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EXHIBIT 10.8
KIDS MART, INC.
(A FLORIDA CORPORATION)
EXCHANGE AGREEMENT
AND
INVESTMENT REPRESENTATION AGREEMENT
Bernard Tessler
Kids Mart, Inc.
801 Sentous Avenue
City of Industry, CA 91748
Dear Mr. Tessler:
SECTION 1
1.1 SUBSCRIPTION. The undersigned hereby subscribes for and agrees to
purchase 433,333 shares of Common Stock (Par Value $.0001 per share) (the
"Securities") issued by Kids Mart, Inc. (the "Company"), a corporation
organized under the laws of the State of Florida, at a price of $1.50 per
share, on the terms and conditions described herein. Although the Securities
are unregistered and may not be sold unless registered under federal and state
securities laws, or an exemption from registration is applicable, the Common
Stock of the Company is quoted on the OTC Bulletin Board.
1.2 PURCHASE
The undersigned tenders trade payables due from the Company to
the undersigned in the amount of $650,000 in full payment of the purchase price
of the Securities. Upon execution and delivery of this Agreement, acceptance by
the Company, and delivery of the Securities such $650,000 of trade payables
shall be converted into payment of the purchase price of the Securities and
shall no longer be considered due and owing to the undersigned.
1.3 ACCEPTANCE OR REJECTION OF SUBSCRIPTION.
(a) The undersigned understands and agrees that the Management
of the Company reserves the right to reject this subscription for the purchase
of Securities, in whole or in part, if in its judgement it deems such action in
the best interests of the Company.
(b) In the event the undersigned's subscription is accepted,
Management shall accept the undersigned's tender by executing this subscription
agreement.
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Section 2
2.1. Investor Representations and Warranties. The undersigned hereby
acknowledges, represents and warrants to, and agrees with, Management of the
Company as follows:
(a) The undersigned is investing in the Securities for its own
account, for investment purposes only, and not with a view to or for the
resale, distribution or fractionalization thereof, in whole or in part, and no
other person has a direct or indirect beneficial interest in the Securities.
(b) The undersigned has reviewed the opinion of counsel to the
Company pertaining to the offer and sale of the Securities contemplated herein
and acknowledges its understanding that the offering and sale of the Securities
is intended to be exempt from registration under the Securities Act of 1933, as
amended (the "Act"), by virtue of Section 4(2) of the Act and exempt from
qualification under the California Corporate Securities Law of 1968, as
amended, by virtue of Section 25102 (f). In furtherance thereof, the
undersigned represents and warrants to and agrees with the Management of the
Company as follows:
(i) The undersigned has the financial ability to bear
the economic risk of its investment in the Securities (including its possible
loss), has adequate means of providing for its current needs and personal
contingencies and has no need for liquidity with respect to its investment in
the Securities.
(ii) The undersigned has such knowledge and experience
in financial and business matters as to be capable of evaluating the merits and
risks of an investment in the Securities and has obtained, in its judgment,
sufficient information from the Company to evaluate the merits and risks of an
investment in the Securities.
(c) The undersigned:
(i) has been provided an opportunity to obtain any
information concerning the Company and all other information to the extent the
Company possesses such information or can acquire it without unreasonable
effort or expense;
(ii) has been given the opportunity to ask questions
of, and receive answers from the Management of the Company concerning all
matters pertaining to this investment, and has been given the opportunity to
obtain such additional information necessary in order to evaluate the merits
and risks of an investment in the Securities to the extent the Company
possesses such information or can acquire it without unreasonable effort or
expense; and
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(iii) has determined that the Securities are a suitable investment
for it and that at this time it could bear a complete loss of its investment;
(d) In making the decision to purchase the Securities herein
subscribed for, the undersigned has relied solely upon independent
investigations made by it. The undersigned is not relying on the Company with
respect to tax and other economic considerations involved in this investment.
(e) In addition to the Risk Factors set forth in this Agreement, the
undersigned specifically acknowledges its awareness that the Company's financial
position continues to deteriorate. Consequently, investment in the Company at
this time is extremely speculative and the undersigned acknowledges the distinct
possibility that the undersigned may lose the entire investment. THIS INVESTMENT
SHOULD BE CONSIDERED RESCUE FINANCING OF THE MOST SPECULATIVE NATURE.
(f) The undersigned is an "accredited investor" as such term is
defined in Regulation D promulgated by the Securities and Exchange Commission
under the Securities Act of 1934, as amended. The undersigned falls within item
10 set forth on the copy of such definition attached hereto as Annex A.
(g) The undersigned represents, warrants and agrees that it will not
sell or otherwise transfer the Securities without registration under the
Securities Act or an exemption therefrom, and fully understands and agrees that
is must bear the economic risk of its investment for an indefinite period of
time because, among other reasons, the Securities have not been registered under
the Act or under the securities laws of certain states and, therefore, cannot be
resold, pledged, assigned or otherwise disposed of unless it is subsequently
registered under the Act and under applicable securities laws of such states or
an exemption from such registration is available. The undersigned understands
that the Company is under no obligation to register the Securities on its behalf
or to assist it in complying with any exemption from such registration under the
Act, except as set forth in Section 4, hereto. The undersigned also understands
that sales or transfers of the Securities are further restricted by provisions
of the applicable state securities laws.
2.2. Investor Awareness. The undersigned acknowledges, represents, agrees
and is aware that:
(a) no Federal or state agency has passed upon the securities or made
any findings or determination as to the fairness of this investment;
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(b) an investment in the Company is an illiquid investment
and the undersigned must bear the economic risk of its investment for an
indefinite period of time;
(c) the Management of the Company may be indemnified by the
Company against liabilities sustained by it by reason of its serving as the
Management of the Company;
(d) the Management of the Company is relying upon the
representations, warranties, agreements, undertakings and acknowledgments made
by the undersigned in this Agreement in determining the undersigned's
suitability as a purchaser of the Securities as an "accredited investor" as set
forth above. In addition, the undersigned undertakes to notify the Company
immediately of any change in any representation, warranty or other information
relating to the undersigned set forth herein.
(e) The purchase and sale of any investment in the Company
involves a high degree of risk and such risk may be increased in the case of
circumstances beyond the control of Management of the Company. This investment
is not recommended for those who cannot withstand the loss of their entire
investment;
(f) the success of the Company will be particularly
dependent upon the efforts of its Management. If the Company's officers and
directors die or become disabled, or otherwise terminate their relationship
with the Company, the Company would be materially adversely affected. There is
no assurance that the net worth of the Company's Management will be sufficient
to enable it to perform any financial obligations which the Company's
Management may have to the Company. Neither the Company's Management nor anyone
else, including the undersigned, has agreed to fund any deficits or agreed to
lend money to the company;
(g) Because of its minority interest in the Company, except
as permitted by general shareholder rights, a holder of the Securities will
have no right to participate in management of the Company or in the conduct of
its business except as permitted by general shareholder rights and unless a
representative of the undersigned serves as a member of the Board of Directors.
Section 3
3.1 Risk Factors. The undersigned has carefully considered and
evaluated the following risk factors. The risks set forth below do not purport
to be a complete description of all risks which may exist with respect to an
investment in the Securities, but is merely illustrative of the types of risks
which an investor should consider before deciding to invest.
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(a) Hazardous Materials. The Company has been notified
that certain stores in California have materials containing asbestos. The
asbestos material is generally in trace quantities, and no remediation is
expected to be required on the understanding that such material is properly
secured. However, should remediation be required, no assurance can be given as
to the effect this would have on the Company, although it could have a material
adverse effect.
(b) Closed Stores; Rent Liability. The Company has ceased
operations in nine previously unprofitable stores. The remaining term of the
leases on eight of these stores vary from less than six months to over three
years. As of January 27, 1996 the total rent liability associated with these
leases was approximately $0.4 million. The Company is attempting to negotiate
favorable terms with the various landlords. However, the Company may incur a
significant rent liability in connection with these leases.
(c) Credit Restraints. The Company is having difficulty
securing adequate terms from its suppliers. It has been required to pay for
inventory on significantly shortened terms. Support among the factors has been
on a severely limited basis. The Company has not been able to obtain
merchandise at planned levels. These restrictions may adversely impact the
Company's ability to continue to procure adequate levels of merchandise,
especially for the back-to-school and Christmas seasons.
(d) Cash Flow Constraints. The Company is experiencing
acute cash flow constraints. Two factors have contributed to these constraints;
1) heavy liquidation sales at all stores prior to and following the acquisition
of the company's business; and 2) shortened inventory payment terms. There can
be no assurance that the Company will not continue to incur substantial
markdowns and impaired cash flows.
(e) Net Losses and Accumulated Deficit. The Company has
experienced substantial losses since its acquisition of the Little Folks/Kids
Mart business. No assurance can be given as to when, if ever, the Company can
become profitable.
(f) Dependent on Woolworth. The Company receives
information systems, accounting and administrative services from Woolworth
pursuant to the terms of a transition service agreement (the "Service
Agreement"). In return, the Company pays certain fees to Woolworth. The initial
term of the Service Agreement expired on May 31, 1996. In connection with the
Settlement Agreement, the Service Agreement was extended to September 28, 1996.
The Company may not establish it own systems by the expiration date and may
incur significant expenses in developing such systems.
(g) Adverse Retail Industry Conditions. The retail
industry generally has recently suffered through a period of
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sluggish sales and significant price competition. The Company continues to
struggle through difficult market and industry condition over which it has no
control. No assurance can be given that such adverse market conditions will not
continue, nor can the Company predict what effect such conditions may have on
the near or long term prospects of the Company.
(h) Absence of Market; Transferability and Liquidity of Investment.
While the Common Stock of the Company is currently quoted on the OTC bulletin
Board, no established trading market has developed and there can be no
assurance that an established trading market will develop, or if developed, that
it will be maintained. Further, as noted a above, the issuance of the
Securities has not been registered under the Securities Act and, accordingly,
the undersigned may not dispose of its Surities unless such disposition has
been validly registered with the SEC under the Securities Act or such
disposition is, in the opinion of counsel to the Company, exempt from such
registration.
(i) Offering Price. The offering price of the Securities has been
aribtrarily determined by the Company. Accordingly, the offering price of the
Securities may not be any indication of the value of the Securities.
(j) Risk of Dilution; Need for Additional Financing. Based on internal
financial forecasts, the Company believes that the proceeds from this
transaction will not be sufficient to fund the Company's operation and capital
expenditures during the next six months. The Company will need additional
capital and there can be no assurance that the Company will be able to obtain
such additional capital. The Company's cash requirements may vary materially
from those planned currently due to general economic, competitive or other
factors. Adequate funds to meet that company's working capital requirements,
whether obtained through financial markets, additional equity offerings or from
the resources, may not be available to the Company when required or may not be
on terms acceptable to the Company. Any such additional financing may result in
significant dissolution to existing stockholders, or the issuance of securities
with rights superior to those of the Securities. If such financing is not
available, the Company may be required to modify its business plans or reduce
or cease certain or all of its operation, or file a petition for reorganization
under Chapter 11 of the Federal bankruptcy laws.
(k) Dividend Policy. Since its inception, the Company has not paid any
dividends on its Common Stock The Company intends to retain future earnings, if
any, to provide funds for working capital, operations and/or expansion of its
business, and accordingly, does not anticipate paying any cash dividends on the
Stock in the foreseeable future. Furthermore, the Company's revolving credit
line contains convenants restricting declaration or payment of dividends.
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(1) Competition. All aspects of the children's apparel specialty retail
industry are highly competitive. The Company competes with a number and variety
of retailers, mass merchandisers and warehouse clubs, including several
national chains, some of which have greater financial and marketing resources
than the Company. Competition exists primarily in the areas of price, product
selection and service. competitive factors could require price reductions or
increases in expenditures for marketing and customer service that could
adversely affect the Company's operating results.
(m) Dependence on Key Personnel. The Company is highly dependent on the
members of its management team. The future success of the Company depends in
part on its ability to attract and retain highly qualified personnel. The
Company faces intense competition for such highly qualified personnel. There
can be no assurance that the Company will be able to hire sufficient
qualified personnel on a timely basis or retain such personnel.
(n) Dependence on Key Suppliers. The Company has no in-house
manufacturing capability. Approximately 35% of the Company's merchandise is
currently manufactured to its private label specifications by independent
factories located in the United States and throughout the world. The Company
utilizes a buying agent in Hong Kong. the Company has no long-term contracts
with its private label manufacturing sources and competes with other companies
for production facilities and import quota capacity. Approximately 35% of its
private label merchandise is produced by fewer than 30 manufacturers. The use
of private label merchandise brings with it the associated burdens of quality
control and favorable delivery schedules. There can be no assurance that the
Company will be able to maintain relationships with its suppliers or at
acceptable costs and terms.
(o) Restrictions on Imports. The Company's operations are subject to
the customary risks of doing business abroad, including fluctuation in the
value of currencies, customs duties and related fees, import controls and trade
barriers (including quotas), restrictions on the transfer of funds, work
stoppages and in certain parts of the world, political instability. The Company
believes that it has reduced these risks by diversifying its offshore
purchases among various countries and factories. These factors have not had a
material adverse impact upon the Company's operations to date. Imports into
the United States are also affected by the cost of transportation, the
imposition of import duties and increased competition for greater production
abroad. The countries from which the company's products are imported may, from
time to time, impose new quotas, duties, tariffs or other restrictions, or
adjust presently prevailing quotas, duty or tariff levels, which could affect
the Company's operations and its ability to import products at current or
increased levels. The Company cannot predict the likelihood or frequency of
any such events occurring. The Company's
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imported products are subject to United States customs duties and, in the
ordinary course of its business, the Company may, from time to time, be subject
to claims for duties and other charges.
Section 4
Registration Rights; Etc.
4.1. Certain Definitions. As used in this Section 4, the following
terms shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission or any other
federal agency at the time administering the Act.
"Registrable Securities" shall mean the Securities covered hereby.
The terms "register", "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Act and applicable rules and regulations thereunder, and
the effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses incurred by the Company in
compliance with Section 4.2 hereof other than Selling Expenses, including,
without limitation, all registration and filing fees, printing expenses, fees
and disbursements of counsel for the Company, blue sky fees and expenses, and
the expense of any special audits incident to or required by any such
registration (but excluding the compensation of regular employees of the
Company, which shall be paid in any event by the Company).
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities, all fees and
disbursements of counsel for any Holder and any blue sky fees and expenses
excluded from the definition of "Registration Expenses".
"Holder" shall mean any holder of outstanding Shares or Registrable
Securities which (except for purposes of determining "Holders" under Section
4.6 hereof) have not been sold to the public.
"Other Shareholders" shall mean holders of securities of the Company who are
entitled by contract with the Company to have securities included in a
registration of the Company's securities.
4.2. Company Registration.
(a) Notice of Registration. If the Company shall determine to
register any of its securities either for its own account or the account of a
security holder or holders exercising their respective demand registration
rights, other than a
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registration relating solely to employee benefit plans, or a registration
relating solely to a Commission Rule 145 transaction, or a registration on any
registration form which does not permit secondary sales, the Company will:
(i) promptly give to each Holder written notice thereof (which
shall include a list of the jurisdictions in which the Company intends to
attempt to qualify such securities under the applicable blue sky or other state
securities laws); and
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities specified in a written request
or requests, made by any Holder within fifteen (15) days after receipt of the
written notice from the Company described in clause (i) above, except as set
forth in Section 4.2(b) below.
(b) Underwriting. If the registration of which the Company gives
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as part of the written notice given
pursuant to Section 4.2(a)(i). In such event, the right of any Holder to
registration pursuant to Section 4.2 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting
shall (together with the Company, directors and officers and the Other
Shareholders distributing their securities through such underwriting) enter
into an underwriting agreement in customary form with the underwriter or
underwriters selected for underwriting by the Company.
Notwithstanding any other provision of this Section 4.2, if the
underwriter determines that marketing factors require a limitation on the
number of shares to be underwritten, the underwriter may (subject to the
allocation priority set forth below) exclude from such registration and
underwriting some of the Registrable Securities which would otherwise be
underwritten pursuant hereto provided, however, that in no event shall the
Registrable Securities underwritten pursuant hereto constitute less than
one-third of such offering. The Company shall so advise all holders of
securities requesting registration, and the number of shares of securities that
are entitled to be included in the registration and underwriting shall be
allocated in the following manner. The number of shares that may be included in
the registration and underwriting on behalf of such Holders, directors and
officers and Other Shareholders shall be allocated among such Holders,
directors and officers and other Shareholders in proportion, as nearly as
practicable, to the respective amounts of Registrable Securities and other
securities
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which they had requested to be included in such registration at the time of
filing the registration statement.
If any Holder of Registrable Securities or any officer, director or
Other Shareholder disapproves of the terms of any such underwriting, such
person may elect to withdraw therefrom by written notice to the Company and the
underwriter. Any Registrable Securities or other securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration.
4.3 Expenses of Registration. The Company shall bear all
Registration Expenses incurred in connection with any registration,
qualification and compliance by the Company pursuant to Section 4.2 hereof. All
Selling Expenses shall be borne by the holders of the securities so registered
pro rata on the basis of the number of their shares so registered.
4.4 Registration Procedures. In the case of each registration
effected by the Company pursuant to this Section 4, the Company will keep each
Holder advised in writing as to the initiation of each registration and as to
the completion thereof. The Company will, at its expense:
(a) keep such registration effective for a period of
one hundred twenty (120) days or until the Holder or Holders have completed the
distribution described in the registration statement relating thereto,
whichever first occurs;
(b) furnish such number of prospectuses and other
documents incident thereto as a Holder from time to time may reasonably
request; and
(c) use its best efforts to register or qualify the
Registrable Securities under the securities laws or blue-sky laws of such
jurisdictions as any Holder may request; provided, however, that the Company
shall not be obligated to register or qualify such Registrable Securities in
any particular jurisdiction in which the Company would be required to execute a
general consent to service of process in order to effect such registration,
qualification or compliance unless the Company is already subject to service in
such jurisdiction and except as may be required by the Securities Act or
applicable rules or regulations thereunder.
4.5 Indemnification.
(a) The Company, with respect to each registration,
qualification and compliance effected pursuant to this Section 4, will
indemnify and hold harmless each Holder, each of its officers, directors and
partners, and each party controlling such Holder, and each underwriter, if any,
and each party who controls any underwriter, against all claims, losses,
damages and liabilities (or
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actions in respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any prospectus,
offering circular or other document (including any related registration
statement, notification or the like) incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, or any violation by the Company of
the Securities Act or any rule or regulation thereunder applicable to the
Company and relating to action or inaction required of the Company in
connection with any such registration, qualification or compliance, and will
reimburse each such Holder, each of its officers, directors and partners, and
each party controlling such Holder, each such underwriter and each party who
controls any such underwriter, for any legal and any other expenses incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action, provided that the Company will not be liable in any such
case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission based solely upon
written information furnished to the Company by such Holder or underwriter, as
the case may be, and stated to be specifically for use therein.
(b) Each Holder and Other Shareholder will, if Registrable
Securities held by such person are included in the securities as to which such
registration, qualification or compliance is being effected, indemnify and hold
harmless the Company, each of its directors and officers and each underwriter,
if any, of the Company's securities covered by such a registration statement,
each party who controls the Company or such underwriter, each other such Holder
and Other Shareholder and each of their respective officers, directors and
partners, and each party controlling such Holder or Other Shareholder, against
all claims, losses, damages and liabilities (or actions in respect thereof)
arising out of or based on any untrue statement (or alleged untrue statement)
of a material fact contained in any such registration statement, prospectus,
offering circular or other document, or any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, and will reimburse the Company and
such Holders, Other Shareholders, directors, officers, partners, parties,
underwriters or control persons for any legal or any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability or action, in each case to the extent, but only to the
extent, that such untrue statement (or alleged untrue statement ) or omission
(or alleged omission) is made in such registration statement, prospectus,
offering circular or other document solely in reliance upon and in conformity
with written information furnished to the Company by such Holder or Other
Shareholder and stated to be specifically for use therein; provided, however,
that the obligations of such Holders and Other Shareholders hereunder shall be
limited to an amount equal to the proceeds to
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each such Holder or Other Shareholder of securities sold as contemplated herein.
(c) Each party entitled to indemnification under this Section
4.5 (the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense (unless the Indemnified Party shall have been
advised by counsel that actual or potential differing interests or defenses
exist or may exist between the Indemnifying Party and the Indemnified Party, in
which case such expense shall be paid by the Indemnifying Party), and provided
further that the failure of any Indemnified Party to give notice as provided
herein shall not relieve the Indemnifying Party of its obligations under this
Section 4. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.
4.6 Information by Holder. Each Holder of Registrable Securities, and
each Other Shareholder holding securities included in any registration, shall
furnish to the Company such information regarding such Holder or Other
Shareholder as the Company may reasonably request in writing and as shall be
reasonably required in connection with any registration, qualification or
compliance referred to in this Section 4.
4.7 Rule 144 Reporting. With a view to making available the benefits
of certain rules and regulations of the Commission which may permit the sale of
the Registrable Securities to the public without registration, the Company
agrees to:
(a) Make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act, at all time
from and after ninety (90) days following the effective date of the first
registration under the Securities Act filed by the Company for an offering of
its securities to the general public;
(b) Use its best efforts to file with the Commission in a
timely manner all reports and other documents required of the Company under the
Securities Act and the Securities Exchange Act of
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1934, as amended, at any time after it has become subject to such reporting
requirements; and
(c) So long as the Holder owns any Registrable Securities,
furnish to the Holder forthwith upon request a written statement by the Company
as to its compliance with the reporting requirements of Rule 144 (at any time
from and after ninety (90) days following the effective date of the first
registration statement in connection with an offering of its Securities to the
general public), and of the Securities Act and the Securities Exchange Act of
1934, as amended (at any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed as the Holder may
reasonably request in availing itself of any rule or regulation of the
Commission allowing the Holder to sell any such securities without registration.
Section 5
5.1 Indemnity. The undersigned hereby agrees to indemnify and hold
harmless the Company, its officers and directors, and each other person, if
any, against any and all loss, liability, claim, damage and expense whatsoever
resulting directly from any material false representation or material breach of
warranty by the undersigned contained herein.
5.2 Modification. Neither this Agreement nor any provision hereof
shall be modified, discharged or terminated except by an instrument in writing
signed by the party against whom any waiver, change, discharge or termination
is sought.
5.3 Notices. Any notice, demand or other communication which any
party hereto may be required, or may elect, to give to anyone interested
hereunder shall be sufficiently given if (a) deposited, postage prepaid, in a
United States mail letter box, registered or certified mail, return receipt
requested, addressed to such address as may be given herein or (b) delivered
personally at such address.
5.4 Binding Effect. Except as otherwise provided herein, this
Agreement shall be binding upon and inure to the benefit of the parties and
their heirs, executors, administrators, successors, legal representatives and
permitted assigns. If the undersigned is more than one person, the obligations
of the undersigned shall be joint and several and the agreements,
representations, warranties and acknowledgements herein contained shall be
deemed to be made by and be binding upon each such person and his heirs,
executors, administrators and successors.
5.5 Entire Agreement. This instrument contains the entire agreement
of the parties, and there are no representations,
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covenants or other agreements except as stated or referred to herein.
5.6. Assignability. This Agreement is not transferable or assignable
by the undersigned.
5.7 Applicable Law.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of California applicable to contracts
made and to be performed entirely within such state.
(b) The undersigned is a California resident and the offer and
issue of the Securities has been made in California.
5.8. Gender. All pronouns contained herein and any variations thereof
shall be deemed to refer to the masculine, feminine or neuter, singular or
plural, as the identity of the parties hereto may require.
5.9. Counterparts. This Agreement may be executed through the use of
separate signature pages or in any number of counterparts, and each of such
counterparts shall, for all purposes, constitute one agreement binding on all
the parties, notwithstanding that all parties are not signatories to the same
counterpart.
IN WITNESS WHEREOF, the undersigned has executed this Exchange
Agreement and Investment Representation Agreement on this 11th day of September
1996.
BE BOP CLOTHING, INCORPORATED
By: /s/ Michael Harb By: /s/ Marcus Sphatt
------------------------------- ---------------------------------
Michael Harb Marcus Sphatt, Vice President
Chief Executive Officer
* * * * * *
Subscription accepted as of the 11th day of September 1996.
KIDS MART, INC.
By: /s/ Bernard Tessler, President
-------------------------------
Bernard Tessler, President
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ANNEX A
Effective April 19, 1989, the following are "accredited investors"
within the meaning of Rule 501(a) of Regulation D under the Securities Act of
1933 (the "Securities Act"):
1. An individual whose net worth, together with that of his
spouse, exceeds $1,000,000.
2. An individual who had individual income in excess of $200,000
in each of the two most recent years or joint income with that individual's
spouse in excess of $300,000 in each of those years and who reasonably expects
to reach the same income level this year.
3. A bank as defined in Section 3(a)(2) of the Securities Act, or
a savings and loan association or other institution as defined in Section
3(a)(5)(A) of the Securities Act whether acting in its individual capacity or
fiduciary capacity.
4. A broker or dealer registered pursuant to Section 15 of the
Securities Exchange Act of 1934.
5. An insurance company as defined in Section 2(13) of the
Securities Act.
6. An investment company registered under the Investment Company
Act of 1940 or a business development company as defined in Section 2(a)(48) of
that Act.
7. A Small Business Investment Company licensed by the U.S. Small
Business Administration under Section 301(c) or (d) of the Small Business
Investment Act of 1958.
8. An employee benefit plan within the meaning of Title I of the
Employee Retirement Income Security Act of 1974, if:
a. the decision to invest in the entity is made by a plan
fiduciary, as defined in Section 3(21) of such Act,
which is either a bank, savings and loan association,
insurance company, or registered investment adviser, or
b. the plan has total assets in excess of $5,000,000, or
c. the plan is a self-directed plan with investment
decisions made solely by persons who are accredited
investors.
16
9. A private business development company as defined in Section 202(a)(22)
of the Investment Advisers Act of 1940.
10. A charitable organization described in Section 501(c)(3) of the
Internal Revenue Code, corporation, Massachusetts or similar business trust or
partnership, not formed with the specific purpose of acquiring the securities,
with total assets in excess of 5,000,000.
11. A trust, with total assets in excess of $5,000,000, not formed for the
specific purpose of acquiring the securities, whose purchase is directed by a
sophisticated person as described in Rule 506(b)(2)(ii) of the Securities Act.
12. Any director, executive officer or general partner of the issuer of the
securities being offered or sold, or any director, executive officer or general
partner of a general partner of that issuer.
13. A plan established and maintained by a state, its political
subdivisions or any agency or instrumentality of a state or its political
subdivisions for the benefit of its employees with total assets in excess of
$5,000,000.
14. An entity in which all of the equity owners are accredited investors.