SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from______to______
Commission File Number: 2-41015
LBU, Inc.
(Exact Name of Registrant as specified in its charter)
Nevada 62-1203301
(Jurisdiction of incorporation) (I.R.S Employer Identification No.)
310 Paterson Plank Road, Carlstadt, N.J. 07072
(Address of executive offices) (Zip code)
Registrant's telephone number, including area code: (201) 933-2800
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15 (d) of the Securities Exchange Act of 1934
during the proceeding 12 months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes [ ] No [X]
As of May 15, 1997, the Registrant had an aggregate of 1,348,997 shares of its
Common Stock outstanding.
1
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LBU, Inc.
Index to Form 10-QSB
Quarter ended March 31, 1998
Page No
Part I
Balance Sheets 3
Statements of Operations 5
Statements of Cash Flows 6
Notes to Financial Statements 7
Management's Discussion and Analysis 12
Part II
Item 1. Legal Proceedings 17
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 20
2
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LBU, Inc.
Balance Sheets
March 31, December 31,
1998 1997
(unaudited) (audited)
----------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 96,249
Restricted cash $ 105,955 105,955
Accounts receivable (net of allowance for
bad debts of $25,000) 170,562 229,753
Inventory 1,615,319 1,528,318
Deferred tax asset 76,704 55,516
Other current assets 270,911 292,546
---------- ---------
Total current assets 2,239,451 2,308,337
Noncurrent assets:
Fixed assets, net 304,144 289,177
Other assets 96,943 65,219
---------- ----------
Total assets $2,640,538 $2,662,733
========== ==========
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Bank overdraft $ 38,505
Account payable 865,599 $1,076,968
Accrued expenses 164,642 207,233
Customer advances 60,047 31,180
Accrued taxes 17,255 17,255
Lease payable - current 2,788 2,788
Note payable - current 43,333 33,333
--------- ----------
Total current liabilities 1,192,169 1,368,757
--------- ----------
Long-term liabilities:
Lease payable 5,865 6,992
Notes payable 460,733 255,657
Convertible note payable 300,000 300,000
Deferred tax liability 8,793 8,793
--------- ----------
Total long-term liabilities 775,391 571,442
--------- ----------
Total liabilities 1,967,560 1,940,199
--------- ----------
The accompanying notes are an integral part of these financial statements
3
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LBU, Inc.
Balance Sheets, continued
March 31, December 31,
1998 1997
(unaudited) (audited)
----------- ---------
Stockholders' equity:
Common stock ($.001 stated value)
50,000,000 shares authorized,
1,348,977 and 1,338,977 issued
and outstanding, respectively 1,439 1,339
Additional paid in capital 1,123,484 1,102,208
Retained earnings (deficit) (451,945) (381,013)
----------- -----------
Total stockholders' equity 672,978 722,534
----------- -----------
Total liabilities and stockholder's equity $ 2,640,538 $ 2,662,733
=========== ===========
The accompanying notes are an integral part of these financial statements
4
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LBU, Inc.
Staements of Operations
(unaudited)
Three Three
months ended months ended
March 31, 1998 March 31, 1997
-------------- --------------
Net sales $ 1,313,057 $ 1,189,383
Costs of goods sold 886,938 747,080
----------- -----------
Gross profit 426,119 442,303
----------- -----------
Operating expenses:
Shipping and selling 180,331 145,806
General and administrative expense 289,174 217,230
Factor fees and interest 49,319 31,357
----------- -----------
Total operating expenses 518,824 394,393
----------- -----------
Operating (loss) income (92,705) 47,910
Other income:
Interest 584 2,655
Rent 12,000
----------- -----------
Total other income 584 14,655
----------- -----------
Income (loss) before income taxes (92,121) 62,565
Income tax provision (21,188) (14,171)
----------- -----------
Net (loss) income $ (70,933) $ 48,394
=========== ===========
Net (loss) income per share-Basic $ (0.05) $ 0.04
=========== ===========
Net (loss) income per share-Fully diluted $ (0.05) $ 0.04
=========== ===========
The accompanying notes are an integral part of these financial statements
5
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LBU, Inc.
Statements of Cash Flows
(unaudited)
Three Three
months ended months ended
March 31, 1998 March 31, 1997
-------------- --------------
Cash flow from operating activities:
Net income (loss) $ (70,933) $ 48,394
--------- ---------
Adjustments to reconcile net income to net
cash provided (used) by operating activities
Depreciation and amortization 10,960 7,955
Non-cash compensation 10,687
(Increase) decrease in
Accounts receivable 59,191 (189,430)
Inventories (87,001) 94,590
Other assets (21,163)
Increase (decrease) in
Accounts payable (211,369) (108,005)
Accrued expenses (42,591) (52,000)
Other liabilities 28,867 (24,841)
--------- ---------
Total adjustments (252,689) (271,731)
--------- ---------
Net cash used by operating activities (323,622) (223,337)
--------- ---------
Cash flow from investing activities:
Capital expenditures (25,081) --
--------- ---------
Net cash used by investing activities (25,081) --
--------- ---------
Cash flow from financing activities:
Repayment of loans 3,949 (8,950)
Sales of common stock 375,000
Proceeds from borrowings 210,000
--------- ---------
Net cash provided by financing activities 213,949 366,050
--------- ---------
Net (decrease) increase in cash (134,754) 142,713
Cash at beginning of period 202,204 185,508
--------- ---------
Cash at end of period $ 67,450 $ 328,221
========= =========
Supplemental disclosures:
Cash paid during the period for
Interest and factor fees $ 49,319 $ 31,357
Income taxes -- --
Non-cash financing transactions:
Issuance of Common Stock for consulting $ 21,375
The accompanying notes are an integral part of these financial statements
6
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LBU, Inc.
Notes to Financial Statements
(unaudited)
The accompanying unaudited financial statements have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission regarding interim financial reporting. Accordingly, they do not
include all of the information and footnotes in accordance with generally
accepted accounting principals for complete financial statements and should be
read in conjunction with the audited financial statements included in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1997. In
the opinion of management, the accompanying unaudited financial statements
contain all adjustments, consisting only of those of a normal recurring nature,
necessary for a fair presentation of the Company's financial position, results
of operations and cash flows at the dates and for the periods presented.
The operating results for the three months ended March 31, 1998 are not
necessarily indicative of the results to be expected for the full year.
Note 1 - Organization and Significant Accounting Policies
Organization: LBU, Inc. (the "Company"), a Nevada corporation, designs, markets,
manufactures and distributes fashionable and functional custom bags, promotional
products and houseware accessories for the retail, promotional, original
equipment manufacturer and industrial markets.
In February 1995, New Century Media, Ltd., a publicly-held Nevada corporation,
entered into a plan of reorganization with LBU, Inc., a Delaware corporation,
whereby the shareholders of LBU-Delaware obtained controlling interest in New
Century Media, Ltd., through a reverse acquisition. New Century Media, Ltd.
changed its name to LBU, Inc. on March 31, 1995.
Inventories: Inventories are valued at the lower of cost or market.
Fixed Assets: Property and equipment are stated at cost. Furniture, fixtures and
equipment are depreciated using the straight-line method over the estimated
useful lives of the assets ranging from 5 to 20 years. Leasehold improvements
are amortized over the term of the lease on a straight-line basis.
Cash and Cash Equivalents: For purposes of the statements of cash flows, the
Company considers all highly liquid debt instruments purchased with an original
maturity of three months or less to be cash equivalents. Restricted cash
consists of amounts held as collateral for certain obligations. As of December
31, 1997 and March 31, 1998, the Company had committed $63,688 of cash, which
serves as collateral for the Company's outstanding debt with Summit Bank, and
$41,267, which serves as collateral under the Company's financing and factoring
arrangements with the CIT Group.
7
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LBU, Inc.
Notes to Financial Statements, continued
(unaudited)
Income taxes: Income taxes are provided for the tax effects of transactions
reported in the financial statements and consist of taxes currently due plus
deferred taxes related primarily to differences between financial and income tax
reporting methods utilized for depreciation, the amortization of intangible
assets, the reserve method for bad debts and the uniform capitalization rules
under IRS Code Section 263A for and state net operating loss carryforwards.
Deferred taxes represent the future tax return consequences of those
differences, which will either be taxable or deductible when the assets and
liabilities are recovered or settled. Effective March 31, 1995, LBU-Delaware
became a taxable entity. Previously, its earnings and losses were included in
the personal tax returns of the stockholders and the Company did not record an
income tax provision.
Estimates: The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Stockholders Equity: In August 1995, the Company declared a 20 for 1 reverse
stock split on the then issued and outstanding common shares. All outstanding
share amounts included in the accompanying financial statements have been
retroactively adjusted to reflect the 20 for 1 reverse stock split. The result
of this action reduced 24,550,000 shares of pre-split outstanding Common Stock
to 1,227,500 shares on a post-split basis.
Note 2 - Accounts Receivable And Factoring Arrangements
The Company entered into a factoring arrangement whereby a factor makes advances
to the Company based upon a percentage of certain eligible invoices. In
addition, the factor makes advances to the Company based upon its eligible
inventory levels. Interest of 2% per annum above the prime rate is charged on
outstanding advances. The advances are collateralized by the Company's accounts
receivable, inventories and certain other assets. In addition, the Company's
President and principal shareholder and his wife, who is also an officer of the
Company, have personally guaranteed advances under these agreements. The factor
also charges a commission of 1 1/8% on the gross face amount of all amounts
factored, subject to a minimum commission per invoice and other service fees.
8
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LBU, Inc
Notes to Financial Statements, continued
(unaudited)
The components of accounts receivable at March 31, 1998 and December 31, 1997
are as follows:
1998 1997
---- ----
Accounts receivable assigned to factor, net $ 178,016 $ 219,396
Non-factored accounts receivable 17,546 35,357
Allowance for doubtful accounts (25,000) (25,000)
--------- ---------
Net accounts receivable $ 170,562 $ 229,753
Note 3 - Related Party Transactions
The $700,000 of notes described in (b) and (c) in Note 4 and Note 8 are payable
to JPHC, a company whose chairman is a Director and shareholder of the Company.
Note 4 - Notes and Capital Lease Payable
Notes and capital lease payable consist of the following as of March 31, 1998
and December 31, 1997:
1998 1997
---- ----
Note payable to a bank (a) $ 94,066 $ 88,990
Promissory notes payable (b) 410,000 200,000
Convertible notes payable (c) 300,000 300,000
Capital lease (d) 8,653 9,780
-------- --------
Total 812,719 598,770
Less, current installments 46,121 36,121
-------- --------
Notes and capital lease payable,
Less current installments $766,598 $562,649
(a) Principal of $33,333 matures in 1998; $30,557 in 1999. Interest accrues at
prime plus 1.5%.
(b) $400,000 of principal matures on January 1, 1999. Interest accrues at 9.12%.
(c) Principal matures on January 1, 1999. Interest accrues at 9.12%. Notes are
convertible into Common Stock of the Company at a fixed conversion price of
$5.00 per share.
(d) Lease payments are $3,812 for each year through December 31, 2000. Interest
accrues at 12% per annum.
9
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LBU, Inc.
Notes to Financial Statements, continued
(unaudited)
Note 5 - Segment Information
The following sets forth the Company's net sales by segment for the quarter
ended March 31, 1998 and 1997 (in 000's):
1998 1997
---- ----
Sales:
Retail $ 519,618 $ 745,061
Promotional Products 698,278 345,932
OEM and Industrial 98,162 98,390
---------- ----------
Total $1,313,058 $1,189,383
Note 6 - Commitments and Contingencies
In August 1993, LBU-Delaware entered into employment agreements with the
President and principal shareholder and his wife, who is an officer of the
Company. These agreements provided for payments of approximately $148,999 per
year, escalating to approximately $163,000 per year in 1996. The Company's
executive officers currently do not have employment or non-competition
agreements.
During March, 1996, Glennyre Capital Corporation, Poimandres Financial
Corporation and HJS Financial Services, Inc. (the "Plaintiff's") filed suit
against the Company in the State of Nevada. The lawsuit stems from a financial
service agreement dated July 24, 1995, by and between the Plaintiff's and LBU.
As part of the financial service agreement, 300,000 shares of LBU Common Stock
("the Shares") were issued to the Plaintiffs in return for financial and other
consulting services, which were to include raising capital. LBU claims such
services were not rendered and that the Shares were improperly registered and,
accordingly, on November 19, 1995, the Company invalidated the Shares and
subsequently 269,000 shares were returned and canceled by LBU's stock transfer
agent.
The Company and its legal counsel believe the action it has taken by
invalidating and canceling the Shares is appropriate. The Company has since
initiated a counter-suit against the Plaintiffs for breach of contract, fraud,
and other causes of action. Discovery in this case is proceeding.
In a related claim on September 12, 1997, Wolverton Securities Ltd.
("Wolverton") filed an action against the Company in U.S. District Court for the
District of Nevada. Wolverton Securities, Ltd. seeks to have the Company reissue
170,000 shares of the Common Stock referred to in the preceding paragraphs.
Wolverton also seeks specific damages in the amount $405,000 and unspecified
punitive damages. The Company filed an answer and third-party complaint against
the Plaintiff's and certain of their affiliates in the same court during October
1997.
10
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LBU, Inc.
Notes to Financial Statements, continued
(unaudited)
Discovery in connection with the Wolverton litigation is proceeding. Although
management of the Company believes the claims made against it in the foregoing
lawsuits are without merit, no evaluation of the potential likelihood of
outcomes can be made at this time and the Company has not made any provisions
for losses in its financial statements. The Company intends to vigorously pursue
its litigation and defend itself in these matters.
The Company is involved in litigation from time to time which is incidental to
the conduct of its business.
Note 7 - Shareholders Equity
Common Stock
In March 1997, the Company sold 250,000 shares of restricted Common Stock to
John P. Holmes and Co., Inc. ("JPHC") for $375,000 in a private placement
transaction.
On February 19, 1998, the Company entered into a consulting agreement with JPO,
LLC ("JPO"), to provide financial services to the Company. In conjunction with
the agreement, the Company granted JPO 10,000 shares of restricted Common Stock
and 100,000 stock purchase warrants with an exercise price of $4.00 per share.
The warrants have a term of five years and are exercisable from the date of the
grant.
Stock Purchase Warrants
In connection with certain financing transactions, during August and September
1997, the Company granted JPHC stock warrants to purchase 10,000 shares of the
Company's Common Stock at $5.00 per share and to purchase 40,000 shares at $5.00
per share. The warrants have a term of three years and are exercisable from the
date of the grant. During February and March 1998, JPHC loaned the Company an
additional $200,000 in the form of promissory notes payable and agreed to defer
principal repayments under all of its debt with the Company until January 1,
1999. In connection with these transactions, the Company granted JPHC stock
warrants to purchase 100,000 shares at $4.25 per share. The warrants have a term
of two years and are exercisable from the date of the grant.
11
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LBU, Inc.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Forward Looking Statements and Associated Risks
This Annual Report on Form 10-QSB contains certain forward-looking statements
within the meaning of the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, including statements concerning the Company's
products, results of operations and prospects. These forward-looking statements
involve risks and uncertainties, including risks relating to general economic
and business conditions, among them, the availability and terms of additional
financing; changes which could affect customer payment practices or customer
spending; industry trends; the loss of major customers; changes in demand for
the Company's products; the timing of orders received from customers; cost and
availability of raw materials; increases in costs relating to manufacturing and
transportation of products; dependence on foreign manufacturing; the outcome of
litigation to which the Company is a party and the seasonal nature of the
business as detailed elsewhere in this Quarterly Report on Form 10-QSB, the
Company's Annual Report on Form 10-KSB and from time to time in the Company's
filings with the Securities and Exchange Commission. Such statements are based
on management's current expectations and are subject to a number of factors and
uncertainties, including those set forth above, which could cause actual results
to differ materially from those, described in the forward-looking statements.
The following is a discussion of the financial condition and results of
operations of the Company for the three months ended March 31, 1998 as compared
to the same period in the previous year. This discussion should be read in
conjunction with the Financial Statements of the Company and related Notes
included elsewhere in this Form 10-QSB.
Results of Operations
Three months ended March 31, 1998 versus three months ended March 31, 1997
The Company's net sales increased by $138,175 or 11.3% from $ 1,189,382 for the
three months ended March 31, 1997 to $ 1,313,057 for the three months ended
March 31, 1998 due, primarily, to internal growth in the Company's Prtomotional
Industry segment, which increased sales by $ 352,886 or 102% from $ 345,932 for
the three months ended March 31, 1997 to $ 698,278 for the three months ended
March 31, 1998.
12
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LBU, Inc.
Management's Discussion and Analysis of Financial Condition and Results of
Operations, continued
Costs of goods sold increased by $ 139,859 from $ 747,079 or 62% of net sales
for the three months ended March 31, 1997 to $ 886,939 or 67% of net sales for
the three months ended March 31, 1998. This increase is primarily attributable
to an increase in the costs of materials consumed in production. Manufacturing
labor and subcontractor costs, which include sewing, cutting, printing,
packaging and shipping also increased during the three months ended March 31,
1998.
As a result of the foregoing, gross profit decreased by $ 16,184 from $ 442,303
for the three months ended March 31, 1997 to $ 426,119 for the three months
ended March 31, 1998.
Shipping and selling costs increased by $ 34,525 from $145,806 or 12 % of net
sales for the three months ended March 31, 1997 to $ 180,331 or 14% of net sales
for the three months ended March 31, 1998. This increase is primarily
attributable to advertising and travel expenses, which increased during the
three months ended March 31, 1998.
General and administrative expenses increased by $ 71,944 from $ 217,230 or 18%
for the three months ended March 31, 1997 to $ 289,174 or 22% for the three
months ended March 31, 1998. This increase relates primarily to an increase in
professional fees incurred in connection with litigation to which the Company is
party. Office salaries and expenses, which comprise the majority of this line
item, also increased during the three months ended March 31, 1998.
Factor fees and interest increased by $ 17,962 from $ 31,357 or 2% of sales for
the three months ended March 31, 1997 to $ 49,319 or 3% of sales for the three
months ended March 31, 1998. This increase is the result of interest on higher
advance amounts, factor fees and wire transfer expenses in connection with the
Company's increased sales levels.
As a result of the foregoing, total operating expenses increased by $ 124,431
from $ 394,393 or 33% for the three months ended March 31, 1997 to $ 518,824 or
39% for the three months ended March 31, 1998.
13
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LBU, Inc.
Management's Discussion and Analysis of Financial Condition and Results of
Operations, continued
Liquidity and Capital Resources
The Company's cash position as of March 31, 1998 and December 31, 1997 was
$(38,505) and $ 202,204, respectively, of which $ 105,955 was restricted and not
available for general corporate purposes. Net cash used in operating activities
for the three months ended March 31,1998 and 1997 was $ (323,622) and $
(223,337), respectively, representing a decrease of $ 100,285 in 1998. The
decrease was primarily due to the operating loss incurred by the Company, an
increase in inventory levels and reductions in accounts payable and accrued
liabilities. The increase in inventory relates primarily to raw materials. The
reduction in accounts payable relates primarily to the satisfaction of
obligations relating to the fourth quarter of 1998 when the Company operated at
significantly higher production levels.
During the three months ended March 31, 1998, cash used in investing activities
totaled $25,081, which consists primarily of capital expenditures for
manufacturing equipment in the Company's Carlstadt facility.
During the three months ended March 31, 1998, net cash generated by financing
activities totaled $213,949 which includes $210,000 of proceeds from borrowings
during the quarter.
Currently, LBU's primary source of financing is the CIT Group ("CIT"), which
provides factoring and accounts receivable financing. The Company pays a 1.25%
factor charge on its invoices for the guarantee of payment on eligible
receivables which CIT then collects from the Company's customers. During April
1998, CIT agreed to make advances to the Company based upon a percentage of its
levels of eligible inventories. As of May 14, 1998, approximately $200,000 had
been advanced to the Company under this arrangement. The Company pays 2% above
the prime-lending rate on borrowings up to 85% of an invoice amount and on
inventory advances. These facilities are secured by the Company's accounts
receivable and inventory and certain other assets and by the personal guarantees
of the Company's current executive officers.
During 1997, the Company received an equity investment in the amount of $375,000
from a sale of Common Stock to JPHC and $500,000 in debt financing, $300,000 of
which is convertible into Common Stock of the Company, from the same entity.
During the first quarter of 1998, JPHC provided the Company with and additional
$200,000 of debt financing. The proceeds of these financings were used by the
Company primarily to fund its working capital needs during 1997 and 1998. On
March 31, 1998, the Company had total indebtedness of approximately $800,000,
substantially all of which is in the form of promissory notes payable to JPHC
(the "Notes").
14
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LBU, Inc.
Management's Discussion and Analysis of Financial Condition and Results of
Operations, continued
The Notes were due on April 1, 1998, however, JPHC agreed not to require
repayment before January 1, 1999. The Company's will attempt to negotiate a
restructuring of the Notes which would include a further extension of the due
dates of the Notes during 1998. However, there can be no assurances that such
negotiations will be successful. In the event that due dates of the Notes are
not deferred beyond January 1, 1999 and the Company is unable to obtain
alternative financing, the Company does not believe that it can repay the Notes
at that time, which would have a material adverse effect on the Company's
business.
During 1997 and for the three months ended March 31, 1998, the Company's net
loss and changes in its working capital utilized approximately $712,000 and
$324,000 in working capital, respectively. The Company's ability to satisfy its
financial obligations under outstanding indebtedness will depend on its future
operating performance, which is subject to prevailing economic conditions,
levels of interest rates and financial, business and other factors, many of
which are beyond the Company's control. Although the Company currently believes
that its cash flow during 1998 will be sufficient to meet the Company's working
capital and capital expenditure requirements, debt service (on borrowings other
than the Notes) and interest on the Notes, there can be no assurances that this
will be the case or that JPHC will agree to restructure the Notes or allow
additional deferrals of the due dates of all or a portion of the Notes.
The Company generated an operating loss in 1997 and for the three months ended
March 31, 1998 and has experienced a decline in its gross margins in each year
since 1994. These events had a significant negative impact on the Company's
liquidity. Management of the Company believes that a significant portion of the
1997 operating loss relates to a single order which was shipped during the
fourth quarter and that declines in gross margins since 1994 relate primarily to
(i) costs associated with the expansion of the Company's business and product
lines and (ii) competition, which impacts the Company's ability to maintain its
gross margins on its products. There can be no assurances that the Company will
be able to operate profitably, improve gross margins or cash flows or increase
liquidity during 1998 and beyond. In the event that the Company is unsuccessful
in its efforts to raise additional capital or cannot operate profitably on a
sustained basis, it may be required to significantly alter its strategy and
implement cost reduction or other cash flow enhancement programs.
Since its inception, the Company has required significant capital to fund its
operations and growth. During 1998, the Company intends to seek additional
financing through the issuance of debt, equity, other securities or a
contribution thereof. Although there can be no assurances that any additional
capital will be raised, any such financing which involves the issuance of equity
securities would result in dilution to existing shareholders and the issuance of
debt securities would subject the Company to the risks associated therewith,
including the risks that interest rates may fluctuate and the Company's cash
flows may be insufficient to pay interest and principal on such indebtedness.
15
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LBU, Inc.
Management's Discussion and Analysis of Financial Condition and Results of
Operations, continued
The Company currently has no commitments to obtain additional funds from CIT,
JPHC or any other financing source and there can be no assurances that the
Company will be able to obtain additional financing on terms which are
acceptable to it. The inability of the Company to obtain additional acceptable
financing would have a significant negative impact on the Company's operations.
Inflation
Inflation affects the cost of goods and services used by the Company. The
competitive environment somewhat limits the ability of the Company to recover
higher costs by raising prices, although the Company does selectively increase
prices for certain products. Moreover, the Company's products are sold to
distributors based on catalog and product sheet prices, which are published
annually. As such, the Company generally is not able to raise prices until a new
catalog is published. The Company attempts to mitigate the adverse effects of
future inflation through selective prices increases, improved productivity and
cost containment efforts.
New Financial Standards
In June 1997, the FASB issued SFAS No. 131. "Disclosures about Segments of an
Enterprise and Related Information." SFAS 131 established standards for the
reporting of financial information from operating segments in annual and interim
financial statements. This statement requires that for evaluating segment
performance and deciding how to allocate resources to segments. Because this
statement addresses how supplemental financial information is disclosed in
annual and interim reports, the adoption will have no material impact on the
Company's financial statements. SFAS No. 131 will become effective in 1999.
16
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PART II. Other Information
Item 1. Legal Proceedings
During March, 1996, Glenneyre Capital Corporation, Poimandres Financial
Corporation and HJS Financial Services, Inc. (the "Plaintiff's") filed suit
against the Company in the State of Nevada. The lawsuit stems from a financial
service agreement dated July 24, 1995, by and between the Plaintiff's and LBU.
As part of the financial service agreement, 300,000 shares of LBU Common Stock
("the Shares") were issued to the Plaintiff's in return for financial and other
consulting services, which were to include raising capital. LBU claims such
services were not rendered and that the Shares were improperly registered and,
accordingly, on November 19, 1995, the Company invalidated the Shares and
subsequently 269,000 shares were returned and canceled by LBU's stock transfer
agent.
The Company and its legal counsel believe the action it has taken by
invalidating and canceling the Shares is appropriate. The Company has since
initiated a counter-suit against the Plaintiffs for breach of contract, fraud
and other causes of action. Discovery in this case is proceeding.
In a related claim on September 12, 1997, Wolverton Securities Ltd.
("Wolverton") filed an action against the Company in U.S. District Court for the
District of Nevada. Wolverton Securities, Ltd. seeks to have the Company reissue
170,000 shares of the Common Stock referred to in the preceding paragraphs.
Wolverton also seeks specific damages in the amount $405,000 and unspecified
punitive damages. The Company filed an answer and a third-party complaint
against the Plaintiffs and certain of their affiliates in the same court during
October 1997.
Discovery in connection with the Wolverton litigation is proceeding. Although
management of the Company believes the claims made against it in the foregoing
lawsuits are without merit, no evaluation of the potential likelihood of
outcomes can be made at this time and the Company has not made any provisions
for losses in its financial statements. The Company intends to vigorously pursue
its litigation and defend itself in these matters.
The Company is involved in litigation from time to time which is incidental to
the conduct of its business.
17
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit No. Description
2.1 Plan of Reorganization dated February 17, 1995 by and between New
Century Media, Ltd. a Nevada Corporation., and LBU, Inc. a Delaware
Corporation.*
3.1 Articles of Incorporation of LBU, Inc. dated September 2, 1994. #
3.2 By-laws of LBU, Inc. dated October 4, 1994. #
4.1 Form of two-year stock purchase warrant.**
4.2 Form of Three-year stock purchase warrant.**
10.1 Factoring Agreement dated October 25, 1993 by and between LBU, Inc.
(Delaware) and The CIT Group/Commercial Services Inc.+
10.2 Guaranty dated October 25, 1993 by and between CIT and Jeffrey and
Isel Mayer, individually, relating to the above Factoring
Agreement.+
10.3 Inventory Security Agreement dated January 4, 1995 by and between
LBU, Inc. and The CIT Group/Commercial Services, Inc.+
10.4 Lease agreement dated April 1, 1995 by and between Albert Frassetto
Enterprises, a sole proprietorship, and Bags of Carlstadt, Inc. +
10.5 Subscription Agreement dated March 27, 1997 by and between JPHC and
the Registrant.+
10.6 Promissory note dated August 21, 1997, as amended on February 21,
1998, by and between the Registrant and JPHC.+
10.7 Promissory note dated September 19, 1997, as amended on November 21,
1997 and February 21, 1998, by and between the Registrant and JPHC.+
10.8 Consulting agreement dated February 19, 1998 by and between JPO, LLC
and the Registrant. +
21.1 List of Subsidiaries
Subsidiary State of Incorporation
---------- ----------------------
LBU, Inc. Delaware
Bags of Carlstadt, Inc. New Jersey
27.1 Financial Data Schedule.**
* Filed as an Exhibit to the New Century Media, Ltd. (a predecessor of
the Registrant) Form 10-K/A for the year ended December 31, 1994
dated March 10, 1995.
# Filed as an Exhibit to the New Century Media, Ltd. Form 10-Q for the
quarter ended September 30, 1994 dated November 8, 1994.
18
<PAGE>
Item 6. Exhibits and Reports on Form 8-K, continued
+ Filed as an Exhibit to the Company's Form 10-KSB for the year ended
December 31, 1997.
** Filed herewith
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter ended
March 31, 1998.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Date: May 15, 1998
LBU, INC.
By: /s/ Jeffrey Mayer
----------------------
Jeffrey Mayer
Chairman of the Board
Chief Executive Officer, President
(principal executive officer)
Director
/s/ Isel Pineda-Mayer
-----------------------
Isel Pineda-Mayer
Treasurer, Secretary
(principal financial and
accounting officer)
Director
[DATE]
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED ("SECURITIES ACT"). NO TRANSFER OF SUCH SECURITIES WILL
BE PERMITTED UNLESS A REGISTRATION STATEMENT UNDER THE SECURITIES ACT IS IN
EFFECT AS TO SUCH TRANSFER, THE TRANSFER IS MADE IN ACCORDANCE WITH AN EXEMPTION
FROM THE SECURITIES ACT, OR IN THE OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY REGISTRATION UNDER THE SECURITIES ACT IS UNNECESSARY IN ORDER FOR SUCH
TRANSFER TO COMPLY WITH THE SECURITIES ACT AND SUCH TRANSFER WILL BE IN
COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS.
LBU, INC.
COMMON STOCK PURCHASE WARRANT
LBU, Inc. (the "Company") hereby certifies that, for value received,
[HOLDER] or assigns, is entitled, subject to the terms set forth below, to
purchase from the Company at any time on or from time to time after [DATE] and
before 5:00 P.M., New York City time, on [DATE], [NO. OF SHARES] fully paid and
non-assessable shares of Common Stock of the Company, par value $.001 per share,
at the price per share (the "Purchase Price") of [PURCHASE PRICE]. The number
and character of such shares of Common Stock and the Purchase Price of the
Common Stock purchase warrant (the "Warrant") are subject to adjustment as
provides herein.
As used herein the following terms, unless the context otherwise requires,
have the following respective meanings:
(a) The term "Company" includes any corporation which shall succeed to or
assume the obligations of the Company hereunder.
(b) The term "Common Stock" includes all stock of any class or classes
(however designated) of the Company, authorized upon the Original Issue
Date or thereafter, the holders of which shall have the right, without
limitation as to amount, either to all or to share of the balance of
current dividends and liquidating dividends after the payment of dividends
and distributions on any shares entitled to preference, and the holders of
which shall ordinarily, in the absence of contingencies, be entitled to
vote for the election of a majority of directors of the Company (even
though the right to so vote has been suspended but the happening of such a
contingency).
<PAGE>
(c) The term "Holder" shall mean [HOLDER] or any person to whom the
Warrant is subsequently transferred in accordance with the terms hereof.
(d) The "Original Issue Date" is [DATE], the date as of which the Warrant
was first issued.
1. Sale or Exercise Without Registration. The Company may require, as a
condition of allowing any exercise, transfer or surrender for exchange of the
Warrant of Common Stock (or Other Securities) previously issued upon the
exercise of the Warrant that the holder or transferee of the Warrant of Common
Stock (or Other Securities), as the case may be, furnish to the Company a
satisfactory opinion of counsel to the effect that such exercise, transfer or
exchange may be made without registration under the Securities Act, provided
that the disposition thereof shall at all times be within the control of such
holder or transferee, as the case may be. The first holder of the Warrant
represents to the Company that he is acquiring the Warrant represents to the
Company that he is acquiring the Warrants for investment and not with a view to
the distribution thereof.
2. Exercise of Warrant; Partial Exercise.
2.1 Exercise in Full. Subject to the provisions hereof, this Warrant
may be exercised in full by the Holder by surrender of this Warrant, with
a form of subscription duly executed by such Holder, to the Company at c/o
310 Paterson Plank Road, Carlstadt, NJ 07072 accompanied by payment, in
cash or by certified or official bank check payable to the order of the
Company, in the amount obtained by multiplying the number of shares of
Common Stock called for on the face of this Warrant (without giving effect
to any adjustment herein) by Purchase Price.
2.2 Partial Exercise. Subject to the provisions hereof, this Warrant
may be exercised in part by surrender of the Warrant in the manner and at
the place provided in subsection 2.1 hereof, except that the amount
payable by the Holder upon any partial exercise shall be the amount
obtained by multiplying (a) the number of shares of Common Stock (without
giving effect to any adjustment therein) designated by the Holder in the
subscription at the end hereof by (b) the Purchase Price. Upon any such
partial exercise, the Company at its expense will forthwith issue and
deliver to or upon the order of the Holder or as the Holder (upon payment
by such Holder of any applicable transfer taxes) may request, calling in
the aggregate on the face or faces thereof for the number of shares of
Common Stock equal (without giving effect to any adjustment therein) to
the number of such shares called for on the face of the Warrant minus the
number of such shares designated by the Holder in the Form of Subscription
attached hereto, provided such reissue would otherwise comply with the
requirements for transfer of a Warrant hereunder.
<PAGE>
3. Delivery of Stock Certificates, etc. on Exercise. As soon as practicable
after the exercise of this Warrant in full or in part, and in any event within
10 days thereafter, the Company at its expense (including the payment by it or
any applicable issue taxes) will cause to be issued in the name of and delivered
to the holder hereof, or as the Holder (upon payment by the Holder of any
applicable transfer taxes) may direct (provided delivery to any person other
than the Holder is in compliance with federal and state securities laws), a
certificate of certificates for the number of full paid and non-assessable
shares of Common Stock (or Other Securities) to which the Holder shall be
entitled upon such exercise, plus, in lieu of any fractional share to which the
Holder would otherwise be entitled, cash equal to such fraction multiplied by
the then current market value of one full share, together with any other stock
or other securities and property (including cash, where applicable) to which the
Holder is entitled upon such exercise pursuant to Section 4 hereof or otherwise.
4. Adjustment for Stock Splits, Dividends, etc. In the event that the Company
engages in a subdivision, stock split, reverse stock split, issues a stock
dividend or distribution to all of its shareholders, or reclassified, exchanges
or substitutes a different class of stock for the Common Stock, then, in any
such instance, the number of shares receivable upon the exercise of this Warrant
and the exercise price hereof shall be appropriately adjusted so that the Holder
would be entitled to receive such number of share as would have been receivable
had the Holder exercised this Warrant immediately prior to such event.
5. Further Assurances. The Company will take all such action as may be necessary
or appropriate in order that the Company may validly and legally issue fully
paid and non-assessable shares of stock upon the exercise of this Warrant from
time to time outstanding.
6. Piggyback Registration.
(a) If at any time or from time to time, prior to the date which is two
(2) years after the date of this Warrant, the Company proposes to register any
of its securities, for its own account or the account of any of its shareholders
(other than a registration, on relating solely to employee stock option or
purchase plans, or a registration on Form S-4 or any successor to such), the
Company will promptly give to the Holder written notice thereof and include in
such registration, and in any underwriting involved therein, all shares of the
Holder and specified in a written request or requests by the Holder, made within
thirty (30) days after receipt of such written notice from the Company, to be
included in any such registration, except as set forth in Subsection 6 (b),
below.
(b) If the registration of which the Company gives notice pursuant to
Section 6 (a) is for a registered public offering involving an underwriting, the
Company shall so advise the Holder as a part of the written notice given
pursuant to subsection 6 (a). In such event, the right of the Holder to
registration shall be conditioned upon the Holder's participation such
underwriting and the inclusion of the Holder's Shares acquired pursuant to this
Agreement in the underwriting to the extent provided herein. If the
<PAGE>
Holder proposes to distribute its shares through such underwriting it shall
(together with the Company 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 such
underwriting by the Company. Notwithstanding any other provision of this Section
6, if the underwriter (s) shall notify the Company in writing that in their good
faith opinion, marketing factors require a limitation of the number of Shares to
be underwritten m the number or securities that may be included in the
underwriting shall be allocate, first, to the Company for its own account;
second, to any shareholders (other than the Holder) invoking contractual rights
to have their securities registered on the registration statement pursuant to
which Holder is invoking its rights under this Subsection 6 (b), if any, on a
pro rata basis, and third, to the Holder. In the event of such a limitation by
the underwriters of the Shares of the Holder to be included in the registration
and underwriting, the Company shall so advise the Holder.
7. Reservation of Stock, etc., Issuable on Exercise of Warrant. The Company will
at all times reserve and keep available, solely for issuance and delivery upon
the exercise of this Warrant, all share of Common Stock (or Other Securities)
from time to time issuable upon the exercise of this Warrant.
8. Exchange and Warrant. Subject to the provisions of Section 1 hereof, upon
surrender for exchange of this Warrant, properly endorsed, to the Company, the
Company at its own expense will issue and deliver to or upon the order of the
Holder a new Warrant of like tenor, in the name of such holder or as the Holder
(upon payment by such holder of any applicable transfer taxes) may direct
(provided such delivery to another person is in compliance with federal and
state securities laws), calling in the aggregate on the face or faces thereof
for the number of shares of Common Stock called for on the face of the Warrant
so surrendered.
9. Notices, etc. All notices and other communications form the Company to the
Holder shall be mailed by first class registered or certified mail, postage
prepaid, at such address as may have been furnished to the Company in writing by
such holder, or, until an address is so furnished, to and at the address of the
last holder of this Warrant who has so furnished an address to the Company.
10. Miscellaneous. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharged or termination is
sought. This Warrant is being delivered in the State of New York and shall be
construed and enforced in accordance with and governed by the laws of such
State. The headings in this Warrant are for purposes of reference only, and
shall not limit or otherwise affect any of the terms hereof.
<PAGE>
11. Expiration. The right to exercise this Warrant shall expire at 5:00 P.M.,
New York City time, on [DATE].
12. Assignability. This Warrant is fully assignable at any time.
Dated: [DATE]
LBU, Inc.
By: --------------------
Jeffrey Mayer, Chief
Executive Officer
NEITHER THESE WARRANTS NOR THE SHARES UNDERLYING THESE
WARRANTS HAVE BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 OR THE LAWS OF ANY STATE. THEY MAY NOT BE SOLD
OR OTHERWISE TRANSFERRED UNLESS THEY ARE REGISTERED
UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR
ANY EXEMPTION FROM REGISTRATION IS AVAILABLE.
[NUMBER] Warrants
LBU, Inc.
WARRANT CERTIFICATE
This warrant certificate ("Warrant Certificate") certifies that for
value received [HOLDER] or registered assigns (the "Holder") is the owner of the
number of warrants ("Warrants") specified above, each of which entitles the
Holder thereof to purchase, at any time on or before the Expiration Date
(hereinafter defined) one fully paid and non-assessable share of Common Stock,
$.01 par value ("Common Stock"), of LBU, Inc., a Nevada corporation (the
"Company"), at a purchase price of [PURCHASE PRICE] per share of Common Stock in
lawful money of the United States of America in cash or by certified or
cashier's check or a combination of cash and certified or cashier's check
(subject to adjustment as hereinafter provided).
1. Warrant; Purchase Price
Each Warrant shall entitle the Holder initially to purchase one share
of Common Stock of the Company and the purchase price payable upon exercise of
the Warrants (the "Purchase Price") shall initially be of [PURCHASE PRICE] per
share of Common Stock. The Purchase Price and number of shares of Common Stock
issuable upon exercise of each Warrant are subject to adjustment as provided in
Article 6. The shares of Common Stock issuable upon exercise of the Warrants
(and/or other shares of capital stock so issuable by reason of any adjustments
pursuant to Article 6) are sometimes referred to herein as the "Warrant Shares."
2. Exercise; Expiration Date
2.1 The Warrants are exercisable, at the option of the Holder, in whole
or in
<PAGE>
part at any time and from time to time after issuance and on or before the
Expiration Date, upon surrender of this Warrant Certificate to the Company
together with a duly completed Notice of Exercise, in the form attached hereto
as Exhibit A, (in each case addressed to the Company as follows: LBU, Inc., 310
Paterson Plank Road, Carlstadt, New Jersey 07072, Attn: President or, if
otherwise, its chief executive office) and payment of an amount equal to the
then current Purchase Price times the number of Warrants to be exercised. In the
case of the exercise of less than all the Warrants represented by this Warrant
Certificate, the Company shall cancel the Warrant Certificate upon the surrender
thereof and shall execute and deliver a new Warrant Certificate of like tenor
for the balance of such Warrants.
2.2 The term "Expiration Date" shall mean 5:00 p.m. New York time on
[DATE], or if such day shall in the State of New York be a holiday or a day on
which banks are authorized to close, then 5:00 p.m. New York time the next
following day which in the State of New York is not a holiday or a day on which
banks are authorized to close.
3. Registration and Transfer on Company Books
3.1 The Company shall maintain books for the registration and transfer
of the Warrants and the registration and transfer of the Warrant Shares.
3.2 Prior to due presentment for registration of transfer of this
Warrant Certificate, the Company may deem and treat the registered Holder as the
absolute owner thereof.
3.3 The Company shall register upon its books any permitted transfer of
a Warrant Certificate, upon surrender of same to the Company with a written
instrument of transfer duly executed by the registered Holder or by a duly
authorized attorney. Upon any such registration of transfer, new Warrant
Certificate(s) of like tenor shall be issued to the transferee(s) and the
surrendered Warrant Certificate shall be canceled by the Company. A Warrant
Certificate may also be exchanged, at the option of the Holder, for new Warrant
Certificates of like tenor of different denominations representing in the
aggregate the number of Warrants evidenced by the Warrant Certificate
surrendered.
4. Reservation of Shares; Listing; Registration
The Company covenants that it will at all times reserve and keep
available out of its authorized capital stock, solely for the purpose of issue
upon exercise of the Warrants, such number of shares as shall then be issuable
upon the exercise of all outstanding Warrants. The Company covenants that all
shares of capital stock which shall be issuable upon exercise of the Warrants
shall be duly and validly issued and fully paid and non-assessable and free from
all taxes, liens and charges with respect to the issue thereof, and that upon
issuance such shares shall be listed on each national securities exchange, if
any, or quoted on any national quotation system on which the other shares of
such outstanding capital stock of the Company are then listed or quoted. In case
at any time any capital stock issuable upon the exercise of the Warrants shall
be listed on any securities exchange, the Company will also list and keep listed
thereon, pursuant to an official notice of issuance upon the exercise of
Warrants (provided that the rules of such
-2-
<PAGE>
exchange shall permit such listing), all shares of capital stock issuable upon
the exercise of all Warrants at the time outstanding, and will register the same
and keep the same registered under the Securities Exchange Act of 1934 and any
other statute at the time applicable and will timely file all reports which may
be required to be filed under such Act by companies having a class of equity
securities so registered.
5. Loss or Mutilation
Upon receipt by the Company of reasonable evidence of the ownership of
and the loss, theft, destruction or mutilation of any Warrant Certificate and,
in the case of loss, theft or destruction, of indemnity reasonably satisfactory
to the Company, or, in the case of mutilation, upon surrender and cancellation
of the mutilated Warrant Certificate, the Company shall, at its expense, execute
and deliver in lieu thereof a new Warrant Certificate of like tenor representing
an equal number of Warrants.
6. Adjustment of Purchase Price and Number of Shares of Deliverance
6.1 The number of Warrant Shares purchasable upon the exercise of each
Warrant and the Purchase Price with respect to the Warrant Shares shall be
subject to adjustment as follows:
(a) In case the Company shall (i) declare a dividend or make a
distribution on its Common Stock payable in shares of its capital stock,
(ii) subdivide its outstanding shares of Common Stock through stock split
or otherwise, (iii) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock, or (iv) issue by
reclassification of its Common Stock (including any such reclassification
in connection with a consolidation or merger in which the Company is the
continuing corporation) other securities of the Company, the number and/or
nature of Warrant Shares purchasable upon exercise of each Warrant
immediately prior thereto shall be adjusted so that the Holder shall be
entitled to receive the kind and number of Warrant Shares or other
securities of the Company which he would have owned or have been entitled
to receive after the happening of any of the events described above, had
such Warrant been exercised immediately prior to the happening of such
event or any record date with respect thereto. An adjustment made pursuant
to this paragraph (a) shall become effective retroactively as of the
record date of such event.
(b) In the event of any capital reorganization or any
reclassification of the capital stock of the Company or in case of the
consolidation or merger of the Company with another corporation (other
than a consolidation or merger in which the outstanding shares of the
Company's Common Stock are not converted into or exchanged for other
rights or interests), or in the case of any sale, transfer or other
disposition to another corporation of all or substantially all the
properties and assets of the Company, the Holder of each Warrant shall
thereafter be entitled to purchase (and it shall be a condition to the
consummation of any such reorganization, reclassification, consolidation,
merger, sale, transfer or other disposition that appropriate provisions
shall be made so
-3-
<PAGE>
that such Holder shall thereafter be entitled to purchase) the kind and
amount of shares of stock and other securities and property (including
cash) which the Holder would have been entitled to receive had such
Warrants been exercised immediately prior to the effective date of such
reorganization, reclassification, consolidation, merger, sale, transfer or
other disposition; and in any such case appropriate adjustments shall be
made in the application of the provisions of this Article 6 with respect
to rights and interest thereafter of the Holder of the Warrants to the end
that the provisions of this Article 6 shall thereafter be applicable, as
near as reasonably may be, in relation to any shares or other property
thereafter purchasable upon the exercise of the Warrants. The provisions
of this paragraph (b) shall similarly apply to successive reorganizations,
reclassifications, consolidations, mergers, sales, transfers or other
dispositions.
(c) Whenever the number of Warrant Shares purchasable upon the
exercise of each Warrant is adjusted, as provided in this Section 6.1, the
Purchase Price with respect to the Warrant Shares shall be adjusted by
multiplying such Purchase Price immediately prior to such adjustment by
fraction, of which the numerator shall be the number of Warrant Shares
purchasable upon the exercise of each Warrant immediately prior to such
adjustment, and of which the denominator shall be the number of Warrant
Shares so purchasable immediately thereafter.
6.2 No adjustment in the number of Warrant Shares purchasable under the
Warrants, or in the Purchase Price with respect to the Warrant Shares, shall be
required unless such adjustment would require an increase or decrease of at
least 1% in the number of Warrant Shares issuable upon the exercise of such
Warrant, or in the Purchase Price thereof; provided, however, that any
adjustments which by reason of this Section 6.2 are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
6.3 Whenever the number of Warrant Shares purchasable upon the exercise
of each Warrant or the Purchase Price of such Warrant Shares is adjusted, as
herein provided, the Company shall mail to the Holder, at the address of the
Holder shown on the books of the Company, a notice of such adjustment or
adjustments, prepared and signed by an officer of the Company, which sets forth
the number of Warrant Shares purchasable upon the exercise of each Warrant and
the Purchase Price of such Warrant Shares after such adjustment, and a brief
statement of the facts requiring such adjustment.
6.4 The form of Warrant Certificate need not be changed because of any
change in the Purchase Price, the number of Warrant Shares issuable upon the
exercise of a Warrant or the number of Warrants outstanding pursuant to this
Section 6, and Warrant Certificates issued before or after such change may state
the same Purchase Price, the same number of Warrants, and the same number of
Warrant Shares issuable upon exercise of Warrants as are stated in the Warrant
Certificates theretofore issued pursuant to this Agreement. The Company may,
however, at any time, in its sole discretion, make any change in the form of
Warrant Certificate that it may deem appropriate and that does not affect the
substance thereof, and any Warrant Certificates thereafter issued or
countersigned, whether in exchange or substitution for any outstanding Warrant
Certificate or otherwise, may be in the form as so changed.
-4-
<PAGE>
6.5 In case the Company shall take a record of the holders of shares of
its stock of any class for the purpose of entitling them (a) to receive a
dividend or a distribution, then such record date shall be deemed to be the date
of such dividend or the making of such other distribution.
7. Voluntary Adjustment by the Company
The Company may, at its option, at any time during the term of the
Warrants, reduce the then current Purchase Price to any amount deemed
appropriate by the Board of Directors of the Company and/or extend the date of
the expiration of the Warrants.
8. Fractional Shares and Warrants; Determination of Market Price Per Share
8.1 Anything contained herein to the contrary notwithstanding, the
Company shall not be required to issue any fraction of a share of Common Stock
in connection with the exercise of Warrants. Warrants may not be exercised in
such number as would result (except for the provisions of this paragraph) in the
issuance of a fraction of a share of Common Stock unless the Holder is
exercising all Warrants then owned by the Holder. In such event, the Company
shall, upon the exercise of all of such Warrants, issue to the Holder the
largest aggregate whole number of shares of Common Stock called for thereby upon
receipt of the Purchase Price for all of such Warrants and pay a sum in cash
equal to the remaining fraction of a share of Common Stock, multiplied by its
Market Price Per Share (as determined pursuant to Section 8.2 below) as of the
last business day preceding the date on which the Warrants are presented for
exercise.
8.2 As used herein, the "Market Price Per Share" with respect to any
class or series of Common Stock on any date shall mean the closing price per
share of such class or series of Common Stock for the trading day immediately
preceding such date. The closing price for each such day shall be (i) the last
sale price or, in case no such sale takes place on such day, the last sale price
to occur on the next preceding day on which such a sale took place, on the
principal securities exchange on which the shares of such Common Stock of the
Company are listed or admitted to trading, (ii) the last sale price or, in case
no such sale takes place on such day, the last sale price to occur on the next
preceding day on which such a sale took place, on NASDAQ or any comparable
system, or (iii) if such Common Stock is not reported on NASDAQ, or a comparable
system, the average of the closing bid and asked prices as furnished by two
members of the National Association of Securities Dealers, Inc. selected from
time to time by the Company for that purpose. If such bid and asked prices are
not available, then "Market Price Per Share" shall be equal to the fair market
value of such Common Stock as determined in good faith by the Board of Directors
of the Company.
9. Delivery of Stock Certificates on Exercise. As soon as practicable
after the exercise of this Warrant, and in any event within three (3) business
days thereafter, the Company, at its expense (including the payment by it of any
applicable issue tax) will cause to be issued in the name of and delivered to
the Holder hereof, or as such Holder may direct, a certificate or certificates
for the number of full shares of Common Stock to which such Holder
-5-
<PAGE>
would be entitled upon such exercises, plus, in lieu of any fractional shares to
which such Holder would otherwise be entitled, cash in an amount determined
pursuant to Section 8 hereof.
10. No Dilution or Impairment. The Company will not by amendment of its
certificate of incorporation or through reorganization, consolidation, merger,
dissolution, issue or sale of securities, sale of assets or any other voluntary
action, avoid or seek to avoid the observance or performance or any of the terms
of the Warrants, including, without limitation, Section 6.1(c) hereof, but will
at all times in good faith assist in the carrying out of all such terms and in
the taking of all such action as may be necessary or appropriate in order to
protect the rights of the Holder of the Warrants against dilution or other
impairment. Without limiting the generality of the foregoing, the Company (a)
will not increase the par value of any shares of stock receivable upon the
exercise of the Warrants above the amount payable therefor upon such exercise,
(b) will take all such action as may be necessary or appropriate in order that
the Company may validly and legally issue fully paid and non-assessable shares
upon the exercise of all Warrants at the time outstanding, and (c) will take no
action to amend its certificate of incorporation which would change to the
detriment of the holders of Common Stock (whether or not any Common Stock be at
the time outstanding) the dividend or voting rights of the Company's Common
Stock as constituted on the date of issuance of this Warrant.
11. [INTENTIONALLY OMITTED]
12. Registration Rights
12.1 Demand Registration
(a) Subject to the limitations in the following paragraph (b) below,
at any time, and from time-to-time after [DATE] the Holder may make
written requests to the Company for registration (each, a "Demand
Registration") with the Securities and Exchange Commission ("SEC") under
and in accordance with the provisions of the Securities Act of 1933, as
amended, and the rules and regulations thereunder, as in effect from time
to time (the "Securities Act") of all or part of the Common Stock or other
capital stock of the Company purchasable pursuant to the Warrants
(collectively, the "Registrable Securities"). All requests made pursuant
to this Section 12.1(a) shall specify the number of Registrable Securities
to be registered and the intended method(s) of disposition thereof.
(b) The Holder shall be entitled to request up to [NUMBER] Demand
Registrations under this Section 12.1 which for purposes hereof shall
include any demand registrations made by Holder under any other warrants
issued by the Company to the Holder; provided, however, that a Demand
Registration will not be counted for such purpose if it does not become
effective and remain effective for the period required by Section 12.3(c)
hereof or if it does not become effective and remain effective in
accordance with the terms of such other warrants. Each Demand Registration
shall include at least [NUMBER] shares of Common Stock or other capital
stock of the Company purchasable pursuant to this Warrant or any other
warrants issued by the Company to the Holder, unless at the time there
remain less than [NUMBER] such shares
-6-
<PAGE>
purchasable under this Warrant or such other warrants in which case the
Demand Registration shall include all such remaining shares.
(c) If the Holder so elects, the offering of Registrable Securities
pursuant to a Demand Registration shall be made by means of a firm
commitment underwriting to an underwriter at a fixed price for reoffering
or pursuant to agency or best efforts arrangements with an underwriter
(each, an "Underwritten Offering"). The investment banker or investment
bankers and manager or managers that will administer such Underwritten
Offering will be selected by the Holder.
(d) In the event that, following a request by the Holder for a
Demand Registration, the Holder elects, in his sole discretion, upon the
Company's request, to withdraw such request for a Demand Registration, or
to postpone such Demand Registration for such period of time as the
Company may request, then such Demand Registration shall be deemed to have
been so withdrawn or postponed, as the case may be, and if withdrawn shall
not count for purpose of Section 12.1(b).
(e) The Company shall at all times qualify for registration of
outstanding securities to be offered for the account of any person other
than the issuer on Form S-3 or any comparable or successor form or forms.
In addition to the rights contained in the foregoing provisions of this
Section 12.1, the Holder shall have the right to request registrations on
Form S-3.
12.2 Piggyback Registration Rights
(a) The Company covenants and agrees with the Holder that in the
event the Company proposes to file at any time after the date hereof a
registration statement on a form for the general registration of
securities under the Securities Act which the Company is eligible to use
for the registration of the Registrable Securities, whether for the
account of the Company or for the account of any other security holder
(other than in connection with an offering solely to the Company's
employees pursuant to a registration statement on Form S-8 under the
Securities Act or an offering pursuant to a registration statement on Form
S-4 under the Securities Act, or any successor forms thereto) (a
"Piggyback Registration Statement"), then the Company shall in each such
case give written notice (a "Company Notice") of such proposed filing to
the Holder so that the Company Notice is received by the Holder at least
ten (10) calendar days before the anticipated filing date, and such notice
shall offer to the Holder the opportunity to include in such Piggyback
Registration Statement such number of Registrable Securities as the Holder
may request.
(b) The Company shall not be obligated to register the Registrable
Securities of the Holder in a Piggyback Registration Statement unless
there shall have been received by the Company, within five (5) days of
receipt of the Company Notice by the Holder, written notice (a "Piggyback
Notice") from the Holder, which notice shall set forth the number of the
Holder's Registrable Securities to be so included.
-7-
<PAGE>
(c) If the shares proposed to be offered by the Company pursuant to
a Piggyback Registration Statement are to be sold by means of a firm
commitment underwriting to an underwriter at a fixed price for reoffering
or pursuant to agency or best efforts arrangements with an underwriter
(each, a "Company Underwritten Offering"), the Company shall use its best
efforts to cause the managing underwriter or underwriters of such proposed
offering to permit the Holder's Registrable Securities to be included in
the proposed offering on terms and conditions at least as favorable to the
Holder as those offered with respect to the other securities included
therein.
12.3 Registration Procedures
Whenever the Holder has requested that any Registrable Securities be
registered pursuant to this Agreement, the Company will promptly take all such
actions as may be reasonably necessary or desirable to permit the sale of such
Registrable Securities in accordance with the intended method or methods of
disposition thereof, and pursuant thereto the Company will as expeditiously as
reasonably possible:
(a) with respect to a request to Demand Registration pursuant to
Section 12.1 hereof, prepare and file with the SEC, as promptly as
reasonably practicable and not later than forty-five (45) days after
receipt of such request (but not later than twenty (20) days after receipt
of such request in the case of a Registration Statement to be filed on
Form S-3 or any comparable or successor form or forms), a Registration
Statement on a form for which the Company then qualifies which is
satisfactory to the Company and the Holder (unless the offering is made on
an underwritten basis, including on a best efforts underwriting basis, in
which event the managing underwriter or underwriters shall determine the
form to be used) and which form shall be available for the sale of such
Registrable Securities in accordance with the intended method or methods
of distribution thereof, and use its best efforts to cause such
Registration Statement to become effective as promptly as reasonably
practicable and, in the case of a Registration Statement on Form S-3,
shall request accelerated effectiveness to occur as promptly as reasonably
practicable;
(b) before filing a Registration Statement or Prospectus covering
the Registrable Securities or any amendments or supplements thereto, the
Company will, at least three (3) business days prior to filing, furnish to
the Holder and the underwriters, if any, copies of all such documents in
substantially the form proposed to be filed (including documents
incorporated therein by reference), to enable the Holder and the
underwriters, if any, to review such documents prior to the filing
thereof, and the Company shall make such reasonable changes thereto
(including changes to, or the filing of amendments reflecting such changes
to, documents incorporated by reference) as may be reasonably requested by
the Holder and the managing underwriter or underwriters, if any;
(c) subject to the three-day review period required by paragraph (b)
above, prepare and file with the SEC such amendments and post-effective
amendments to the Registration Statement as may be necessary to keep the
Registration Statement (whether
-8-
<PAGE>
Demand or Piggyback) effective for a period of not less than one hundred
eighty (180) days, or such shorter period which will terminate when all
Registrable Securities covered by such Registration Statement have been
sold or withdrawn; cause the Prospectus to be supplemented by any required
Prospectus supplement, and as so supplemented to be filed pursuant to Rule
424 under the Securities Act; and comply with the provisions of the
Securities Act with respect to the disposition of all securities covered
by such Registration Statement during the applicable period in accordance
with the intended methods of disposition by the Holder thereof set forth
in such Registration Statement or supplement to the Prospectus;
(d) notify the Holder and the managing underwriters, if any,
promptly, and (if requested by any such person) confirm such advice in
writing, (l) when the Prospectus or any Prospectus supplement or
post-effective amendment has been filed, and, with respect to the
Registration Statement or any post-effective amendment, when the same has
become effective, (2) of any request by the SEC for amendments or
supplements to the Registration Statement or the Prospectus or for
additional information pertaining to Holder, (3) of the issuance by the
SEC of any stop order suspending the effectiveness of the Registration
Statement or the initiation of any proceedings for that purpose, (4) if at
any time the representations and warranties of the Company contemplated by
paragraph (n) below cease to be true and correct, (5) of the receipt by
the Company of any notification with respect to the suspension of the
qualification of the Registrable Securities for sale in any jurisdiction
or the initiation or threatening of any proceeding for such purpose, and
(6) of the happening of any event which makes any statement made in the
Registration Statement, the Prospectus or any document incorporated
therein by reference untrue or which requires the making of any changes in
the Registration Statement, the Prospectus or any document incorporated
therein by reference in order to make the statements therein not
misleading;
(e) make reasonable efforts to obtain the withdrawal of any order
suspending the effectiveness of the Registration Statement at the earliest
possible moment;
(f) as promptly as practicable after filing with the SEC of any
document which is incorporated by reference into the Registration
Statement or the Prospectus (after initial filing of the Registration
Statement) provide copies of such document to the managing underwriters;
(g) furnish to each managing underwriter, without charge, at least
one signed copy, and to the Holder, one copy, of the Registration
Statement and any post-effective amendment thereto, including financial
statements and schedules, all documents incorporated therein by reference
and all exhibits (including those incorporated by reference) and a
reasonable number of conformed copies of all such documents to each
managing underwriter;
(h) deliver to the Holder and the underwriters, if any, as many
copies of the Prospectus (including each preliminary prospectus) and any
amendment or
-9-
<PAGE>
supplement thereto as such persons may reasonably request; the Company
consents to the use of the Prospectus or any amendment or supplement
thereto by the Holder and the underwriters, if any, in connection with the
offering and sale of the Registrable Securities covered by the Prospectus
or any amendment or supplement thereto;
(i) prior to the date on which the Registration Statement is
declared effective, use reasonable efforts to register or qualify or
cooperate with the Holder and the underwriters, if any, and their
respective counsel in connection with the registration or qualification of
such Registrable Securities for offer and sale under the securities or
blue sky laws of such jurisdictions as any seller or underwriter
reasonably requests in writing and do any and all other acts or things
reasonably necessary or advisable to enable the disposition in such
jurisdictions of the Registrable Securities covered by the Registration
Statement;
(j) cooperate with the Holder and the managing underwriters, if any,
to facilitate the timely preparation and delivery of certificates
representing Registrable Securities to be sold and not bearing any
restrictive legends; and enable such Registrable Securities to be in such
denominations and registered in such names as the managing underwriters
may request at least two business days prior to any sale of Registrable
Securities to the underwriters;
(k) use its best efforts to cause the Registrable Securities covered
by the Registration Statement to be registered with or approved by such
other governmental agencies or authorities within the United States as any
seller may advise the Company is necessary to enable the seller or sellers
thereof or the underwriters, if any, to consummate the disposition of such
Registrable Securities;
(l) upon the occurrence of any event contemplated by paragraph
(d)(6) above, prepare a supplement or post-effective amendment to the
Registration Statement or the Prospectus or any document incorporated
therein by reference or file any other required document so that, as
thereafter delivered to the purchasers of the Registrable Securities, the
Prospectus will not contain an untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein not
misleading;
(m) cause all Registrable Securities covered by the Registration
Statement to be listed on each securities exchange or automated quotation
system on which similar securities issued by the Company are then listed;
(n) in the case of an Underwritten Offering, enter into such
agreements (including an underwriting agreement) reasonably satisfactory
to the managing underwriters in form and substance and take all such other
actions in connection therewith as the managing underwriters reasonably
request in order to expedite or facilitate the disposition of such
Registrable Securities, (1) make such representations and warranties to
the underwriters, if any, in form, substance and scope as are customarily
made by issuers to underwriters in primary underwritten offerings and
confirm the accuracy of the same if and when requested, including matters
relating to the compliance
-10-
<PAGE>
of the Registration Statement and the Prospectus with the Securities Act;
(2) obtain opinions of counsel to the Company and updates thereof which
counsel and opinions (in form, scope and substance) shall be reasonably
satisfactory to the managing underwriters addressed to the underwriters,
if any, covering the matters customary in underwritten primary offerings
and such other matters as may be reasonably requested by the underwriters,
if any; (3) obtain "the cold comfort" letters and updates thereof from the
Company's independent certified public accountants addressed to the
underwriters, if any, such letters to be in customary form and covering
matters of the type customarily covered in "cold comfort" letters by
underwriters in connection with primary underwritten offerings; and (4)
deliver such documents and certificates as may be requested by the
managing underwriters, if any, to evidence compliance with clause (1)
above and with any customary conditions contained in the underwriting
agreement or other agreement entered into by the Company. The above shall
be done at each closing under such underwriting or similar agreement or as
and to the extent required thereunder;
(o) if an underwriting agreement is entered into, cause the same to
set forth in full the indemnification provisions and procedures of Section
12.6 hereof with respect to all parties to be indemnified pursuant to said
Section; and
(p) make available for inspection during normal business hours by
any underwriter participating in any disposition pursuant to such
Registration Statement, and any attorney, accountant or other agent
retained by any such underwriter, all financial and other records,
pertinent corporate documents and properties of the Company, and cause the
Company's officers, directors and employees to supply all information
reasonably requested by any such underwriter, attorney, accountant or
agent in connection with such Registration Statement; provided, that any
records, information or documents that are designated by the Company in
writing as confidential shall be kept confidential by such persons; and
(q) otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC, and make generally available to its
security holders, earnings statements satisfying the provisions of Section
11(a) of the Securities Act, and the rules promulgated thereunder. The
Company may require the Holder to furnish to the Company such information
and documents regarding the distribution of such securities as the Company
may from time to time reasonably request in writing.
12.4 Rule 144 Reporting
With a view to making available the benefits of certain rules and
regulations of the SEC that may permit the sale of the Registerable Securities
to the public without registration, the Company agrees to use its best efforts
to:
(a) Make and keep public information regarding the Company available
as those terms are understood and defined in Rule 144 under the Securities
Act, at all times that this Warrant shall remain outstanding;
-11-
<PAGE>
(b) File with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the
Exchange Act 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 written request a written statement by the
Company as to its compliance with the reporting requirements of Rule 144,
and of the Exchange Act, 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 SEC allowing the Holder to sell any such securities
without registration.
12.5 Limitations on Registration and Resale
(a) In the case of Piggyback Registration Rights pursuant to Section
12.2, if in the written opinion of the Company's managing underwriter or
underwriters, if any, for such offering, the inclusion of the Registrable
Securities, when added to the securities being registered by the Company
will materially and adversely affect the entire offering, the Company
shall nevertheless register all or any portion of the Registrable
Securities required to be so registered but such Registrable Securities
shall not be sold by the Holder until ninety (90) days after the
registration statement for such offering has become effective.
(b) The Holder shall not be entitled to request Demand Registration
at any time that a Piggyback Registration Statement shall be effective
with respect to all of the Registrable Securities.
(c) If the Company determines to register securities ("Company
Registration Statement") at a time when a registration statement covering
all the Registrable Securities is already effective, the Holder shall
agree in writing not to sell any Registrable Securities during the period
between the effective date of such Company Registration Statement and
ninety (90) days after such effective date if in the written opinion of
the Company's managing underwriter or underwriters for such offering, the
continuous sale of the Registrable Securities during such ninety (90) day
period would materially and adversely affect the Company's entire
offering.
(d) Notwithstanding anything contained herein to the contrary, for
purposes of calculating the one hundred eighty (180) day time period under
Section 12.3(c) or the three hundred sixty-five (365) day period under
Section 12.9, such time period shall not include any time during which
Holder agrees not to sell Registrable Securities under this Section 12.5.
12.6 Registration Expenses
All expenses incident to the Company's performance of or compliance
with this Agreement, including without limitation all registration and filing
fees, including with respect to
-12-
<PAGE>
filings required to be made with the National Association of Securities Dealers,
fees and expenses of compliance with securities or blue sky laws (including
reasonable fees and disbursements of counsel for the underwriters in connection
with blue sky qualifications of the Registrable Securities under the laws of
such jurisdictions as the managing underwriters or the Holder may designate),
printing expenses, messenger, telephone and delivery expenses, fees and
disbursements of counsel for the Company (collectively, "Legal Fees") and of all
independent certified public accountants (including the expenses of any special
audit and "cold comfort" letters required by or incident to such performance),
the fees and expenses incurred in connection with the listing of the securities
to be registered on NASDAQ and each securities exchange on which similar
securities issued by the Company are then listed, rating agency fees, the fees
and expenses of any special experts retained by the Company at the request of
the managing underwriters in connection with such registration and any
reasonable out-of-pocket expenses of the Holder (all such expenses being herein
called "Registration Expenses") will be borne by the Company; in no event,
however, shall the Company be liable for the payment of any discounts or
commissions of underwriters, selling brokers, dealer managers or similar
industry professionals relating to the distribution of the Registrable
Securities or the legal or accounting fees of the Holder.
12.7 Indemnification; Contribution
(a) Indemnification by the Company. The Company will indemnify and
hold harmless, to the full extent permitted by law, the Holder, if the
Holder is a corporation its officers and directors, its agents and each
person who controls the Holder (within the meaning of the Securities Act)
against all losses, claims, damages, liabilities (or actions in respect
thereof) and expenses to which any such person may be subject, under the
Securities Act or otherwise, and reimburse all such persons for any
reasonable legal or other expenses incurred with investigating or
defending against any such losses, claims, damages or liabilities, insofar
as such losses, claims, damages or liabilities arise out of or are based
upon any untrue or alleged untrue statement of a material fact contained
in a Registration Statement, Prospectus or preliminary prospectus 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, except insofar as the same arise out of or are based upon an
untrue statement of a material fact or omission of a material fact
required to be stated therein or necessary to make the statements therein
not misleading, which statement or omission is made therein in reliance
upon and in conformity with information furnished in writing to the
Company by the Holder, expressly for use therein. The Company will also
indemnify underwriters, selling brokers, dealer managers and similar
securities industry professionals participating in the distribution, their
officers and directors and each person who controls such persons (within
the meaning of the Securities Act) to the same extent as provided above
with respect to the indemnification of the Holder.
(b) Indemnification by the Holder. The Holder will indemnify and
hold harmless, to the full extent permitted by law, the Company, its
directors and officers and each person who controls the Company (within
the meaning of the Securities Act) against any losses, claims, damages,
liabilities (or actions in respect thereof) and expenses to
-13-
<PAGE>
which any such person may be subject, under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities arise
out of or are based upon any untrue or alleged untrue statement of a
material fact contained in a Registration Statement or Prospectus or
preliminary prospectus or any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements
therein not misleading, to the extent, but only if and to the extent, that
such untrue or alleged untrue statement or omission or alleged omission is
made therein in reliance upon and in conformity with the information
furnished in writing by the Holder specifically for inclusion therein. In
no event shall the liability of the Holder hereunder be greater in amount
than the dollar amount of the net proceeds received by the Holder upon the
sale of the Registrable Securities giving rise to such indemnification
obligation.
(c) Conduct of Indemnification Proceedings. Any person entitled to
indemnification hereunder will (i) give prompt notice to the indemnifying
party of any claim with respect to which it seeks indemnification and (ii)
unless in such indemnified party's reasonable judgment a conflict of
interest may exist between such indemnified and indemnifying parties with
respect to such claim, permit such indemnifying party to assume the
defense of such claim with counsel reasonably satisfactory to the
indemnified party and in that case the indemnified party shall have the
right to participate in the conduct of such defense provided that it will
pay for the fees of its own counsel. Whether or not such defense is
assumed by the indemnifying party, the indemnifying party will not be
subject to any liability for any settlement made without its consent (but
such consent will not be unreasonably withheld). No indemnifying party
will 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. An indemnifying party
who is not entitled to, or elects not to, assume the defense of a claim
will not be obligated to pay the fees and expenses of more than one
counsel for all parties indemnified by such indemnifying party with
respect to such claim, unless in the reasonable judgment of any
indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect
to such claim, in which event the indemnifying party shall be obligated to
pay the fees and expenses of such additional counsel or counsels.
(d) Contribution. If for any reason the indemnification provided for
in the preceding subsection (a) or (b) is unavailable to any indemnified
party or is insufficient to hold such indemnified party harmless as
contemplated by such subsection, then the indemnifying party shall
contribute to the amount paid or payable by the indemnified party as a
result of such loss, claim, damage, liability or expense in such
proportion as is appropriate to reflect not only the relative benefits
received by the indemnified party and the indemnifying party, but also the
relative fault of the indemnified party and the indemnifying party as well
as any other relevant equitable considerations. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
-14-
<PAGE>
12.8 Remedies
The Company stipulates that the remedies at law of the Holder of this
Warrant in the event of any default or threatened default by the Company in the
performance of or compliance with any of the terms of this Warrant are not and
will not be adequate and that such terms may be specifically enforced by a
decree for the specific performance of any agreement contained herein or by an
injunction against a violation of any of the terms hereof.
12.9 Mandatory Registration
The Company may, at any time prior to receiving a request from Holder
for Demand Registration or Piggyback Registration, notify Holder that the
Company will register all the Registrable Securities pursuant to the Securities
Act. In such event, the Holder shall be required to include all the Registrable
Securities in the Company's registration statement if inclusion of such
Registrable Securities does not require Holder to exercise any Warrants prior to
effectiveness of such registration statement. The Company agrees (A) that any
Company registration statement pursuant to this Section 12.9 shall not
constitute a Demand Registration for purposes of Section 12 in the event less
than all the Registrable Securities are sold under such Company registration
statement, (B) that any Company registration statement pursuant to this Section
12.9 shall otherwise be subject to the requirements of Section 12 here of in
respect of registration procedures, including without limitation Section 12.3(a)
and (C) that the Company will use its best efforts to keep such Company
registration statement effective for a period of not less than 365 days.
12.10 Miscellaneous
(a) Notices. All notices, requests, demands and other communications
provided for hereunder shall be in writing (including telecopier or
similar writing) and shall be deemed to have been given (x) if mailed,
five business days after being mailed in any general or branch office of
the United States Postal Service, enclosed in a registered or certified
postpaid envelope, (y) if sent by facsimile transmission, when so sent and
receipt acknowledged by an appropriate telephone or facsimile receipt, or
(z) if sent by Federal Express or other similar overnight courier service,
or by any other method, when received by the party to which such notice
has been directed, in each case at the respective address or facsimile
number stated below or to such changed address or facsimile number as such
party may have fixed by notice:
(i) If to the Company at the addresses specified in Section 2 of
this Warrant;
(ii) If to the Holder at the address maintained pursuant to Section
3 of this Warrant.
(b) Attorneys' Fees. In any action or proceeding brought to enforce
any provision of this Agreement, the successful party shall be entitled to
recover reasonable attorneys' fees in addition to any other available
remedy.
-15-
<PAGE>
13. Governing Law
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of Nevada.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed by its officers thereunto duly authorized and its corporate seal
to be affixed hereon, as of this __th day of [DATE].
LBU, INC.
By: --------------------------
Name:
Title:
[SEAL]
Attest:
- ---------------------------
Name:
Title:
-16-
<PAGE>
NOTICE OF EXERCISE
The undersigned hereby irrevocably elects to exercise, pursuant to
Section 2 of the Warrant Certificate accompanying this Notice of Exercise, _____
Warrants of the total number of Warrants owned by the undersigned pursuant to
the accompanying Warrant Certificate, and herewith makes payment of the Purchase
Price of such shares in full.
----------------------------
Name of Holder
----------------------------
Signature
Address:
----------------------------
----------------------------
----------------------------
-17-
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000039743
<NAME> LBU, Inc.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
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<SECURITIES> 0
<RECEIVABLES> 170,562
<ALLOWANCES> 25,000
<INVENTORY> 1,615,319
<CURRENT-ASSETS> 2,239,451
<PP&E> 424,414
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<TOTAL-ASSETS> 2,640,538
<CURRENT-LIABILITIES> 1,192,619
<BONDS> 0
0
0
<COMMON> 1,124,923
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,640,538
<SALES> 1,313,057
<TOTAL-REVENUES> 1,365,299
<CGS> 886,938
<TOTAL-COSTS> 886,938
<OTHER-EXPENSES> 484,948
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<INTEREST-EXPENSE> 33,876
<INCOME-PRETAX> (92,121)
<INCOME-TAX> (21,188)
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<NET-INCOME> 70,933
<EPS-PRIMARY> (.50)
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</TABLE>
