted.
10. ACCELERATION: In the event of a Change of Control, any Stock
Incentives which have then been outstanding hereunder for at least six months
shall be immediately exercisable (without regard to any limitation imposed by
the Plan or the Committee at the time the Stock Incentive was granted, which
permits all or any part of the Stock Incentive to be exercised only after the
lapse of time or the attainment of Performance Objectives or other conditions to
exercise), and will remain exercisable until the expiration of the Stock
Incentive.
11. TERM: This Plan shall be deemed adopted and shall become effective
on the date it is approved and adopted by the shareholders of the Company. This
Plan shall remain in effect until such time as it is terminated by the Board of
Directors; provided, however, that no Incentive Options may be granted after the
tenth anniversary of the effective date of the Plan.
12. ADMINISTRATION:
(a) The Plan shall be administered by the Committee, which shall
consist of not less than two directors of the Company designated by the Board of
Directors in accordance with the Bylaws of the Company; provided, however, that
no director shall be designated as or continue to be a member of the Committee
unless such director shall at the time of designation and service be a
"disinterested person" within the meaning of Rule 16b-3 of the Securities and
Exchange Commission (or any successor provision at the time in effect). Grants
of Stock Incentives may be made by the Committee either with or without
consultation with employees, but, anything in this Plan to the contrary
notwithstanding, the Committee shall have full authority to act in the matter of
selection of all Eligible Employees and in all matters affecting the Stock
Incentives to be granted to them and to the Directors. Notwithstanding the
above, the Committee shall not make any award of a Stock Incentive to any member
of the Committee. Any award of a Stock Incentive to a member of the Committee
shall be made only by the Board of Directors, excluding any Director who is a
member of the Committee
8
<PAGE>
(b) The Committee may establish such rules and regulations, not
inconsistent with the provisions of this Plan, as it deems necessary to
determine eligibility to participate in this Plan and for the proper
administration of this Plan, and may amend or revoke any rule or regulation so
established. The Committee may make such determinations and interpretations
under or in connection with this Plan as it deems necessary or advisable. All
such rules, regulations, determinations and interpretations shall be binding and
conclusive upon the Company, its Subsidiaries, its shareholders and all
employees, and upon their respective legal representatives, beneficiaries,
successors and assigns and upon all other persons claiming under or through any
of them.
(c) Members of the Board of Directors and members of the Committee
acting under this Plan shall be fully protected in relying in good faith upon
the advice of counsel and shall incur no liability except for gross negligence
or willful misconduct in the performance of their duties.
13. ACQUISITIONS: If the Company or any Subsidiary should merge or
consolidate with, or purchase stock or assets or otherwise acquire the whole or
part of the business of, another company, the Company in connection therewith,
upon the recommendation of the Committee and the approval of the Board of
Directors, (a) may assume, in whole or in part and with or without modifications
or conditions, any stock options granted by the acquired company to its
employees, in their capacity as such, or (b) may grant new Options in
substitution therefore; provided that the granting of an Option with the terms
and conditions of the assumed or substitute options is permissible under either
this Plan or a plan approved by the shareholders of the acquired company. For
the purposes of the preceding sentence, the permissibility of the granting of an
option under a plan shall be determined as of the date of grant of the original
option by the acquired company and not as of the date of assumption or
substitution by the Company.
14. GENERAL PROVISIONS:
(a) Nothing in this Plan nor in any instrument executed pursuant hereto
shall confer upon any employee any right to continue in the employ of the
Company or a Subsidiary, or shall affect the right of the Company or of a
Subsidiary to terminate the employment of any employee with or without cause.
(b) No shares of Common Stock shall be issued or transferred pursuant
to a Stock Incentive unless and until all legal requirements applicable to the
issuance or transfer of such shares, in the opinion of counsel to the Company,
have been complied with. In connection with any such issuance or transfer the
person acquiring the shares shall, if requested by the Company, give assurances,
satisfactory to counsel to the Company, that the shares are being acquired for
investment and not with a view to resale or distribution thereof and assurances
in respect of such other matters as the Company or a Subsidiary may deem
desirable to assure compliance with all applicable legal requirements. No
employee or Director (individually or as a member of a group), and no
beneficiary or other person claiming under or through him, shall have any right,
title or interest in or to any shares of Common Stock allocated or reserved for
the purposes of this Plan or subject to any Stock Incentive except as to shares
of Common Stock, if any, as shall have been issued or transferred to him.
(d) The Company or a Subsidiary may, with the approval of the
Committee, enter into an agreement or other commitment to grant a Stock
Incentive in the future to a person who is or will be an Eligible Employee at
the time of grant, and, notwithstanding any other provision of this Plan, any
such agreement or commitment shall not be deemed the grant of a Stock Incentive
until the date on which the Company takes action to implement such agreement or
commitment.
(e) In the case of a grant of a Stock Incentive to an employee of a
Subsidiary, such grant may, if the Committee so directs, be implemented by the
Company issuing or transferring the shares, if any,
9
<PAGE>
covered by the Stock Incentive to the Subsidiary, for such lawful consideration
as the Committee may specify, upon the condition or understanding that the
Subsidiary will transfer the shares to the employee in accordance with the terms
of the Stock Incentive specified by the Committee pursuant to the provisions of
this Plan. Notwithstanding any other provision hereof, such Stock Incentive may
be issued by and in the name of the Subsidiary and shall be deemed granted on
the date it is approved by the Committee on the date it is delivered by the
Subsidiary or on such other date between said two dates, as the Committee shall
specify.
(f) The Company or a Subsidiary may make such provisions as it may deem
appropriate for the withholding of any taxes which the Company or a Subsidiary
determines it is required to withhold in connection with any Stock Incentive.
(g) Nothing in this Plan is intended to be a substitute for, or shall
preclude or limit the establishment or continuation of, any other plan, practice
or arrangement for the payment of compensation or fringe benefits to employees
generally, or to any class or group of employees, which the Company or any
Subsidiary or other affiliate now has or may hereafter lawfully put into effect,
including, without limitation, any retirement, pension, group insurance, stock
purchase, stock bonus or stock option plan.
15. AMENDMENTS AND DISCONTINUANCE:
(a) This Plan may be amended by the Board of Directors upon the
recommendation of the Committee, provided that, without the approval of the
shareholders of the Company, no amendment shall be made which (i) increases the
maximum aggregate number of shares of Common Stock that may be issued or
transferred pursuant to Stock Incentives as provided in section 4, (ii)
withdraws the administration of this Plan from the Committee or amends the
provisions of paragraph (a) of section 12 with respect to eligibility and
disinterest of members of the Committee, (iii) permits any person who is not at
the time an Eligible Employee of the Company or of a Subsidiary or a Director to
be granted a Stock Incentive, (iv) permits any Option to be exercised more than
ten years after the date it is granted, (v) amends section 11 to extend the date
set forth therein or (vi) amends this section 15.
(b) The Board of Directors may by resolution adopted by a majority of
the entire Board of Directors discontinue this Plan.
(c) No amendment or discontinuance of this Plan by the Board of
Directors or the shareholders of the Company shall, without the consent of the
employee, adversely affect any Stock Incentive theretofore granted to him.
10
EXHIBIT 10.15
AMENDMENT TO THE PURCHASE AGREEMENT
BY AND BETWEEN
DUNCAN HILL COMPANY LTD. AND KIDS STUF, INC.
This Addendum is entered into effective as of June 30, 1996 by and
between DUNCAN HILL COMPANY LTD., an Ohio corporation, 4450 Be4lden Village
Street, N.W., Suite 406, Canton, Ohio 44718 and KIDS STUFF, INC., a Delaware
corporation, 4450 Belcden Village Street, N.W., Suite 406, Canton, Ohio 44718.
RECITALS:
WHEREAS, Duncan Hill Company Ltd. (Seller) had entered into an Asset
Purchase Agreement with Kids Stuff, Inc. (Buyer) whereby seller agreed to sell
and Buyer agreed to buy the Perfectly Safe and Jeannie's Lids Clubcatalog
businessses from Perfectly Safe, Inc. consisting of the entirety of Perfectly
Safe, Inc. Inc.'s assets and liabilities as well as certain other assets of
Duncan Hill used to perform telemarketing, order fulfillment, data processing
and administrative functions; and
WHEREAS, the schedule of assets attached to the Asset Purchase Agreement
only reflected balance sheet assets, some of which were eliminated after the
receipt of comments from the Securities and Exchange commission accounting
staff.
WHEREAS, the parties desire to modify said Asset Purchase Agreement as
follows:
WHEREFOR the parties agree to modify said Asset Purchase Agreement as
follows:
1. Seller and Buyer hereby agree that the schedule of assets
attached to the Asset Purchase Agreement is modified by deletion
of the original Exhibit A and substitution of the Schedule A,
attached hereto
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>
SCHEDULE A
EXHIBIT A - Schedule of Assets
Inventories
Prepaid assets and deposits
Receivable from affiliates
Data processing equipment including, without limitation, computers, modems,
monitors, EDP Software, Zircon Software, miscellaneous computer parts and
accessories
Machinery and equipment, including, without limitation, telephones, fork lift,
racks, storage equipment, and headsets
Furniture and fixtures, including without limitation, desks, chairs, partitions,
executive desk, timeclock, tables, office furniture shelves, and lockers
The Perfectly Safe and Jeannie's Kids Club Catalogs and all of the assets
associated with other development and production
Customer list
Development and catalogue costs
Goodwill
Intellectual property, including trade names and trademarks
Cash
Any other assets used in the business of Perfectly safe, Inc.
HAUSSER+TAYLOR
[LETTERHEAD]
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Kid Stuff, Inc
Canton, Ohio 44718
As independent certified public accountants 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 February 21, 1997
relating to the balance sheet of Kids Stuff, Inc. as of December 31, 1996 and
the related statements of income, cash flows, and stockholders' equity for the
years ended December 31, 1996 and 1995, and of our report included herein, which
has a date of January 22, 1997 relating to the balance sheet of The Natural Baby
Company, Inc. as of December 31, 1996, and the related statements of income,
cash flows, and stockholders' equity for the years ended December e31, 1996 and
1995, and to the reference to our firm under the caption "Experts" in the
Prospectus.
/s/ HAUSSER+TAYLOR
Canton, Ohio
March 14, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-END> DEC-31-1995 DEC-31-1996
<CASH> 35,719 248,648
<SECURITIES> 0 0
<RECEIVABLES> 73,633 165,779
<ALLOWANCES> 0 0
<INVENTORY> 602,017 496,395
<CURRENT-ASSETS> 882,894 1,358,080
<PP&E> 306,976 277,702
<DEPRECIATION> 184,834 164,093
<TOTAL-ASSETS> 1,005,036 1,471,689
<CURRENT-LIABILITIES> 1,636,702 2,161,869
<BONDS> 0 300,000
0 0
0 0
<COMMON> 2,400 3,700
<OTHER-SE> (633,440) (993,880)
<TOTAL-LIABILITY-AND-EQUITY> 1,005,036 1,471,689
<SALES> 5,498,197 6,043,249
<TOTAL-REVENUES> 5,724,337 6,638,995
<CGS> 2,300,676 1,849,205
<TOTAL-COSTS> 5,538,989 6,397,540
<OTHER-EXPENSES> 684,614 718,026
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 46,336 50,554
<INCOME-PRETAX> (545,602) (527,125)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (536,992) (521,640)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (536,992) (521,640)
<EPS-PRIMARY> (0.15) (0.14)
<EPS-DILUTED> (0.15) (0.14)
</TABLE>
