As filed with the Securities and Exchange Commission on February 10, 2000
Registration No. 333-____
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
Under the Securities Act of 1933
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KIDS STUFF, INC.
(Exact name of Registrant as specified in its charter)
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<CAPTION>
<S> <C> <C>
Delaware 5961 34-1843520
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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Kids Stuff, Inc.
7835 Freedom Avenue, N.W.
North Canton, Ohio 44720
(Address of principal place of business)
William L. Miller, Chief Executive Officer
Kids Stuff, Inc.
7835 Freedom Avenue, N.W.
North Canton, Ohio 44720
1 (330) 492-8090
(Name, address, and telephone number of principal
executive offices and agent for service)
Copies to:
Steven Morse, Esq.
Lester Morse P.C.
111 Great Neck Road
Great Neck, New York 11021
(516) 487-1446
(516) 487-1452 (Fax)
Approximate date of proposed sale to the public: As soon as practicable after
the effective date of this Registration Statement: From time to time after the
effective date of this Registration Statement, as determined by the Registrant.
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If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. |_|
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. |_|
CALCULATION OF REGISTRATION FEE
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Proposed
Proposed maximum maximum
offering price aggregate
Title of Securities to be registered Amount to be per share(2) offering Amount of
registered(1) price(2) registration fee
<S> <C> <C> <C> <C> <C>
Common Stock, par value $.001 270,000 shares $2.30 $621,000 $172.64
per share
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(1) Includes 270,000 shares of Common Stock, par value $.001 per share,
which are issuable upon exercise of a like number of Common Stock Purchase
Options exercisable at $.54 per share.
(2) Estimated solely for purposes of calculating the registration fee
pursuant to Rule 457(a) under the Securities Act of 1933, as amended.
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 this Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
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The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. The prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to Completion
Dated February 10, 2000
Prospectus
KIDS STUFF, INC.
270,000 Shares of Common Stock
In a private transaction on January 6, 2000, we issued options to
purchase our common stock to National Financial Communications Corp., a
consultant. Under this prospectus, we are offering the shares of our common
stock at an exercise price of $.54 per share that holders may purchase upon
exercising the options.
Our common stock is quoted on the OTC Electronic Bulletin Board and
traded under the symbol "KDST."
Our principal executive offices are located at 7835 Freedom Avenue
N.W., North Canton, Ohio 44720, and our telephone number is (330) 492-8090.
See "Risk Factors" beginning on page 5 for a discussion of certain
material factors that you should consider in connection with an investment in
our common stock.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
The date of this prospectus is February __, 2000
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TABLE OF CONTENTS
About This Prospectus..............................2
Where You Can Find More Information................2
Prospectus Summary.................................4
Risk Factors.......................................5
Recent Developments................................9
Use of Proceeds...................................10
Special Note Regarding Forward
Looking Statements.............................10
Plan of Distribution..............................11
Description of Securities.........................11
Unregistered Shares Eligible for
Immediate and Future Sales.....................15
Legal Matters.....................................15
Experts...........................................15
ABOUT THIS PROSPECTUS
This prospectus contains and incorporates by reference certain forward
looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995 with respect to our business, financial condition and results
of operations, including, without limitation, statements under the captions
"Business" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in our annual and quarterly reports. These forward
looking statements reflect our plans, expectations and beliefs and, accordingly,
are subject to certain risks and uncertainties. We cannot guarantee that any of
such forward looking statements will be realized. Factors that may cause actual
results to differ materially from those contemplated by such forward looking
statements include, among other, the factors discussed in the section of this
prospectus entitled "Risk Factors."
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports and other information
with the Securities and Exchange Commission. Our SEC filings are available to
the public over the Internet at the SEC's web site at http://www.sec.gov. You
may also read and copy any document we file at the SEC's public reference rooms
in Washington D.C., New York, New York and Chicago, Illinois. Please call the
SEC at 1-800-SEC-0330 for further information on the public reference rooms.
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this prospectus, and information that we file later with
the SEC will automatically update and supersede this information. We incorporate
by reference the documents listed below and any future filings made with the SEC
under Sections 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of
1934, as amended, until we sell all of the securities.
o Annual Report on Form 10-KSB for the year ended December 31,
1998 (filed on April 1, 1999).
o Quarterly Reports on Form 10-QSB for the quarters ended March
31, June 30 and September 30, 1999.
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o A description of Kids Stuff's Common Stock included in Item 1
of Form 8-A filed in April 1997 and declared effective on June
26, 1997.
You may request a copy of these filings at no cost, by writing or
telephoning us at the following address:
William L. Miller, Chief Executive Officer
Kids Stuff, Inc.
7835 Freedom Avenue, N.W.
North Canton, Ohio 44720
(330) 492-8090
You should rely only on the information incorporated by reference or
provided in this prospectus or any prospectus supplement. We have not authorized
anyone else to provide you with different information. We are not making an
offer of these securities in any state where the offer is not permitted. You
should not assume that the information in this prospectus or any prospectus
supplement is accurate as of any date other than the date on the front of those
documents.
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PROSPECTUS SUMMARY
This summary highlights some of the information in this prospectus. It
may not contain all the information that is important to you. To understand this
offering fully, you should carefully read the entire prospectus and documents
incorporated by reference.
Kids Stuff, a Delaware corporation, is a specialty direct marketer
which publishes four catalogs and maintains a web site which emphasizes
children's hardgood products from prenatal to age three. Our publications are
"Perfectly Safe," "Jeannie's Kids Club," "The Natural Baby," and "Little Feet."
Our web site is accessible at www.kidsstuff.com or on Yahoo!(R) Shopping
(http://shopping.yahoocom) a popular one-stop Internet shopping service and part
of Yahoo!(R)s branded network of global Internet properties. We also maintain a
retail store for the sale of products not sold through our catalogs and web
site.
Our principal executive offices are located at 7835 Freedom Avenue
N.W., North Canton, OH 44720; our telephone number is (330) 492-8090.
The Offering
Common Stock to be offered by
Kids Stuff upon exercise of Options 270,000 Shares
Common Stock outstanding
before offering 3,520,856 Shares
Securities to be outstanding after the offering assuming all options granted to
a consultant are exercised:
Common Stock 3,790,856 Shares
Class A Common Stock Purchase Warrants 2,400,000 Warrants
Series A Non-Convertible Preferred Stock 5,000,000 Shares
Series 1 Preferred Stock 460,000 Shares
Series 1 Preferred Stock Purchase Warrants 920,000 Warrants
OTC Bulletin Board Symbols:
Common Stock KDST
Class A Warrants KDSTW
Series 1 Preferred Stock KDSPP
Series 1 Preferred Warrants KDSPW
The number of shares of common stock to be outstanding after this
offering excludes approximately 470,000 shares of common stock subject to
outstanding stock options held by our officers, directors and employees.
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RISK FACTORS
Before you invest in our common stock, you should be aware that there
are various risks, including those described below. You should carefully
consider these risk factors together with all of the other information included
in this prospectus before you decide to purchase shares of our common stock.
We have a history of losses and limited profitability.
Except for a net income of $402,486 for the nine months ended September
30, 1999 and $50,097 for 1997, we incurred net losses of $35,788, $521,640 and
$536,992 for 1998, 1996 and 1995, respectively. We can not guarantee that we
will have future profitability.
We may need additional capital.
Kids Stuff expects to make significant cash outlays for the foreseeable
future to fund our growth and to meet Kids Stuff's debt obligations under our
two-year line of credit and a 60-month long-term note totaling approximately
$800,000. If our cash from operations are less than projected, we will require
additional equity or debt financing in amounts that could be substantial. The
type, timing and terms of financing we may select will depend upon our cash
needs, the availability of other financing sources and the prevailing conditions
in the financial markets. We cannot guarantee that we will be able to find any
such sources at any given time on favorable terms.
We must effectively manage our growth.
In our efforts to respond to changing market conditions, we may
experience periods of rapid expansion. In order to manage our growth
effectively, we will need to maintain and improve our operating and financial
systems and expand, train and manage our employee base. We must expand the
capacity of our sales and distribution capabilities in order to achieve
continued growth in our existing and future markets. In general, if we fail to
manage growth effectively , there could be a material adverse effect on our
business, financial condition and results of operations.
There are risks associated with increases in postage and paper.
Postal rates and paper costs affect the cost of our order fulfillment
and catalog and promotional mailings. We rely heavily on the rate structure of
the United States Postal Service and strive for discounts for bulk mailings.
Like others in the catalog industry, Kids Stuff passes along a significant
portion of our shipping and handling expense, but does not pass along costs of
preparing and mailing catalogs and other promotional materials. In recent years,
the Postal Service has increased its rate for both the mailing of catalogs and
packages. In January 1995 and January 1999, the Postal Service increased the
postage rate paid by Kids Stuff by approximately 14% and 3%, respectively. Since
1994, United Parcel Service has annually increased its rates. 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 us increased 95%,
resulting in increased catalog production costs and contributing to operating
losses in 1995. Any future significant increases in postal rates
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or paper costs could have a material adverse effect on our business, financial
condition and results of operation.
We need to obtain new customers to maintain our growth.
We rely on catalog circulation as the principal method of acquiring new
customers by exchanging, renting and/or purchasing mailing lists. Recently, we
have opened a retail store to feature our children's clothing and other
merchandise which have not been sold through our catalogs or a web site for the
retail sale of our products. We are dependent upon obtaining new customers
through these sales efforts to replace customers whose children have outgrown
the usefulness of our products. Our business is subject to the risk that these
efforts to obtain new customers will be unsuccessful and/or cost prohibitive.
Our business is subject to 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 without collecting sales tax.
The United States Congress has the power to change these laws. Since 1987,
legislation has been introduced periodically in 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 our products in those states and eliminate whatever competitive
advantage we may currently enjoy with respect to in-state competitors in terms
of sales taxation, as well as increasing the administrative and overhead costs
in connection with the collection of such sales tax.
Our business is subject to regulatory risks.
Our 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 our
advertising and trade practices and the Consumer Product Safety Commission has
issued regulations governing the safety of the products which we sell in our
catalogs. We cannot guarantee that the rules and regulations of the foregoing
commissions will continue to support our operations as we presently conduct them
and plan to conduct them in the future.
Our business is subject to intense competition.
Our mail order catalog , retail clothing outlet and Internet businesses
are highly competitive. These operations compete with other mail order catalogs,
retail stores and web sites, including those operated by department stores,
specialty stores, discount stores and mass merchants. Many of our competitors
have greater financial, distribution and marketing resources than us. We cannot
guarantee that Kids Stuff will be able to compete effectively with existing and
potential competitors.
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Our business may be subject to product liability in excess of insurance.
Kids Stuff maintains product liability insurance of $1,000,000 per
occurrence with an aggregate limit of $2,000,000. The policy is supplemented by
an umbrella liability policy providing coverage of an additional $1,000,000 per
occurrence and $2,000,000 in the aggregate. The policies are for a period of one
year and are currently in effect through September 17, 2000. We cannot guarantee
that Kids Stuff's insurance protection will be sufficient and affordable to
protect Kids Stuff from potential claims relating to the use of products sold by
Kids Stuff.
We are dependent upon our key personnel.
We are dependent on the efforts of William L. Miller, Chief Executive
Officer, Jeanne E. Miller, President, and a group of employees with technical
and business knowledge regarding catalogs and operations. If we lose the
services of one or more of these individuals, it could materially and adversely
affect our business and our future prospects. Although we maintain $1,000,000
key man life insurance on each of William L. Miller and Jeanne E. Miller, such
insurance may not be adequate to protect Kids Stuff from a loss of their
services. Our future success will also depend on our ability to attract and
retain additional management and key personnel required in connection with the
growth and development of our business. If we fail to retain or attract such key
personnel, there could be a material adverse impact on our business, financial
condition and operations.
Our business is subject to possible conflicts of interest involving William L.
Miller as Chief Executive Officer of Kids Stuff and other related companies.
William L. Miller is Chief Executive Officer of both The Havana Group, Inc.
and Duncan Hill, Inc., a principal stockholder of both Kids Stuff and The Havana
Group. Conflicts of interest could potentially develop as follows:
o to the extent that Mr. Miller is not able to devote his full-
time and attention to a matter that would otherwise require
the full-time and attention of a business' chief executive
officer,
o involving competition for business opportunities,
o involving transactions between Kids Stuff and Mr. Miller and/
or his affiliated companies, and
o due to the relationship between Mr. Miller and Jeanne Miller
as husband and wife and as directors of Kids Stuff.
Kids Stuff has not adopted any procedure for dealing with such
conflicts of interest, except that Kids Stuff's Board of Directors has adopted a
policy that all new transactions between Kids Stuff and Duncan Hill, Havana or
any other affiliated company must be approved by at least a majority of our
disinterested directors.
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Employment contracts of two executive officers contain potential adverse
severance compensation.
Employment contracts of William L. Miller and Jeanne E. Miller contain
severance compensation to be paid to them in all instances other than the
executive's termination for cause. The minimum amount of such severance will be
equal to the sum of the executive's salary and bonus paid in the year preceding
the year when such severance is to be paid. The maximum amount of such severance
is equal to the base severance multiplied by 2.99. The payment of any severance
compensation under any of the two employment agreements within the foreseeable
future would likely have a materially adverse impact upon Kids Stuff.
We are dependent upon our data processing and telephone system.
Our 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 our data processing and telephone systems. We will need to
enhance the capacity and capabilities of these systems from time to time to
support our anticipated growth and remain competitive. Our telemarketing,
customer service and management information systems functions are housed in a
single facility located at our headquarters. We have a disaster recovery program
through our computer and telephone systems vendors. We also create a back-up
tape for off-site storage of our customer list and computer information.
However, a significant disruption or loss affecting the telephone or computer
systems or any significant damage to our headquarters could have a material
adverse effect on our business.
All stockholders matters are controlled by Duncan Hill.
Duncan Hill owns over 80% of our outstanding voting capital stock. As a
result, Duncan Hill will remain in a position to effectively elect all of our
directors and control our affairs and policies.
We have not paid dividends.
We have not declared or paid any dividends on our common stock since
the date of our inception. We intend to retain any earnings to support the
growth and development of our business and we have no present intention of
paying dividends in the foreseeable future, except on our preferred stock.
There is a limited public market for our common stock.
Our common stock is traded in the OTC Electronic Bulletin Board under
the symbol "KDST" and there is a limited public market for our common stock. We
cannot guarantee that a liquid and established public market for our common
stock will develop. If an established market does not develop, the market price
and liquidity of our common stock may be adversely affected. Future sales of
substantial amount of our common stock, or the perception that such sales may
occur, could adversely affect the value of our common stock and could impair our
ability to raise additional capital in the future through the sale of equity
securities.
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RECENT DEVELOPMENTS
On September 21, 1999, we were pleased to expand our board of directors
to five and to elect Debra P. Gibbs as an additional director of Kids Stuff.
Mrs. Gibbs received her Masters of Law and Taxation in May 1980 from the
University of Miami School of Law and her J.D. Degree in February 1979 from the
Ohio Northern University, Ada, Oho. From 1980 - 1983, she was employed as an
attorney by Aluminum Company of America in their corporate tax/legal department.
From 1983- 1985, she was employed as an attorney by Firestone Tire & Rubber
Company, Akron, Ohio in their tax department. From 1986-1999, she has performed
various volunteer work and raised her children. During the past five years, she
has not been associated with any firms outside of her volunteer work. On
September 21, 1999, we granted Ms. Gibbs 10-year options to purchase 30,000
shares of our common stock at $1.33 per share. The options shall vest in four
equal annual installments commencing January 1, 2000. On September 21, 1999, we
canceled 360,000 options previously granted to executive officers and directors
and issued an equal number of replacement options for the purpose of lowering
the exercise price of all options to the then fair market value of $1.33 per
share. We also granted to our employees an additional 65,000 options at the same
exercise price. In January 2000, 15,000 more options were granted to our
employees at the then fair market value.
In the first quarter of 2000, we reorganized into two separate
divisions, namely, "kidsstuff.com" and "Kids Stuff Catalog Company." Our
decision was based on the performance of our web site, kidsstuff.com during the
fourth quarter of 1999. In our first quarter of full operations, the
unadvertised site generated $446,000 in gross sales and $381,000 in net sales,
totaling 7.9% of our net sales for the quarter. In two out of three of our major
product lines, kidsstuff.com had higher response rates than our catalog
averages. We had gross sales over $3.00 per visitor to the web site, and we
attribute that to a wide selection of over 3,000 quality, niche products. While
we identified our web site in our catalogs during the fourth quarter, we made no
attempt to advertise our web site. We believe that using our catalog circulation
as an effective advertising medium will draw visitors to the web site, and that
focused distribution of catalogs will benefit both catalog and web site based
sales. In 1999, we distributed 9.1 million catalogs and expect to distribute
more in 2000.
On January 6, 2000, Kids Stuff agreed to issue 4,000 shares to each of
Lester Morse and Steven Morse for legal services rendered. On the same date, we
engaged National Financial Communications Corp. as a consultant to develop,
implement and maintain an ongoing program to increase the investment community's
awareness of our activities and to stimulate the investment community's interest
in us. For their services, we agreed pursuant to a consultant agreement, to pay
National $7,000 per month and grant options to purchase 270,000 shares at an
exercise price of $.54 per share. The options shall expire three years
subsequent to the termination of service of the consulting agreement. We may
terminate the agreement on or before April 6, 2000 in which event one-half of
the options granted to National would terminate. The registration statement of
which this prospectus is a part, was filed pursuant to certain registration
rights granted under the agreement.
Pricing of the Offering
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The exercise price of the options was determined by negotiations
between Kids Stuff and National Financial Communications Corp. Among the factors
considered in determining the price were our financial condition and prospects,
the industry in which we are engaged, certain financial and operating
information of companies engaged in activities similar to those of Kids Stuff
and the general market condition of the securities markets. Such price does not
necessarily bear any relationship to any established standard or criteria of
value based upon assets, earnings, book value or other objective measures.
USE OF PROCEEDS
We will use the net proceeds, if any, from the sale of our common stock
issuable upon exercise of the options for general corporate purposes.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Information both included and incorporated by reference in this
prospectus may contain forward-looking statements within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act. This information
may involve known and unknown risks, uncertainties and other factors which may
cause our actual results, performance or achievements to be materially different
from future results, performance or achievements expressed or implied by any
forward- looking statements. Forward-looking statements, which involve
assumptions and describe our future plans, strategies and expectations, are
generally identifiable by use of the words "may," "will," "should," "expect,"
"anticipate," "estimate," "believe," "intend," or "project" or the negative of
these words or other variations on these words or comparable terminology. These
forward-looking statements are based on assumptions that may be incorrect, and
we cannot assure you that these projections included in these forward-looking
statements will come to pass. Our actual results could differ materially from
those expressed or implied by the forward-looking statements as a result of
various factors, including the risk factors described above and elsewhere in
this prospectus. We undertake no obligation to update publicly any
forward-looking statements for any reason, even if new information becomes
available or other events occur in the future.
PLAN OF DISTRIBUTION
Option holders who desire to exercise their options should provide a
notice to us and submit same together with an appropriate check for the number
of shares purchased, made payable to "Kids Stuff, Inc.," to our offices at 7835
Freedom Avenue N.W., North Canton, Ohio 44720, attention William L. Miller,
Chief Executive Officer.
DESCRIPTION OF SECURITIES
PREFERRED STOCK
Our Board of Directors has the authority, without further action by our
stockholders, to issue up to 10,000,000 shares of Preferred Stock in one or more
series and to fix the rights, preferences,
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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 our Common Stock and could have the effect of delaying, deferring or
preventing a change in control of us. We have no present plans to issue any
shares of Preferred Stock other than the outstanding Series A Preferred Stock
and Series 1 Preferred Stock discussed below.
SERIES A PREFERRED STOCK
We have issued and outstanding 5,000,000 shares of Series A Preferred
Stock, $.001 par value, all of which are owned by Duncan Hill. 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 and the Common Stock held by Duncan Hill will enable it and
William L. Miller and Jeanne Miller, Chief Executive Officer and President of
Kids Stuff, respectively, to maintain control of us subsequent to the completion
of this Offering. 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 Kids Stuff, each share of Series A Preferred Stock has a
liquidation preference of $.001 per share.
SERIES 1 PREFERRED STOCK
As of the date of this prospectus, Kids Stuff has issued and
outstanding 920,000 shares of Series 1 Preferred Stock with the following
rights, preferences and privileges:
Dividends. Each Series 1 Preferred Share is entitled to
cumulative annual dividends of $.495 (i.e. 9% of the liquidation
preference per share) payable on the last business day of April of each
year commencing April 2000 with a record date to be fixed annually by
our Board of Directors subsequent to year end and prior to April 30th
of each year. The first dividend payment shall be pro rated for the
period from the date of issuance until December 31, 1999. Unpaid
dividends will accumulate and be paid before payment of dividends on
our Common Stock. We may, at our option, pay dividends in shares of
Common Stock, in lieu of cash. Shares used for such purpose will be
valued at the average closing sales price of our Common Stock on the
OTC Electronic Bulletin Board, NASDAQ or an Exchange during the ten
trading days ending on the tenth day before the dividend payment date.
Conversion. Commencing September 3, 2000, each Series 1
Preferred Share is convertible into two shares of Common Stock. In lieu
of the issuance of fractional shares, all amounts will be rounded-up to
the nearest whole number.
Redemption. Commencing September 3, 2000, the Series 1
Preferred Shares are redeemable at our option, on not less than 30
days' prior written notice to registered holders at the redemption
price of $7.20 per share plus accumulated dividends.
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Voting Rights. Preferred Shares are entitled to one vote per
share voting together with the Common Stock as one class, except as
otherwise provided by the Delaware Corporation Law.
Preference on Liquidation. The Series 1 Preferred Stock will
be entitled to a preference on liquidation equal to $5.50 per share
plus accumulated unpaid dividends.
No Sinking Fund. We are not required to provide for the
retirement or redemption of the Series 1 Preferred Shares through the
operation of a sinking fund.
The conversion ratio, redemption price and liquidation preference per
share are subject to adjustment to protect against dilution in the event of
preferred stock splits, combinations, subdivisions and reclassifications.
PREFERRED WARRANTS
Commencing September 3, 2000 and expiring March 3, 2002 (the
"Expiration Date"), each outstanding Preferred Warrant entitles the registered
holder to purchase one share of our Series 1 Preferred Stock at an exercise
price of $6.00 per share. Preferred Warrants may be exercised by surrendering to
the warrant agent the Preferred Warrants and the payment of the exercise price
in United States funds by cash or certified or bank check. No fractional shares
of Series 1 Preferred Stock will be issued in connection with the exercise of
Preferred Warrants. Upon exercise, we will pay to the holder the value of any
such fractional shares based upon the market value of the Series 1 Preferred
Stock at such time. We are required to keep available a sufficient number of
authorized shares of Series 1 Preferred Stock for issuance to permit exercise of
Preferred Warrants.
In the event that we notify the holders of Series 1 Preferred Stock of
our intention to redeem the Series 1 Preferred Stock, we shall after giving the
holders of Preferred Warrants at least 30 days prior written notice,
contemporaneously redeem Preferred Warrants at $1.20 per Warrant, subject to the
holders right to exercise Preferred Warrants and convert the underlying Series 1
Preferred Stock during such notice period.
In the event a holder of Preferred Warrants fails to exercise
Preferred Warrants prior to their expiration, Preferred Warrants will expire and
the holder thereof will have no further rights with respect to Preferred
Warrants. A holder of Preferred Warrants does not have any rights, privileges or
liabilities as a stockholder of Kids Stuff. In the event of the liquidation,
dissolution or winding up of Kids Stuff, holders of Preferred Warrants are not
entitled to participate in the distribution of our assets.
The exercise price of Preferred Warrants and the number of shares
issuable upon exercise of Preferred Warrants will be subject to adjustment to
protect against dilution in the event of Preferred Stock dividends, Preferred
Stock splits, combinations, subdivisions and reclassifications.
Purchasers of Preferred Warrants will have the right to exercise
Preferred Warrants to purchase shares of Series 1 Preferred Stock only if a
current prospectus relating to such shares is then
13
<PAGE>
in effect and only if the shares are qualified for sale under the securities
laws of the jurisdictions in which the various holders of Preferred Warrants
reside.
14
<PAGE>
COMMON STOCK
Kids Stuff has 25,000,000 shares of authorized Common Stock. As of the
date of this prospectus, we have 3,520,856 shares of Common Stock 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 are 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. In the event of a
dissolution, liquidation or winding- up of Kids Stuff, 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 duly authorized,
validly issued, fully paid and nonassessable.
CLASS A WARRANTS
Commencing June 26, 1998 and expiring June 26, 2002, each Warrant
entitles the registered holder to purchase one share of Common Stock at an
exercise price of $5.00 per share. Class A Warrants may be exercised by
surrendering to the warrant agent the Class A 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 Class A Warrants. Upon exercise, we will pay to the holder the value of any
such fractional shares based upon the market value of our Common Stock at such
time. We are required to keep available a sufficient number of authorized shares
of Common Stock for issuance to permit exercise of the Class A Warrants.
We may redeem the Class A 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 our record holders if the
closing bid price of the Common Stock has been at least $14.40 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.
In the event a holder of Class A Warrants fails to exercise the Class
A Warrants prior to the expiration date of the Class A Warrants, the Class A
Warrants will expire and the holder thereof will have no further rights with
respect to the Class A Warrants. A holder of Class A Warrants will not have any
rights, privileges or liabilities as a stockholder of Kids Stuff. In the event
of the liquidation, dissolution or winding up of Kids Stuff, holders of the
Class A Warrants are not entitled to participate in the distribution of our
assets.
The exercise price of the Class A Warrants and the number of shares
issuable upon exercise of the Class A 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 our Common Stock will exceed the exercise price of the Class
A Warrants at any time during the exercise period.
15
<PAGE>
Purchasers of the Class A Warrants will have the right to exercise the
Class A 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 Class A Warrants reside.
OPTIONS
We have issued to National Financial Communications Corp. options to
purchase 270,000 shares exercisable at a price of $.54 per share. The options
are subject to dilution to protect against stock splits, stock dividends,
combinations and the like. The options expire three years from the termination
of our consulting agreement with National. We have granted the Underwriter of
our 1997 public offering an option to purchase 60,000 shares of Common Stock at
$9.90 per share until the close of business on June 26, 2002, and the
Underwriter of our 1999 public offering a warrant to purchase 40,000 units at a
price of $9.075 per Unit. Each unit consists of one share of Series 1 Preferred
Stock and two Series 1 Preferred Warrants exercisable at $9.90 per share. The
holders of the aforesaid securities have certain rights to demand that we
register the securities with the Securities and Exchange Commission under the
Securities Act of 1933 for a period of five years after issuance.
Transfer Agent and Registrar
The transfer agent, registrar and Warrant Agent for Kids Stuff's
securities is American Stock Transfer & Trust Company, 40 Wall Street, New York,
NY 10005.
UNREGISTERED SHARES ELIGIBLE FOR IMMEDIATE AND FUTURE SALE
Duncan Hill, Inc. owns 2,188,075 shares of our Common Stock and
5,000,000 shares of our Series A Preferred Stock. These securities are
restricted securities as that term is defined by Rule 144 of the Securities Act
of 1933, as amended. Such securities may only be sold in compliance with the
provision of Rule 144 unless otherwise registered by us. The possible or actual
future sales of the restricted securities under Rule 144 may have an adverse
effect on the market price of our common stock.
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 us as that term is defined under the Securities 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 one percent of the
then-outstanding shares of Common Stock or 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 us. 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
16
<PAGE>
of substantial amounts of our Common Stock pursuant to Rule 144 or otherwise may
adversely affect the then-prevailing market price of our Common Stock.
LEGAL MATTERS
The validity of the securities being offered hereby will be passed upon
for us by Lester Morse P.C., Suite 420, 111 Great Neck Road, Great Neck, NY
11021. Lester Morse and Steven Morse, who are members of Lester Morse P.C., each
own 4,000 shares of Kids Stuff.
EXPERTS
The financial statements and any schedules of Kids Stuff incorporated
by reference in this prospectus have been audited by Hausser + Taylor, LLP,
independent certified public accountants, to the extent and for the periods
indicated in their reports incorporated in this prospectus by reference, and are
incorporated in this prospectus in reliance upon such reports given upon the
authority of that firm as experts in accounting and auditing.
17
<PAGE>
PART II
Item 14. Other Expenses of Issuance and Distribution.
Shown below are estimates of the approximate amount of the fees and
expenses we have incurred in connection with this offering.
<TABLE>
<CAPTION>
<S> <C>
Securities and Exchange Commission registration fee.....................................$ 173.00
Legal and accounting fees............................................................... 15,000.00
Printer's fees and expenses............................................................. 3,000.00
Miscellaneous expenses.................................................................. 1,827.00
---------
Total .............................................................$ 20,000.00
=========
</TABLE>
Item 15. 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 Registrant 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.
II-1
<PAGE>
The Registrant'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. The provision, however, does not affect the availability of seeking
equitable relief against a director of the Registrant. 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 16. Exhibits
Exhibit
Number Description of Document
<TABLE>
<CAPTION>
<S> <C>
5.1 Opinion of Lester Morse P.C. as to the legality of the securities*
8.1 Agreement dated January 6, 2000 between National and the Registrant.
23.1 Consent of Hausser + Taylor, LLP*
23.2 Consent of Lester Morse P.C. (incorporated into Exhibit 5.1)
- -------------
* Filed herewith.
</TABLE>
Item 17. Undertakings
(a) We hereby undertake that, for purposes of determining any liability
under the Securities Act, each filing of our annual report under Section 13(a)
or 15(d) of the Exchange Act (and, where applicable, each filing of an employee
benefit plan's annual report under Section 15(d) of the Exchange Act) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of these securities at that time shall be deemed to be the initial bona
fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to our directors, officers and controlling
persons under the foregoing provisions, or otherwise, we have been advised that
in the opinion of the SEC indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. If a claim for indemnification
against liabilities (other than the payment by Kids Stuff of expenses incurred
or paid by one of our directors, officers, or controlling persons in the
successful defense of any action, suit, or proceeding) is asserted by that
director, officer or controlling person in connection with the securities being
registered, we will, unless in the opinion of our counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question as to whether this indemnification is against public policy as
expressed in the Securities Act, and will be governed by the final adjudication
of the issue.
II-2
<PAGE>
The undersigned Registrant hereby undertakes to:
(c) (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;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information set
forth in the registration statement; and notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total dollar value
of securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range may
be reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price represent no
more than a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration statement.
(iii) Include any additional or changed material information
on the plan of distribution;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) of
this section do not apply if the registration statement is on Form S-3 of the
Securities Act, and the information required in a post-effective amendment is
incorporated by reference from periodic reports filed by the Registrant under
the Exchange Act.
(2) That, for the purpose of determining any liability under
the Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering period.
(3) File a post-effective amendment to remove from
recitation any of the securities that remain unsold at the end of the offering.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and have duly caused this
registration statement to be signed on our behalf by the undersigned thereunto
duly authorized in the City of North Canton, Ohio, on the 10th day of February,
2000.
KIDS STUFF, INC.
By: /s/ WILLIAM L. MILLER
------------------------------
William L. Miller, Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
SIGNATURE TITLE DATE
- ------------------------------- ----------------------------- ----------------------
/s/ WILLIAM L. MILLER Chairman of the Board, February 10, 2000
- -------------------------------- Chief Executive Officer
William L. Miller Treasurer, Secretary and
Chief Financial and
Accounting Officer
/s/ JEANNE E. MILLER President February 10, 2000
- --------------------------------- and Director
Jeanne E. Miller
/s/ CLARK D. SWISHER Director February 10, 2000
- ---------------------------------
Clark D. Swisher
/s/Alfred Schmidt
- --------------------------- Director February 10, 2000
Alfred Schmidt
/s/ Debra P. Gibbs
- ---------------------------- Director February 10, 2000
Debra P. Gibbs
</TABLE>
Exhibit 5.0
Kids Stuff, Inc. February 10, 2000
7835 Freedom Avenue, N.W.
North Canton, Ohio 44720
Re: Registration Statement on Form S-3
of Kids Stuff, Inc.
Gentlemen:
You have requested our opinion as counsel for Kids Stuff, Inc., a
Delaware corporation (the "Company"), in connection with the Registration
Statement on Form S-3 (the "Registration Statement") filed by the Company with
the Securities and Exchange Commission (the "Commission") under the Securities
Act of 1933 (the "Act') with respect to shares (the "Shares") of Common Stock,
par value $.001 per share, of the Company which may be issued pursuant to the
exercise of options to purchase 270,000 shares of the Company's Common Stock.
We have examined such corporate records and other documents and have
made such examination of law as we have deemed relevant in connection with this
opinion. Our examination of matters has been limited to the Delaware General
Corporation Law.
Based upon the foregoing, we advise you that in our opinion each
authorized but unissued Share issued by the Company in accordance with the terms
of the Option, will be legally and validly issued, fully paid and
non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, and we further consent to the use of our name therein
under the caption "Legal Matters" in the Prospectus of the Registration
Statement.
Very truly yours,
LESTER MORSE P.C.
Steven Morse
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference to this Registration
Statement of Kids Stuff, Inc. on Form S-3 of our report dated March 20, 1999
appearing in the Annual Report on Form 10-KSB of Kids Stuff, Inc. for the year
ended December 31, 1998. We also consent to the reference to us under the
heading "Experts" in the Prospectus, which is part of this Registration
Statement.
Hausser + Taylor LLP
Certified Public Accountants
North Canton, Ohio
February 10, 2000
NATIONAL FINANCIAL COMMUNICATIONS
CORP. CONSULTING AGREEMENT
AGREEMENT made as of the 6th day of January, 2000 by and between KidsStuff
Catalog Co., maintaining its principal offices at 7835 Freedom Ave NW, North
Canton, OH 44720 (hereinafter referred to as "Client") and National Financial
Communications Corp. DBA/ OTC Financial Network, commonwealth of Massachusetts
corporation maintaining its principal offices at 1040 Great Plain Ave, Needham,
MA 02492 (hereinafter referred to as the "Company").
W I T N E S S ET H : W I T N E S S ET H : WHEREAS, Company is engaged in
the business of providing and rendering public relations and communications
services and has knowledge, expertise and personnel to render the requisite
services to Client; and
WHEREAS, Client is desirous of retaining Company for the purpose of
obtaining public relations and corporate communications services so as to
better, more fully and more effectively deal and communicate with its
shareholders and the investment banking community.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements contained herein, it is agreed as follows:
I. Engagement of Company. Client herewith engages Company and Company
agrees to render to Client public relations, communications, advisory and
consulting services.
A. The consulting services to be provided by the Company shall
include, but are not limited to, the development, implementation and
maintenance of an ongoing program to increase the investment community's
awareness of Client's activities and to stimulate the investment
community's interest in Client. Client acknowledges that Company's ability
to relate information regarding Client's activities is directly related to
the information provided by Client to the Company.
B. Client acknowledges that Company will devote such time as is
reasonably necessary to perform the services for Client, having due regard
for Company's commitments and obligations to other businesses for which it
performs consulting services.
<PAGE>
II. Compensation and Expense Reimbursement.
A. Client will pay the Company, as compensation for the services
provided for in this Agreement and as reimbursement for expenses incurred
by Company on Client's behalf, in the manner set forth in Schedule A
annexed to this Agreement which Schedule is incorporated herein by
reference.
B. In addition to the compensation and expense reimbursement referred
to in Section 2(A) above, Company shall be entitled to receive from Client
a "Transaction Fee", as a result of any Transaction (as described below)
between Client and any other company, entity, person, group or persons or
other party which is introduced to, or put in contact with, Client by
Company. A "Transaction" shall mean merger, sale of stock, sale of assets,
consolidation or other similar transaction or series or combination of
transactions whereby Client or such other party transfer to the other, or
both transfer to a third entity or person, stock, assets, or any interest
in its business in exchange for stock, assets, securities, cash or other
valuable property or rights, or wherein they make a contribution of capital
or services to a joint venture, commonly owned enterprise or business
opportunity with the other for purposes of future business operations and
opportunities. To be a Transaction covered by this section, the transaction
must occur during the term of this Agreement or the one-year period
following the expiration of this Agreement and the Company must have a
written agreement signed by the Client acknowledging that the transaction
was introduced to Client by the Company.
The calculation of a Transaction Fee shall be based upon the total
value of the consideration, securities, property, business, assets or other
value given, paid, transferred or contributed by, or to, the Client and
shall equal 5% of the dollar value of the Transaction. The Transaction Fee
payable to the Company at closing will be in the same form of consideration
as that paid by or to the Client, as the case may be, in any such
Transaction.
Term and Termination. This Agreement shall be for a period of three
months commencing January 6, 2000 and terminating April 5, 2000. If the
Client does not cancel the contract during the term, the contract will be
automatically extended for an additional year. Either party hereto shall
have the right to terminate this Agreement upon 30 days prior written
notice to the other party after the first 90 days.
<PAGE>
Treatment of Confidential Information. Company shall not disclose,
without the consent of Client, any financial and business information
concerning the business, affairs, plans and programs of Client which are
delivered by Client to Company in connection with Company's services
hereunder, provided such information is plainly and prominently marked in
writing by Client as being confidential (the "Confidential Information").
The Company will not be bound by the foregoing limitation in the event (i)
the Confidential Information is otherwise disseminated and becomes public
information or (ii) the Company is required to disclose the Confidential
Informational pursuant to a subpoena or other judicial order.
Representation by Company of other clients. Client acknowledges and
consents to Company rendering public relations, consulting and/or
communications services to other clients of the Company engaged in the same
or similar business as that of Client.
Indemnification by Client as to Information Provided to Company.
Client acknowledges that Company, in the performance of its duties, will be
required to rely upon the accuracy and completeness of information supplied
to it by Client's officers, directors, agents and/or employees. Client
agrees to indemnify, hold harmless and defend Company, its officers, agents
and/or employees from any proceeding or suit which arises out of or is due
to the inaccuracy or incompleteness of any material or information supplied
by Client to Company.
Indemnification by Company as to Activity of Company. Company agrees
that it will indemnify and hold the client, its officers, agent, and
employees harmless from and against any claims which arise out of the
activities of the Company including but not limited to any statements or
representations made by Company which conflicts or is contrary to
information provided to Company by client or otherwise relates to
activities of the Company.
Independent Contractor. It is expressly agreed that Company is acting
as an independent contractor in performing its services hereunder. Client
shall carry no workers compensation insurance or any health or accident
insurance on Company or consultant's employees. Client shall not pay any
contributions to social security, unemployment insurance, Federal or state
withholding taxes nor provide any other contributions or benefits, which
might be customary in an employer-employee relationship.
<PAGE>
Non-Assignment. This Agreement shall not be assigned by either party
without the written consent of the other party.
Notices. Any notice to be given by either party to the other hereunder
shall be sufficient if in writing and sent by registered or certified mail,
return receipt requested, addressed to such party at the address specified
on the first page of this Agreement or such other address as either party
may have given to the other in writing.
Entire Agreement. The within agreement contains the entire agreement
and understanding between the parties and supersedes all prior
negotiations, agreements and discussions concerning the subject matter
hereof.
Modification and Waiver. This Agreement may not be altered or modified
except by writing signed by each of the respective parties hereof. No
breach or violation of this Agreement shall be waived except in writing
executed by the party granting such waiver.
Law to Govern; Forum for Disputes. The Company and the Client agree
that any legal disputes that may occur between the Company and the Client,
and that arise out of, or are related in any way to, the Company contract
with the Client and/or its performance of services under the Contract or
the termination of this contract, and which disputes cannot be resolved
informally, shall be resolved exclusively through final and binding private
arbitration before an arbitrator mutually selected by the Company and the
Client with each party to bear its own costs and attorney fees. If the
Company and the Client are unable to agree upon an arbitrator within
twenty-one (21) days after either party made a demand for arbitration, the
matter will be submitted for arbitration to the Boston office of the
American Arbitration Association pursuant to the rules governing contract
dispute resolution in effect as of December 1, 1998. Notwithstanding the
foregoing, in no event shall a demand for arbitration be made after the
date when institution of legal or equitable proceedings based on such
claim, dispute, or other matter in question would be barred by the
applicable statutes of limitation.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the day and year first written above.
National Financial Communications Corp.
By: /s/ Geoffrey Eiten
Geoffrey Eiten, President
Kids Stuff Catalog Co.
By: /s/ Bill Miller
Bill Miller, Authorized Agent
SCHEDULE A-1 Payment for services and reimbursement of expenses.
SCHEDULE A-2 Grant of options in advance of services rendered and
reimbursement of expenses
<PAGE>
SCHEDULE A-1
PAYMENT FOR SERVICES
AND REIMBURSEMENT OF EXPENSES
A. For the services to be rendered and performed by Company
during the term of the Agreement, Client shall pay to Company the sum of
$7,000per month payable on the first day of each month.
B. Client shall also reimburse Company for all reasonable and
necessary out-of-pocket expenses incurred in the performance of its duties for
Client upon presentation of statements setting forth in reasonable detail the
amount of such expenses. Company shall not incur any expense for any single item
in excess of $250 either verbally or written except upon the prior approval of
the Client. Company agrees that any travel, entertainment or other expense which
it may incur and which may be referable to more than one of its clients
(including Client) will be prorated among the clients for whom such expense has
been incurred.
National Financial Communications Corp.
By: /s/ Geoffrey Eiten
Geoffrey Eiten, President
Kids Stuff Catalog Co.
By: /s/ Bill Miller
Bill Miller, Authorized Agent
<PAGE>
SCHEDULE A-2
GRANT OF OPTIONS TO NATIONAL FINANCIAL COMMUNICATIONS CORP. IN ADVANCE
OFSERVICES RENDERED
A. Grant of Options and Option Exercise Price. As compensation for the
services to be rendered by Company hereunder, Client herewith issues and
grants to Company stock options (the "Options") to purchase an aggregate of
270,000 shares of Client's Common Stock at an exercise price of $.54 per
share. In the event this agreement is terminated by Client on or before
April 6, 2000, then 135,000 of the aforementioned options are cancelled.
The Options are exercisable upon and subject to the terms and conditions
contained herein. The Options are exercisable during the period commencing
on the date hereof and ending three years subsequent to the termination
date of this Agreement. The Client will use its best efforts to register
the underlying shares for resale under SEC regulations and requirements.
B. Manner of Exercise. Exercise of any of the Options by Company shall
be by written notice to Client accompanied by Company's certified or bank
check for the purchase price of the shares being purchased. Upon receipt of
such notice and payment, Client shall promptly cause to be issued, without
transfer or issue tax to the option holder or other person entitled to
exercise the option, the number of shares for which the Option has been
exercised, registered in the name of Company. Such shares, when issued,
shall be fully paid and non-assessable.
C. Option Shares. Company acknowledges that any shares which it may
acquire from Client pursuant to the exercise of the Options provided for
herein will not have been registered pursuant to the Securities Act of1933,
as amended (the "Securities Act"), and therefore may not be sold or
transferred by Company except in the event that such shares are the subject
of a registration statement or any future sale or transfer is, in the
opinion of counsel for Client, exempt from such registration provisions.
Company acknowledges that any shares which it may acquire pursuant to the
exercise of the Options will be for its own account and for investment
purposes only and not with a view to the resale or redistribution of same.
Company further consents that the following legend be placed upon all
certificates for shares of Common Stock, which may be issued to Company
upon the exercise of the Options:
<PAGE>
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDERTHE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") AND MAY NOT
BE SOLD OROTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENTUNDER THE ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION
THATSUCH REGISTRATION IS NOT REQUIRED."
Company further consents that no stop transfer instructions being
placed against all certificates may not be issued to it upon the exercise of the
Options.
(i) If the Client executes a Registration during the term of the
contract, then the Company's shares will be added to this Registration at
no cost to the Company. The Client shall bear all costs and expenses
attributable to such registration, excluding fees and expenses of Company's
counsel and any underwriting or selling commission. Client shall maintain
the effectiveness of such registration throughout the term of this
Agreement and for a 120-day period thereafter.
(ii) Notwithstanding the foregoing, if the Shares issuable upon
exercise of the Options are not otherwise registered under the Securities
Act and the Client shall at any time after the date hereof propose to file
a registration statement under the Securities Act, which registration
statement shall include shares of Common Stock of Client or any selling
shareholder, Client shall give written notice to Company of such proposed
registration and will permit Company to include in such registration all
Shares which it has acquired as of the date of such notice. The Client
shall bear all costs and expenses attributable to such registration,
excluding fees and expenses of Company's counsel and any underwriting or
selling commission.
D. Adjustments in Option Shares.
(i) In the event that Client shall at any time sub-divide its
outstanding shares of Common Stock into a greater number of shares, the
Option purchase price in effect prior to such sub-division shall be
proportionately reduced and the number of shares of Common Stock
purchasable shall be proportionately increased. In case the outstanding
shares of Common Stock of Client shall be combined into a smaller number of
shares, the Option purchase price in effect immediately prior to such
combination shall be proportionately increased and the number of shares of
Common Stock purchasable shall be proportionately reduced.
<PAGE>
(ii) In case of any reclassification or change of outstanding shares
of Common Stock issuable upon exercise of this Option (other than change in
par value, or from par value to no par value, or from no par value to par
value, or as a result or a subdivision or combination), or incase of any
consolidation or merger of the Client with or into another corporation
(other than a merger in which the Client is the continuing corporation and
which does not result in any reclassification or change of outstanding
shares of Common Stock, other than a change in number of the shares
issuable upon exercise of the Option) or in case of any sale or conveyance
to another corporation of the property of the Client as an entirety or
substantially as an entirety, the Holder of this Option shall have the
right thereafter to exercise this Option into the kind and amount of shares
of stock and other securities and property receivable upon such
reclassification, change, consolidation, merger, sale or conveyance by a
holder of the number of shares of Common Stock of the Client for which the
Option might have been exercised immediately prior to such
reclassification, change, consolidation, merger, sale or conveyance. The
above provisions shall similarly apply to successive reclassifications and
changes of shares of Common Stock and to successive consolidations,
mergers, sales or conveyances.
(iii) The Company reserves the right to assign these options to a
third party at its own discretion.
National Financial Communications Corp.
By: /s/ Geoffrey Eiten
Geoffrey Eiten, President
Kids Stuff Catalog Co.
By: /s/ Bill Miller
Bill Miller, Authorized Agent
