SCHEDULE 14C
(Rule 14c-101)
INFORMATION REQUIRED IN INFORMATION STATEMENT SCHEDULE 14(C) INFORMATION
INFORMATION STATEMENT PURSUANT TO SECTION 14(C)
OF THE SECURITIES EXCHANGE ACT OF 1934
Check the appropriate box:
|_| First Amended Preliminary Information Statement.
|_| Confidential, for Use of the Commission Only (as permitted by Rule
14c-5(d)(2).
|x| Definitive Information Statement.
IL INTERNATIONAL INC.
(Name of registrant as specified in charter)
Payment of Filing Fee (Check the appropriate box):
|_| No fee required.
|x| Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
Filing Fee: $1,320,00. Fee determined pursuant to Rule 0-11(c)(2) based
upon bona fide estimate of aggregate proceeds to the Company of $6,600,000
upon sale of substantially all of its assets.
(4) Proposed maximum aggregate value of transaction: $6,600,000.
(5) Total fee paid: $1.320.00
|x| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: ______________________________________________
(2) Form, Schedule or Registration Statement No.: ________________________
(3) Filing Party: ________________________________________________________
(4) Date Filed: __________________________________________________________
IL INTERNATIONAL INC., 400 LONG BEACH BOULEVARD, STRATFORD, CT 06497
Telephone: (203) 378-4000
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IL INTERNATIONAL INC.
400 Long Beach Blvd.
Stratford, CT 06497
May 5, 1998
To Our Stockholders:
On March 5, 1998, IL International Inc. signed an agreement to sell
substantially all of its assets to Nemo S.r.l., an Italian company which designs
and markets contemporary lighting fixtures.
The terms of the sale are set forth in the enclosed Information Statement which
is being sent to you for information purposes only since the transaction has
already been approved by the Board of Directors and the holders of a majority of
the common stock of the Company.
The sale price is estimated to be close to $0.04 per share of common stock, a
substantial premium over the price at which the stock was trading immediately
prior to the announcement of the sale. It is expected that an initial
distribution of about $0.02 per share will be mailed to stockholders around the
end of June this year with the balance about twelve months later.
The actual total proceeds to be realized in U.S. dollars from the sale of the
Company's assets (and consequently the amount that will be available for
distribution to stockholders) is subject to a number of factors which are at
present uncertain, including foreign exchange fluctuations and the amount to be
realized from the sale of certain assets. This and other important matters are
discussed in the Information Statement which you are urged to read.
In order to receive the cash distributions, stockholders will have to surrender
their stock certificates. Instructions on how and when to do this will be mailed
to each stockholder shortly. In the meantime, PLEASE DO NOT MAIL CERTIFICATES TO
THE COMPANY.
Sincerely,
Keith G. Frey
Vice President
Finance and Administration
<PAGE>
INFORMATION STATEMENT
INTRODUCTION
This Information Statement is being furnished to holders of shares
of common stock, par value $.01 per share (the "Common Stock"), of IL
International Inc., a Delaware corporation (the "Company"), in connection with
the irrevocable written consent of the holders of a majority of the Company's
outstanding Common Stock to approve:
(i) The sale (the "Proposed Sale") to Nemo S.r.l., a company incorporated
in Italy ("Nemo" or the "Purchaser"), of substantially all of the assets
of the Company and its subsidiaries, pursuant to an Asset Purchase
Agreement, dated March 5, 1998 (the "Asset Purchase Agreement"), by amd
among the Purchaser, the Company and the Company's subsidiaries, Italiana
Luce S.r.l. ("Italiana Luce") and IL USA, Inc. ("IL USA"), for
approximately $4,570,000 in cash (comprised of $2,860,000 for the goodwill
and operations of the Company and $1,710,000 for the inventory and certain
fixed assets of the Company), and the orderly liquidation by the Company
of its receivables and certain other assets, principally fixed assets, not
being acquired by the Purchaser for an estimated amount of $2,030,000, for
a combined gross amount of $6,600,000, as more fully described in this
Information Statement. The Company expects the net proceeds available
after payment of all obligations, taxes, legal fees and other expenses
related to the Proposed Sale will approximate $3,250,000, equivalent to
about $0.04 per share of Common Stock. See "The Asset Purchase
Agreement--Purchase Price." A copy of the Asset Purchase Agreement is
attached hereto as Annex A.
(ii) The change of the Company's name following the Proposed Sale to "ILI
Liquidating Corporation."
(iii) The change of the names of Italiana Luce and IL USA to "Edison 118
S.r.l" and "ILU Liquidating Corporation," respectively, and their
subsequent dissolution and liquidation.
(iv) The dissolution and liquidation of the Company and the payment of the
net proceeds of the Proposed Sale and additional proceeds from the
liquidation of the Company's receivables and certain other assets to the
holders of the Common Stock pursuant to a Plan of Liquidation and
Dissolution (the "Plan"), as more fully described in the Information
Statement. A copy of the Plan is attached hereto as Annex B.
This Information Statement is first being mailed to stockholders on
or about May 5, 1998. This Information Statement is furnished for information
purposes only. THE COMPANY IS NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED
NOT TO SEND US A PROXY.
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THE PROPOSED SALE IS CONDITIONED UPON, AMONG OTHER THINGS, THE
SECURING OF ALL NECESSARY GOVERNMENTAL APPROVALS AND CONSENTS IN BOTH ITALY AND
THE UNITED STATES BY JUNE 30, 1998. THERE CAN BE NO ASSURANCE THAT THE
CONDITIONS TO THE PROPOSED SALE WILL BE SATISFIED OR WAIVED OR THAT THE PROPOSED
SALE WILL BE CONSUMMATED. SEE "THE ASSET PURCHASE AGREEMENT --CONDITIONS."
Since the Proposed Sale involves a sale of assets, the stockholders
of the Company will retain their equity interest in the Company following its
consummation. After the Proposed Sale, the Company will dissolve and liquidate
and pay out the net proceeds of the Proposed Sale to the holders of the Common
Stock as a liquidating dividend pursuant to the Plan. See "The Asset Purchase
Agreement--Assets to be Sold" and "The Proposed Sale--Use of Proceeds;
Dissolution and Liquidation following the Proposed Sale."
THE INFORMATION CONTAINED HEREIN UNDER "SUMMARY--THE COMPANIES--THE
PURCHASER" AND "CERTAIN INFORMATION CONCERNING THE PURCHASER" HAS BEEN SUPPLIED
BY THE PURCHASER. NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS INFORMATION
STATEMENT AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OTHER PERSON.
THIS INFORMATION STATEMENT IS ACCOMPANIED BY A COPY OF THE COMPANY'S
ANNUAL REPORT ON FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 1997, AS AMENDED,
AND WHICH IS ATTACHED HERETO AS ANNEX E AND WHICH IS INCORPORATED IN THIS
INFORMATION STATEMENT BY REFERENCE AND MADE A PART HEREOF.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). The reports, proxy
statements and other information filed by the Company with the Commission can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's regional offices at 7 World Trade Center,
13th Floor, New York, New York 10048 and Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. The Commission
maintains a Web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission, including the Company. The address is http://www.sec.gov. Copies of
such material also can be obtained from the Public Reference Section of the
Commission, Washington, D.C. 20549 at prescribed rates.
The Common Stock of the Company is quoted on the OTC Bulletin Board
and in the National Quotation Bureau's "Pink Sheets."
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TABLE OF CONTENTS
PAGE
INTRODUCTION............................................................ 1
AVAILABLE INFORMATION................................................... 2
SUMMARY................................................................. 4
THE STOCKHOLDER CONSENT................................................. 9
THE PROPOSED SALE/PLAN OF LIQUIDATION................................... 9
Background to the Proposed Sale..................................... 9
Opinion of Marshall & Stevens....................................... 11
Approval of the Board of Directors; Reasons for the Proposed
Sale and Dissolution and Liquidation............................... 18
Use of Proceeds; Dissolution and Liquidation following the
Proposed Sale...................................................... 19
Tax Consequences.................................................... 22
Interests of Certain Persons in the Proposed Sale................... 23
No Appraisal Rights................................................. 24
THE ASSET PURCHASE AGREEMENT............................................ 25
Assets to be Sold................................................... 25
Purchase Price...................................................... 27
Representations and Warranties...................................... 27
Indemnification and Guarantee....................................... 28
CERTAIN INFORMATION CONCERNING THE PURCHASER............................ 29
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION............................ 30
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.......... 33
MARKET PRICE DATA....................................................... 34
Annexes
A. Asset Purchase Agreement........................................ A-1
B. Plan of Liquidation and Dissolution............................. B-1
C. Opinion of Marshall & Stevens Incorporated...................... C-1
D. Estimate of Net Proceeds Available for Distribution to the
Stockholders................................................... D-1
E. Form 10-KSB/A................................................... E-1
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SUMMARY
The following is a summary of certain information contained
elsewhere in this Information Statement. Reference is made to, and this summary
is qualified in its entirety by, the more detailed information contained in the
Information Statement and the Annexes hereto. Unless the context otherwise
requires, references in this Information Statement to the "Company" shall be
deemed to refer to the Company together with its subsidiaries. Unless otherwise
defined herein, capitalized terms used in this summary have the respective
meanings ascribed to them elsewhere in this Information Statement. Stockholders
are urged to read this Information Statement and the Annexes hereto in their
entirety.
THE COMPANIES
The Company ............ The Company, through its operating subsidiaries,
designs, markets and distributes lamps and lighting
fixtures of contemporary design. The principal
executive offices of the Company are located at 400
Long Beach Boulevard, Stratford, CT 06497, and its
telephone number is (203) 378-4000.
The Purchaser .......... The Purchaser, Nemo S.r.l., a subsidiary of Cassina
S.p.A. ("Cassina"), an Italian corporation, designs,
markets and distributes lamps and lighting fixtures of
contemporary design. The principal executive offices of
the Purchaser are located at Via Busnelli, 1, 20036
Meda (MI), Italy and its telephone number is 01 39
(0362) 34821.
THE STOCKHOLDER CONSENT
Consent Required ....... Pursuant to Sections 271 and 275 of the Delaware
General Corporation Law (the "DGCL"), the written
consent of the holders of a majority of the shares of
Common Stock outstanding and entitled to vote is
required to approve the Proposed Sale and the Plan.
Itamlight S.A., a Luxembourg corporation whose sole
shareholders are Michel F. Leemans, Chairman, Chief
Executive Officer and a Director of the Company, Keith
G. Frey, Vice President, Finance and Administration,
and a Director of the Company, and Luigi Giroletti,
Vice President and a Director of the Company (the
Majority Stockholder"), holds approximately 51.6% of
the outstanding Common Stock of the Company and has
irrevocably consented in writing to the Proposed Sale
and the Plan, which consent satisfies the Section 271
and Section 275 requirements. After the execution of
the Asset Purchase Agreement, the Majority Stockholder
consented pursuant to Section 242 of the DGCL to amend
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the Company's certificate of incorporation after the
Proposed Sale so as to change the Company's name to
"ILI Liquidating Corporation." See "The Stockholder
Consent."
THE PROPOSED SALE/PLAN OF LIQUIDATION
Assets to be Sold ...... Pursuant to the Asset Purchase Agreement, the Company
and its subsidiaries have agreed to sell to the
Purchaser substantially all of their assets. Such
assets are comprised principally of the goodwill of the
business and its operations, certain molds and other
fixed assets, and the finished goods inventory of items
currently sold by the Company together with the
work-in-process and raw materials of those products
which the Purchaser intends to market.
Purchase Price ......... The Asset Purchase Agreement provides for the sale by
the Company to the Purchaser of substantially all of
the assets and business of the Company and its
subsidiaries for a gross amount which is expected to
approximate $4,570,000 in cash. The actual purchase
price may differ from this estimate and is dependent
upon the following factors which are at present
uncertain: (i) the book value of the assets at the date
of closing (See "The Asset Purchase Agreement--Purchase
Price"), (ii) the exchange rate(s) on the date(s) the
sale proceeds received in Italian lire are converted
into US dollars (see below "--Potential Foreign
Exchange Impact"), and (iii) the amount, if any, which
the Purchaser may be entitled to withhold from the bank
guarantee issued by the Company in favor of the
Purchaser for a period of one year from the date of
closing to indemnify the Purchaser for any cost
incurred by the Purchaser resulting from any
misrepresentation or breach of warranty by the Company
(See "The Asset Purchase Agreement-- Indemnification
and Guarantee").
Additional Proceeds .... The Company will liquidate its receivables and certain
other assets, principally fixed assets, which the
Purchaser is not acquiring. It is expected that the
sale of these assets will generate an additional sum of
approximately $2,030,000, as more fully described in
this Information Statement. See "The Asset Purchase
Agreement--Purchase Price."
Exchange Rate .......... The amounts quoted in this Information Statement which
are to be received in Italian lire have been converted
at a rate of Lit. 1,800 to U.S. $1.00. At the close of
business on April 13, 1998, the spot rate for the
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Italian lira quoted in the Wall Street Journal for
trades of one million dollars and more was Lit. 1,802
to U.S. $1.00. Trades of less than one million dollars,
such as those the Company anticipates effecting, will
provide nominally fewer lire per dollar.
Potential Foreign Substantially all of the cash proceeds will be received
Exchange Impact ....... initially in Italian lire which it is projected will be
converted into U.S. dollars from time to time between
May 1998 and April 1999 as funds accumulate. Of the
total estimated net proceeds of $3,250,000,
approximately $2,600,000 (Lit. 4.7 billion) will be
exposed to the possibility of foreign currency
fluctuations (see "Annex D"). The actual amount
realized is dependent upon the rate of exchange on the
day when each transfer of funds from Italy occurs and
there can be no assurance that the weighted average
rate of exchange for all such transfers will be Lit.
1,800 as has been assumed in this Information
Statement.
Closing of the The consummation of the Proposed Sale (the "Closing")
Proposed Sale ......... is expected to occur on or about May 27, 1998 or, if
later, upon satisfaction of the conditions contained in
the Asset Purchase Agreement. See "Asset Purchase
Agreement--Conditions."
Conditions to the The obligations of the Company and the Purchaser to
Proposed Sale and consummate the Proposed Sale are subject to certain
Liquidation ........... conditions precedent, including (i) clearance of this
Information Statement by the Commission and
distribution to stockholders of the information
contained herein, and (ii) completion of certain
formalities relating to personnel matters provided for
by Article 467 of Italian Law No. 428 of December 19,
1990. See "The Asset Purchase Agreement--Conditions."
The liquidation and dissolution of the Company are
subject to consummation of the Proposed Sale.
Approval by the The Board of Directors believes that the Proposed Sale
Board of Directors .... and the liquidation and dissolution of the Company are
in the best interests of the Company and has
unanimously approved the Asset Purchase Agreement and
the Plan. The Board of Directors' approval of the
Proposed Sale is based upon a number of factors
described in this Information Statement. See "The
Proposed Sale/Plan of Liquidation--Approval by the
Board of Directors; Reasons for the Proposed Sale" and
"The Proposed Sale--Interests of Certain Persons in the
Proposed Sale."
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Opinion of Marshall The Company retained Marshall & Stevens Incorporated
& Stevens ............ ("Marshall & Stevens") to render a reasonableness
opinion in connection with the Proposed Sale based upon
Marshall & Stevens' qualifications, expertise and
reputation. Such opinion was reviewed at the meeting of
the Board of Directors held on February 23, 1998. The
opinion was dated February 23, 1998, and stated that,
as of January 1998, based upon the assumptions and
methodologies relied upon, as set forth in such
opinion, the current market value of the Company's
equity lay within a range of approximately $1,200,000
and $2,300,000, before consideration of any taxes that
may be due as a result of the Proposed Sale.
Consequently, Marshall & Stevens concluded that,
assuming total liabilities will not exceed cash on hand
plus monies realized by the Company from the collection
of accounts receivable and the sale of other assets,
primarily inventory, the offer of Lit. 5.15 billion
($2,860,000 when converted at Lit. 1,800) for the
goodwill and operations of the Company is financially
reasonable. Marshall & Stevens noted that its
conclusions did not represent a fairness opinion.
Marshall & Stevens has consented to the use of their
opinion in this Information Statement and a copy
thereof is attached hereto as Annex C. The attached
opinion sets forth the assumptions made, matters
considered, the scope and limitations of the review
undertaken and procedures followed by Marshall &
Stevens, and should be read in its entirety. See "The
Proposed Sale/Plan of Liquidation--Opinion of Marshall
& Stevens."
Use of Proceeds; Total gross proceeds to be received from the Proposed
Dissolution and Sale are estimated to be approximately $6,600,000 in
Liquidation cash, of which approximately $4,570,000 will be paid by
following the the Purchaser with the balance of $2,030,000 coming
Proposed Sale ......... from the liquidation of the Company's receivables and
certain other assets not being acquired by the
Purchaser. Of the gross proceeds, approximately
$3,450,000 will be used to pay all outstanding
liabilities and obligations of the Company and expenses
associated with the consummation of the Proposed Sale
and the subsequent termination of the Company's
corporate existence. Such expenses include legal and
investment banking fees, the cost of shareholders'
communications, and administrative costs relating to
the liquidation of the Company. It is expected that the
remaining net proceeds will approximate $0.04 per share
of Common Stock and that such an amount will be paid in
two installments to the stockholders. See "The Proposed
Sale/Plan of Liquidation--Use of Proceeds; Dissolution
and
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Liquidation Following the Proposed Sale."
Tax Consequences ....... The Proposed Sale will be a taxable transaction to the
Company for United States Federal income tax purposes.
Distributions to the stockholders of the net proceeds
of the Proposed Sale will result in a taxable gain to
them. See "The Proposed Sale--Tax Consequences."
Interests of In connection with the Proposed Sale, the Purchaser has
Certain Persons in indicated its intention to enter into agreements with
the Proposed Sale ..... two of the officers of the Company. To this end, draft
agreements have been prepared which are intended to be
finalized prior to the closing of the Proposed Sale.
Keith G. Frey, Vice President of Finance and
Administration and a Director of the Company and
President of IL USA, is to be appointed President of
the new entity ("Newco") being incorporated by the
Purchaser to operate IL USA's business in the United
States, at an initial annual salary of $110,000. Luigi
Giroletti, Vice President and a Director of the Company
and President of Italiana Luce, is to be paid a fixed
sum of Lit. 40 million ($22,200) for services to be
rendered to the Purchaser between the date of closing
and August 31, 1998 in connection with the transition
of the Company's operations to the Purchaser.
Appraisal .............. Rights Under the DGCL, holders of shares of Common
Stock will not be entitled to appraisal rights in
connection with the Proposed Sale.
Termination of the The Asset Purchase Agreement may be terminated by the
Asset Purchase Purchaser if either (i) clearance of this Information
Agreement Statement by the Commission and distribution to
stockholders of the information contained herein, or
(ii) completion of certain formalities relating to
personnel matters provided for by Article 467 of
Italian Law No. 428 of December 19, 1990 has not
occurred by June 30, 1998. Alternatively, the Purchaser
may at its sole option extend the term for consummation
of the Asset Purchase Agreement or terminate it. See
"The Asset Purchase Agreement--Conditions."
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THE STOCKHOLDER CONSENT
Section 271 of the DGCL permits a Delaware corporation to sell all
or substantially all of its assets if the sale is approved and Section 275 of
the DGCL permits a Delaware corporation to dissolve if the dissolution is
approved by stockholders holding a majority of the shares entitled to vote
thereon.
The Majority Stockholder owns approximately 51.6% of the outstanding
Common Stock. In order to satisfy a condition to the Purchaser's willingness to
enter into an Asset Purchase Agreement, the Majority Stockholder irrevocably
consented in writing to the Asset Purchase Agreement and the Plan pursuant to
Section 228 of the DGCL. This written consent satisfies the Section 271 and
Section 275 stockholder approval requirements. Pursuant to Section 242 of the
DGCL, the Majority Stockholder also consented to amend the Company's certificate
of incorporation after the Proposed Sale to change the Company's name to "ILI
Liquidating Corporation." Accordingly, no vote of any other stockholder is
necessary and stockholder votes are not being solicited.
Subject to the terms and conditions of the Asset Purchase Agreement,
it is contemplated that the Proposed Sale will be consummated not earlier than
20 days after the mailing of this Information Statement and following
satisfaction or waiver of the conditions contained in the Asset Purchase
Agreement. See "The Asset Purchase Agreement--Conditions."
It is currently anticipated that an interim liquidating dividend of
$0.02 per share will be distributed to the stockholders by June 30, 1998. A
final liquidating dividend will be distributed to stockholders one year after
consummation of the Proposed Sale or as soon as practicable thereafter. Under
Italian law, a purchaser of assets is liable for all of the debts of the seller
in the event the seller does not honor its obligations. Consequently, the
Company has agreed to issue a bank guarantee for a maximum amount of Lit. 2.5
billion ($1,390,000) which will be effective for a period of one year after the
Closing as a guarantee of the indemnification obligations. See "The Asset
Purchase Agreement-- Indemnifications and Guarantee." The Company will use this
time to liquidate the receivables outstanding as of the closing date of the
Proposed Sale which management deems to be collectible without unreasonable
expense and to sell certain tangible assets not acquired by the Purchaser.
THE PROPOSED SALE/PLAN OF LIQUIDATION
BACKGROUND OF THE PROPOSED SALE
The terms of the Proposed Sale are the result of arm's-length
negotiations between the Purchaser and the Company.
In the opinion of the Company's management, the market for higher
end Italian lighting fixtures of contemporary design has been in decline for a
number of years. It is believed that the softness has been particularly
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pronounced in Europe, principally because of the sluggish economies and high
unemployment in most of the major European countries. A number of lighting
companies in Italy have closed over the past few years and many more are
believed by management to be in financial difficulty. As a result, the Company
has been approached on a number of occasions in the past few years by smaller
Italian lighting manufacturers with proposals for the consolidation of their
operations with those of the Company. The Company rejected such overtures for a
variety of reasons including an incompatibility of product lines and a belief
that the potential cost savings would be insufficient to assure a profitable
combined operation. In recent years, the Company itself has indicated its
interest in a possible merger with some of the larger participants in the
contemporary design sector of the Italian lighting industry. Ensuing exploratory
discussions with representatives of such companies never developed beyond the
preliminary stage.
In 1993, the Company, through its subsidiary IL USA, entered into an
agreement with Nemo, the current Purchaser which at that time was only partially
owned by Cassina, to distribute Nemo's new line of lighting fixtures in the
United States of America. In late 1994, Cassina acquired 100% ownership of the
Purchaser and installed new management with whom the Company's management
developed a close relationship. In October 1995, the Company indicated to the
Purchaser that it had an interest in selling its business. At that time, the
Purchaser declined to pursue the matter. However, the Purchaser did contact the
Company in early November 1997 to determine if the Company was still seeking to
sell its operations. The Company met with the Purchaser and provided it with
certain publicly available information.
Over the next few weeks the Purchaser periodically contacted Company
management to request additional information which was provided. During the
course of discussions with the Purchaser's representatives in late December, the
Purchaser indicated its willingness to discuss the possible purchase of the
Company's assets. Management advised them that any such transaction would have
to include a substantial premium over the book value of the Company's assets.
The initial offer by the Purchaser consisted of a payment of Lit. 4
billion ($2,220,000 when converted at Lit. 1,800) for the goodwill and
operations of the Company in Italy, the acquisition of the rights to produce
some of the Company's products (i.e. only the best sellers), and the purchase of
the inventory associated with these products. The Purchaser's offer assumed that
all the Company's employees in Italy would be terminated and did not contemplate
the purchase of the Company's operations in the United States. The Company
rejected this offer and proposed a payment of Lit. 6 billion ($3,330,000) for
its goodwill and worldwide operations, the sale of all of its product lines and
inventory at book value, and the hiring of some of its employees.
After further efforts by the Company's management to improve the
Purchaser's counter offer, an agreement was reached under which the Purchaser
agreed to pay Lit. 5.15 billion ($2,860,000) for the
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goodwill and worldwide operations of the Company, to hire five of the Company's
employees in Italy and all of the Company's employees in the United States, and
to purchase for what the Company estimates will amount to approximately
$1,710,000, (i) the Company's entire finished goods inventory at book value
(except for a deduction of about $16,000 in respect of inventory in excess of
six month's projected demand on certain products which the Purchaser indicated
it did not wish to market); (ii) the raw materials inventory at book value of
the products which the Purchaser wished to continue to market; (iii)
substantially all other current assets except receivables; and (iv) the book
value both of the molds required for the production of the products to be
marketed by the Purchaser and of all the fixed assets in the United States.
Throughout this process, the members of the Board of Directors were kept
generally informed of the status of the talks.
A Board meeting was held on February 23,1998 to consider the
Proposed Sale and liquidation and dissolution of the Company. Such meeting was
attended by all of the directors and by representatives of Haythe & Curley,
legal counsel to the Company, and Marshall & Stevens. The Board was informed
that the terms of an Asset Purchase Agreement had been substantially agreed,
subject to the approval of the boards of the respective parties. The Board
reviewed the principal terms of the transaction, the provisions of the DGCL
regarding directors' duties in connection with the sale of a company and
dissolution and liquidation of the Company, and Marshall & Stevens' analysis
discussed below under "Opinion of Marshall & Stevens." Board members were
provided with drafts of the Asset Purchase Agreement and the terms of the draft
agreements with Messrs. Frey and Giroletti were outlined as described in
"Interests of Certain Persons in the Proposed Sale." At this meeting, the Board
was apprised that no other offers for the Company were imminent and none were
likely to be forthcoming in the foreseeable future. The Board was also informed
that the Company's sales in Europe had continued to deteriorate in early 1998
with revenues for the two months ending February 28, 1998 projected to be
approximately 21% below budget and 12% behind those for the comparable period in
1997.
After giving the directors the opportunity to discuss all such
matters, the Board unanimously approved the Proposed Sale, the Asset Purchase
Agreement and related documents, the dissolution and liquidation of the Company
and the Plan.
OPINION OF MARSHALL & STEVENS
The Company retained Marshall & Stevens to render a reasonableness
opinion in connection with the Proposed Sale based upon Marshall & Stevens'
qualifications, expertise and reputation. Such opinion was reviewed at the
meeting of the Board of Directors held on February 23, 1998. The opinion was
dated February 23, 1998, and stated that, as of January 1998, based upon the
assumptions and methodologies relied upon, as set forth in such opinion, the
current market value of the Company's equity lay within a range of approximately
$1,200,000 and $2,300,000, before consideration of any taxes that may be due as
a result of the Proposed Sale. Consequently, Marshall &
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Stevens concluded that, assuming total liabilities will not exceed cash on hand
plus monies realized by the Company from the collection of accounts receivable
and the sale of other assets, primarily inventory, the offer of Lit. 5.15
billion ($2,860,000 when converted at Lit. 1,800) for the goodwill and
operations of the Company is financially reasonable. Marshall & Stevens noted
that its conclusion did not represent a fairness opinion.
Reasons for Commissioning a Reasonableness Opinion versus a Fairness Opinion
A reasonableness opinion employs the same valuation techniques as a
fairness opinion. A fairness opinion, however, requires the valuer to undertake
a more in-depth investigation into the background to the proposed transaction
than does a reasonableness opinion. Such investigation would involve, among
other actions, physical inspections of all major company locations, discussions
with a majority of the senior management of the seller, and meeting with the
potential buyer in order to evaluate the legitimacy of the offer. As discussed
in its opinion, Marshall & Stevens did visit the Company's American offices and
meet with local senior management. It did not visit the Company's facilities in
Italy.
Marshall & Stevens has indicated to the Company's management that,
given the additional expense involved, it was customary for clients to
commission a fairness opinion only where the transaction value was in excess of
approximately $25,000,000.
Company management elected to obtain a reasonableness opinion rather
than a fairness opinion because (i) the valuation techniques for both opinions
are the same; (ii) a fairness opinion would have cost in excess of $50,000 as
compared to the $17,000 it paid to Marshall & Stevens for its reasonableness
opinion; and (iii) it believed that neither the size of the transaction nor the
financial resources of the Company warranted the additional expenditure.
The full text of Marshall & Stevens' written opinion is attached
hereto as Annex C to the Information Statement and is incorporated herein by
reference. Stockholders of the Company are urged to, and should, read the
opinion carefully and in its entirety for the assumptions made, matters
considered and limits of the review undertaken by Marshall & Stevens. Marshall &
Stevens' report is directed to the Board of Directors and only to the
reasonableness from a financial point of view of the offer of Lit. 5.15 billion
($2,860,000) for the goodwill of the Company, assuming total liabilities will
not exceed cash on hand plus monies realized from collection of accounts
receivable and sale of, primarily, inventory, and does not address any other
aspect of the Proposed Sale, including the Company's use of the sale proceeds,
nor does it constitute a recommendation to any holder of Common Stock. Although
the Company believes that the summary of the opinion of Marshall & Stevens set
forth herein descrbes the material portions thereof, such summary is qualified
in its entirety by reference to the full text of such opinion.
In arriving at its opinion, Marshall & Stevens reviewed the nature
of the Company's business and its history from the date of its inception,
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the economic outlook in general and the condition and outlook for the specialty
lighting industry in particular as well as certain publicly available business
and financial information relating to the Company. Marshall & Stevens also
reviewed certain other information, including financial forecasts, furnished to
it by the Company and discussed the business and prospects of the Company with
Company management. In addition, Marshall & Stevens considered certain financial
data of the Company, and compared that data with stock market data for publicly
held companies in businesses similar to those of the Company. Marshall & Stevens
also considered such other information, financial studies, analyses and
financial, economic and market criteria which it deemed relevant.
In connection with its appraisal, Marshall & Stevens considered
information supplied by others which it believed to have come from reliable
sources, but no further responsibility is assumed for its accuracy. Marshall &
Stevens further assumed there were no hidden or unexpected conditions associated
with the Company that might adversely affect value. Nor does it assume
responsibility for changes in market condition which may require an adjustment
to its conclusions. The opinions of market value expressed by Marshall & Stevens
in its report assume the continuation of prudent management policies over
whatever period of time that is deemed reasonable and necessary to maintain the
character and integrity of the Company and its underlying assets.
With respect to the financial forecasts, Marshall & Stevens relied
upon the information provided it by Company management. Marshall & Stevens
recognizes that events and circumstances frequently do not occur as expected,
nor with the consequences expected. Therefore, its use of this information does
not signify any assertion or warranty on its part that such prospective
information is, or will be shown to be, correct. Furthermore, Marshall & Stevens
did not make any physical inspections of the Company's tangible assets nor was
it given any independent evaluation or appraisal of the assets or liabilities
(contingent or otherwise) of the Company's business, or with any evaluations and
appraisals of these assets. Marshall & Stevens also did not investigate the
legal title to any of the Company's assets and it does not render an opinion as
to ownership of any of the underlying properties of the Company or the condition
of their title. Marshall & Stevens assumed that title to all relevant properties
was marketable, and unless otherwise indicated in its report, that all property
was free and clear of all liens, encumbrances, easements and restrictions; that
the properties did not exist in violation of any applicable codes, ordinances,
statutes or other government regulations; and that the properties were under
responsible ownership and competent management and were available for their
highest and best use.
In arriving at its opinion and making its presentation to the Board
of Directors, Marshall & Stevens performed a variety of financial analyses. The
summary set forth below includes all material financial analyses discussed by
Marshall & Stevens with the Board of Directors, but does not purport to be a
complete description of the analyses performed by Marshall & Stevens in arriving
at its opinion. Arriving at a reasonableness opinion is a complex process that
involves various determinations as to the most
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appropriate and relevant methods of financial analysis and the application of
those methods to the particular circumstances and, therefore, such an opinion is
not necessarily susceptible to a partial analysis or summary description.
Marshall & Stevens is a national leader in the field of professional
appraisal and valuation consultation. Its practice encompasses all types of
tangible and intangible property, serving a variety of business, tax, and
financial requirements. It is regularly engaged in the appraisal and valuation
consulting needs of individual entrepreneurs, commerce and industry, and taxing
authorities as well as foreign industries and governments throughout the world.
The following is a summary of all material analyses performed by
Marshall & Stevens in connection with its opinion of financial reasonableness.
Marshall & Stevens stated that its analysis of the financial
reasonability of the Proposed Sale required an analysis of the market value of
the Company's equity in relation to the amount of the proposed offer. "Market
value" as defined by Marshall & Stevens is the price at which any property would
exchange between a willing buyer and a willing seller, neither being under
compulsion to buy or sell, with each having reasonable knowledge of the relevant
factors which have an impact on the value of the property. Market value in this
context is synonymous with the legal term "fair market value."
Marshall & Stevens stated that there were three standard methods for
estimating market value that must be considered in any valuation: the asset
valuation, or cost approach; the comparable company or capital market approach;
and the income, or Discounted Cash Flow ("DCF") approach.
The asset valuation approach requires estimation of the total value
of the individual assets, net of liabilities. The comparable company approach
requires identification of similar publicly traded companies to derive
appropriate valuation ratios applicable to the business being valued. The DCF
approach requires a reliable estimate of future cash flows to be generated by
the business for a period of, generally, five to ten years. The present value of
the projected cash flows, less liabilities, represents the equity value of the
business.
Because of the Company's unsatisfactory financial performance over
the past few years and the uncertainties associated with its earnings
capability, in the opinion of Marshall & Stevens it was not meaningful to
attempt to estimate value based on the DCF method. Instead, Marshall & Stevens
based its analysis on the asset valuation method and the comparable company
method assuming two scenarios: continued operation and orderly liquidation.
Under the premise of continued operation, the business is valued as
a whole as if it continued to operate as a profitable going concern. Under the
premise of orderly liquidation, instead of valuation of the overall
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business as a whole, each asset or class is valued on an individual basis, as if
sold individually or by class instead of as part of a going concern. The total
value of the individual items or classes, less liabilities, then represents the
value of the business under this premise.
Valuation Based on Selected Public Companies
Marshall & Stevens reviewed projections of the Company's 1998
financial performance prepared by the Company. These estimates were presented in
the form of two cases: a best case and a more likely case. In the best case
estimate, it was assumed that the successful introduction of new products in
April 1998 at Euroluce, the biennial European Light Fair, would enable the
Company to increase sales by 15% over estimated 1997 revenues. This increase
would result in a small positive net income of 2% of sales. The more likely
case, based on a more modest sales increase of 8%, would result in negative net
income. Marshall & Stevens noted that both cases presented a somewhat skewed
result since the net operating loss carryforwards available to the Company
eliminated almost all tax expense. In the opinion of Marshall & Stevens, if the
Company were to achieve results close to the best case projection it would be
able to continue operations, assuming reasonable future growth, as a going
concern. If results were close to the more likely case, Marshall & Stevens
assumed, for the purposes of its analysis, that the Company would be unable to
continue successfully as a going concern. Marshall & Stevens concluded that the
value of the Company lay within a range defined by market value in continued
operation and market value based on the sale of the Company on an orderly
liquidation.
In order to estimate the value of the Company assuming best case
results were achieved, Marshall & Stevens reviewed certain publicly available
historical information for the twelve months ended September 30, 1997 of certain
lighting companies listed under Standard Industrial Classification Code ("SIC
Code") 3465, Residential Lighting Fixtures and Allied Codes which it considered
to be reasonably comparable to the Company.
Marshall & Stevens reviewed six companies: Tivoli Industries, Inc.,
Advanced Lighting Tech. Inc., Catalina Lighting, Inc., CSL Lighting
Manufacturing, Genlyte Group, Inc. and Thomas Industries. To a varying degree,
some of these companies' products are sold in high end residential markets. In
addition, some of the sales of some of the companies selected, although mainly
domestic, are worldwide, including Europe. Each of the selected companies except
one showed increases in sales revenue over the latest five years and were
profitable. The net income ratios for all but one of the selected companies were
in a range of approximately 4% to over 8% of sales.
In contrast, the Company's sales had decreased over the past five
years while its net income turned sharply negative in 1996 with additional
substantial losses reported in 1997. Moreover, as the phrase indicated, only a
fairly low level of probability could be associated with the Company's best case
1998 projected net income of $194,000. Based on the information provided it and
on its analysis, Marshall & Stevens believed that the Company was well managed
and offered for sale high quality
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products. Nevertheless, the market demand for its products and, it was
understood, for those of its closest Italian competitors had decreased
significantly in recent years. In the opinion of Marshall & Stevens, for the
Company to prosper, sales needed to increase between 33% and 50%, a magnitude
which neither it nor the Company's management expected to occur in the near
term. Consequently, Marshall & Stevens applied a 25% discount to the valuation
multiples of the selected companies before applying them to the Company's data
derived from the best case 1998 projection.
The analysis indicated that the appropriate multiples for the
Company were (i) 5.2 times invested capital to EBITDA (earnings before interest,
taxes, depreciation and amortization); (ii) 0.4 times the share price to
revenue; (iii) 17.5 times normalized after tax earnings to share price (the "P/E
Ratio"); and (iv) 1.34 times the share price to book value. Having adjusted
EBITDA to eliminate debt, Marshall & Stevens applied a weighting factor of 0.33
to each of multiples (i) and (iii) and 0.17 to each of multiples (ii) and (iv)
thereby determining a market value of $2,300,000 for the stockholders' equity of
the Company.
Valuation Based on Orderly Liquidation
According to Marshall & Stevens, the valuation of assets based on
the concept of orderly liquidation assumed that, while the assets in question
may no longer function together in their specific current use, they would
continue individually or by class, to have an on-going in-use value. Marshall &
Stevens indicated that in any liquidation, but particularly for assets located
in Italy, it was possible that the collection of receivables and the disposition
of inventories could become very difficult without substantial discounts from
face value. For the purposes of its analysis,however, Marshall & Stevens assumed
that valuation factors similar to those considered by bank lending departments
were appropriate. Lower factors would result in valuation estimates more
reflective of forced liquidation, or auction value, than orderly liquidation.
Marshall & Stevens estimated an orderly liquidation value of the
Company to be approximately $1,200,000. This valuation, based upon unaudited
values as of December 31, 1997, assumed (i) collection of 80% of accounts
receivable; (ii) realization of 70% of the stated values of inventory; and (iii)
realization of 50% of the book value of fixed assets. In addition, Marshall &
Stevens assumed that the Company's intellectual property had a value on a
continued use basis and valued it in aggregate based on the concept of relief
from royalty. It estimated an appropriate royalty rate to be about 3% of
revenues. Applying this percentage to the Company's best case revenues of
$9,450,000 and assuming the present value discount factor was based on a 15%
cost of capital and a remaining life for these assets of fifteen years, Marshall
& Stevens determined a market value for the Company's intellectual property of
approximately $975,000.
Including cash on hand at December 31, 1997, Marshall & Stevens
computed total asset values to be realized on an orderly liquidation amounted to
approximately $4,500,000, from which it deducted liabilities of $3,300,000 to
arrive at a net value of $1,200,000 under this premise.
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Summary of Valuation
Based upon its appraisal, Marshall & Stevens determined that the
value of the Company lay within a range of approximately $1,200,000, assuming an
orderly liquidation, and $2,300,000, assuming the Company was a going concern
and achieved financial results during calendar 1998 which approximated the
Company's best case projection. The valuations at both ends of the range were
based on an exchange rate of Lit. 1,800 and excluded consideration of any taxes
that may be due as a result of the sale of the Company's assets.
Based on the foregoing and assuming that total liabilities will not
exceed cash on hand plus monies realized by the Company from the collection of
receivables and the sale of other assets, primarily inventory, Marshall &
Stevens concluded that the pending offer of $2,860,000, on a pre-tax basis, for
the goodwill and operations of the Company was financially reasonable.
It is management's opinion that cash generated from the collection
of receivables and the sale of its tangible assets, less all expenses incurred
in connection with the Proposed Sale, including the payment of all taxes, will
exceed its liabilities by about $400,000 and that total net proceeds available
for distribution to the Company's stockholders will approximate $3,250,000, or
about $0.04 per share of Common Stock.
Event Subsequent to Opinion of Marshall & Stevens
Included in Marshall & Stevens' report is an estimated income
statement for the Company for 1997 showing a projected loss of $249,410.This
information was provided to Marshall & Stevens by the Company prior to
completion of the audit of the Company's financial statements by the Company's
independent accountants. The independent accountants informed the Company that
in conformity with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and of Long-Lived Assets to
be Disposed of," and in connection with the Proposed Sale, the Company was
required to write down the value of its fixed assets and intangibles by $380,000
to reflect the price to be paid by the Purchaser for certain of these assets
plus the estimated proceeds from the liquidation of the remaining fixed assets.
As a result of this additional charge of $380,000, the Company reported a net
loss of $633,309 on its audited financial statements. In the opinion of
management the additional charge of $380,000 has no effect on Marshall &
Stevens' valuations of the Company since the write-down was occasioned by the
Proposed Sale.
Forward-Looking Information
The Company does not make, as a matter of course, public forecasts
or projections as to future performance or earnings. However, in connection with
its on-going budgetary activities, management of the Company periodically
prepares certain projections of results of operations. Certain of such
projections were supplied to Marshall & Stevens in connection with the Proposed
Sale and Marshall & Stevens' preparation of its opinion. THE PROJECTIONS
PROVIDED TO MARSHALL & STEVENS WERE BASED UPON MANY ESTIMATES
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AND ARE INHERENTLY SUBJECT TO SIGNIFICANT ECONOMIC AND COMPETITIVE UNCERTAINTIES
AND CONTINGENCIES, MANY OF WHICH ARE BEYOND THE CONTROL OF MANAGEMENT OF THE
COMPANY, INCLUDING, WITHOUT LIMITATION, THE EFFECT OF GENERAL ECONOMIC AND
MARKET CONDITIONS, BUSINESS CONDITIONS, FOREIGN CURRENCY FLUCTUATIONS,
COMPETITION, AND AVAILABILITY OF CAPITAL. ACCORDINGLY, ACTUAL RESULTS MAY BE
MATERIALLY HIGHER OR LOWER THAN THOSE PROJECTED. THE INCLUSION OF SUCH
PROJECTIONS IN MARSHALL & STEVENS' ANALYSIS SHOULD NOT BE REGARDED AS A
REPRESENTATION BY THE COMPANY OR ANY OTHER PERSON THAT SUCH PROJECTIONS WILL
PROVE TO BE CORRECT.
Pursuant to Marshall & Stevens' engagement, the Company agreed to
pay Marshall & Stevens a fee for rendering an opinion as to the financial
reasonability of the Proposed Sale. Marshall & Stevens was retained to provide a
reasonableness opinion in its capacity as an independent financial advisor.
Pursuant to a letter agreement dated January 13, 1998, as amended February 13,
1998, the Company agreed to pay Marshall & Stevens $17,000 in cash, as follows:
(i) $5,000 upon execution of the engagement letter; (ii) $10,000 upon presenting
its opinion to the Board of Directors of the Company; and (iii) $2,000 upon
completion of assistance to the Company in connection with its filing with the
Commission. The Company also agreed to reimburse Marshall & Stevens for its
reasonable out-of-pocket expenses, and to indemnify Marshall & Stevens against
certain liabilities, including liabilities relating or arising out of Marshall &
Stevens' engagement.
APPROVAL OF THE BOARD OF DIRECTORS; REASONS FOR THE PROPOSED SALE, THE PLAN AND
THE DISSOLUTION AND LIQUIDATION
The Board of Directors believes that the Proposed Sale and the
liquidation and dissolution of the Company are in the best interests of the
Company's stockholders. Accordingly, the Board of Directors has approved the
Asset Purchase Agreement and the Plan. In reaching its determination, the Board
of Directors considered the following factors:
1. Current industry and economic market conditions relating to the
Company and its business, as well as the financial condition,
assets, liabilities, and operation of the Company, both on a
historical and prospective basis. In particluar, the deteriorating
financial condition of the Company has forced it to depend at all
times upon short-term unsecured bank financing which is repayable on
demand. If the downward trend in the Company's business were to
continue for very much longer it is highly probable that the lenders
would withdraw their support which would result in the Company
having to be liquidated at auction prices. In such a scenario, the
stockholders would receive little or nothing for their investment.
2. The judgment of the Board of Directors that, given the financial
performance of the Company in recent years and the absence of any
indication of interest from any other prospective acquirer, a
disposition of the Company or its assets on terms more favorable to
the Company and its stockholders would not likely be available.
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3. The opinion of Marshall & Stevens. See "--Opinion of Marshall &
Stevens."
4. The fact that the Purchaser required the Majority Stockholder to
provide its irrevocable consent in writing to the adoption of the
Asset Purchase Agreement and the Proposed Sale as a condition to its
willingness to enter into the Asset Purchase Agreement.
In view of the wide variety of factors considered in connection with
its evaluation of the Proposed Sale, the Board of Directors did not find it
practicable to, and did not, quantify or otherwise attempt to assign relative
weights to the specific factors considered in reaching its determination.
USE OF PROCEEDS; DISSOLUTION AND LIQUIDATION FOLLOWING THE PROPOSED SALE
Use of Proceeds
Total gross proceeds to be received from the sale of the Company's
assets is estimated to be about $6,600,000, of which approximately $4,570,000
will be paid by the Purchaser pursuant to the Asset Purchase Agreement with the
balance of the cash coming from the liquidation of the Company's receivables
outstanding at the date of the consummation of theProposed Sale and certain
other assets, primarily fixed assets, not acquired by the Purchaser. Of the
gross proceeds, approximately $3,350,000 will be used to pay (i) all outstanding
liabilities and obligations of the Company including short-term debt, lease
arrangements and accounts payable; (ii) severance indemnities of approximately
$625,000 to its workforce in Italy in accordance with local requirements; (ii)
taxes, principally arising in Italy; and (iii) legal and other expenses
associated with the consummation of the Proposed Sale and the termination of the
Company's corporate existence. It is anticipated that the remaining net proceeds
will approximate $0.04 per share of Common Stock and that such an amount will be
paid in two installments to the stockholders.
ALTHOUGH THE COMPANY HAS USED ITS BEST EFFORTS TO ESTIMATE THE
AMOUNT OF THE GROSS PROCEEDS, LIABILITIES AND OTHER OBLIGATIONS AT THE DATE OF
CLOSING, AND THE EXPENSES IN CONNECTION WITH THE SALE AND LIQUIDATION OF THE
COMPANY, THESE ESTIMATES ARE BASED UPON ASSUMPTIONS OF FUTURE EVENTS WHICH ARE
BEYOND THE CONTROL OF THE COMPANY, INCLUDING, WITHOUT LIMITATION, THE COMPANY'S
FINANCIAL RESULTS PRIOR TO THE DATE OF CLOSING, FOREIGN CURRENCY FLUCTUATIONS,
THE ABILITY TO COLLECT PAYMENT FOR RECEIVABLES, AND THE FAILURE TO FIND BUYERS
FOR THE FIXED ASSETS AT PRICES ASSUMED. CONSEQUENTLY, THERE CAN BE NO ASSURANCE
THAT THE COMPANY WILL BE ABLE TO GENERATE NET PROCEEDS OF $3,250,000 OR THAT THE
AMOUNT AVAILABLE FOR DISTRIBUTION TO THE STOCKHOLDERS WILL BE $0.04 PER SHARE OF
COMMON STOCK.
The table attached hereto as Annex D summarizes the calculation made
by management in estimating the amount of $0.04 per share of Common Stock which
it believes will be available for distribution to the stockholders and is
incorporated herein by reference.
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Excluding the goodwill payment, the data shown in Annex D are based
upon management's best estimates of the value of the assets and liabilities of
the Company as at the date of closing and of the costs and expenses to be
incurred in consummating the Proposed Sale, winding up the affairs of the
Company and distributing the liquidating dividends to the Company's
stockholders. Moreover, approximately Lit. 5 billion ($2,775,000) of the net
cash proceeds will be received initially in Italian lire which it is projected
will be converted into U.S. dollars from time to time between May 1998 and April
1999 as funds accumulate. It has been assumed that all lire amounts are
converted into U.S. dollars at an exchange rate of Lit. 1,800. (At the close of
business on April 13, 1998, the spot rate for the Italian lira quoted in the
Wall Street Journal for trades of one million dollars and more was Lit. 1,802 to
U.S. $1.00. Trades of less than one million dollars, such as those the Company
anticipates effecting, will provide nominally fewer lire per dollar).
THE ACTUAL AMOUNT TO BE REALIZED IN U.S. DOLLARS IS DEPENDENT UPON
THE RATE OF EXCHANGE ON THE DAY WHEN EACH TRANSFER OF FUNDS FROM ITALY OCCURS
AND THERE CAN BE NO ASSURANCE THAT THE WEIGHTED AVERAGE RATE OF EXCHANGE FOR ALL
SUCH TRANSFERS WILL BE LIT. 1,800 AS HAS BEEN ASSUMED. NOR CAN THERE BE ANY
ASSURANCE THAT THE ESTIMATED ASSETS, LIABILITIES, COSTS AND EXPENSES SET FORTH
ABOVE WILL APPROXIMATE THE ACTUAL AMOUNTS REALIZED FOR SUCH ITEMS.
Dissolution and Liquidation Following the Proposed Sale
Immediately following the Proposed Sale, the Company's assets will
consist principally of cash from the proceeds of sale, the Company's receivables
as at the date of the Proposed Sale and certain other assets, primarily fixed
assets, not acquired by the Purchaser. The Purchaser has agreed to assist IL USA
in the collection of its receivables. However, the Company will be responsible
for the collection of the receivables of Italiana Luce and for the disposition
of certain other assets not acquired by the Purchaser.
Under Italian law, a purchaser of assets is liable for all of the
debts of the seller in the event the seller does not honor its obligations.
Consequently, under the terms of the Asset Purchase Agreement, the Company will
issue a bank guarantee for a maximum amount of Lit. 2.5 billion ($1,390,000)
which will be effective for a period of one year after the date of closing as a
guarantee of its indemnification obligations (see "The Asset Purchase
Agreement--Indemnification and Guarantee"). It is management's opinion that the
Purchaser will require up to Lit. 1 billion ($555,000) of the bank guarantee to
remain in escrow until the end of the one year period and that this money will
therefore not be available for distribution to the stockholders before then. The
Company will use this time to liquidate the receivables outstanding as of the
consummation date of the Proposed Sale and to sell certain assets not acquired
by the Purchaser, principally warehouse equipment, motor vehicles, and office
furniture located in Italy.
Upon consummation of the Proposed Sale, the Company will no longer
have any operating assets and will cease business other than winding up its
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affairs and matters incidental thereto and distributing the net sale proceeds to
its stockholders. The Company also plans to liquidate its subsidiaries.
The Company expects to pay an interim liquidating dividend of $0.02
per share of Common Stock out of the funds remaining from the sale proceeds
received from the Proposed Sale and after payment of the Company's outstanding
liabilities and the expenses incidental to the sale. It is anticipated that the
Common Stock of the Company will continue to be quoted on the OTC Bulletin Board
and in the National Quotation Bureau's "Pink Sheets" until such proceeds are
distributed in cancellation of the Common Stock. It is expected that this
interim distribution will occur on or about June 30, 1998 and that a final
distribution will be made one year after the consummation of the Proposed Sale
or as soon as practicable thereafter.
The Plan
As noted above, the Company's Board of Directors and the Majority
Stockholder have approved the Plan. The following is a summary of the material
terms of the Plan, a copy of which is attached hereto as Annex B to this
Information Statement and is incorporated herein by reference. This summary is
qualified in its entirety by reference to the full text of the Plan. The Plan
provides that after consummation of the Proposed Sale the Company will not
engage in any business except for purposes of preserving the value of the
Company's assets (which will consist principally of the proceeds from the
Proposed Sale), winding up its business affairs and making the pro rata
distributions (the "Liquidating Distributions") to its stockholders of all of
its remaining assets except those required for payment of any claims or
obligations of the Company. It further provides that, as promptly as practicable
after the consummation of the Proposed Sale, the Company will be dissolved upon
filing a Certificate of Dissolution pursuant to the DGCL.
The Plan requires that the Company sell all of its remaining assets,
pay or make provisions for the payment of all of its known or ascertainable
liabilities and make the Liquidating Distributions. The Board may, in its sole
discretion, establish a contingency reserve to satisfy any claims against the
Company and expenses of the sale of its assets and the liquidation and
dissolution. The Liquidating Distributions will be in complete redemption and
cancellation of all of the outstanding Common Stock. The Board will fix a record
date for the interim Liquidating Distribution, after which certificates
representing Common Stock will not be assignable or transferable on the
Company's books except by will, intestate succession or operation of law. The
stockholders must surrender their certificates (or, if required by the Board in
its absolute discretion, furnish indemnity bonds in case of lost or destroyed
certificates) as a condition to their receipt of the interim Liquidating
Distribution. Subsequent to fixing the record date for the Interim Liquidating
Distribution, the Company will send to each holder of Common Stock a letter of
transmittal to be used in such surrender of certificates. STOCKHOLDERS ARE
REQUESTED NOT TO SURRENDER THEIR CERTIFICATES FOR CANCELLATION UNTIL THEY
RECEIVE A LETTER OF TRANSMITTAL AND INSTRUCTIONS FROM THE COMPANY.
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Each holder of shares of Common Stock, upon surrender to the Company of a
certificate or certificates representing such shares of Common Stock, together
with a properly completed letter of transmittal, will be entitled to receive in
exchange therefor the Liquidation Distributions, when made, which such holder
has a right to receive. If a Liquidating Distribution cannot be made because a
stockholder cannot be located, the Company will comply with the applicable state
abandoned property law (determined by the missing stockholder's last known
address), including with respect to any notice requirements.
The Plan provides for the Company to continue to indemnify its
officers, directors, employees and agents in accordance with its Certificate of
Incorporation and Bylaws. To the extent permitted by law, the Plan authorizes
the Board to amend the Plan as it deems appropriate in order to complete the
liquidation and dissolution of the Company. In the event of a vacancy occurring
on the Board for any reason the remaining board members (or the surviving
officer if there are no board members) have authority to fill the vacancy but
failure to do so will not impair the authority of the remaining board members to
exercise the powers provided them by the Plan. The Plan provides that the
Company may, in the absolute discretion of the Board, pay to the Company's
officers, directors and employees additional compensation above their regular
compensation in recognition of any extraordinary contributions they may make in
connection with the successful implementation of the Plan.
The Board is authorized by the Plan to establish, if necessary for
any reason to complete the liquidation and distribution, a liquidating trust
into which any remaining assets of the Company may be transferred to be held as
a reserve for contingent liabilities. The Company has no plan to use a
liquidating trust, but believes the flexibility provided by the Plan to allow
such a trust to be established is advisable.
Stockholders' Continuing Liability
If a court were to hold that the Company failed to pay or to make
adequate provision for its liabilities, a creditor of the Company might obtain
an injunction delaying or diminishing the distributions to the stockholders
anticipated pursuant to the Plan. Further, pursuant to Section 282 of the DGCL,
the stockholders of the Company may be held personally liable for the payment of
any claim against the Company, but such personal liability will not exceed the
lesser of the stockholder's pro rata share of the claim or the amount
distributed to such stockholder pursuant to the Plan.
TAX CONSEQUENCES
The Proposed Sale will be a taxable transaction and the Company and
its subsidiaries will recognize gain or loss on the sale of their respective
assets. The net proceeds of the Proposed Sale and related transactions will be
distributed to the stockholders of the Company in one or more liquidating
distributions in complete redemption and cancellation of all of the
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outstanding Common Stock of the Company. Stockholders will recognize capital
gain or loss equal to the amount of cash and value of property distributed less
the stockholder's tax basis in his shares. The capital gain or loss will be
long-term if the stockholder has held his shares of Company Common Stock for
longer than twelve months.
Stockholders who acquired stock in the Company pursuant to the
Amended Plan of Reorganization of Chartwell Group Ltd. ("Chartwell") and CGL
Finance, Inc. a wholly-owned subsidiary of Chartwell (the "Plan of
Reorganization") may be subject to special rules in determining the tax basis of
their stockholdings in the Company.
(i) Chartwell stockholders
The tax basis of any shares of Company stock acquired in exchange for the
common stock of Chartwell pursuant to the Plan of Reorganization will be
the same as the basis of the Chartwell common stock surrendered in
exchange therefor.
(ii) Chartwell debt security holders
The tax basis of any shares of Company stock acquired in exchange for debt
securities of Chartwell pursuant to the Plan of Reorganization will be the
same as the basis in the debt securities surrendered in exchange therefor.
All stockholders are encouraged to consult with their tax advisors
as to their particular tax treatment.
INTERESTS OF CERTAIN PERSONS IN THE PROPOSED SALE
In connection with the Proposed Sale, the Purchaser has indicated
its intention to enter into separate agreements with Keith G. Frey,
VicePresident of Finance and Administration and a Director of the Company and
President of IL USA, and Luigi Giroletti, Vice President and a Director of the
Company and President of Italiana Luce.
Under the terms of his draft employment agreement, which is of a two
year duration, Mr. Frey is to be appointed President of the new entity ("Newco")
being incorporated by the Purchaser to assume IL USA's business in the United
States at an initial annual salary of $110,000. Under the terms of his draft
consultancy agreement, Mr. Giroletti is to be paid a fixed sum of Lit. 40
million ($22,200) for services to be rendered in connection with the transition
of the Company's operations to the Purchaser in the six months immediately
following the consummation of the Proposed Sale. His agreement also contains a
non-competition covenant for the duration of his contract and a promise by Mr.
Giroletti not to endeavor to solicit away from the Purchaser, for a period of
one year after expiration of his agreement, any officer or employee of the
Purchaser or any person who is or may become a major customer of the Purchaser.
The Board of Directors has approved the payment of $100,000 to
Sofinance S.r.l., an investment banking company of which Michel F. Leemans,
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<PAGE>
Chairman and Chief Executive Officer of the Company is a director, for
investment banking services rendered in connection with the Proposed Sale. None
of this payment is to be paid directly to Mr. Leemans.
Messrs. Frey, Giroletti and Leemans also have an interest in the
Proposed Sale by virtue of their ownership of 100% of the shares of Itamlight
S.A., a Luxembourg company, which owns approximately 51.6% of the Common Stock
of the Company. In addition, Mr. Frey owns shares of Common Stock of the Company
for his own account. See "Security Ownership of Certain Beneficial Owners and
Management."
NO APPRAISAL RIGHTS
Pursuant to the DGCL, holders of shares of Common Stock will not be
entitled to rights of appraisal in connection with the Proposed Sale.
-24-
<PAGE>
THE ASSET PURCHASE AGREEMENT
Although the Company believes that the following summary describes
the material terms and conditions of the Asset Purchase Agreement, such summary
is qualified in its entirety by reference to the full text of the Asset Purchase
Agreement, a copy of which is attached as Annex A to this Information Statement
and is incorporated herein by reference. Terms which are not otherwise defined
in this summary have the meaning set forth in the Asset Purchase Agreement.
ASSETS TO BE SOLD
The Asset Purchase Agreement provides for the sale by the Company to
the Purchaser of substantially all of its assets.
Assets to be Sold
The assets to be sold by the Company to the Purchaser pursuant to
the Asset Purchase Agreement (the "Acquired Assets") include all of the assets
of the Italian Business (as defined below) and all of the assets of the US
Business (as defined below). The Company will retain certain assets which it
will undertake to liquidate (the "Excluded Assets," as defined below).
The Italian Business
Italiana Luce owns a business engaged in the design, manufacture and
distribution of lighting products (the "Italian Business"). The Italian Business
is defined as being comprised exclusively of (a) the commercial goodwill; (b)
the entire inventory of finished goods; (c) the inventory of raw materials and
semi-finished products for those products which the Purchaser has elected to
continue to sell; (d) the equipment and molds necessary to produce the products
which the Purchaser has elected to continue to sell; (e) all main suppliers and
customers; (f) all industrial and commercial documentation which is actually
used in or which may be used exclusively in the Italian Business; (g) the
designs, drawings and, generally, the documentation, including catalogs,
relating to new products; (h) the trademark registrations, trade names, patents,
patent applications and designs and, more generally, any intellectual property
right belonging or pertinent to the Italian Business; and (i) the agreements
entered into with designers, distributors, commercial agents and suppliers.
The US Business
IL USA owns a business engaged in the distribution in the United
States of America of lighting products manufactured by Italiana Luce, Foscarini
Murano S.p.A. and Tre Ci Luce S.n.c., as well as the distribution of the Rialto
collection (the "US Business"). The US Business is defined as being comprised
exclusively of (a) the commercial goodwill; (b) the entire inventory of finished
goods; (c) the inventory of raw materials and semi-finished products for those
products which the Purchaser has elected to
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<PAGE>
continue to sell; (d) catalogs and price lists; (e) prepaid expenses; (f)
deposits; (g) fixed assets comprised of warehouse equipment, testing equipment,
office furniture and machinery, and leasehold improvements; (h) intellectual
property rights; and (i) agreements with distributors, agents, suppliers and
consultants.
Excluded Assets
All assets not defined as comprising either the Italian Business or
the US Business are being retained by the Company (the "Excluded Asets"). The
Excluded Assets consist principally of (a) cash and cash equivalents; (b)
accounts receivable; (c) raw materials and semi-finished products for those
products which the Purchaser has elected not to continue to sell; (d) warehouse
equipment, motor vehicles and office furniture located in Italy; (e) leases in
Italy; and (f) deposits in Italy.
The Company will collect the receivables, dispose of the inventory,
sell the warehouse equipment, motor vehicles and office furniture, and terminate
the leases. The net proceeds generated from these efforts will be included in
the final Liquidating Dividend to be distributed to the Company's stockholders.
Liabilities
Pursuant to the Asset Purchase Agreement, all liabilities of the
Company outstanding at the date of Closing shall remain the responsibility of
the Company. The Company agrees to indemnify the Purchaser and/or Newco, as the
case may be, for any amount eventually paid by the Purchaser to any creditor of
the Italian Business or of the US Business for debts in respect of such
businesses and existing at the date of Closing.
Employees
The Purchaser represents that it has agreed to purchase the Italian
Business on the express understanding that it will offer employment to five
employees only of Italiana Luce and that the balance of the employees are to be
terminated by Italiana Luce (or, if need be, after Closing, by the Purchaser) at
the sole cost and expense of Italiana Luce. To this end, Italiana Luce has
agreed that immediately after execution of the Asset Purchase Agreement it will
issue the required notice to each employee being terminated and subsequently
endeavor to reach an agreement with such individual on his/her severance
compensation.
With respect to those employees whom the Purchaser does not wish to
employ but with whom Italiana Luce is unable to reach an agreement prior to the
Closing, the Purchaser will, immediately after Closing, commence the procedure
for their collective dismissal as prescribed by Italian law. The procedure for
the collective dismissal and its outcome will be the exclusive responsibility of
Italiana Luce and will be at its sole expense.
If any of the dismissed employees is reinstated by court order,
Italiana Luce will be responsible for the payment of any salary, damages or
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<PAGE>
indemnity due to any such reinstated employee together with all applicable
costs. Further, if the Purchaser is not permitted for any reason to dismiss in
substitution for the reinstated employee one of the five former employees of
Italiana Luce which it had initially agreed to hire or one of the Purchaser's
own employees, the Company will pay to the Purchaser Lit. 500 million
($277,750).
All current employees of IL USA will be hired by Newco on the same
terms and conditions as they presently enjoy.
PURCHASE PRICE
The Asset Purchase Agreement provides for the sale by the Company to
the Purchaser of the Italian Business and the US Business for a price of Lit.
5.15 billion ($2,860,000) for the goodwill and operations of the Company plus
the cost, principally at book value at the date of closing, of the listed
inventory and the listed equipment and molds. Management estimates the aggregate
consideration will approximate $4,750,000 (see Annex D).
The Purchase Price will be paid in two installments. At the date of
closing, the Purchaser will pay $2,860,000 for the goodwill and operations of
the Company and 70% of the book value at December 31, 1997 of the inventory and
fixed assets relating to those items which the Purchaser has agreed to purchase
at the date of closing. Within sixty days of the date of closing, the Purchaser
will pay for the actual book value at the date of closing of the inventory and
fixed assets it has agreed to purchase less the amount paid at the date of
closing.
REPRESENTATIONS AND WARRANTIES
The Asset Purchase Agreement contains various customary
representations and warranties of the Company and the Purchaser. These include
representations and warranties by the Company as to (a) corporate authority to
enter into the Asset Purchase Agreement; (b) fairness of the financial
statements of Italiana Luce and IL USA; (c) conduct of the business; (d) absence
of any material infringements of the Company's intellectual properties; (e)
corporate organization and good standing and corporate power and authority; (f)
maintenance of complete books and records and accuracy thereof; (g) compliance
with all tax laws and requirements; (h) employee and labor relations; (i)
absence of any actual or pending litigation; (j) no material violation of any
law or rights of third parties; and (k) absence of misrepresentations. The
Purchaser's representations and warranties include those as to (a) corporate
authority to enter into the Asset Purchase Agreement; (b) corporate
organization; and (c) promise to pay the Company for any receivable arising
prior to the date of Closing which is erroneously paid to the Purchaser.
The representations and warranties of the Company will remain in
effect for a period of two years after the date of closing, except for any
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<PAGE>
representations and warranties of a fiscal or social security nature which will
remain in effect until the relevant statute of limitations has expired.
INDEMNIFICATION AND GUARANTEE
The Company has agreed in the Asset Purchase Agreement to indemnify
and hold harmless the Purchaser or Newco, as the case may be, in respect of any
liability, loss, damage and cost resulting from any misrepresentation or breach
of warranty by the Company. These representations and warranties will remain in
effect for a period of two years from the date of closing, except for any
representations and warranties of a fiscal or social security nature which will
remain in effect until the relevant statute of limitations has expired. The
maximum amount indemnifiable under the Asset Purchase Agreement is Lit. 3
billion ($1,667,000).
Under the terms of the Asset Purchase Agreement, the Company will
issue a bank guarantee for a maximum amount of Lit. 2.5 billion ($1,390,000)
which will be effective for a period of one year after the Closing as a
guarantee of the indemnifiction obligations. The bank guarantee will be secured
by an equivalent amount of cash. The Company has the right to request the
Purchaser to reduce the maximum amount guaranteed by the bank guarantee to take
into account payment by the Company of its outstanding liabilities at the date
of closing. The Company expects to settle most of its obligations within
approximately thirty days of the date of closing at which time it will seek a
reduction in the bank guarantee. It is management's opinion that the Purchaser
will agree to a reduction in the bank guarantee at that time of at least Lit.
1.5 billion ($833,000). As further undertakings and obligations of the Company
to the Purchaser are satisfied, the Company intends to seek further reductions
in the amount of the bank guarantee outstanding. The Company has the right to
claim damages from the Purchaser in the event that the Purchaser unjustifiably
refuses to reduce the bank guarantee to the amount requested by the Company.
Covenants
Pursuant to the Asset Purchase Agreement, the Company has agreed
that from December 31, 1997 through the date of closing, except as disclosed in
writing to the Purchaser prior to Closing, it shall not (i) enter into any
transactions other than as provided in the Asset Purchase Agreement or otherwise
in the ordinary course of business which materially and adversely affect the
Italian Business and/or the US Business; (ii) conclude or terminate any
agreements or undertake any other material obligation of a long-term nature
affecting either the Italian Business or the US Business; and (iii) purchase,
sell or agree to purchase or sell any business or asset, except in the ordinary
course of business.
Non Competition
Italiana Luce and IL USA have agreed to abstain for a period of five
years from the date of closing from commencing a new activity in Italy or the
United States, respectively, which is likely to compete directly with
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<PAGE>
the Italian Business and/or the US Business.
For the duration of his consultancy agreement with the Purchaser
(see "--Interests of Certain Persons in the Proposed Sale"), Mr Giroletti is not
permitted to enter into any activity within Italy competitive with the Italian
Business and, for a period of one year after expiration of his consultancy
agreement, must not attempt to entice away from the Purchaser any officer or
employee of the Purchaser or any person who is or will become a major customer
of the Purchaser.
From the date of closing, Italiana Luce and IL USA shall abstain
from any further use of the names "Italiana Luce" and "IL USA." Within thirty
days after closing, IL International, Italiana Luce and IL USA shall change
their names so as to avoid any reference to the names "Italiana Luce" and "IL."
Expenses
The Asset Purchase Agreement provides for the Purchaser to bear the
cost of all taxes and expenses arising from the Asset Purchase Agreement and the
execution of the Notarial Deed in Italy as well as any other taxes and expenses
connected therewith.
Governing Law and Settlement of Disputes
The Asset Purchase Agreement is to be governed by Italian law. Any
difference or dispute arising out of or in connection with the Asset Purchase
Agreement is to be settled under the Rules of Arbitration of the International
Chamber of Commerce. The place of arbitration will be Milan, Italy.
CERTAIN INFORMATION CONCERNING THE PURCHASER
The Purchaser is a wholly-owned subsidiary of Cassina S.p.A., a
major European manufacturer of contemporary design furniture. It designs,
markets and distributes a line of contemporary design lighting fixtures. The
principal executive offices of the Purchaser are located at Via Busnelli, 1,
20036 Meda (MI), Italy and its telephone number is 011 39 (0362) 34821.
-29-
<PAGE>
PRO FORMA BALANCE SHEET AND ADJUSTMENTS
($000)
<TABLE>
<CAPTION>
| - - - - - - - - PROFORMA ADJUSTMENTS - - - - - - - |
LIQUIDATED PRO FORMA
AS AT SOLD TO BY LIQUIDATION SETTLEMENT BALANCE
12/3/1997 NEMO COMPANY COSTS OF DEBTS @ 12/31/97
(1) (2) (3) (4) (5) (6)
-------- ------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
======
CASH $557 $ 4,787 $ 2,099 $(4,250) $3,193
ACCOUNTS RECEIVABLE, NET 1,834 (1,834) 0
INVENTORY 1,802 (1,690) (78) 0
(34)(A)
OTHER CURRENT ASSETS 239 (97) (88) 0
(54)(B)
FIXED ASSETS, NET 182 (130) (52) 0
OTHER ASSETS 57 (10) (47) 0
------ ------- ------- ----- ------- ------
TOTAL ASSETS $4,671 $ 2,860 $ (88) $ 0 $(4,250) $3,193
====== ======= ======= ===== ======= ======
LIABILITIES & EQUITY
====================
SHORT-TERM DEBT $921 $ (921) $0
CURRENT INSTALLMENTS OF LTD 16 (16) 0
ACCOUNTS PAYABLE 1,059 (1,059) 0
INCOME TAXES 1 170 (171) 0
OTHER ACCRUED LIABILITIES 999 450 (1,449) 0
LONG-TERM DEBT 9 (9) 0
OTHER LIABILITIES 336 289 (625) 0
EQUITY 1,330 2,860 (909) 3,193
(88)(A)(B)
------ ------- ------- ----- ------- ------
TOTAL LIABILITIES
& EQUITY $4,671 $ 2,860 $ (88) $ 0 $(4,250) $3,193
====== ======= ======= ===== ======= ======
</TABLE>
SEE NOTES ON FOLLOWING PAGES
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<PAGE>
NOTES TO PROFORMA BALANCE SHEET
(000)
The pro forma balance sheet has been prepared assuming that substantially all of
the assets of the Company are sold to Nemo and that the Company will liquidate
the remaining assets, pay all its obligations and wind up its affairs.
(1) Balances as at December 31, 1997 as presented in Form 10-KSB/A.
(2) Proposed payments made by Nemo for purchase of specified assets,
comprising:
Goodwill $2,860
Inventory, principally at book value 1,690
------
Catalogs, new product development costs etc. 97
Molds and certain other fixed assets at book value 130
Rent deposit 10
------
Estimated cash to be received from Nemo $4,787
======
(3) Assets expected to be liquidated by the Company and
(A) loss on disposition of inventory ($34), and
(B) expensing of certain prepaid expenses ($54), in the ordinary course
of business, subsequent to the date of the balance sheet.
Assumptions on realizability of assets not purchased by Nemo
- The net book value of accounts receivable as of December 31, 1997
are expected to be realized through collections from customers.
- The raw materials and semi-finished product are expected to be
assembled and sold at close-out prices for an estimated $78, net of
assembly and selling costs.
- The fixed assets were written down at December 31, 1997 to their net
realizable values. They consist principally of motor vehicles,
racking, forklift trucks and other warehouse equipment, and office
furniture.
- Other current assets, consisting principally of miscellaneous
receivables, are expected to be realized through collections in the
normal course of business. The prepaid expenses are expected to be
expensed through normal operations.
- Other assets, consisting of rent deposits, are anticipated to be
refunded by the landlords.
-31-
<PAGE>
NOTES TO PROFORMA BALANCE SHEET
(Continued)
(000)
(4) To record estimated expenses relating to the liquidation of the Company.
Income taxes due on sale $170
Costs per Annex D for costs relating to the
liquidation of the Company, professional fees,
shareholder communications and contingency 450
Severance payments in excess of amounts
accrued at December 31, 1997 289
----
$909
====
(5) Estimated payments of all outstanding obligations of the Company in the
course of liquidating the Company.
(6) Estimated cash available for distribution to stockholders ($3,193) after
completion of the sale to Nemo, the payment of all obligations and the
winding up of the Company's affairs.
IMPORTANT
The pro forma balance sheet and adjustments presented above represent what might
have been realized by the Company had the Proposed Sale been consummated on
December 31, 1997. The schedule does not purport to show what the actual net
proceeds will be. The actual amount realized will depend, among other things, on
the value of assets and liabilities existing on the date of closing which will
occur at some future time, currently estimated to be May 27, 1998.
ALTHOUGH THE COMPANY HAS USED ITS BEST EFFORTS TO ESTIMATE THE AMOUNT OF THE
GROSS PROCEEDS, LIABILITIES AND OTHER OBLIGATIONS AT THE DATE OF CLOSING, AND
THE EXPENSES IN CONNECTION WITH THE SALE AND LIQUIDATION OF THE COMPANY, THESE
ESTIMATES ARE BASED UPON ASSUMPTIONS OF FUTURE EVENTS WHICH ARE BEYOND THE
CONTROL OF THE COMPANY, INCLUDING, WITHOUT LIMITATION, THE COMPANY'S FINANCIAL
RESULTS PRIOR TO THE DATE OF CLOSING, FOREIGN CURRENCY FLUCTUATIONS, THE ABILITY
TO COLLECT PAYMENT FOR RECEIVABLES, AND THE FAILURE TO FIND BUYERS FOR THE FIXED
ASSETS AT PRICES ASSUMED. CONSEQUENTLY, THERE CAN BE NO ASSURANCE THAT THE
COMPANY WILL BE ABLE TO GENERATE NET PROCEEDS OF $3,250,000 OR THAT THE AMOUNT
AVAILABLE FOR DISTRIBUTION TO THE STOCKHOLDERS WILL BE $0.04 PER SHARE OF COMMON
STOCK.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of April 13, 1998, the total
number of shares of Common Stock beneficially owned, and the percent so owned,
by each Director of the Company, by each person known to the Company to be the
beneficial owner of more than 5% of the outstanding Common Stock, by the
Company's Chief Executive Officer and the Company's other executive officers
during the fiscal year ended December 31, 1997 and by all Directors and
executive officers as a group. The address for all such persons other than Einar
Paul Robsham, is in care of the Company. The address for Mr. Robsham is P.O. Box
5151, Cochituate, MA 01778. The number of shares owned are those "beneficially
owned," as determined under the rules of the Commission, and such information is
not necessarily indicative of beneficial ownership for any other purpose. Under
such rules, beneficial ownership includes any shares as to which a person has
sole or shared voting power or investment power and any share of Common Stock
which the person has the right to acquire within 60 days through the exercise of
any option, warrant or right, through conversion of any security, or pursuant to
the automatic termination of power of attorney or revocation of trust,
discretionary account or similar arrangement.
AMOUNT AND NATURE
OF BENEFICIAL PERCENT OF
NAME OWNERSHIP CLASS
- ---- ----------------- ----------
Michel F. Leemans
President, Chief Executive
Officer and Director............. 39,653,861(1) 51.6%
Keith G. Frey
Vice President, Finance
and Administration, Chief
Financial Officer and
Director......................... 39,654,045(2) 51.6%
Luigi Giroletti
Vice President and Director...... 39,653,861(1) 51.6%
Thomas R. Reardon
Director......................... -0- --
Lewis G. Singer
Director......................... -0- --
Einar Paul Robsham
Greater than 5% holder........... 5,099,116 6.6%
All Directors and executive
officers as a group.............. 39,654,045 51.6%
- ----------
(1) Represents 39,653,861 shares owned by Itamlight S.A., a Luxembourg
corporation ("Itamlight"). Messrs Leemans, Frey and Giroletti are the sole
shareholders of Itamlight.
(2) Includes 39,653,861 shares owned by Itamlight.
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<PAGE>
MARKET PRICE DATA
The Common Stock is listed and traded on the OTC Bulletin Board and
in the National Quotation Bureau's "Pink Sheets" under the symbol ILIL. On March
5, 1998, the last trading day preceding the public announcement of the execution
and delivery of the Asset Purchase Agreement, the closing bid and ask prices per
share of Common Stock were $0.005 and $0.015, respectively. On April 28, 1998,
the most recent practicable date prior to the printing of this Information
Statement, the closing price per share of Common Stock on the Pink Sheets was
$0.025.
April 29, 1998
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<PAGE>
ANNEX A
- --------------------------------------------------------------------------------
PROMISE TO PURCHASE AND SELL
By and Between
ITALIANA LUCE S.r.l. and IL USA Inc.
and
NEMO S.r.l.
- --------------------------------------------------------------------------------
<PAGE>
CONTENTS
Article Subject Matter Page
- ------- -------------- ----
1. Definitions 3
2. Preparatory Steps 6
2.1 Incorporation of NEWCO
2.2 Procedure under Article 47 of Law No. 428/1990
2.3 Pro Forma Financial Statements - Audit - Due Diligence
2.4 Clearance from the SEC
3. Promise to Sell and Purchase - Object 7
3.1 Agreement to sell and purchase the Italian Business
3.2 Agreement to sell and purchase the US Business
3.3 Composition of the Italian Business
3.4 Composition of the US Business
3.5 Exclusions
4. Employees and Agents 8
4.1 Current employees of the Italian Business
4.2 Collective dismissal - Responsibilities of Italiana Luce S.r.l.
4.3 Liability of Italiana Luce S.r.l. in case of reinstatement of
redundant employees
4.4 Reduction of the Italian Purchase Price
4.5 Agents of the Italian Business
4.6 Employees and Consultants of the US Business
<PAGE>
4.7 Agents of the US Business
5. Purchase Price and Payment 11
5.1 Italian Purchase Price
5.2 US Purchase Price
5.3 Payment of the Italian Purchase Price
5.4 Payment of the US Purchase Price
5.5 Method of payments and possible withholdings
6. Closing - Conditions Precedent 12
6.1 Time and place of Closing
6.2 Conditions precedent
6.3 No litigation pending or threatened
6.4 Actions to be performed at Closing
7. Conduct of the Italian Business and of the US Business
up to Closing - Transfer of Title 14
7.1 Conduct of Business - Transfer of existing contracts
7.2 No pledges and encumbrances
7.3 Effective date of transfer
7.4 Insurance coverage - Delivery of Italian Inventory and
US Inventory
8. Representations and Warranties 15
A) Representation and Warranties of the Sellers 15
8.1 Authority to sell and transfer
8.2 No change in the economic and financial position of the
Businesses
8.3 No transaction other than in ordinary course
8.4 Intellectual Property - No claim for infringement thereof
<PAGE>
8.5 Good standing - Books and records
8.6 Compliance with tax requirements
8.7 Compliance with labor and social security requirements
8.8 No pending or threatened litigation - Tax certificates
8.9 No material violation of laws and regulations - Conformity
with regulatory standards
8.10 Representations and Warranties true and correct as of the
Date of Closing
8.11 Completeness and fairness of representations
B) Representation and Warranties of the Purchaser 19
8.12 Authority of the Purchaser and NEWCO
8.13 Accidental collection of receivables of Italiana Luce S.r.l.
8.14 Purchaser wholly owned by Cassina S.p.A.
8.15 Representations true and correct as of the Date of Closing
9. Indemnification and Guarantee 20
9.1 Extent of joint and several indemnification
9.2 Duration of Representations and Warranties -
Notice of claim
9.3 Ceiling and time for indemnification
9.4 Defense of claims and settlement
9.5 Bank Guarantee - Reduction of maximum amount
10. Non Competition 22
10.1 No direct competition for a period of five years
10.2 Consultancy Agreement between Nemo and Mr. Luigi Giroletti -
Non competition by Mr. Luigi Giroletti
10.3 No further use of the names Italiana Luce and IL USA
10.4 Remedies
10.5 Survival to Closing
<PAGE>
11. Expenses and Taxes 23
12. Governing Law - Settlement of Disputes - Miscellanea 24
12.1 Governing law
12.2 Entire agreement - Amendments
12.3 No assignment
12.4 Contents page and headings
12.5 Settlement of disputes
13. Announcements and Notices 25
13.1 Announcements to be agreed
13.2 Notices and communications
***
List of Exhibits 26
<PAGE>
PROMISE TO PURCHASE AND SELL
Agreement made in Milan this 5th day of March 1998
By and Between
Italiana Luce S.r.l., a company incorporated and existing under the laws of
Italy, with offices at 118, Via Edison, Settimo Milanese (Milan), represented
herein by its President, Mr. Luigi Giroletti, duly authorized to enter into this
Agreement following a resolution of the Board of Directors dated February
27,1998 attached hereto as Exhibit 1 (hereinafter: "Italiana Luce") and
IL USA Inc., a company incorporated and existing under the laws of Delaware,
USA. with offices at 400 Long Beach Boulevard, Stratford, CT, USA, represented
herein by Mr. Luigi Giroletti in his capacity as Vice President, duly authorized
to enter into this Agreement following a unanimous written consent of the Board
of Directors dated February 25, 1998 attached hereto as Exhibit 2 (hereinafter:
"IL USA"), (Italiana Luce and IL USA also referred to as, collectively: the
"Sellers").
-of the first part -
and
Nemo S.r.l., a company incorporated and existing under the laws of Italy, with
offices at 1, Via Busnelli, Meda (Milan), represented herein by its Managing
Director, Mr. Sandro Maggini, duly authorized to enter into this Agreement
following a resolution of the Board of Directors dated March 2, 1998 attached
hereto as Exhibit 3 (hereinafter: the "Purchaser")
1
<PAGE>
- of the second part -
WHEREAS
(a) Italiana Luce owns a business engaging in the design, manufacture and
distribution of lighting products (hereinafter: the "Italian Business");
(b) IL USA owns a business engaging in the distribution in the United States
of America of lighting products manufactured by Italiana Luce, Foscarini
Murano S.p.A. and Tre-Ci Luce S.n.c. as well as in the distribution of the
Rialto collection (hereinafter: the "US Business");
(c) The Sellers are wholly owned subsidiaries of IL International Inc. with
offices at 400 Long Beach Boulevard, Stratford, CT, USA. (hereinafter: "IL
International") whose common stock is traded over the counter in the
United States of America and the Sellers have represented to the Purchaser
that any agreement concerning the transfer of the Italian Business and/or
of the US Business is subject to clearance by the Securities and Exchange
Commission (SEC);
(d) The Purchaser has represented to Italiana Luce that it is only interested
to acquire the Italian Business if all employees of Italiana Luce other
than those listed in Part B and Part C of Exhibit 4 hereto are terminated
in the manner provided for below;
(e) Italiana Luce and IL USA intend to sell the Italian Business and the US
Business, respectively, and the Purchaser is interested to acquire the
Italian Business and to cause its wholly owned subsidiary to be
incorporated in the United States to acquire the US Business.
NOW, THEREFORE
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the Sellers and the Purchaser agree as follows:
Article 1 - Definitions
In this Agreement:
"Agents" means the commercial agents and the importers of Italiana Luce and of
IL USA listed in Exhibits 16 and 18;
"Agreement" means this Promise to Purchase and Sell and the exhibits thereto;
"Bank Guarantee" means the first demand guarantee for a maximum amount of Itl.
2,500,000,000 (two billion five hundred million) to be issued by the bank Cassa
di Risparmio di Padova e Rovigo in accordance with the draft attached as Exhibit
23 which shall be effective for a period of one year after the Date of Closing
by way of guarantee of the indemnity obligations of the Sellers hereunder;
"Closing" means the completion of the sale and purchase of the Italian Business
and of the US Business under this Agreement;
"Date of Closing" means April 2, 1998 or such other date as the Sellers and the
Purchaser may agree in writing;
"Deed of Transfer" means the notarial deed in accordance with the form attached
as Exhibit 19 to be entered into by and between Italiana Luce and the Purchaser
at Closing for the transfer of the Italian Business;
"Italian Assets Payment" means the portion of the Italian Purchase Price payable
in consideration for the Italian Inventory and for the equipment and the molds
listed in Exhibit 8, in the amount to be determined within sixty days after
Closing in accordance with the criteria set forth in Part B of Exhibit 7 for the
Italian Inventory and in Part B of Exhibit 8 for the equipment and the molds;
"Italian Business" means the business owned by Italiana Luce concerning the
design, manufacture and distribution of lighting products;
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"Italian Generally Accepted Accounting Principles" means the accounting
principles approved by the Italian National Board of Accountants ("Consiglio
Nazionale del Dottori Commercialisti");
"Italian Goodwill Payment" means the portion of the Italian Purchase Price
payable with respect to the goodwill of the Italian Business;
"Italian Intellectual Property" means the trade mark registrations, trade names,
patents, patent applications and designs listed in Exhibit 11 as well as any
other intellectual property right belonging or pertinent to the Italian
Business;
"Italian Inventory" means the inventory of raw materials, semi-finished and
finished products together with Italiana Luce 1996 catalogues belonging to the
Italian Business and listed in Exhibit 7;
"Italian IP Payment" means the portion of the Italian Purchase Price payable in
consideration for the Italian Intellectual Property;
"Italian Purchase Price" means the total consideration payable for the sale of
the Italian Business;
"NEWCO" means the wholly owned subsidiary which will be incorporated prior to
Closing by the Purchaser in the United States of America for the purpose of
acquiring the US Business from IL USA;
"New Products" means the designs, drawings and documentation, including the
catalogues, regarding the new products listed in Exhibit 10 and their
presentation at the Euroluce trade fair in April 1998;
"New Products Payment" means the consideration for the New Products to be
determined at Closing or, failing agreement at Closing, within sixty days after
Closing in accordance with the criteria set forth in Part B of Exhibit 10;
"Pro Forma Financial Statement of the Italian Business" means the balance sheet
of Italiana Luce as at December 31, 1997;
"Pro Forma Financial Statement of the US Business" means the balance sheet of IL
USA as at December 31, 1997;
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"Provisional Italian Assets Payment" means a provisional amount equal to seventy
per cent of the Italian Assets Payment determined as at December 31, 1997 and to
be paid at Closing;
"Provisional New Products Payment" means a provisional amount equal to seventy
per cent of the New Products Payment determined as at December 31, 1997 and to
be paid at Closing in case of failure by the parties to reach agreement at
Closing on the New Products Payment;
"Provisional US Assets Payment" means a provisional amount equal to seventy per
cent of the US Assets Payment determined as at December 31, 1997 and to be paid
at Closing;
"US Assets Payment" means the portion of the US Purchase Price payable in
consideration for the US Inventory in the amount to be determined within sixty
days after Closing in accordance with the criteria set forth in Part B of
Exhibit 13;
"US Business" means the business owned by IL USA concerning the distribution in
the United States of America of lighting products manufactured by Italiana Luce,
Foscarini Murano S.p.A. and Tre-Ci Luce S.n.c. as well as the distribution of
the Rialto Collection;
"US Generally Accepted Accounting Principles" means the accounting principles
adopted by the Financial Accounting Standards Board of the American Institute of
Certified Public Accountants, as these principles may be in effect from time to
time, but consistently applied;
"US Goodwill Payment" means the portion of the US Purchase Price payable with
respect to the goodwill of the US Business;
"US Intellectual Property" means the intellectual property rights belonging to
IL USA and listed in Exhibit 14;
"US Inventory" means the inventory of semi-finished and finished products as
well as the other assets belonging to IL USA and listed in Exhibit 13;
"US IP Payment" means the portion of the US Purchase Price payable in
consideration for the US Intellectual Property;
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"US Purchase Price" means the total consideration payable for the sale of the US
Business;
"US Transfer Agreement" means the transfer form in accordance with the draft
attached as Exhibit 20 to be executed Closing by IL USA;
Article 2 - Preparatory Steps
2.1 The Purchaser shall, as soon as practicable and in any event prior to
Closing, incorporate NEWCO for the purpose of acquiring the US Business from IL
USA.
2.2 Immediately after execution of this Agreement Italiana Luce shall instruct
its counsel, Mr. Guido Jucci, to commence the procedure provided for by Article
47 of Law No. 428 of December 29, 1990 and the Purchaser shall provide any
necessary cooperation and assistance either directly or through a counsel of its
choice. The aforesaid procedure shall have to be completed prior to Closing and
any related cost and expense shall be solely for the account of Italiana Luce.
2.3 Exhibit 5 contains the Pro Forma Financial Statement of the Italian Business
and Exhibit 6 contains the Pro Forma Financial Statement of the US Business both
as at December 31, 1997. The said Pro Forma Financial Statements have been
prepared by the Sellers in accordance with the applicable Italian and US
Generally Accepted Accounting Principles consistently applied. The Purchaser
shall have the right to instruct its auditors to review the Pro Forma Financial
Statement of the Italian Business and the Pro Forma Financial Statement of the
US Business, to make an audit and to carry out an accounting and legal due
diligence of both Italiana Luce and IL USA to the extent to which such audit and
due diligence are necessary taking into account the nature of the transaction
described herein. Any such audit and/or due diligence shall in no way affect the
Sellers' representations and warranties as well as their indemnity obligations
hereunder.
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2.4 Upon execution of this Agreement the Sellers shall take any appropriate
measures in order to cause IL International to obtain as soon as practicable
and, in any event, prior to Closing, the necessary clearance from the Securities
and Exchange Commission (SEC).
Article 3 - Promise to Sell and Purchase - Object
3.1 Italiana Luce hereby agrees to sell and transfer to the Purchaser and the
Purchaser hereby agrees to purchase the Italian Business on the terms and
conditions hereof.
3.2 IL USA hereby agrees to sell and transfer to NEWCO the US Business and the
Purchaser hereby agrees to cause NEWCO to purchase and acquire the US Business
on the terms and conditions hereof. The Purchaser will cause NEWCO to adhere to
this Agreement and become a party thereto but shall remain liable jointly and
severally with NEWCO for the full and correct performance of this Agreement.
3.3 For purposes hereof the parties acknowledge that the Italian Business is
composed exclusively of:
(a) the commercial goodwill;
(b) the Italian Inventory;
(c) the equipment and the molds listed in Exhibit 8;
(d) the list of main suppliers and of all customers contained in Exhibit 9;
(e) all industrial and commercial documentation which is actually used or
which can be used exclusively in relation to the Italian Business;
(f) the New Products;
(g) the Italian Intellectual Property;
(h) the agreements with designers and suppliers listed in Exhibit 12;
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(i) the agreements with the Agents listed in Exhibit 16.
3.4 For purposes hereof the parties acknowledge that the US Business is composed
exclusively of:
(a) the commercial goodwill:
(b) the list of customers;
(c) the US Inventory;
(d) the US Intellectual Property;
(e) the agreements with the landlord, the employees, the Agents, the suppliers
and the consultants listed in Exhibit 15.
3.5 The Sellers and the Purchaser acknowledge and agree that no assets, rights,
receivables or activities other than those specifically listed in 3.3 and 3.4
above will be transferred together with the Italian Business and the US
Business. The Sellers and the Purchaser further acknowledge and agree that, save
as otherwise expressly agreed herein, the sale of the Italian Business and of
the US Business does not include the receivables and the debts regarding such
businesses as at the Date of Closing which shall remain for the account of the
Sellers only and the Sellers shall promptly indemnify the Purchaser and/or
NEWCO, as the case may be, in relation to any amount eventually paid by the
Purchaser to any creditor of the Italian Business or of the US Business for
debts regarding such businesses and existing as at the Date of Closing. In
relation to the US Business, the Purchaser shall cause NEWCO to undertake to
collect IL USA's accounts receivable as agent for IL USA, without responsibility
for the creditworthiness of such accounts receivable. NEWCO shall promptly remit
to IL USA any amount collected by it on behalf of IL USA.
Article 4 - Employees and Agents
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4.1 Italiana Luce represents that the Italian Business currently employs only
the employees listed in Part A of Exhibit 4 which also accurately shows their
positions, salaries and other terms of employment.
4.2 The Purchaser represents and the Sellers acknowledge that the Purchaser has
agreed to purchase and acquire the Italian Business only on the express
understanding and agreement that all employees listed in Part A of Exhibit 4,
other than those listed in Part B and Part C of Exhibit 4, shall be terminated
by Italiana Luce (or, if need be, after Closing, by the Purchaser) at the care
and expense of Italiana Luce. To this end, Italiana Luce shall endeavor to reach
an agreement with the Trade Unions and the individual employees at the earliest
possible stage during the course of the procedure referred to in Article 2.2
above. Limited to those employees (including the employees listed in Part C of
Exhibit 4) with whom Italiana Luce shall be unable to reach a final and binding
agreement prior to Closing, the Purchaser will, immediately after Closing,
commence a procedure for their collective dismissal in accordance with Law No.
223 of July 23, 1991. The procedure for the collective dismissal and its outcome
shall be the ultimate and exclusive responsibility of Italiana Luce which shall
instruct its counsel, Mr. Guido Jucci, to assist the Purchaser at Italiana
Luce's cost. The Purchaser shall be at liberty to appoint a counsel of its
choice to join Mr. Guido Jucci and, if so, the relevant cost shall be borne by
the Purchaser.
4.3 If, following the dismissal as a result of the procedure under Law No. 223
of July 23, 1991 referred to above, any of the dismissed employees is reinstated
by order of the Judge, then Italiana Luce shall be responsible for the payment
of any salary, damages or indemnity payable to any such reinstated employee
together with all relevant costs, including attorneys' fees, and, if any such
salary, damages, indemnity or costs shall have been paid by the Purchaser, then
Italiana Luce shall promptly reimburse the Purchaser therefor.
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4.4 The Purchaser represents that it presently employs 10 (ten) employees. The
Italian Purchase Price shall be reduced by an amount of Itl. 500,000,000 (five
hundred million) if, as a result of (i) the Purchaser taking over the employees
listed in Part B of Exhibit 4 and, (ii) any of the employees listed in Part A of
Exhibit 4 being reinstated by order of the Judge, the total number of the
employees then employed by the Purchaser is higher than 15 (fifteen), unless
another employee of Italiana Luce listed in Part A of Exhibit 4 or another
employee of the Purchaser can be dismissed in substitution for the reinstated
employee thus reducing to 15 (fifteen) the total number of employees of the
Purchaser, provided always that such dismissal is either not challenged or is
challenged without success. Following the reduction of the Italian Purchase
Price hereunder, if any, Italiana Luce shall promptly repay the relevant amount
to the Purchaser, failing which the Purchaser shall have the right to call on
the Bank Guarantee.
4.5 Italiana Luce represents that Part A of Exhibit 16 contains a complete and
exhaustive list of the Agents. Italiana Luce shall, prior to Closing, terminate
the agency relationship with those Agents listed in Part B of Exhibit 16 and
shall pay each of them any commission and/or termination indemnity due under the
law and/or under any applicable collective or individual agreement in relation
to the agency relationship and its termination. Italiana Luce shall use its best
endeavors to ensure that all Agents other than those listed in Part B of Exhibit
16 continue their agency relationship with the Purchaser on the same terms and
conditions currently in force.
4.6 IL USA represents that the US Business currently employs only the employees
and/or consultants listed in Exhibit 17. Exhibit 17 also contains a true and
complete representation of the remuneration and benefits presently enjoyed by
the employees and consultants of IL USA. The Purchaser intends to cause NEWCO to
take over all the employees and consultants listed in Exhibit 17 on the terms
and conditions currently enjoyed by them and IL USA shall endeavor to facilitate
the transfer. IL USA shall pay each of the employees and consultants listed in
Exhibit 17 any amount due to them as at the Date of Closing on account of
remuneration, wage, indemnity, benefit and the like in
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connection with their employment or consultancy relationship and its
termination. Nothing in this Agreement shall be interpreted, however, as
creating any third party beneficiary rights in any employee and/or consultant to
enforce the intentions expressed in this Agreement.
4.7 Exhibit 18 contains the list of all existing Agents of IL USA. The Purchaser
intends to cause NEWCO to continue the existing relationship with all Agents
listed in Exhibit 18 on the terms and conditions currently in force and IL USA
shall endeavor to ensure that such relationships are continued without
interruption. Nothing in this Agreement shall be interpreted, however, as
creating any third party beneficiary rights in any Agent to enforce the
intentions expressed in this Agreement.
Article 5 - Purchase Price and Payment
5.1 The Italian Purchase Price shall be the aggregate of:
(a) Itl. 5,150,000,000 (five billion one hundred and fifty million) with
respect to the Italian Goodwill Payment and the Italian IP Payment; and
(b) the Italian Assets Payment; and
(c) the New Products Payment.
5.2 The US Purchase Price shall be the aggregate of:
(a) US Dollar one (1) with respect to the US Goodwill Payment; and
(b) the US Assets Payment.
5.3 The Italian Purchase Price shall be paid as follows:
(a) the Italian Goodwill Payment together with the Italian IP Payment, at
Closing;
(b) the Provisional Italian Assets Payment, at Closing;
(c) the balance of the Italian Assets Payment sixty days after Closing;
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(d) the New Products Payment or, failing agreement thereon, the Provisional
New Products Payment, at Closing;
(e) the balance of the New Products Payment, if any, sixty days after Closing.
5.4 The US Purchase Price shall be paid as follows:
(a) the US Goodwill Payment, at Closing;
(b) the Provisional US Assets Payment, at Closing;
(c) the balance of the US Assets Payment, sixty days after Closing.
5.5 Also in order to ensure that the existing indebtedness with the banks be
repaid by Italiana Luce at Closing, any payment to be made hereunder shall be
made by the Purchaser and/or by NEWCO by means of bank transfers to the bank
accounts designated in writing by Italiana Luce and by IL USA at least three
business days prior to the due date, with good value at the due date, of any
such payment and approved by the Purchaser, such approval not to be unreasonably
withheld. The payment of any portion of the Italian Purchase Price and of the US
Purchase Price shall be made by the Purchaser and by NEWCO, respectively, upon
withholding any amount owed by Italiana Luce to the Purchaser and/or by IL USA
to NEWCO under any provision of this Agreement.
Article 6 - Closing - Conditions Precedent
6.1 Unless otherwise agreed by the parties, the Closing shall take place in
Milan at the offices of Traverso & Associati within ten days after the
occurrence of the last to occur of the conditions precedent provided for in
Article 6.2 below, such occurrence to be notified in writing by the Sellers to
the Purchaser.
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6.2 The parties expressly acknowledge and agree that the completion of this
Agreement and thus the purchase and the sale of the Italian Business and of the
US Business are subject to the following conditions precedent:
(a) the clearance of this Agreement and of all transactions contemplated
therein by the Securities and Exchange Commission (SEC); and
(b) the completion of the procedure provided for by Article 47 of Law No. 428
of December 29, 1990 referred to in Article 2.2 above; and
(c) the repayment of any existing indebtedness of Italiana Luce to IL
International, satisfactory evidence of which shall have to be provided to
the Purchaser at Closing.
If any of the above conditions precedent does not occur by June 30, 1998, then
the Purchaser and only the Purchaser shall be entitled to either extend the term
or terminate this Agreement by giving notice in writing to the Sellers without
any further obligation by the Purchaser. Further, the Purchaser will not be
obliged to proceed to Closing unless both the Italian Business and the US
Business can be transferred to the Purchaser and to NEWCO at the same time.
6.3 No investigation, suit, action or other proceedings that seeks restraint or
prohibition in connection with this Agreement or the consummation of the
transactions contemplated hereby shall be threatened or pending at Closing
before any court or governmental agency.
6.4 At Closing all actions mentioned below shall be performed:
(a) Italiana Luce and the Purchaser shall enter into and execute the Deed of
Transfer;
(b) IL USA shall execute the US Transfer Agreement;
(c) the Sellers and the Purchaser shall jointly determine the Provisional
Italian Assets Payment and the Provisional US Assets Payment;
(d) Italiana Luce and the Purchaser shall jointly determine the New Products
Payment or, failing agreement thereon, the Provisional New Products
Payment;
(e) Italiana Luce and the Purchaser shall determine the amounts payable as at
the Date of Closing on account of wages, severance pay and termination
indemnities or on
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any other account to any of the employees listed in Part A of Exhibit 4,
with the exception of those listed in Part C of Exhibit 4 with whom
Italiana Luce shall have reached a final and binding agreement prior to
Closing, and such amounts shall be withheld from the Italian Purchase
Price unless and to the extent to which Italiana Luce can deliver to the
Purchaser a legally binding full and final release signed by any of the
employees listed in Part A of Exhibit 4;
(f) the Purchaser shall pay Italiana Luce the portion of the Italian Purchase
Price payable at Closing pursuant to Article 5.3 above;
(g) NEWCO shall pay IL USA the portion of the US Purchase Price payable at
Closing pursuant to Article 5.4, above;
(h) Italiana Luce shall deliver to the Purchaser the Bank Guarantee;
(i) the parties shall execute and/or deliver any other documents and/or take
such other actions as may be provided for in this Agreement or as may be
necessary or advisable in order to complete and consummate all
transactions contemplated by this Agreement.
Article 7 - Conduct of the Italian Business and of the US Business up to Closing
- - Transfer of Title.
7.1 The Sellers shall conduct the Italian Business and the US Business in good
faith, in compliance with the law and strictly in the ordinary course during the
period between the date hereof and Closing. Except as otherwise agreed in this
Agreement and in the exhibits thereto, the Sellers shall use their best
endeavors in order to ensure that all existing contracts pertinent to the
Italian Business and to the US Business be transferred smoothly and without
interruption to the Purchaser and to NEWCO.
7.2 The Italian Business and the US Business will be transferred to the
Purchaser and to NEWCO, respectively, at Closing, free and clear of any pledges,
liens, third party rights and encumbrances of any kind.
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7.3 The Date of Closing shall be the effective date of transfer of both the
Italian Business and the US Business for all purposes hereunder.
7.4 Between the date hereof and the Date of Closing the Sellers shall maintain
adequate insurance policies to cover any and all risks of the Italian Inventory
and of the US Inventory and shall keep the relevant coverage at their cost even
after Closing until actual delivery of the Italian Inventory and of the US
Inventory to the Purchaser and to NEWCO, respectively, which shall take place no
later than seventy days after Closing.
Article 8 - Representations and Warranties
A) Representations and Warranties of the Sellers
The Sellers represent and warrant to the Purchaser as follows:
8.1 At Closing the Sellers shall have full right, title and authority to
transfer to the Purchaser and to NEWCO, respectively, the Italian Business and
the US Business.
8.2 The Pro Forma Financial Statements of the Italian Business and of the US
Business truly and fairly represent the economic and financial position of the
businesses as at December 31, 1997 and no material change shall have occurred
since such date until Closing other than in the ordinary course of business.
8.3 Except as disclosed in writing to the Purchaser prior to Closing or
otherwise agreed herein, Italiana Luce and/or IL USA during the period from
December 31, 1997 up to Closing:
(i) shall have not entered into any transactions other than as provided in
this Agreement or otherwise in the ordinary course of business to the
extent to which such
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transactions materially and adversely affect the Italian Business and/or
the US Business;
(ii) shall have not concluded or terminated any agreements or undertaken any
other material obligation affecting the Italian Business or the US
Business of a long term or exceptional nature;
(iii) shall have not, except in the ordinary course of business, purchased, sold
or agreed to purchase or sell any business or asset.
8.4 (a) Except as disclosed in Exhibits 11 and 14, the Sellers are the owners of
the Italian Intellectual Property and of the US Intellectual Property none of
which has been challenged by third parties and, to the best knowledge of the
Sellers, no written claim by any third party has been received in relation to
the ownership and/or use of the Italian Intellectual Property and of the US
Intellectual Property.
All trademarks and patents listed in Exhibits 11 and 14 have been duly
registered or registrations have been regularly applied for by Italiana Luce
and/or by IL USA which have all rights to use such trademarks and/or patents.
Neither Italiana Luce nor IL USA have agreed to assign or license any of the
Italian Intellectual Property or of the US Intellectual Property.
(b) The Sellers shall not have received any notification by any third
party in relation to, and shall not otherwise be aware of, the alleged
infringement of any intellectual property right which infringement, if upheld by
any court of competent jurisdiction, would have a material adverse effect on the
Italian Business and/or the US Business. At Closing the Italian Intellectual
Property and the US Intellectual Property shall not have been the object of any
claim or complaint by any third party.
(c) Any trademark and/or patent registration or application shall be
transferred from the Sellers to the Purchaser or to NEWCO, as the case may be,
at the care and expense of the Purchaser and/or NEWCO. The Sellers shall
promptly and fully cooperate with the Purchaser and NEWCO for the purpose of
expeditiously completing
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the recording of said transfers, Italiana Luce shall be responsible for any cost
strictly related to the need of recording, prior to the transfer from the
Sellers to the Purchaser or to NEWCO, as the case may be, the changes of
corporate name of Italiana Luce which have not been previously recorded.
8.5 At Closing Italiana Luce and IL USA will be duly organized and validly
existing corporations, in good standing under the laws of their respective
jurisdictions, with full authority to carry out their activities and any
transactions provided for in this Agreement. At all relevant times Italiana Luce
and IL USA have kept and shall keep until Closing their books and records in
strict compliance with the applicable laws and Italian or US Generally Accepted
Accounting Principles, as the case may be, and such books and records shall be
in all respects complete and accurate, IL USA maintains, and shall maintain
until Closing, its only place of Business at 400 Long Beach Boulevard Stratford,
CT, USA.
8.6 At Closing Italiana Luce and IL USA shall have been and shall be in
compliance with all tax requirements: in particular, not by way of limitation,
all taxes, duties or similar charges (including those due as a tax substitute)
in any way arising in connection with transactions or actions made or taken
until Closing will have been timely and duly paid. At Closing Italiana Luce and
IL USA shall have timely filed all tax returns, statements and documents
required to be filed under any applicable tax laws and regulations.
8.7 The employment of all personnel and Agents of Italiana Luce and of IL USA
has always been and will be conducted until Closing in full compliance with the
applicable labor, safety and social security laws and regulations; all relative
reports, statements and documents required to be filed by any such laws,
regulations and by any institution or entity having authority on labor and
social security matters have been and shall be timely and correctly filed: all
relative charges, fees, provisions, contributions or other amounts required to
be paid, set aside, accrued, reserved for or withheld by any such
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applicable law and regulation, institution or entity have been timely and
correctly paid, set aside, accrued, reserved for or withheld.
8.8 Other than as shown in Exhibit 21, at Closing there will be no civil, labor,
tax, administrative or arbitration proceedings pending or threatened against
Italiana Luce and/or IL USA which may directly or indirectly affect the Italian
Business and/or the US Business, nor will any such proceedings be pending or
threatened in relation to any of the assets of the Italian Business or of the US
Business.
The day after Closing, Italiana Luce and the Purchaser shall jointly request two
certificates from the relevant VAT (IVA) and Income Tax Offices, respectively,
pursuant to Article 14, third paragraph, of Decree No. 472 of December 18, 1997,
for the purposes provided for by Article 14, second paragraph, of the above
mentioned Decree. Such certificates shall be delivered to the Purchaser as soon
as they become available thereafter and copy of the requests will be provided to
the Purchaser immediately after filing. Any amount shown in either of the said
certificates as payable by Italiana Luce on account of any tax, duty, penalty,
interest and the like shall be indemnified pursuant to Article 9 hereof.
8.9 To the best of their knowledge, Italiana Luce and IL USA have not violated
and shall not violate until Closing with their businesses, to any material
degree or with any material consequences, any right of third parties or any
applicable law's, including competition and trade laws. With regard to the
territory of the European Union it is agreed that for any products manufactured
by Italiana Luce which does not comply with norm EN 60598 the Purchaser shall
have the right to bring such products to such norm at the latest by December 31,
1998 and compile the corresponding "CE marking file" at Italiana Luce's
expenses, provided that the relevant cost shall not exceed the aggregate amount
of Itl. 150,000,000 (one hundred fifty million). Italiana Luce shall promptly
reimburse the Purchaser upon receipt of any request in writing accompanied by
satisfactory evidence of the expenses met by the Purchaser, failing which the
Purchaser shall be entitled to call on the Bank Guarantee. With regard to the
territory of the United
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States of America, Part C of Exhibit 13 shows the products distributed by IL USA
in the United States of America which are manufactured in accordance with the UL
requirements.
8.10 All representations and warranties made by the Sellers in this Agreement
with respect to the date of execution of this Agreement will be true and correct
as of the Date of Closing.
8.11 Neither this Agreement nor any Exhibit thereto contain any untrue statement
of a substantial fact or omits to state any substantial fact or is otherwise
misleading. There is no fact known to the Sellers which may now or in the future
materially adversely affect the assets of the Italian Business and/or of the US
Business or significantly increase the liabilities of the Purchaser. Sellers'
representations and warranties shall survive Closing and shall remain in full
force and effect notwithstanding any inspections or verifications that may have
been or that will be carried out by the Purchaser, whether before or after
Closing, and by any acts other than express waivers in writing by the Purchaser.
B) Representations and Warranties of the Purchaser
The Purchaser represents and warrants to the Sellers as follows:
8.12 At Closing the Purchaser and NEWCO shall have full right, title and
authority to purchase from the Sellers the Italian Business and the US Business,
respectively.
8.13 Should any receivable regarding the Italian Business existing as at the
Date of Closing be wrongly paid by any debtor to the Purchaser, then the
Purchaser will promptly remit the relevant amount to Italiana Luce.
8.14 The Purchaser represents that it is a wholly owned subsidiary of the
company Cassina S.p.A. with offices at 1, Via Busnelli, Meda (Italy)
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8.15 All representations made by the Purchaser in this Agreement with respect to
the date of execution of this Agreement will be true and correct as of the Date
of Closing
Article 9 - Indemnification and Guarantee
9.1 The Sellers will jointly and severally indemnify and hold the Purchaser or
NEWCO, as the case may be, harmless in respect of any liability, loss, damage
and cost resulting from any and all misrepresentations or breaches of warranty,
agreement or undertaking hereunder on the part of the Sellers as well as against
and in respect of any and all actions, suits, proceedings, claims, liabilities,
demands, assessments, judgments, costs and expenses, including reasonable
attorneys' fees, incident to any of the foregoing or to such indemnification.
9.2 The representations and warranties of the Sellers will remain in full force
and effect for a period of two years from Closing, except for any
representations and warranties of fiscal and social security nature which will
remain in full force and effect until the relevant statute of limitation has
expired; provided that the party claiming indemnification pursuant to Article
9.1 hereof shall, under penalty of foreclosure, give the Sellers written notice
of any event or circumstance giving rise to the claim for indemnification and
provide reasonable particulars thereof within fifteen working days after the
occurrence of any event or circumstance or, as the case may be, from the date on
which it has acquired knowledge thereof. Provided that such notice is timely
given and the event or circumstance giving rise to the claim for indemnification
occurs within such two year period, or within the relevant statute of
limitation, as the case may be, the representations and warranties of the
Sellers with respect to such claim will remain in full force and effect until
the claim has been finally resolved and Italiana Luce shall procure that the
validity of the Bank Guarantee be extended until final resolution of any such
claim, failing which the Purchaser shall be entitled to call on the Bank
Guarantee.
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9.3 Payment of the amounts indemnifiable hereunder shall take place:
(a) at any time when the total of the then indemnifiable claims exceeds the
aggregate amount of Itl 150,000,000 (one hundred and fifty million); or, in any
event.
(b) ten days prior to the expiration of the Bank Guarantee, provided always that
Italiana Luce shall have the right to extend the validity of the Bank Guarantee
until such time when any and all claims for indemnification hereunder have been
finally resolved.
Notwithstanding the foregoing, in no event shall the total amount indemnifiable
under this Agreement exceed Itl. 3,000,000,000 (three billion).
9.4 If any action, suit or proceeding will be commenced, or any claim, demand or
assessment will be asserted against the Purchaser and/or NEWCO, which may result
in liability of the Sellers pursuant to this Agreement, with respect to which
indemnification is sought from the Sellers pursuant to Article 9.1 above, the
party seeking indemnification will promptly notify the Sellers thereof. Such
party and the Sellers will fully cooperate in the defense and the Sellers will
have the right of selecting their own counsel. Any decision concerning the
defense or the settlement of the matter will be taken by such party and the
Sellers jointly, but in case of disagreement between them, the decision of the
Sellers will prevail, with the consequence that in such case the Sellers will
take the risk of the outcome of the litigation and bear all legal and other
expenses connected therewith as well as all losses arising therefrom, regardless
of any monetary limits otherwise provided for in Article 9.3 above.
9.5 By way of guarantee of the indemnity obligations provided for in this
Article 9 and/or of any other obligation of the Sellers hereunder, at Closing
Italiana Luce shall deliver to the Purchaser the Bank Guarantee. The Sellers
shall have the right to request in writing the Purchaser to consent to a
reduction of the maximum amount guaranteed by the Bank Guarantee to take into
account: (i) the reduction after Closing of the liabilities of Italiana Luce
and/or IL USA reflected in the Pro Forma Financial Statement
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of the Italian Business and in the Pro Forma Financial Statement of the US
Business, respectively, updated as at the Date of Closing, and, (ii) any other
then outstanding payment, undertaking or obligation of the Sellers hereunder and
the Purchaser shall not unreasonably withhold or delay its consent in writing.
Any refusal by the Purchaser to consent, in whole or in part, to the reduction
of the Bank Guarantee shall have to be given in writing to Italiana Luce within
ten days from receipt of the request and shall state the reasons for such
refusal. The Purchaser acknowledges that any unjustified refusal shall entitle
Italiana Luce to claim damages resulting therefrom.
Article 10 - Non Competition
10.1 For a period of five years commencing on the Date of Closing, Italiana Luce
and IL USA shall abstain from commencing a new activity in Italy and in the
United States of America, respectively, which, taking into account its object,
is such as to directly compete with the Italian Business and/or with the US
Business.
10.2 At Closing Mr. Luigi Giroletti and Nemo shall enter into a consultancy
agreement on the terms and conditions set forth in the draft attached hereto as
Exhibit 22. During the entire duration of the consultancy agreement Mr. Luigi
Giroletti shall not, save with the prior written consent of the Purchaser, be
engaged, interested or concerned, whether as a shareholder, director, employee,
subcontractor, partner, consultant, proprietor, agent or otherwise, directly or
indirectly, in carrying on any business within Italy competitive with the
Italian Business.
After the expiration of the consultancy agreement Mr. Luigi Giroletti shall
abstain from, either personally or through agents, whether for himself or on
behalf of any other person or entity, inducing or endeavoring to induce any
person who is, or will be within one year after the expiration of the
consultancy agreement, an officer or employee of the Purchaser to leave such
office or employment. During the same period of time Mr. Luigi Giroletti shall
also abstain from inducing, soliciting or endeavoring to entice away from
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the Purchaser, on his account or for the account of any other person, any person
who is or will become a major customer of the Purchaser.
10.3 From the date of Closing Italiana Luce and IL USA shall abstain from any
further use of the names Italiana Luce and IL USA as trademark, trade name and
corporate name, Italiana Luce and IL USA shall, within thirty days after
Closing, cause their shareholders to change the corporate names of Italiana
Luce, IL International and IL USA so as to avoid any reference to the names
"Italiana Luce" and "IL" and to change the corporate object of Italiana Luce and
IL USA to make it consistent with the transfer to the Purchaser and to NEWCO,
respectively, of the Italian Business and of the US Business as well as with the
non competition obligations provided for by this Article 10.
10.4 In the event of an actual or threatened breach by the Sellers of any of
the provisions of this Article 10, the Purchaser and NEWCO shall be entitled to
seek an injunction from any court of competent jurisdiction restraining the
actions of the party in breach hereunder. Nothing herein shall be construed as
prohibiting the Purchaser and NEWCO from pursuing any other remedy available to
them for such breach or threatened breach including, but not limited to, the
recovery of damages from the party in breach hereunder. The Sellers separately
acknowledge the necessity for and reasonableness of these provisions.
10.5 The provisions of this Article 10 shall survive Closing.
11 - Expenses and Taxes
All taxes and expenses stemming from this Agreement and the execution of the
Deed of Transfer, as well as any other taxes and expenses connected therewith
shall be borne by the Purchaser.
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12 - Governing Law - Settlement of Disputes - Miscellanea
12.1 Subject only to the applicability of mandatory provisions of federal or
state law in the United States of America, if any, this Agreement and any
agreement deriving therefrom or connected therewith shall be governed by Italian
law.
12.2 The terms and conditions contained in this Agreement constitute the entire
agreement between the parties hereto and replace all previous agreements, either
oral or written, between the parties with reference to the subject matter dealt
with in this Agreement. No understanding or pact which amends this Agreement
will be binding for any party, unless it is in writing, is referring expressly
to this Agreement, is signed by the parties or by their respective
representatives who have been duly authorized to do so. The provisions of this
Agreement shall survive the execution of the Deed of Transfer and of the US
Transfer Agreement and shall continue to be in full force and effect thereafter.
12.3 Neither this Agreement nor any right, claim or obligation hereunder can be
assigned to third parties without the written consent of the other party with
the only exception of the implementation of this Agreement by NEWCO with regard
to the purchase and sale of the US Business.
12.4 In this Agreement the contents page and headings are included for
convenience only and shall not affect the interpretation or construction of this
Agreement.
12.5 Any difference or dispute arising out of or in connection with this
Agreement shall be finally settled under the Rules of Arbitration of the
International Chamber of Commerce by one or more arbitrators appointed in
accordance with the said Rules. For all purposes hereunder the Sellers, on one
side, and the Purchaser together with
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NEWCO. on the other side, shall be deemed to be one party. The place of
arbitration shall be Milan, Italy.
13 - Announcements and Notices
13.1 The parties agree to take all reasonable care to avoid any act which may
reflect adversely on or be harmful to the Italian Business or to the US Business
and, without limitation, agree that, save as required with regard to the
information to IL International stockholders, no press or other public
announcement shall be made or sent out by the Purchaser or the Sellers in
respect of the sale and purchase of the Italian Business and of the US Business
without the text of such announcement receiving the prior written approval of
the other party, such approval not to be unreasonably withheld or delayed.
13.2 All notices and other communications hereunder will be in writing and will
be deemed properly given if delivered personally or mailed by registered mail,
return receipt, or transmitted by telefax, to the parties at the following
addresses (or at any other address that any of the parties may specify by giving
notice in the above mentioned way):
(a) If to the Sellers:
Italiana Luce S.r.l.
118, Via Edison
Settimo Milanese (Milan) - Italy
Attention Mr. Luigi Giroletti
Telefax n. 02-48910561
(b) If to the Purchaser and/or to NEWCO:
Nemo S.r.l.
1, Via Busnelli
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Meda (Milan) - Italy
Attention Mr. Corrado Gattoni
Telefax n. 0362-340599
***
This Agreement is executed in five originals drawn up in the English language
two of which are delivered to the Sellers, two to the Purchaser and one to IL
International.
Attached to each original of this Agreement are the following exhibits
initialled by the parties:
1) Copy of the resolution of the Board of Directors of Italiana Luce S.r.l.;
2) Copy of the unanimous written consent of the Board of Directors of IL USA
Inc.;
3) Copy of the resolution of the Board of Directors of Nemo S.r.l.;
4) Part A: List of employees currently employed by Italiana Luce S.r.l.;
Part B: List of employees to be taken over by Nemo S.r.l. together with
the Italian Business;
Part C: List of employees remaining with Italiana Luce S.r.l.;
5) Pro Forma Financial Statement of the Italian Business;
6) Pro Forma Financial Statement of the US Business;
7) Part A: List of raw materials, semi-finished and finished products
representing the Italian Inventory;
Part A1: List of finished products to be discontinued;
Part A2: 1996 Italiana Luce S.r.l. catalogues;
Part B: Criteria for the evaluation of the Italian Inventory;
8) Part A: List of equipment and molds;
Part B: Criteria for the evaluation of the equipment and molds;
9) Part A: List of main suppliers (including outworkers) of the Italian
Business:
Part B: List of customers of the Italian Business;
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10) Part A: List of designs, drawings and documents regarding the New
Products;
Part B: Criteria for the evaluation of the New Products;
11) Italian Intellectual Property;
12) List of Italiana Luce's agreements with designers and suppliers;
13) Part A: List of products forming the US Inventory;
Part B: Criteria for the evaluation of the US Inventory;
Part C: List of UL listed products in the USA;
14) US Intellectual Property;
15) List of IL USA's agreements;
Part A: Lease Agreement with landlord;
Part B: Agreements with Agents;
Part C: Agreements with employees;
Part D: Agreements with suppliers;
Part E: Agreements with consultants;
16) Part A: List of Agents of Italiana Luce S.r.l.
Part B: List of Agents of Italiana Luce S.r.l. to be terminated prior to
Closing
17) List of employees and consultants of IL USA and their current remuneration
and benefits;
18) List of Agents of IL USA;
19) Form of Deed of Transfer of the Italian Business;
20) Draft of US Transfer Agreement;
21) List of pending or threatened litigation:
A) Italiana Luce S.r.l.
B) IL USA
22) Draft Consultancy Agreement between Nemo S.r.l. and Mr. Luigi Giroletti;
23) Draft Bank Guarantee.
The exhibits are an integral part of this Agreement.
IN WITNESS WHEREOF this Agreement has been executed in the place and on the date
first above written. This Agreement is also signed by Mr. Michel F. Leemans in
his
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capacity as Chairman of the Board, President and Chief Executive Officer of IL
International Inc. by way of confirmation that Italiana Luce and IL USA are
wholly owned subsidiaries of IL International and by way of adherence of IL
International to the provisions of Article 10 hereof.
Nemo S.r.l. Italiana Luce S.r.l.
- ----------------- -----------------
Sandro Maggini Luigi Giroletti
IL International Inc. IL USA Inc.
- ----------------- -----------------
Michel F. Leemans Luigi Giroletti
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<PAGE>
ANNEX B
PLAN OF LIQUIDATION AND DISSOLUTION
OF
IL INTERNATIONAL INC.
This Plan of Liquidation and Dissolution (the "Plan") is for the
purpose of effecting the complete liquidation and dissolution of IL
International Inc., a Delaware corporation (the "Company"), in accordance with
and pursuant to the provisions of the Delaware General Corporation Law and
Section 331 of the Internal Revenue Code of 1986, as amended, in substantially
the following manner:
1. Effective Date.
The Plan shall be effective on the date (the "Effective Date"),
after it is adopted and approved by the affirmative vote of the holders of a
majority of the outstanding shares of Common Stock, $0.01 par value per share,
of the Company ("Common Stock") entitled to vote thereon, on which the Company's
business and substantially all of its assets are sold pursuant to the Asset
Purchase Agreement (the "Asset Purchase Agreement") by and among Nemo S.r.l.,
the Company and certain of the Company's subsidiaries.
2. Cessation of Business.
After the Effective Date, the Company shall not engage in any
business activities except for the purposes of (i) preserving the values of its
assets, (ii) winding up its business affairs, including without limitation, the
consummation of a sale or sales in one or a series of transactions of the
remaining assets of the Company, and (iii) making the Liquidation Distribution
(as hereinafter defined) in accordance with the Plan. The Board of Directors of
the Company (the "Board") and, at their pleasure, the officers, shall continue
in office solely for these purposes.
3. Dissolution.
As promptly as practicable after the Effective Date and upon filing
of a Certificate of Dissolution with the Secretary of State of the State of
Delaware the Company shall be dissolved in accordance with the Delaware General
Corporation Law.
4. Liquidation of Assets.
The Company shall collect, sell, exchange or otherwise dispose of
all of its property and assets in one or more transactions, including the
transactions provided for in the Asset Purchase Agreement, upon such terms and
conditions and for such consideration, which may consist in whole or in part of
money or other property, as the Board deems expedient and in the best interests
of the Company and the holders of the Common Stock (the "Stockholders"). In
connection with such collection, sale, exchange and other disposition, the
Company shall marshall its assets and collect or make provision for the
collection of all accounts receivable, debts and claims owing to the Company.
The Company shall have continuing authority to sell,
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<PAGE>
lease, exchange or otherwise convert to cash all or any part of its assets in
accordance with the terms and provisions of this Plan, and to make such
arrangements with respect to employee compensation as may be advisable.
5. Payment of debts.
The Company shall pay or make provision for the payment of all known
or ascertainable liabilities of the Company, including all amounts estimated by
the Board to be necessary for the payment of estimated expenses, taxes, and
contingent liabilities (including expenses of dissolution, liquidation, and
termination of existence, and the Liquidation Distribution), all as provided
pursuant to Section 281 of the Delaware General Corporation Law.
6. Liquidating Distribution.
The Company shall distribute pro rata to the Stockholders all its
remaining property and assets, if any, including the proceeds of any sale,
exchange or disposition, except such property or assets as are required for
paying or making provision for the claims and obligations of the Company (the
"Liquidating Distribution"). The Liquidating Distribution may occur all at one
time or in a series of distributions and may be in cash or in kind, in such
manner, and at such time or times before and/or after the Record Date (as
defined below), as the Board, in its absolute discretion, may determine. If and
to the extent deemed necessary, appropriate or desirable by the Board, in its
absolute discretion, the Company may establish and set aside a reasonable amount
(the "Contingency Reserve") to satisfy claims against the Company (other than
claims of a Stockholder in its capacity as such) and all expenses of the sales
of the Company's property and assets, of the collection and defense of the
Company's property and assets, and of the liquidation and dissolution provided
for in this Plan. The Contingency Reserve may consist of cash or property.
7. Redemption and Cancellation of Common Stock.
The Liquidating Distribution shall be in complete redemption and
cancellation of all of the outstanding Common Stock of the Company. The Company
shall close its stock transfer books at the close of business on the record date
fixed by the Board for the first or any subsequent installment of any
Liquidating Distribution as the Board in its absolute discretion may determine
(the "Record Date"), and thereafter certificates representing Common Stock shall
not be assignable or transferable on the books of the Company except by will,
intestate succession or operation of law. The Stockholders shall surrender stock
certificates (or, if so required by the Board in its absolute discretion,
furnish indemnity bonds in case of lost or destroyed certificates) as a
condition to their receipt of any Liquidating Distribution immediately following
the Record Date.
8. Missing Stockholders.
If any Liquidating Distribution to a Stockholder cannot be made,
whether because the Stockholder cannot be located, has not surrendered a
certificate evidencing the Common Stock as required hereunder or for any other
reason, then the distribution to which such Stockholder is entitled shall
(unless transferred to the Trust established pursuant to Section 11 hereof) be
transferred to and deposited with the state official authorized
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<PAGE>
by the laws of the State of Delaware to receive the proceeds of such
distribution; such transfer shall comply in all respects with the laws of the
State of Delaware. The proceeds of such distribution shall thereafter be held
solely for the benefit of and for the ultimate distribution to such Stockholder
as the sole equitable owner thereof and shall escheat to the State of Delaware
or be treated as abandoned property in accordance with the laws of the State of
Delaware. In no event shall the proceeds of any such distribution revert to or
become the property of the Company.
9. Amendments.
Notwithstanding adoption of the Plan by the Company's Stockholders,
the Board may modify or amend the Plan and, prior to the filing of a certificate
of dissolution with the State of Delaware, may abandon the Plan, without further
action by the Stockholders to the extent permitted by Delaware law.
10. Indemnification.
The Company shall continue to indemnify its officers, directors,
employees and agents in accordance with its Certificate of Incorporation and
Bylaws and any contractual arrangements for actions taken in connection with
this Plan and the winding up of the affairs of the Company and shall indemnify
any liquidating trustees and their agents on similar terms. The Company's
obligations to indemnify such persons may be satisfied out of the assets of the
Trust (as defined below). The Board and the trustees, in their absolute
discretion, are authorized to obtain and maintain insurance for the benefit of
such officers, directors, employees, agents and trustees to the extent permitted
by law.
11. Liquidating Trust.
If necessary for any reason to complete the liquidation and
distribution of the Company's assets to the Stockholders, the Board may at any
time transfer to a liquidating trust (the "Trust") any remaining assets of the
Company which are held as a reserve for contingent liabilities. The Trust, if
any, will succeed to all of the then remaining assets of the Company, including
such reserve, and any liabilities of the Company. The sole purpose of the Trust
will be to liquidate on terms satisfactory to the liquidating trustee(s) and to
distribute the assets formerly owned by the Company, if any, after paying any
remaining liabilities of the Company to the Stockholders.
The Board is authorized to appoint one or more individuals or corporate
persons to act as trustee or trustees of the Trust and to cause to enter into a
liquidating trust agreement with such trustee or trustees on such terms and
conditions as the Board determines. Adoption of the Plan will constitute the
approval of the Stockholders of any such appointment and liquidating trust
agreement.
12. Costs.
The Board is authorized, empowered and directed to pay all legal,
accounting, printing, appraisal and other fees and expenses of persons rendering
services to the Company in connection with the sale of its assets, the Plan and,
if appointed, such expenses of a liquidating trustee or
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trustees.
13. Authorization.
Adoption of the Plan by the Stockholders shall constitute full and
complete authority to the proper officers of the Company, without further
Stockholder action (except for any further Stockholder or Board approval
required by law), to do and perform any and all acts and to make, execute and
deliver any and all agreements, conveyances, assignments, transfers,
certificates and other documents of every kind and character which such officers
deem necessary or appropriate to carry out the provisions of the Plan.
14. Power of the Board of Directors.
The Board and, if authorized by the Board, the officers, shall have
authority to do or authorize any and all acts and things as provided for in the
Plan and any and all such further acts and things as they may consider desirable
to carry out the purpose of the Plan, including the execution and filing of all
other documents which may be necessary or appropriate to implement the Plan. The
Board, to the extent permitted by law, may authorize such variations from or
amendments to the provisions of the Plan as may be necessary or appropriate to
effectuate the complete liquidation and dissolution of the Company, and the
distribution of its assets, if any, to its Stockholders in accordance with the
Delaware General Corporation Law. The death, resignation, or other disability of
any director or officer of the Company shall not impair the authority of the
surviving or remaining director(s) or officer(s) to exercise any of the powers
provided for in the Plan. Upon such death, resignation, or other disability, the
surviving or remaining directors, or if there be none, to the extent permitted
by law, the surviving or remaining officer(s) shall have authority to fill the
vacancy or vacancies so created, but the failure to fill such vacancy or
vacancies shall not impair the authority of the surviving or remaining
director(s) or officer(s) to exercise any of the powers provided for in the
Plan. In connection with and for the purpose of implementing and assuring
completion of this Plan, the Company may, in the absolute discretion of the
Board, pay to the Company's officers, directors and employees, or any of them,
compensation or additional compensation above their regular compensation, in
money or other property, in recognition of the extraordinary efforts they, or
any of them, will be required to undertake, or actually undertake, in connection
with the successful implementation of this Plan. Adoption of this Plan by
holders of a majority of the outstanding Common Stock shall constitute the
approval of the Stockholders of the payment of any such compensation.
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<PAGE>
ANNEX C
[LETTERHEAD OF MARSHALL & STEVENS INCORPORATED]
February 23, 1998
File Reference: 31-6922
Board of Directors
IL International Inc.
400 Long Beach Boulevard
Stratford, CT 06497
Dear Gentlemen:
Earlier this year, Marshall & Stevens Incorporated ("Marshall & Stevens") was
authorized to undertake an analysis concerning IL International Inc. ("IL" or
the "Company"). It is our understanding that a third party is proposing to
acquire the goodwill of IL, for cash amounting to 5.15 billion Italian Lira
("Lit" 5.15 billion) or approximately $2.86 million, and IL's operations.
Accordingly, the purpose of this engagement is for Marshall & Stevens to provide
its opinion as to the financial reasonability of the proposed transaction.
Our determination of financial reasonability is based on our analysis of the
market value of the Company's shareholders' equity under two scenarios;
specifically, continued operation and orderly liquidation. The term "market
value", as used here, is the price at which any property would exchange between
a willing buyer and a willing seller, neither being under compulsion to buy or
sell, with each having reasonable knowledge of the relevant factors which have
an impact on the value of the property. Market value in this context is
synonymous with the legal term "fair market value".
Based on the facts, assumptions and methodologies we have relied upon, as
outlined in the attached report, we have concluded that the current market value
of IL's shareholders' equity lies within a range of approximately $1.2 to $2.3
million. We have assumed that total liabilities will not exceed cash on hand
plus monies realized from collection of accounts receivable and sale of
inventory. Therefore, in our opinion, the pending offer of $2.86 million is
financially reasonable. Actually, management has indicated that they expect the
total net proceeds of the proposed transaction, on a pretax basis, will be in
excess of $2.86 million. Our conclusion is based on an exchange rate of Lit
1,800 and excludes consideration of any taxes that may be due as a result of the
sale of IL.
C-1
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Board of Directors
IL International Inc.
February 23, 1998
Page 2
We appreciate this opportunity to be of assistance to IL International Inc.
Should you have any questions concerning this report or its conclusions please
contact Lawrence Danzig at 215-561-5600.
Very truly yours,
/s/ MARSHALL & STEVENS INCORPORATED
MARSHALL & STEVENS INCORPORATED
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Marshall & Stevens Incorporated
<PAGE>
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1.0 Introduction
1.1 Purpose
Marshall & Stevens was retained to provide its opinion concerning the financial
reasonability of an offer to purchase the operations and goodwill and, therefore
substantially all of the business of the Company. Under the terms of this offer,
the purchaser would buy the inventory at book value, subject to reduction for
unwanted, obsolete or slow moving items, and take ownership of certain fixed
assets and all the goodwill of the Company. In addition to purchasing inventory
at book value, the proposed offer includes payment of Lit 5.15 billion, for the
goodwill of IL International Inc. i.e. licenses, patents, brands, knowhow,
customers, established operations network, etc. It is our understanding that our
opinion is required in connection with SEC filings which will be submitted if
this transaction is agreed between the parties.
1.2 Definitions
An analysis of the financial reasonability of the proposed transaction requires
an analysis of the market value of the shareholders' equity of the Company in
relation to the amount of the proposed offering. The term "market value" is
defined as the price at which any asset or property is expected to exchange
between a willing buyer and seller, neither being under compulsion to buy or
sell, with each having reasonable knowledge of the relevant factors which have
an impact on value. In this context, the term market value is synonymous with
the term "fair market value".
1.3 Methodologies
There are three classic or standard methods for estimating market value that
must be considered in any valuation: referred to as the asset valuation, or cost
approach; the comparable company, or capital market approach; and the income, or
Discounted Cash Flow ("DCF") approach. With respect to the valuation of the
equity
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Marshall & Stevens Incorporated
<PAGE>
================================================================================
of a business, the asset valuation approach requires estimation of the total
value of the individual assets net of liabilities. The capital market approach
requires identification of similar publicly traded companies to derive
appropriate valuation ratios applicable to the business being valued. The DCF
method requires a reliable estimate of future cash flows to be generated by the
business for a period of, usually, five to ten years. The present value of the
projected cash flows, less liabilities, represents the equity value of the
business. Because of the Company's unsatisfactory performance over the last few
years and the uncertainties associated with its earnings capability, it is, in
our opinion, not meaningful to attempt to estimate value based on a DCF analysis
in this case.
We have made our analysis under two scenarios: continued operation and orderly
liquidation. Under the premise of continued operation, the business is valued as
a whole as if it continued to operate as a profitable going concern. Under the
premise of orderly liquidation, instead of valuation of the overall business as
a whole, each asset or class of assets is valued on an individual basis, as if
sold individually or by class instead of as part of a going concern. The total
value of the individual items or classes, less liabilities, then represents the
value of the business under this premise.
1.4 Scope
In connection with both scenarios or approaches we have made a review and
analysis of the following factors, without limitation:
1. The nature of the business and the history of the enterprise from
its inception.
2. The economic outlook in general and the condition and outlook for
the specialty lighting industry in particular.
3. The Company's financial condition and.
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Marshall & Stevens Incorporated
<PAGE>
================================================================================
4. Its financial performance.
5. Its ability to pay dividends.
6. The existence or lack of intangible assets.
7. The trading prices of the shares of publicly traded companies in the
specialty lighting industry.
8. The outlook for future earnings for the Company.
In the course of our analysis, we were supplied with annual and 10-K reports for
the Company for 1991 through 1996, 10-Q reports for the first three quarters of
1997 and unaudited financials for 1997. In addition, we were provided with
various descriptive materials concerning the Company including outlines of its
history, details concerning the nature of its business, the competition it
faces, its products, employees and production methods and capabilities. We have
visited the Company's offices in Stratford, CT and met with management to
discuss the Company and its prospects. We did not visit facilities in Italy,
which consist primarily of a distribution warehouse.
We have relied upon the information provided to us by management as being
accurate and complete without independent verification. We have also obtained
and used financial and economic data from recognized public sources. Such
information was also used without independent verification and we are not
responsible for the accuracy or completeness of this information. Certain
prospective information has been provided by management for use in this
analysis. Events and circumstances frequently do not occur as expected, nor with
the consequences expected. Therefore, our use of this information does not
signify any assertion or warranty on our part that such prospective information
is, or will be shown to be, correct. Our analysis does not constitute a Fairness
Opinion. Our analysis is also subject to the attached statement of Assumptions
and Limiting Conditions.
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Marshall & Stevens Incorporated
<PAGE>
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1.5 Conclusions
Based on our study we have concluded that the market value of the shareholders'
equity of IL International Inc., as of January 1998, lies within a range of $1.2
million to $ 2.3 million. We have also estimated that the effect of the proposed
offer in its entirety, net of all liabilities except taxes which may become due
as a result of this proposed transaction, should result in total proceeds for
the shareholders of the Company at least equal to the $2.86 million being
offered for the operations and goodwill of IL. Therefore, in our opinion, the
proposed offer as described to us is financially reasonable. Actually,
management has indicated that they expect that the total net proceeds of the
proposed transaction, on a pretax basis, will be in excess of $2.86 million. Our
conclusions and analyses have been based on an exchange rate of Lit 1,800 and
exclude consideration of any taxes that may be due upon consummation of the
proposed transaction.
2.0 IL International Inc.
2.1 Nature of the Business
The Company was incorporated in June 1991 in connection with a Reorganization
Plan of Chartwell Group Ltd. ("Chartwell") and a wholly owned subsidiary. On the
effective date of the plan, ownership of certain assets and properties of
Chartwell vested in the Company free and clear of all liens, claims and
encumbrances. The Company's stock is traded on the OTC Bulletin Board under the
symbol ILIL. There are 76,821,384 shares issued and outstanding and the high and
low bids during 1995 through 1997 were $0.02 and 0.01 per share, equivalent to a
total indicated value of approximately $768,000 for IL. The Company estimates
that it has approximately 1,800 shareholders, a large proportion of whom hold
shares in brokerage firm accounts in "street name". On a combined basis, Keith
G. Frey, Luigi Giroletti and Michel F. Leemans own approximately 51.6% of the
shares outstanding. Mr. Frey and Mr. Giroletti are both Vice presidents of IL.
Mr. Leemans
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is Chairman and CEO. All three are Directors. Dividends have never been paid
on IL's common stock.
The Company's business, transacted through its operating subsidiaries in
Italy and the U.S., is the design, marketing and worldwide distribution of high
quality, relatively expensive contemporary lamps and lighting products. The
operating subsidiaries are, respectively, Italiana Luce SRL ("Italiana Luce")
and IL USA, Inc. Italiana Luce, located in a suburb of Milan designs, markets
and manages distribution of the Company's products. IL USA, Inc. is the
exclusive distributor of Italiana Luce products in the U.S.. and Canada.
Italiana Luce sell 42 collections of lighting products consisting of about 360
line items. In the U.S. the suggested retail price for these products ranges
from $95 to $1,600 with an average price of $300. IL USA, Inc. also distributes
similar lighting products for two nonaffiliated Italian lighting designers and
manufacturers. The Company's sales are made principally to the residential
sector of the market and directed at the high end of the lighting market. The
majority of product is sold in Europe where the top three markets are Italy,
Germany and France.
Italiana Luce's products are manufactured by a network of subcontractors in
Italy, primarily in the general area of Milan, using molds and machinery owned
by Italiana Luce. Some of these subcontractors work almost exclusively for
Italiana Luce. At December 31, 1996, IL's total head count totaled 36 persons.
In 1996 it was determined that headcount needed to be reduced because of
continuing weakness in sales and generally poor financial performance. After
protracted labor negotiations in Italy, the total headcount was reduced by 9,
effective February 1997. The Company also relinquished a substantial portion of
warehouse space, closed out certain products, reduced officers and directors
compensation and eliminated a bonus arrangement with one of its officers and
directors. This
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downsizing was expected to result in an overall annual cost saving of
approximately $500,000.
2.2 Financial Condition
Comparative balance sheet data at December 31, 1993-1997 are set forth in
Schedule 1. As shown, total assets were comprised primarily of accounts
receivable, inventory and other current assets. However, total assets decreased
by approximately 26%, from $6.8 million to $5.0 million during the period. The
Company's liabilities decreased at a slower rate. Current liabilities, the bulk
of total liabilities, decreased by 17%%, from $3.6 million to $3.0 million.
Reflecting this relationship, shareholders' equity decreased 39% during the
period, from approximately $2.8 million to $1.7 million.
At year-end 1993, there was no short-term debt outstanding. However, in
subsequent years, the Company's use of short-term debt increased substantially.
Accordingly, the Company was increasingly dependent on debt financing. Financing
was provided by some sixteen different Italian banks. Given the Company's poor
financial performance, eroding equity base and increasingly heavy reliance on
debt financing matters could be approaching a point at which one or more banks
would refuse to grant further credit. The risk of this happening and the
difficulties which would ensue, in our opinion, is magnified by the relatively
large number of banks involved.
2.3 Financial Performance
Comparative income statement data for the Company for the years ended December
31, 1993-1997 is shown in Schedule 2. As shown, sales decreased during the
period by approximately 20%. While sales trended lower, the cost of sales, in
both absolute and percentage terms, increased during 1993-1996; and reached a
high for the period of almost 60% of sales in 1997 versus approximately
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50% in 1993. S,G & A expenses were relatively stable during the 1993-1996 period
However, because of the substantial decrease in sales combined with increases in
the cost of goods sold, net income decreased sharply from a profit of $357,671
in 1993 to a loss, including restructuring charges of $165,000, of $1,129,625 in
1996.
Indeed, the restructuring referred to in Section 2.1 of this report was prompted
by these circumstances. Reflecting the restructuring, S, G & A expenses
decreased substantially as a percent of sales in 1997, from, 47.2% the prior
year to 41.1%. However, in the context of continually declining sales, the
negative trend of net income continued on into 1997. Thus, 1997 results amount
to an estimated net loss of $249,000. With further restructuring difficult, if
not impossible, to visualize, the Company's performance trends raise clear
questions about its ability to continue as a going concern.
3.0 Industry Trends and Conditions
In each geographic area the company operates, competition is intense. The
residential lighting sector of the interior furnishings industry is highly
competitive and fragmented. There are hundreds of companies operating within
this sector. The major competitors worldwide in the high end sector are
Artemide, Flos, Leucos and Arte Luce. U. S. competitors include George Kovacs
and Koch & Lowy. In terms of financial strength and market dominance, Artemide
is considered the leading company. Others of the Company's competitors also have
greater financial and operating resources than the Company. Furthermore, there
has been a strong and growing competition from Far Eastern imports; particularly
in the U.S.
These imports are priced substantially lower than the Company's products, tend
to be extremely similar in design and also tend to be of a substantially lower
quality. Given these difficulties, U.S. sales have done relatively well,
increasing at an average annual rate of close to 9%. However, U.S. sales have
always represented
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a small part of overall consolidated sales; and the steady increase in the
percentage of overall sales that they represent is not only due to actual
growth, but also due to the fact that sales in the rest of the world are
declining so sharply from year to year. Furthermore, U.S. sales include sales of
third party products in addition to those of Italiana Luce which have been flat.
This decline is due to lagging European economies which have been experiencing
little, if any, growth, and in many cases decreases, accompanied by high
unemployment. In this setting, the Company's Lira denominated sales have
decreased by approximately 50% during 1991 through 1997. In 1991 sales outside
the U.S. were Lit. 18.4 billion compared to Lit. 9.9 billion in 1997. At the
same time the Italian Lira has been depreciating substantially adding a kind of
financial "headwind" effect against the Company. The Italian Lira's average
exchange rate has depreciated from Lit. 1,232 to Lit. 1,689 and as of January
1998 is around Lit. 1800. According to the management of IL International Inc.
most European competitors are dealing with similar disappointing and weak market
results.
4.0 Overall Economic Trends and Conditions
In 1997, the U.S. economy experienced its seventh year of uninterrupted
expansion. The ongoing expansion is supported, as in the past six years, by
declining long-term interest rates, declining or low inflation and rising
corporate profits. However, turmoil in Asian economies has interjected a new
term into the economic equation. Going forward into 1998 it is expected that
current expansion rates will be reduced until the financial effects of the
crises affecting Asian economies dissipate. It is expected that inflation will
remain at low levels, particularly in the context of the lowering of commodity
prices attending the Asian economic crisis. As a parallel expectation it is
assumed that interest rates will remain at current low levels; 30-year Treasury
bonds yielded 5.75% in January 1998. However, because of events
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in Asia, it is expected that the seven year expansion will be forced to slow
substantially throughout its eighth year.
Italy and Europe have not shared the economic growth trends which have benefited
the U.S. economy since 1991. European economies in general have continued to
grapple with relatively high interest, inflation and unemployment rates.
However, at year end 1997, just as the U.S. economy faced reduced growth,
European economies appear on the verge of significant, if modest, gains. For
example, beginning in midyear, Italy began to experience decreasing inflation,
lower short-term interest rates and accelerating economic growth. In the third
quarter real Gross Domestic Product (real "GDP") increased 1.9%. Real GDP growth
was anticipated to reach 2% by the fourth quarter. Based on current trends,
including the fact that of all the European countries Italy is the least exposed
to the Asian crisis, the Italian economic expansion is likely to continue
through 1998. Modest gains are also expected in other European economies.
5.0 Valuation of Shareholders' Equity
5.1 Valuation Based on Selected Public Companies
The management of IL International Inc. has prepared estimates of 1998 financial
performance. These estimates are presented as Schedule 3. As shown in Schedule
3, the estimates are presented in the form of two cases; a best case and a more
likely case. In the best case estimate it is assumed that new products to be
introduced at the biennial European Light Fair in Milan ("Euroluce") will be
successful enough to produce approximately a 15% increase in sales. This
increase would result in a positive net income; but one that amounts to only
2.0% of sales. Actually, this and the second case present a somewhat skewed
result because, due to carryforward losses, the only taxes recorded against
income reflect primarily withholding taxes on interest payments to IL
International. The second case,
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deemed the more likely case, is based on a more modest estimated sales increase
for 1998 of approximately 8%. This increase would result in negative net income.
In our opinion, if IL International Inc. achieves results close to those
projected in the first case, it will be able to continue operations, assuming
reasonable future growth, as a going concern. If results are close to those
projected for the case deemed more likely, we believe it should be assumed for
this analysis that the Company will be unable to continue successfully as a
going concern. Therefore, the value of the Company lies within a range defined
by market value in continued operation and market value based on the sale of the
Company on an orderly liquidation basis.
In order to estimate the value of the Company assuming best case results are
achieved we have made an analysis of the current trading prices for publicly
traded companies listed under Standard Industrial Classification Code ("SIC
Code") 3465 Residential Lighting Fixtures and allied Codes. To a varying degree
some of these companies' products are sold in high end residential markets.
Also, some of the sales of some of the companies selected, although mostly
domestic, are worldwide including Europe. Furthermore, except for one, CSL
Lighting Manufacturing, each is operating profitably.
Tivoli Industries Inc. ("Tivoli")
Designs, develops, manufactures, markets and sells specialty lighting and
related products designed for use in architectural applications where energy
efficient, economical, precision, decorative and high performance sources are
required. Products are sold worldwide and include products targeted at high end
residential markets.
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Advanced lighting Tech, Inc. ("Alti")
Innovation-driven designer, manufacturer and marketer of metal halide lighting
products, including lamps, lamp components and lamp production equipment.
Markets over 240 specialty and 40 commodity-type metal halide lamps, giving it
the most diverse product line of any metal halide lamp manufacturer.
Catalina Lighting, Inc. ("Catalina")
Designs, manufactures, contracts for the manufacture of imports and distributes
a broad line of lighting fixtures and lamps under the Westinghouse brand and
other proprietary tradenames. Also performs some private label manufacturing.
Primarily markets through home centers, national retail chains, office
superstores, warehouse clubs, etc. and principally in the U.S., but also in
Europe and Canada and to a lesser extent in other international markets.
CSL Lighting Manufacturing ("CSL")
Designs, manufactures and markets mid to high-end lighting fixtures for both
commercial and residential applications on a worldwide basis. Core products are
specified for use in new construction and in renovation of commercial and
residential properties by architects, engineers, interior designers and lighting
designers.
Genlyte Group, Inc. ("Genlyte")
Designs, manufactures and sells lighting fixtures for a wide variety of
applications in the commercial, industrial and residential markets. Sales are
primarily in the U.S. but also overseas. The primary brand under which product
are sold, both in the U.S. and overseas is "Lightolier". Products are not sold
directly to the end user. Therefore, there is no information on percentage
breakdown of sales by user. However, the company's performance is strongly
influenced by the level of activity in new construction and remodeling.
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Thomas Industries ("Thomas")
The company's principal businesses are lighting, including consumer, commercial,
industrial and outdoor lighting fixtures; and compressors and vacuum pumps.
Under a series of proprietary brand names the company's consumer lighting line
includes high-style chandeliers and bathroom fixtures plus quality lighting
products for foyers, dining rooms, living rooms, entertainment areas, kitchens,
and bedrooms.
Relevant summary data pertaining to the selected publicly traded companies are
presented in Schedules 4 and 5. Except for CSL each of the selected companies'
sales showed increases over the latest five years and were profitable. Excluding
CSL, which had a loss in its latest year, and Catalina, whose profits were
depressed in its latest year, the net income ratios for the selected public
companies were in a range of approximately 4% to over 8% of sales.
By comparison the Company's sales were decreasing. Its net income had turned
sharply negative in 1996 with additional substantial losses in 1997; and, as the
phrase indicates, only a fairly low level of probability can be associated with
the best case 1998 projected net income of $194,000. Based on the information we
have received and our analysis, IL International Inc. is well managed with high
quality products. However, the market demand for these products has decreased
significantly, not only for the Company but competition as well, and is being
exploited by lower priced imports of inferior quality. In our opinion, in order
for the business to begin to prosper sales, need to increase by a magnitude of
33% to 50%. It is questionable whether sufficiently strong new product can be
introduced by the Company to reach this result in the near term.
According to management, such sales growth is not expected to occur this year.
In view of these considerations, we have applied a 25% discount to the valuation
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multiples of the selected companies (see valuation multiples shown in the
"Median" column in Schedule 4) and applied them to IL International Inc. as set
forth in Schedule 6. On this basis, the indicated market value of the
shareholders' equity of the Company is approximately $2.3 million.
5.2 Valuation Based on Orderly Liquidation
The valuation of assets based on the concept of orderly liquidation assumes
that, while the asset(s) in question may no longer function together in their
specific current use, they will continue, individually or by class, to have an
ongoing in-use value. It is possible that in a liquidation situation of any
kind, particularly for assets located in Italy, it could become difficult to
collect receivables and dispose of inventories without substantial discounts
from face value. However, we have assumed for the purposes of this analysis that
valuation factors similar to those considered by bank lending departments are
appropriate. Lower factors would result in valuation estimates more reflective
of forced liquidation, or auction value, than orderly liquidation value.
As set forth in Schedule 7, we have estimated an orderly liquidation value of
approximately $1.2 million. As shown this assumes collection of 80% of Accounts
Receivables outstanding and realization of 70% of the stated values for
inventory, both as of December 31, 1997 (unaudited basis). We have also assumed
that 50% of the stated value of fixed assets as of December 31, 1997 would be
realized. Finally we have assumed that the Company's intellectual property has
value on a continued use basis. The Company is the licensee under two contracts
with nonaffiliated suppliers of lighting fixtures for the high end residential
market. It owns several prominent brands, possesses a number of patents and has
an established relationship with a network of highly skilled subcontractor
manufacturers.
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We have valued this intellectual property in aggregate based on the concept of
relief from royalty. Accordingly, we have estimated that an appropriate royalty
rate is on the order of 3% of revenues; and for this analysis we have used best
case revenues of $9.5 million. On this basis, the total estimated market value
of the Company's intellectual property is approximately $975,000 as shown in
Schedule 8. The present value discount factor is based on a 15% cost of capital
and a remaining life for these assets of fifteen years.
6.0 Conclusions
Based on our study we have concluded that the market value of the shareholders'
equity of IL International Inc., as of January 1998, lies within a range of $1.2
million to $ 2.3 million. We do not consider that any adjustments to this range
of value, such as for control premiums or minority interest/lack of
marketability discounts, are appropriate. Considering the difficulties facing
IL, a premium for control is unrealistic and a discount for lack of
marketability is unwarranted because the shares are traded on the OTC Bulletin
Board.
We have also estimated that the effect of the proposed offer in its entirety net
of all liabilities, except taxes which may become due as a result of this
proposed transaction, should result in a total price for the shareholders equity
of the Company at least equal to the $2.86 million proposed offer for the
goodwill and operations of the Company. Therefore, in our opinion, the proposed
offer as described to us is financially reasonable. Actually, management has
indicated that they expect that the total net proceeds of the proposed
transaction, on a pretax basis, will be in excess of $2.86 million. Our
conclusions and analyses have been based on an exchange rate of Lit 1,800 and
exclude consideration of any taxes that may be due upon consummation of the
proposed transaction. Our conclusion does not represent a Fairness Opinion and
is subject to the attached statement of Assumptions and Limiting Conditions.
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ASSUMPTIONS AND LIMITING CONDITIONS
Title
No investigation of legal titles was made, and we render no opinion as to
ownership of any of the underlying properties of IL or condition of their title.
We assume that:
a) the title to all relevant properties is marketable;
b) unless otherwise indicated in this report, all property is free and
clear of all liens, encumbrances, easements and restrictions;
c) the properties do not exist in violation of any applicable codes,
ordinances, statutes, or other government regulations; and,
d) the properties are under responsible ownership and competent
management and available for its highest and best use.
Date of Value
The date of this analysis of reasonability is January 1998. The dollar amount of
any value reported is based on the purchasing power of the U.S. dollar as of
that date. We assume no responsibility for economic or physical factors
occurring subsequent to the date of value which may affect the opinions
reported.
Non-Appraisal Expertise
No opinion is intended to be expressed for matters which require legal or
specialized expertise, investigation, or knowledge, beyond that customarily
employed by appraisers.
Information and Data
Information supplied by others that was considered in this appraisal is from
sources believed to be reliable, and no further responsibility is assumed for
its accuracy.
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ASSUMPTIONS AND LIMITING CONDITIONS
Confidentiality/Advertising
This report and supporting documentation are confidential. Neither all nor any
part of the contents of this appraisal shall be copied or disclosed to any party
or conveyed to the public orally or in writing through advertising, public
relations, news, sales, or in any other manner without the prior written consent
and approval of both Marshall & Stevens Incorporated and its client. However,
Marshall & Stevens consents that this report may be used to facilitate
consummation of the proposed transaction as described herein and, for this
purpose, may be provided to any government authority and/or legal and tax
advisors of the client.
Litigation Support
Depositions, expert testimony, attendance in court, and all preparations/support
for same, arising from this appraisal shall not be required unless arrangements
for such services have previously been made.
Management
The opinions of value expressed herein assume the continuation of prudent
management policies over whatever period of time that is deemed reasonable and
necessary to maintain the character and integrity of the subject business
enterprise and its underlying assets.
Purpose
All opinions of market value are presented as Marshall & Stevens Incorporated's
considered opinion based on the facts and data obtained during the course of the
appraisal investigation. This report has been prepared for the sole purpose
stated herein and shall not be used for any other purpose or by any other user.
Unexpected Conditions
We assume there are no hidden or unexpected conditions associated with IL
International Inc. that might adversely affect value. Further, we assume no
responsibility for changes in market condition which may require an adjustment
in our conclusions.
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ASSUMPTIONS AND LIMITING CONDITIONS
Appraisal Fee
The fee established for the formulation of our opinion is not contingent upon
the value conclusions reported.
Visitation
The Company was visited in the course of this appraisal assignment in January
1998.
Hazardous Substances
Hazardous substances, if present within a business, can introduce an actual or
potential liability that may adversely affect the marketability and value of the
business or its underlying assets. In this analysis, no consideration has been
given to such liability or its potential impact upon value.
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SCHEDULE 1
IL INTERNATIONAL INC. AND SUBSIDIARIES
COMPARATIVE BALANCE SHEETS
AT DECEMBER 31, 1993-97
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<TABLE>
<CAPTION>
REVISED
Dec Dec Dec Dec Dec
1993 % 1994 % 1995 % 1996 % 1997 %
---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash & Equivalents $866,379 12.7 $349,538 5.1 $686,215 9.8 $324,298 4.8 $557,115 11.1
Accts Receivable (net) 2,718,168 39.9 2,919,810 42.7 2,512,104 35.8 2,675,435 39.7 1,836,539 36.6
Inventories 1,747,249 25.6 2,041,297 29.9 2,337,470 33.3 2,488,006 37.0 1,783,832 35.5
Deferred Income Taxes 259,627 3.8 266,248 3.9 295,329 4.2 0 0.0 0 0.0
Other 372,919 5.5 335,844 4.9 237,439 3.4 368,793 5.5 239,512 4.8
---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
Total Current Assets 5,964,342 84.9 5,912,737 86.5 6,068,557 86.4 5,856,532 87.0 4,416,998 88.0
FIXED ASSETS
Original Cost 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0
Depreciation/Amort 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0
---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
Net Fixed Assets 622,935 9.1 729,927 10.7 818,366 11.6 775,529 11.5 539,573 10.8
OTHER ASSETS
Intangibles 170,013 2.5 129,051 1.9 80,453 1.1 32,445 0.5 5,522 0.1
Other 56,233 0.8 62,841 0.9 59,329 0.8 68,635 1.0 56,545 1.1
---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
Total Other Assets 226,246 3.3 191,892 2.8 139,782 2.0 101,080 1.5 62,067 1.2
TOTAL ASSETS $6,813,523 100.0 $6,834,556 100.0 $7,026,705 100.0 $6,733,141 100.0 $5,018,638 100.0
========== ===== ========== ===== ========== ===== ========== ===== ========== =====
LIABILITIES & STOCKHOLDERS' EQUITY
Short Term Debt $0 0.0 $170,196 2.5 $473,327 6.7 $1,704,354 25.3 $921,346 18.4
Current Portions of L-T Debt 543,585 8.0 106,939 1.6 37,896 0.5 35,642 0.5 16,255 0.3
Accounts Payable 1,852,772 27.2 1,997,114 29.2 1,423,778 20.3 922,612 13.7 1,039,098 20.7
Income Taxes Payable 66,389 1.0 47,108 0.7 27,126 0.4 325 0.0 1,377 0.0
Other Accrued Liabilities 1,135,392 16.7 1,128,563 16.5 1,325,256 18.9 1,371,674 20.4 998,429 19.9
---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
Total Current Liabilities 3,598,138 52.8 3,449,920 50.5 3,287,383 46.8 4,034,607 59.9 2,976,505 59.3
NON-CURRENT LIABILITIES
Long-Term Debt (net) 88,021 1.3 41,074 0.6 62,849 0.9 30,104 0.4 9,593 0.2
Other 347,383 5.1 386,706 5.7 479,561 6.8 482,715 7.2 335,618 6.7
---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
Total Non-Current Liabilities 435,404 6.4 427,780 6.3 542,410 7.7 512,819 7.6 345,211 6.9
---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
TOTAL LIABILITIES 4,033,542 59.2 3,877,700 56.7 3,829,793 54.5 4,547,426 67.5 3,321,716 66.2
Total Stockholders' Equity 2,779,981 40.8 2,956,856 43.3 3,196,912 45.5 2,185,715 32.5 1,696,922 33.8
---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
TOTAL LIABILITIES & EQUITY $6,813,523 100.0 $6,834,556 100.0 $7,026,705 100.0 $6,733,141 100.0 $5,018,638 100.0
========== ===== ========== ===== ========== ===== ========== ===== ========== =====
- ------------------------------------------------------------------------------------------------------------------------------------
Working Capital $2,366,204 34.7 $2,462,817 36.0 $2,781,174 39.6 $1,821,925 27.1 $1,440,493 28.7
Current Ratio 1.66 1.71 1.85 1.45 1.48
Quick Ratio 1.00 0.95 0.97 0.74 0.80
Long-Term Debt/Equity 0.03 0.01 0.02 0.01 0.01
Total Liabilities/Equity 1.45 1.31 1.20 2.08 1.96
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</TABLE>
NOTE: 1997 DATA ARE UNAUDITED
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SCHEDULE 2
IL INTERNATIONAL INC. AND SUBSIDIARIES
COMPARATIVE INCOME STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1993-1997
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<TABLE>
<CAPTION>
Dec Dec Dec Dec Dec
1993 % 1994 % 1995 % 1996 % 1997-EST %
----------- ----- ---------- ----- ----------- ----- ---------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET SALES $10,258,748 100.0 $9,485,694 100.0 $10,222,808 100.0 $9,735,494 100.0 $8,235,007 100.0
Cost of Sales 5,107,385 49.8 5,178,025 54.6 5,519,330 54.0 5,687,962 58.4 4,955,725 60.2
----------- ----- ---------- ----- ----------- ----- ---------- ----- ---------- -----
GROSS PROFIT 5,151,363 50.2 4,307,669 45.4 4,703,478 46.0 4,047,532 41.6 3,279,282 39.8
S, G & A Expenses 4,743,023 46.2 4,225,441 44.5 4,482,807 43.9 4,596,947 47.2 3,406,222 41.4
----------- ----- ---------- ----- ----------- ----- ---------- ----- ---------- -----
OPERATING PROFIT 408,340 4.0 82,228 0.9 220,671 2.2 (549,415) -5.6 (126,940) -1.5
Interest Income 64,245 0.6 28,698 0.3 22,214 0.2 15,323 0.2 20,605 0.3
Interest Expense (141,823) -1.4 (68,691) -0.7 (66,514) -0.7 (108,819) -1.1 (109,461) -1.3
----------- ----- ---------- ----- ----------- ----- ---------- ----- ---------- -----
Income Before Unusual Items,
Income Taxes & Minority Int. 330,762 3.2 42,235 0.4 176,371 1.7 (642,911) -6.6 (215,796) -2.6
Restructuring Charge 0 0.0 0 0.0 0 0.0 (165,000) -1.7 0 0.0
----------- ----- ---------- ----- ----------- ----- ---------- ----- ---------- -----
Income before Income Taxes
and Cumulative Effect 330,762 3.2 42,235 0.4 176,371 1.7 (807,911) -8.3 (215,796) -2.6
Provision for Income Taxes 144,927 1.4 30,535 0.3 126,992 1.2 321,714 3.3 33,614 0.4
----------- ----- ---------- ----- ----------- ----- ---------- ----- ---------- -----
Net Income Before
Cumulative Effect 185,835 1.8 11,700 0.1 49,379 0.5 (1,129,625) -11.6 (249,410) -3.0
Cumulative Effect (Benefit) (171,836) -1.7 0 0.0 0 0.0 0 0.0 0.0
of Acctg Change
NET INCOME $357,671 3.5 $11,700 0.1 $49,379 0.5 ($1,129,625) -11.6 ($249,410) -3.0
=========== ===== ========== ===== =========== ===== ========== ===== ========== =====
ADJUSTED FOR EXTRAORDINARY/NONRECURRING ITEMS
Adjusted Pretax Income N/A 0.0 N/A 0.0 N/A 0.0 ($642,911) -6.6 N/A 0.0
Adjusted Net Income N/A 0.0 N/A 0.0 N/A 0.0 ($900,075) -9.2 N/A 0.0
Adjusted Cash Flow N/A 0.0 N/A 0.0 N/A 0.0 ($467,281) -4.8 N/A 0.0
</TABLE>
NOTE: 1997 DATA ARE UNAUDITED
N/A = NOT APPLICABLE
C-21
Marshall & Stevens Incorporated
<PAGE>
SCHEDULE 3
IL INTERNATIONAL INC. AND SUBSIDIARIES
PROJECTION OF
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
PROJECTED AS AT DECEMBER 31, 1998
($ IN THOUSANDS)
- --------------------------------------------------------------------------------
YEAR TO DECEMBER 31, 1998
---------------------------
BEST CASE MORE
(BUDGET) LIKELY
--------- ---------
NET SALES $ 9,450 $ 8,879
COST OF SALES 5,461 5,170
--------- ---------
3,989 3,709
SG&A EXPENSES 3,642 3,583
--------- ---------
347 126
INTEREST INCOME 3 3
INTEREST EXPENSE 143 157
--------- ---------
207 (28)
INCOME TAXES 13 13
--------- ---------
NET INCOME (LOSS) 194 (41)
========= =========
SOURCE: IL INTERNATIONAL INC.
C-22
Marshall & Stevens Incorporated
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE 4
IL INTERNATIONAL INC.
COMPARED TO PUBLICLY HELD COMPANIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Company Name: Tivoli Advanced Catalina CSL Genlyte Thomas
Industries Lighting Lighting Lighting Group Industries
Ticker Symbol: TVLI ADLT LTG CSLX GLYT TII
Last Fiscal Year: Sept-97 Jun-97 Sept-97 Dec-96 Dec-96 Dec-96
Latest Twelve Months: MEDIAN Sept-97 Sept-97 Sept-97 Sept-97 Sept-97 Sept-97
- --------------------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
MARKET DATA
Market Price-As of 12/31/97 $10.66 $2.00 $19.00 $3.56 $0.19 $17.75 $19.75
Shares Outstanding (000's) 13,005 3,938 16,471 7,095 12,671 13,339 15,840
Market Value-Common Equity 131,023 7,876 312,949 25,279 2,382 236,767 312,840
Preferred Stock 0 0 0 0 0 0 0
Market Value-Stockholder's Eq. 131,023 7,876 312,949 25,279 2,382 236,767 312,840
Total Interest Bearing Debt 28,970 884 6,881 51,268 4,197 51,058 73,143
Market Value-Invested Capital 182,186 8,760 319,830 76,547 6,579 287,825 385,983
LATEST TWELVE MONTHS
Cash Flow (% Revenue) 6.66 6.87 11.68 3.07 -33.24 6.46 7.00
Price/Cash Flow 8.00 11.65 27.23 4.18 -0.57 7.68 8.32
EBITDA (% Revenue) 9.23 8.30 16.95 5.44 -13.46 10.16 10.63
Invested Capital/EBITDA 6.96 10.72 19.18 7.15 -3.88 5.93 6.77
Price/Revenue 0.54 0.80 3.18 0.13 0.19 0.50 0.58
Pretax Income (% Revenue) 6.12 5.77 12.36 0.73 -38.57 6.47 6.47
Price/Pretax Income 11.44 13.87 25.73 17.64 -0.49 7.66 9.00
Net Income (% Revenue) 3.89 5.20 8.77 0.44 -38.57 3.69 4.08
Price/Net Income 14.83 15.38 36.25 29.39 -0.49 13.43 14.29
Price/Book Equity 1.79 1.75 2.26 0.62 0.76 2.43 1.84
THREE-YR WEIGHTED AVG
Cash Flow (% Revenue) 5.66 5.80 N/A 3.48 -19.03 5.66 6.01
Price/Cash Flow 9.31 17.21 N/A 3.84 -0.91 9.31 10.52
EBITDA (% Revenue) 7.08 7.08 N/A 5.91 -9.76 8.55 9.17
Invested Capital/EBITDA 7.24 15.69 N/A 6.87 -4.62 7.24 8.30
Price/Revenue 0.53 1.00 N/A 0.13 0.17 0.53 0.63
Pretax Income (% Revenue) 3.84 3.84 N/A 0.88 -22.99 3.94 4.69
Price/Pretax Income 13.49 26.02 N/A 15.12 -0.76 13.39 13.49
Net Income (% Revenue) 2.25 3.51 N/A 0.54 -22.99 2.25 2.90
Price/Net Income 23.39 28.45 N/A 24.52 -0.76 23.39 21.77
Price/Book Equity 1.88 1.88 N/A 0.60 1.36 3.06 2.10
</TABLE>
C--23
Marshall & Stevens Incorporated
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE 5
IL INTERNATIONAL INC.
COMPARED TO PUBLICLY HELD COMPANIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Company Name: Tivoli Advanced Catalina CSL Genlyte Thomas
Industries Lighting Lighting Lighting Group Industries
Ticket Symbol: TVLI ADLT LTG CSLX GLYT TII
Last Fiscal Year: Sept-97 Jun-97 Sept-97 Dec-96 Dec-96 Dec-96
Latest Twelve Months: MEDIAN Sept-97 Sept-97 Sept-97 Sept-97 Sept-97 Sept-97
- --------------------- -------- ------ -------- -------- ------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET
Total Assets ($000's) $143,545 $6,888 $170,508 $116,581 $9,005 $256,536 $329,851
Total Assets (%) 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cash & Equivalents 2.6 20.2 16.4 1.6 0.8 1.4 3.7
Accounts Receivable 23.1 23.4 19.4 22.8 21.0 30.6 25.1
Inventories 27.1 24.6 19.0 29.7 49.4 30.6 22.2
Total Current Assets 64.0 74.3 57.1 58.7 82.2 69.3 55.3
Net Fixed Assets 23.5 11.5 25.1 25.7 16.6 23.4 23.6
Accounts Payable 11.3 16.4 6.6 11.7 10.9 16.5 8.5
Current Portion Long-Term Debt 2.1 0.7 2.2 9.9 1.0 2.0 5.5
Total Current Liabilities 23.3 20.3 14.5 26.3 17.1 34.3 27.6
Long-Term Debt 17.2 12.1 1.8 34.1 45.6 17.9 16.6
Total Liabilities 55.2 34.6 19.0 64.8 65.1 62.0 48.4
Net Worth 44.8 65.4 81.0 35.2 34.9 38.0 51.6
Working Capital 38.8 54.1 42.6 32.3 65.0 35.0 27.7
INCOME STATEMENT
Revenue ($000's) $147,676 $9,846 $98,397 $196,955 $12,607 $477,701 $536,657
Revenue (%) 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Net Income 3.9 5.2 8.8 0.4 -38.6 3.7 4.1
Cash Flow 6.7 6.9 11.7 3.1 -33.2 6.5 7.0
EBIT 7.0 6.6 14.0 2.8 -18.8 7.4 7.7
EBITDA 9.2 8.3 16.9 5.4 -13.5 10.2 10.6
FINANCIAL RATIOS
Current 2.9 3.7 3.9 2.2 4.8 2.0 2.0
Quick 1.2 2.2 2.5 0.9 1.3 0.9 1.0
L-T Debt/Net Worth 0.4 0.2 0.0 1.0 1.3 0.5 0.3
Total Liabs./Net Worth 1.3 0.5 0.2 1.8 1.9 1.6 0.9
Total Debt/Total Capitalization 32.2% 16.4% 4.7% 55.5% 57.2% 34.4% 30.1%
COGS/Inventory 3.8 5.0 2.5 3.6 4.0 4.2 3.0
Inventory Days 96.4 73.4 148.8 101.8 91.0 87.5 122.2
Revenue/Total Assets 1.5 1.4 0.6 1.7 1.4 1.9 1.6
Revenue/Working Capital 3.9 2.6 1.4 5.2 2.2 5.3 5.9
% of Sales 25.4% 37.8% 73.8% 19.1% 46.5% 18.8% 17.0%
Return on Assets (ROA) 5.9% 7.4% 5.1% 0.7% -54.0% 6.9% 6.6%
Return on Equity (ROE) 8.8% 11.4% 6.2% 2.1% -154.6% 18.1% 12.9%
</TABLE>
C-24
Marshall & Stevens Incorporated
<PAGE>
SCHEDULE 6
IL INTERNATIONAL INC.
MARKET VALUE BASED ON
SELECTED PUBLIC COMPANIES
AS OF JANUARY 1998
($ IN THOUSANDS)
<TABLE>
<CAPTION>
BASIS AMT VALUATION AMT ADJ (1) AMT WEIGHT AMT
- ---------------- --------- --------- ------ ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
EBITDA $ 605 5.2 $3,150 (1,462) $1,688 0.33 $560
REVENUE 9,500 0.4 3,800 -- 3,800 0.17 650
PRICE/NET INCOME 124 (2) 17.5 2,170 -- 2,170 0.33 700
PRICE/BOOK 1,722 1.34 2,310 -- 2,310 0.17 400
------
INDICATED MARKET VALUE $2,310
======
</TABLE>
NOTE: (1) DEBT
(2) PRETAX INCOME OF $207 THOUSAND
LESS NORMALIZED TAXES AT 40%
C-25
Marshall & Stevens Incorporated
<PAGE>
SCHEDULE 7
IL INTERNATIONAL INC.
ORDERLY LIQUIDATION VALUE
AS OF JANUARY 1998
($ IN THOUSANDS)
REVISED REVISED
AMOUNT FACTOR AMOUNT
------ ------ ------
CASH $ 557 1.00 $ 557
ACCTS REC. 1,837 0.80 1,470
INVENTORY 1,784 0.70 1,249
OTHER 623 0.00 --
------
CURRENT ASSETS 3,276
FIXED ASSETS 540 0.50 270
INTANGIBLE ASSETS 975
------
TOTAL ASSETS 4,521
LESS: TOTAL LIABILITIES 3,322 1.00 3,322
------
INDICATED VALUE $1,199
======
C-26
Marshall & Stevens Incorporated
<PAGE>
SCHEDULE 8
IL INTERNATIONAL INC.
ESTIMATED MARKET VALUE
INTELLECTUAL PROPERTY
AS OF JANUARY 1998
($ IN THOUSANDS)
REVENUES $9,500
------
ROYALTY - 3% 285
ADMIN. EXPENSES - 10% 29
------
PRETAX ROYALTY INCOME 256
INCOME TAX 89
------
AFTERTAX ROYALTY INCOME $ 167
PRESENT VALUE FACTOR 5.85
------
INDICATED MARKET VALUE 975
======
NOTE: PRESENT VALUE FACTOR BASED ON 15%
COST OF CAPITAL OVER 15 YEARS
C-27
Marshall & Stevens Incorporated
<PAGE>
ANNEX D
ESTIMATE OF NET PROCEEDS AVAILABLE
FOR DISTRIBUTION TO STOCKHOLDERS
(see Note 1)
Italy
---------------------- USA Total
Lit. mill. $000 $000 $000
------------ ------ ------ -----
(Note 2)
Paid by Purchaser
Goodwill Lit. 5,150 $2,860 $ -- $2,860
Inventory 2,050 1,135 415 1,550
Other assets 230 125 35 160
----- ------ ------ ------
Lit. 7,430 $4,120 $ 450 $4,570
----- ------ ------ ------
Sale by Company
Cash -- -- 160 160
Receivables 2,340 1,300 400 1,700
Other assets 300 170 -- 170
----- ------ ------ ------
Lit. 2,640 $1,470 $ 560 $2,030
----- ------ ------ ------
TOTAL GROSS PROCEEDS Lit. 10,070 $5,590 $1,010 $6,600
Less Liabilities
Short-term debt 1,250 695 -- 695
Payables 1,500 835 110 945
Other accrued expenses 780 435 30 465
Severance compensation 1,130 625 -- 625
Taxes 310 170 -- 170
----- ------ ------ ------
Total liabilities Lit. 4,970 $2,760 $ 140 $2,900
----- ------ ------ ------
TOTAL NET PROCEEDS Lit. 5,100 $2,830 $ 870 $3,700
----- ------ ------
Less:
Costs to collect receivables
and liquidate Company (160) (90) (10) (100)
Legal and investment banking
fees (90) (50) (150) (200)
Shareholder communications (50) (50)
Contingency (160) (90) (10) (100)
----- ------ ------ ------
(410) (230) (220) (450)
----- ------ ------ ------
ESTIMATED NET PROCEEDS
AVAILABLE FOR
STOCKHOLDERS [A] Lit. 4,690 $2,600 650 $3,250
----- ------ ------ ======
Shares of Common Stock outstanding [B] 76,821,384
Per share amount - [A] divided by [B] $0.042
------
Notes
- -----
(1) Data based on management's best estimates. See qualification as to
accuracy of data set forth under "--Use of Proceeds; Dissolution and
Liquidation Following the Proposed Sale."
(2) Converted at Lit. 1,800.
D-1
<PAGE>
ANNEX E
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB/A
AMENDMENT NO 1
(Mark One)
|x| ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 1997
-----------------
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from __________________ to _________________
Commission File number 0-14575
-------
IL INTERNATIONAL INC.
- --------------------------------------------------------------------------------
(Name of small business issuer in its charter)
Delaware 06-1331343
- ------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 Long Beach Boulevard,
Stratford, Connecticut 06497
- ---------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (203) 378-4000
--------------
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.01 par value
----------------------------
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 |x| No |_|
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and if no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. |X|
Page 1 of 53 pages
Exhibit Index at page 51
<PAGE>
2
The issuer's revenues for its most recent fiscal year were
$8,230,730.
State the aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which the stock was sold,
or the average bid and asked prices of such stock, as of a specified date within
the past 60 days.
Aggregate market value as of March 4,
1998..............$396,900
Check whether the issuer has filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court.
Yes |x| No |_|
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date.
Common stock, $.01 par value, as of March 4,
1998.............. 79,375,497 shares
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the documents, all or portions of which are
incorporated by reference herein and the Part of the Form 10-KSB into which the
document is incorporated:
None.
Transitional Small Business Disclosure Format (Check one:)
Yes |_| No |x|
<PAGE>
3
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
General
IL International Inc. (the "Company") was incorporated in Delaware
on June 13, 1991.
The Company's business, transacted through its operating
subsidiaries, is the design, marketing and worldwide distribution of
contemporary lamps and lighting products.
Operating Units
Italiana Luce and IL USA, Inc. (formerly known as "PAF USA, Inc."),
a Delaware corporation ("IL USA"), are the Company's two operating subsidiaries.
Italiana Luce, which is based in Settimo Milanese, a suburb of Milan, Italy,
designs, markets and distributes worldwide high quality contemporary lamps and
lighting products. Italiana Luce's products are manufactured by a network of
subcontractors, some of which work almost exclusively for Italiana Luce, using
molds owned by Italiana Luce. IL USA is the exclusive distributor of Italiana
Luce's products in the United States and Canada.
Incorporated in 1975, Italiana Luce shipped its first products,
principally classic hand-blown Venetian glass lamps, in early 1979. In 1984,
Italiana Luce introduced the first of its modern design lamps and began to phase
out its traditional product line. In 1993, a new line of traditionally designed,
high quality, hand-blown lamps was marketed under the Le Stelle trade name.
Italiana Luce currently sells 32 collections of lighting products
consisting of about 290 line items. In the United States the suggested retail
prices of these fixtures range from $105 to $1,875 with an estimated weighted
average list price of $315. Actual selling prices in the United States for
portable fixtures are commonly 10% to 20% below the suggested retail prices.
Prices of these products are generally higher in the rest of the world.
In 1993, IL USA acquired distribution rights in
<PAGE>
4
North America for certain lighting products of contemporary design produced by
two non-affiliated Italian lighting manufacturers, Nemo S.r.l. ("Nemo") and
Effetre Industriale S.p.A. In October 1994, IL USA also began to distribute in
the United States a line of lighting products produced by Foscarini Murano
S.p.A. ("Foscarini"), located near Venice, Italy. Besides its contemporary line
of lighting fixtures featuring high quality hand-blown Venetian glass, Foscarini
offers an array of classic custom designed chandeliers. Effective June 30, 1997,
IL USA voluntarily relinquished its rights to distribute the Nemo line and
subsequently signed an agreement with Tre Ci Luce snc ("Tre Ci Luce"), a
manufacturer of contemporary lighting fixtures located outside Milan, Italy, to
become its exclusive distributor in the United States. Shipments of the Tre Ci
Luce line began in late January 1998.
In total, the lines of non-affiliated product now currently
represented by IL USA consist of 53 collections of lighting products or about
1,000 line items (excluding custom-made products). The fixtures have suggested
retail selling prices which range from $95 to $3,200. During 1997, the estimated
weighted average list price was $425.
Industry Segments
The Company operates within the lighting segment of the interior
furnishings market. Sales are made principally to the residential sector of the
market. The Company considers its present product line to comprise a single
industry segment.
Design
The Company's design policy is to develop innovative contemporary
lighting products directed at the higher-end of the lighting market. The Company
does not have an in-house design group but instead develops its designs in close
cooperation with a small group of top architects and designers recognized for
their excellence in the field of modern design. In order to assure that new
product development is directly focused on market needs, the Company outlines
for its designers current market trends both in design and material content,
identifies product niches, and sets price guidelines. The majority of the
designers create lighting products exclusively for the Company. The "Italiana
Luce Collection" has been created principally by Italian designers such as Mario
Barbaglia,
<PAGE>
5
Marco Colombo and Stefano Marcato. Ferdinand Porsche of F.A. Porsche Design, a
prominent German design group, has also designed products for the Company.
Italiana Luce's products have been exhibited in various museums of modern art in
Europe, the United States and South America. They have also been highly
acclaimed by contemporary design periodicals throughout the world.
Marketing
The majority of the Company's products are sold in Western Europe
where the top three markets are Italy, Germany and France. Sales in the United
States and Canada account for about 30% of worldwide sales when expressed in
U.S. dollars. The Company also sells its products in Japan, Australia and
certain countries in South America. Products are distributed to the retail
consumer through independent stores, furniture stores, department stores and
mail order houses. Fixtures are also sold directly to contractors, purchasing
agents, architects and designers for use in commercial applications such as
offices, hospitality centers and restaurants.
The residential markets around the world for high-end lighting
fixtures of contemporary design have been very soft for the past few years while
the contract market has seen some growth over the same period. As a result, the
Company has taken steps to increase its presence in the contract market. It is
estimated that currently less than 15% of the Company's sales are made directly
to the contract market. An additional unquantifiable volume of sales is made to
third parties who themselves sell the products into the contract market.
The Company's products are sold in Italy through a network of
independent sales representatives. In other countries in Europe sales are made
on an exclusive basis either through a local distributor or through an importing
agent. In the United States, the products are sold through independent sales
agent organizations hired by IL USA. IL USA sells its products to a Canadian
distributor for distribution throughout Canada.
The Company's marketing strategy is directed primarily at the
residential segment of the lighting market. Marketing efforts of the sales
representatives, who call principally on retail outlets, are supplemented by
promotional programs, including catalogue mailings,
<PAGE>
6
incentive plans, attendance at trade shows, and national advertising through
trade and popular interior design publications. The generally weak economies in
Europe in recent years have negatively affected the Company's sales and cash
flow. To conserve its resources, the Company has advertised only sparingly in
recent years. Instead, the Company has increased the level of its promotional
activities to the trade.
Competition
In each of the countries in which the Company markets its products,
the residential lighting sector of the interior furnishings industry is highly
competitive and fragmented, with many hundreds of companies operating within it.
The Company's major worldwide competitors in the high-end, contemporary lighting
sector of the interior furnishings market are Artemide, Flos, Leucos and Luce
Plan. Other competitors in the United States include George Kovacs and Koch &
Lowy. Some of the Company's competitors have greater financial and operating
resources than the Company. In addition, there is strong competition from
imports from the Far East which are priced substantially lower than the
Company's products, are often very similar in design, and are generally of a
lower quality.
The Company believes its principal competitive advantages to be its
superior design capability, the Italian provenance of its products, the brand
name recognition of its products in the trade, and its professional management.
Seasonality
Because it is the custom in Italy, as it is in much of Europe, to
shut down operations during the month of August, shipments for the third quarter
of the calendar year have historically accounted for approximately 15% of total
annual sales. The first and fourth quarters of the year have in most recent
years each accounted for close to 30% of total annual sales.
Sources of Supply
The primary materials used by the Company are metal, technopolymer
and glass. These materials are in plentiful supply and are available from many
sources
<PAGE>
7
throughout Europe. The Company has not experienced any material delays in the
delivery of any of these items in recent years.
Principal Customers
The Company's five largest customers account, in the aggregate, for
less than 5% of its total sales.
Patents and Trademarks
The Company has patents and trademarks in many countries on the
design of certain of its products. In those countries in which the Company has
significant sales, these patents and trademarks expire between 2006 and 2010.
Restructuring of Italiana Luce
Confronted with continued weak demand for its products in every
major market in continental Europe and with no prospect of any improvement
during 1997, the Company determined that more radical cost cutting measures than
those previously undertaken were necessary. Consequently, the Company
implemented a plan in early 1997 to revise its operating and financial
requirements. Actions taken included close-out of a number of slower selling
products and liquidation of the Le Stelle line of traditional Venetian-style
fixtures, termination of one-third of the Company's workforce in Italy; reduced
compensation for the Company's officers and directors; cancellation of a lease
on approximately 13,000 square feet of warehouse space at Italiana Luce; and
elimination in Italy of all advertising. Savings in 1997 resulting from these
actions are estimated to have been in excess of $500,000.
Employees
At December 31, 1997, the Company had 26 full-time employees and one
part-time employee. Fifteen full-time employees and the part-time employee were
employed in executive, management, sales, administrative, and clerical positions
and 10 in warehousing, shipping, assembly and technical support.
Manufacture of the Company's products is undertaken by small
independent subcontractors in Italy. Each subcontractor produces a limited
number of the
<PAGE>
8
Company's products. For many of the larger selling volume items, the Company has
two or more sources of supply.
Although the Company has no collective bargaining arrangements, all
of its employees in Italy are covered by broad national wage and benefit
agreements mandated by various agencies of the Italian central government. The
Company considers its employee relations to be satisfactory.
Foreign and Domestic Operations
A summary of the Company's operations by geographical area for the
years ended December 31, 1997 and 1996 is as follows:
Years Ended December 31,
1997 1996
----------- -----------
Net sales to unaffiliated customers:
United States (a) $ 2,509,174 $ 2,381,598
Italy 2,513,690 3,389,958
Germany 1,198,460 1,560,432
Other countries 2,009,406 2,403,506
----------- -----------
Total $ 8,230,730 $ 9,735,494
=========== ===========
Net sales between geographic areas (b):
Italy $ 807,543 $ 877,620
=========== ===========
Operating profits/(losses):
United States $ 187,942 $ 27,562
Italy (701,791) (741,977)
----------- -----------
Total $ (513,849) $ (714,415)
=========== ===========
December 31,
1997 1996
----------- -----------
Identifiable assets:
United States $ 1,063,640 $ 1,078,840
Italy 3,970,123 5,654,301
----------- -----------
Total $ 5,033,763 $ 6,733,141
=========== ===========
<PAGE>
9
- ----------
(a) Includes export sales of $47,394 and $45,132 during the years ended
December 31, 1997 and 1996, respectively.
(b) Net sales between geographic areas refers to products sold by Italiana
Luce to IL USA. These sales have been eliminated in consolidation.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company's executive offices are located at 400 Long Beach
Boulevard, Stratford, Connecticut where the Company leases 800 square feet of
office space from IL USA.
The offices of Italiana Luce are located at Via Edison, 118, Settimo
Milanese, Italy. The leased premises consist of offices of approximately 3,200
square feet and a warehouse of approximately 26,000 square feet.
The Company's distribution center in the United States is leased by
IL USA and is located at 400 Long Beach Boulevard, Stratford, Connecticut. It
consists of offices of approximately 1,600 square feet and a warehouse of
approximately 9,120 square feet.
The Company's total annualized rental expense in 1997 was $198,305.
Leases generally are subject to periodic rent adjustments. Current leases expire
at varying times between 1998 and 2003.
The Company anticipates that it will be able to renew its leases
upon their expiration or lease other facilities on comparable terms if the
current leases are not renewed. The Company believes that its facilities are
well maintained and are of adequate size in Italy for its projected needs in the
near term.
<PAGE>
10
ITEM 3. LEGAL PROCEEDINGS.
There are no legal proceedings, other than routine litigation
incidental to the Company's business, to which the Company is a party or of
which any of its property is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
<PAGE>
11
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock is quoted on the OTC ("Over-The-Counter")
Bulletin Board under the symbol ILIL, and is included in the National Quotation
Bureau's "Pink Sheets".
The quarterly high and low bid prices of the Company's common stock
during 1996 and 1997 are set forth below. Prices are as reported by the National
Quotation Bureau, LLC.
High Low
---- ---
1996
- ----
First Quarter $ 0.01 $ 0.01
Second Quarter 0.02 0.01
Third Quarter 0.02 0.015
Fourth Quarter 0.015 0.01
1997
- ----
First Quarter $ 0.01 $ 0.006
Second Quarter 0.006 0.001
Third Quarter 0.0015 0.001
Fourth Quarter 0.005 0.001
The foregoing OTC quotations are inter-dealer quotations without
retail markup, markdown or commission and may not represent actual transactions.
On March 3, 1998, the Company estimates that it had 1,750
shareholders, comprised of 460 shareholders of record and 1,290 beneficial
shareholders whose shares are being held in brokerage firm accounts in "street
name."
No cash dividends have been paid or declared on the common stock of
the Company since the Company was organized.
<PAGE>
12
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Background
IL International Inc. (the "Company") was incorporated in Delaware
on June 13, 1991 in connection with the Amended Plan of Reorganization (the
"Plan") of Chartwell Group Ltd. ("Chartwell") and CGL Finance, Inc. (together
with Chartwell, the "Debtors"). In accordance with the Plan's provisions,
Chartwell was dissolved on February 13, 1992.
On April 8, 1991, a voluntary petition for reorganization pursuant
to Chapter 11 of the United States Bankruptcy Code was filed by the Debtors with
the United States Bankruptcy Court (the "Court"). The Effective Date of the Plan
was November 27, 1991. On October 1, 1992, the Court issued a Final Decree
approving the closure of the estates of the Debtors.
On the Effective Date, the Company became the owner of Chartwell's
sole remaining operating subsidiary, Italiana Luce S.r.l., an Italian
corporation ("Italiana Luce"), and certain other assets and properties of
Chartwell, free and clear of all liens, claims and encumbrances.
Results of operations
The functional currency of the Company's foreign subsidiary,
Italiana Luce, is the Italian lira. The Company translates all assets and
liabilities of Italiana Luce at year-end exchange rates, all income and expense
accounts at average rates, and records adjustments resulting from the
translation in a separate component of stockholders' equity.
The Italian lira continued its roller-coaster ride against the U.S.
dollar during 1997. The weighted average exchange rate of the lira used in the
conversion of Italiana Luce's income statement for 1997 was 9.5% less than that
used in 1996. The comparable 1996 rate was 5.2% greater than that for 1995.
Net sales for the Company for the year ended December 31, 1997 were
$8,230,730, a decrease of 15.5% on
<PAGE>
13
net sales of $9,735,494 for the year ended December 31, 1996.
Expressed in lire, net sales for the year ended December 31, 1997,
exclusive of sales in North America, fell 14.8% as compared to 1996. With
continental Europe continuing to experience high unemployment and stagnant
economies, the Company's sales declined in all major European markets.
Sales in North America rose 5.5% in 1997. Strong sales of the
Foscarini line more than offset a decline in the Rialto line and only partial
year sales from the Nemo line for which IL USA voluntarily relinquished
distribution rights in early 1997. In September 1997, The Company signed a
long-term agreement with Tre Ci Luce to become its exclusive distributor in the
United States. Tre Ci Luce is a manufacturer of contemporary lighting fixtures
located outside Milan, Italy and previously had been only sparsely represented
in the United States. Initial shipments of Tre Ci Luce products were made in
late January 1998.
The gross profit margin for 1997 was 39.8% of net sales compared to
41.6% in 1996. The drop in the gross profit percentage was due principally to
heavy price promotions offered by Italiana Luce in its efforts to boost volume
and the close out, in connection with its restructuring plan, of a number of
slower selling line items as well as the complete Le Stelle line of traditional
Venetian-style lighting fixtures. The weaker lira enabled IL USA to improve its
margins and to price promote its portable fixtures aggressively.
Selling, general and administrative expenses for 1997 were 41.4% of
net sales compared to 47.2% in 1996. The substantial drop in expenses as a
percentage of net sales was directly attributable to the restructuring plan
implemented by the Company in early 1997 and for which a reserve of $165,000 was
charged against 1996 income. Actions taken in addition to the inventory
reduction measures mentioned above included termination of one-third of the
Company's workforce in Italy; reduced compensation for the Company's officers
and directors; cancellation of a lease on approximately 13,000 square feet of
warehouse space at Italiana Luce; and elimination in Italy of all advertising.
Despite these significant steps which resulted in
<PAGE>
14
estimated savings during 1997 of approximately $500,000, the Company has
continued to lose money. With further meaningful restructuring difficult to
envision, management determined that it would be in the best interests of the
stockholders if the Company were sold and, to that end, on March 5, 1998 signed
a conditional agreement to sell substantially all of its assets to Nemo S.r.l.
("Nemo"), located near Milan, Italy and a subsidiary of Cassina S.p.A., a major
European contemporary furniture manufacturer. See Footnotes 1[B] Basis of
Presentation and (21) Subsequent Event for further discussion).
As a result of this possible sale and in conformity with new
reporting requirements relating to the accounting for the impairment of
long-lived assets, the Company wrote down the value of its fixed assets and
intangibles at December 31, 1997 by $380,000 to reflect the price to be paid by
Nemo for certain of these assets plus the estimated net proceeds from the
liquidation of the fixed assets which Nemo has elected not to acquire.
In 1996, because of the poor financial performance of the Company
and with no certainty of any immediate improvement, management decided not to
recognize $262,193 of deferred tax assets arising in Italy in 1996, principally
the net operating loss carryforward, and to write off the balance of $308,947 of
deferred tax assets brought forward from prior years.
Foreign Currency Exposure
The Company does not hedge its foreign currency exposure arising in
connection with its trading activities principally because the lira has been
trending weaker in recent years against most of the other major currencies in
which the Company transacts its business. In Europe, Italiana Luce invoices its
customers outside Italy in their local currencies and has realized modest
foreign exchange gains on such sales. IL USA purchases all its product from
Italy in Italian lira and has been able to improve its margins as the lira has
fallen against the U.S. dollar.
Financial Condition
Capital expenditures, inclusive of expenditures on intangible
assets, were $161,643 and $304,032 for the years
<PAGE>
15
ended December 31, 1997 and 1996, respectively.
Net working capital at December 31, 1997 and December 31, 1996 was
$1,436,382 and $1,821,925, respectively. Converted at the December 31, 1997
exchange rate, the 1996 net working capital was $1,606,624.
Total assets at December 31, 1997 and December 31, 1996 were
$4,670,715 and $6,733,141, respectively. Converted at the December 31, 1997
exchange rate, the 1996 total assets were $5,851,521.
Liquidity and Capital Resources
The Company's current major source of financing is its short-term
lines of credit with certain Italian banks. These lines of credit are unsecured
and can be revoked by the banks without notice and for any reason. There are no
contractual limitations imposed by the banks on the Company's or its
subsidiaries ability to incur debt. Nor are there any financial ratios or other
covenants to which the Company must adhere.
The Company currently uses these lines of credit to finance its
day-to-day operations. These facilities totalled Lit. 7,450,000,000 at December
31, 1997 ($4,214,000 when converted at the December 31, 1997 exchange rate).
Lit. 1,628,259,000 ($920,961) and Lit. 2,587,209,000 ($1,704,354 when converted
at the December 31, 1996 exchange rate) was outstanding under these lines at
December 31, 1997 and 1996, respectively.
As the Company's financial position has continued to deteriorate
despite the significant restructuring measures implemented during 1997,
management has become increasingly concerned that its unsecured lines of credit
might be withdrawn by the lenders without notice. For this and other reasons, a
decision was taken in late February 1998, upon the consent of the majority
stockholder, to sell substantially all of the assets of the Company to Nemo. See
Footnotes 1[B] Basis of Presentation and (21) Subsequent Event for further
discussion.
Currency Fluctuations
After holding firm against the U.S. dollar during
<PAGE>
16
1996, the Italian lire experienced a marked decline in 1997 falling from Lit.
1,518 on the last day of 1996 to Lit. 1,768 at the end of 1997, a drop of 16.5%.
Since approximately 70% of the financial results of the Company are
prepared initially in lire and subsequently converted to dollars, the effect of
this decline has been to distort substantially the reported value of the
Company's assets and, over time, the value of its sales revenue since a given
amount of lire produces a lesser dollar amount upon conversion as the lira
depreciates against the U.S. currency.
The exchange rates used in the conversion of the income statements
are the weighted average rates of exchange for each year, namely Lit. 1,689 in
1997 and Lit. 1,543 in 1996. The balance sheets have been converted at the end
of year exchange rates. At December 31, 1997, the rate was Lit. 1,768; at
December 31, 1996 it was Lit. 1,518.
Year 2000
Many existing computer programs use two digits to identify a year in
the date field. These programs were designed and developed without considering
the upcoming change in century. If not corrected, many computer applications
could fail or create erroneous results by or at the year 2000.
The Company has conducted a comprehensive review of its computer
systems to identify the systems which could be affected by the Year 2000 issue,
and is developing an implementation plan to resolve the problem. Based on this
review, the Company does not believe that the cost of remediation will be
material to its financial position and results of operations.
ITEM 7. FINANCIAL STATEMENTS.
Financial statements of the Company and its consolidated
subsidiaries are set forth herein beginning on page F-1.
<PAGE>
17
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
<PAGE>
18
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTORS AND CONTROL PERSONS, COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT.
The following information relates to all directors and executive
officers of the Company.
Michel F. Leemans
Mr. Leemans, age 59, has been President and Chief Executive Officer
and a Director of the Company since prior to 1993. He was President and Chief
Executive Officer of Sofinance S.r.l., an investment banking firm, from prior to
1993 to 1994 and has been a Director since prior to 1993. He has been President
and Chief Executive Officer of Clac S.r.l., an advertising agency, since prior
to 1993.
Keith G. Frey
Mr. Frey, age 58, has been Vice President, Finance and
Administration, Chief Financial Officer and a Director of the Company since
prior to 1993. He has also been President of IL USA, Inc., an operating
subsidiary of the Company, since prior to 1993.
Luigi Giroletti
Mr. Giroletti, age 50, has been Vice President and Director of the
Company since prior to 1993. He has also been President and Managing Director of
Italiana Luce S.r.l., a designer and distributor of lamps and lighting products,
and an operating subsidiary of the Company, since prior to 1993.
Thomas R. Reardon
Mr. Reardon, age 64, has been a Director of the Company since prior
to 1993. He has also been President of Heliochrome Press, commercial printers,
since prior to 1993. He was Chairman of the Board and President of The Studley
Press, Inc., commercial printers, from prior to 1993 to 1994.
Lewis G. Singer
Mr. Singer, age 63, has been a Director of the Company since prior
to 1993. He has also been Principal and President of G-Seven Ltd., furniture
manufacturers, since 1994. From prior to 1993 to 1994 he was Principal of Thomas
C. Baer, Inc. (now Coro Services Inc.), a furniture
<PAGE>
19
management consulting firm, and has acted as a consultant thereto since 1994.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company's directors
and executive officers, and persons who own more than ten percent of the
Company's Common Stock, to file with the Securities and Exchange Commission
initial reports of beneficial ownership and reports of changes in beneficial
ownership of Common Stock. Such persons are required by the Commission's
regulations to furnish the Company with copies of all Section 16(a) reports
filed.
To the Company's knowledge, based solely on representations made to
the Company that no such reports were required in respect of the fiscal year
ended December 31, 1997, no filings under Section 16(a) were required by its
officers, directors and greater than ten percent stockholders.
<PAGE>
20
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation
earned by each of the executive officers of the Company for services rendered
during each of the fiscal years ended December 31, 1997, 1996 and 1995.
SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------
Name and Principal
Position Year Salary Bonus
- ------------------ ---- -------- -----
Michel F. Leemans (1) 1997 $ 25,800 -
President and Chief 1996 135,049 -
Executive Officer 1995 141,357 -
Keith G. Frey 1997 $110,000 -
Vice President, Finance 1996 146,667 -
and Administration 1995 146,667 -
Luigi Giroletti (2) 1997 $189,816 -
Vice President 1996 212,932 -
1995 196,265 $65,799
- ----------
(1) All such compensation was paid to Sofinance S.r.l., an investment banking
firm of which Michel F. Leemans is a director.
(2) The salary paid to Luigi Giroletti in the years ended December 31, 1997,
1996 and 1995 included $52,467, $63,867 and $64,667, respectively, paid in
U.S. dollars. Such payments were in addition to the base salary provided
for in the services agreement of Mr. Giroletti with Italiana Luce (see
"Certain Relationships and Related Transactions" below for a description
of the services agreement). All other compensation paid to Mr. Giroletti
was paid in lire and has been converted at the weighted average exchange
rates for the respective years, namely, Lit. 1,689 in 1997, 1,543 in 1996
and Lit. 1,627 in 1995.
The Company has no pension, profit sharing, stock option, stock
purchase or other employee benefit plans.
The Company makes available certain additional benefits to certain
of its executive officers. The Company considers such benefits to be ordinary
and incidental
<PAGE>
21
business costs and expenses. The aggregate value of such benefits in the case of
each executive officer which cannot be precisely ascertained but which is less
than the lesser of either $50,000 or 10% of the total of annual salary and bonus
reported for each of the executive officers named in the Summary Compensation
Table, is not included in such table.
Compensation of Directors
The Company pays its directors who are not employees of the Company
a querterly fee of $1,600, plus $120 and out-of-pocket expenses for attending
each meeting of the Board of Directors of the Company.
<PAGE>
22
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of April 13, 1998, the total
number of shares of Common Stock beneficially owned, and the percent so owned,
by each director of the Company, by each person known to the Company to be the
beneficial owner of more than 5% of the outstanding Common Stock (including any
"group" as that term is used in Section 13(d)(3) of the Securities Exchange Act
of 1934), by the Company's chief executive officer and the Company's other
executive officers during the fiscal year ended December 31, 1997 and by all
directors and executive officers as a group. The number of shares owned are
those "beneficially owned," as determined under the rules of the Securities and
Exchange Commission, and such information is not necessarily indicative of
beneficial ownership for any other purpose. Under such rules, beneficial
ownership includes any shares as to which a person has sole or shared voting
power or investment power and any share of Common Stock which the person has the
right to acquire within 60 days through the exercise of any option, warrant or
right, through conversion of any security, or pursuant to the automatic
termination of power of attorney or revocation of trust, discretionary account
or similar arrangement.
AMOUNT AND NATURE PERCENT
OF BENEFICIAL OF
NAME OWNERSHIP CLASS
- ---- ----------------- -------
Michel F. Leemans
400 Long Beach Boulevard
Stratford, CT 06497 ............. 39,653,861(1) 51.6%
Keith G. Frey
400 Long Beach Boulevard
Stratford, CT 06497 ............. 39,654,045(2) 51.6%
Luigi Giroletti
400 Long Beach Boulevard
Stratford, CT 06497 ............. 39,653,861(1) 51.6%
Itamlight S.A
3 rue Nicolas Adames
L-114 Luxembourg ................ 39,653,861 51.6%
Einar Paul Robsham
P.O. Box 5151
Cochituate, MA 01778 ............ 5,099,116 6.6%
<PAGE>
23
All directors and executive
officers as a group (five
persons)......................... 39,654,045 51.6%
- ----------
(1) Represents 39,653,861 shares owned by Itamlight S.A., a Luxembourg
corporation ("Itamlight"). Messrs. Leemans, Frey and Giroletti are the
sole shareholders of Itamlight.
(2) Includes 39,653,861 shares owned by Itamlight.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Italiana Luce has entered into a services agreement with Luigi
Giroletti. The current term of the services agreement expires December 31, 1998.
The agreement may be extended for such additional periods and on such terms as
may be mutually agreed upon. The services agreement provides for a salary,
payable in lire, which is subject to annual increases based on the ISTAT index
(i.e. the Italian cost of living index). Mr. Giroletti's salary under the
services agreement was Lit. 232,000,000 in 1997 ($137,349 when converted at the
1997 weighted average exchange rate), and Lit. 230,000,000 in 1996 ($149,065
when converted at the 1996 weighted average exchange rate).
For the years ended December 31, 1997 and 1996, the Company paid
$25,800 and $135,049, respectively, plus out-of-pocket expenses, for consulting
services to Sofinance S.r.l., an investment banking firm of which Michel Leemans
is a director.
<PAGE>
24
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Documents filed as part of the Report:
1. Exhibits
Information with respect to this Item is contained in
the attached Index to Exhibits.
2. Financial Statements
Information with respect to this Item is contained on
pages F-1 to F-22 of this Annual Report on Form 10-KSB.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Company during the
quarter ended December 31, 1997.
<PAGE>
25
POWER OF ATTORNEY
The registrant and each person whose signature appears below hereby
appoint Michel F. Leemans and Keith G. Frey as attorneys-in-fact with full power
of substitution, severally, to execute in the name and on behalf of the
registrant and each such person, individually and in each capacity stated below,
one or more amendments to the annual report which amendments may make such
changes in the report as the attorney-in-fact acting on the premises deems
appropriate and to file any such amendment to the report with the Securities and
Exchange Commission.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: April 29, 1998
IL INTERNATIONAL INC.
By /s/ Michel F. Leemans
--------------------------------------
Michel F. Leemans
President and Chief
Executive Officer
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
Dated: April 29, 1998 By /s/ Michel F. Leemans
--------------------------------------
Michel F. Leemans
President and Chief
Executive Officer
<PAGE>
26
Dated: April 29, 1998 By /s/ Keith G. Frey
--------------------------------------
Keith G. Frey
Chief Financial and
Accounting Officer,
Vice President, Finance and
Administration, and
Director
Dated: April 29, 1998 By ****
--------------------------------------
Luigi Giroletti
Vice President and Director
Dated: April 29, 1998 By ****
--------------------------------------
Thomas R. Reardon
Director
Dated: April 29, 1998 By ****
--------------------------------------
Lewis G. Singer
Director
**** By /s/ Keith G. Frey
--------------------------------------
Keith G. Frey
Attorney-in-Fact
<PAGE>
27
IL INTERNATIONAL INC. AND SUBSIDIARIES
Index to Financial Statements
The following consolidated financial statements of the Company and
its subsidiaries are submitted herewith in response to Item 7 and Item 13(a)(1):
Page
Number
------
Report of Grant Thornton LLP,
Independent Certified Public Accountants .............................. 28
Consolidated Balance Sheets
- December 31, 1997 and 1996 .......................................... 29
Consolidated Statements of Operations
- For the Years Ended
December 31, 1997 and 1996 ........................................ 30
Consolidated Statement of Stockholders' Equity
- For the Years Ended
December 31, 1997 and 1996 ........................................ 31
Consolidated Statements of Cash Flows
- For the Years Ended
December 31, 1997 and 1996 ........................................ 32
Notes to Consolidated Financial Statements
- December 31, 1997 and 1996 .......................................... 33
<PAGE>
28
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors
IL International Inc.
We have audited the accompanying consolidated balance sheets of IL
International Inc. (a Delaware corporation) and Subsidiaries as of December 31,
1997 and 1996, and the related consolidated statements of operations,
stockholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of IL
International Inc. and Subsidiaries as of December 31, 1997 and 1996, and the
consolidated results of their operations and their consolidated cash flows for
the years then ended, in conformity with generally accepted accounting
principles.
The Company has determined that it is no longer a going concern.
However, it has not valued the individual assets and liabilities on a
liquidation basis because of the pending sale of the Company as described in
Note 21, which is expected to result in the recovery of the net asset value.
This conclusion is further supported by a valuation of the Company by Marshall &
Stevens, Incorporated.
GRANT THORNTON LLP
New York, New York
March 1, 1998 (except for Footnotes 1[B] and 21, as to which the date is March
5, 1998)
<PAGE>
29
IL INTERNATIONAL INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31,
1997 1996
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 557,115 $ 324,298
Trade accounts receivable, less allowance
for doubtful receivables of $309,805
in 1997 and $356,381 in 1996 1,834,331 2,675,435
Inventories 1,801,817 2,488,006
Other current assets 238,860 368,793
----------- -----------
Total current assets 4,432,123 5,856,532
Plant and equipment, net 182,047 775,529
Intangibles, net of accumulated amortization
of $280,527 in 1997 and $292,964 in 1996 -- 32,445
Other assets 56,545 68,635
----------- -----------
Total Assets $ 4,670,715 $ 6,733,141
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 920,961 $ 1,704,354
Current installments of long-term debt 16,255 35,642
Accounts payable 1,058,652 922,612
Income taxes payable 660 325
Other accrued liabilities 999,213 1,371,674
----------- -----------
Total current liabilities 2,995,741 4,034,607
Long-term debt, excluding current installments 9,593 30,104
Other liabilities 335,569 482,715
----------- -----------
Total Liabilities 3,340,903 4,547,426
----------- -----------
Stockholders' equity:
Common stock, $.01 par value per share;
authorized, 100,000,000 shares;
issued, 79,375,497 shares 793,755 793,755
Additional paid-in capital 2,248,111 2,229,415
Retained earnings (1,100,952) (467,643)
Foreign currency translation adjustments (547,249) (305,959)
Treasury stock, at cost
- 2,554,113 common shares (63,853) (63,853)
----------- -----------
Total stockholders' equity 1,329,812 2,185,715
----------- -----------
Total Liabilities and Stockholders' Equity $ 4,670,715 $ 6,733,141
=========== ===========
The accompanying notes are an integral part of these statements.
<PAGE>
30
IL INTERNATIONAL INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended December 31,
1997 1996
------------ ------------
Net sales $ 8,230,730 $ 9,735,494
Cost of sales 4,956,243 5,687,962
------------ ------------
Gross profit 3,274,487 4,047,532
Selling, general and
administrative expenses 3,408,336 4,596,947
Write-down of fixed assets 380,000 --
Restructuring charge -- 165,000
------------ ------------
Operating loss (513,849) (714,415)
Other income (expense):
Interest income 20,594 15,323
Interest expense (109,398) (108,819)
------------ ------------
Loss before income taxes (602,653) (807,911)
Income taxes 30,656 321,714
------------ ------------
Net loss $ (633,309) $ (1,129,625)
============ ============
Loss per common share - basic and diluted $ (0.0082 $ (0.0147)
============ ============
Weighted average number
of common shares outstanding: 76,821,384 76,821,384
============ ============
The accompanying notes are an integral part of these statements.
<PAGE>
31
IL INTERNATIONAL INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
Years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Common Stock Foreign
------------------------- Additional currency Total
Number Par paid-in Retained translation Treasury stockholders'
of shares value capital earnings adjustment stock equity
----------- ----------- ----------- ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996 79,375,497 $ 793,755 $ 2,228,571 $ 661,982 $ (423,543) $ (63,853) $ 3,196,912
Net loss for the year
ended December 31, 1996 -- -- -- (1,129,625) -- -- (1,129,625)
Utilization of deferred
tax benefits not recorded
as of the Effective Date -- -- 844 -- -- -- 844
Unrealized foreign currency
translation adjustment -- -- -- -- 117,584 -- 117,584
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1996 79,375,497 793,755 2,229,415 (467,643) (305,959) (63,853) 2,185,715
Net loss for the year
ended December 31, 1997 -- -- -- (633,309) -- -- (633,309)
Utilization of deferred
tax benefits not recorded
as of the Effective Date -- -- 18,696 -- -- -- 18,696
Unrealized foreign currency
translation adjustment -- -- -- -- (241,290) -- (241,290)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1997 79,375,497 $ 793,755 $ 2,248,111 $(1,100,952) $ (547,249) $ (63,853) $ 1,329,812
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
32
IL INTERNATIONAL INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended December 31,
1997 1996
----------- -----------
Cash flows from operating activities:
Net loss $ (633,309) $(1,129,625)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 313,918 432,794
Write-down of fixed assets 380,000 --
Deferred tax benefits 18,696 844
Other (88,603) (18,654)
Changes in net assets and liabilities:
(Increase) decrease in:
Trade accounts receivable 519,681 (61,260)
Inventories 402,790 (62,689)
Deferred taxes -- 308,947
Other current assets 90,353 (123,380)
Other long-term assets (692) (1,808)
Increase (decrease) in:
Accounts payable 261,196 (565,360)
Income taxes payable 335 (28,016)
Other accrued liabilities (236,920) 17,490
----------- -----------
Net cash provided by (used in)
operating activities 1,027,445 (1,230,717)
----------- -----------
Cash flows from investing activities:
Additions to plant and equipment, net (149,171) (242,515)
Additions to intangibles (880) (61,517)
----------- -----------
Net cash used in investing activities (150,051) (304,032)
----------- -----------
Cash flows from financing activities:
Increase (decrease) in short-term debt (567,718) 1,189,677
Payments of long-term debt (29,892) (36,613)
----------- -----------
Net cash provided by financing activities (597,610) 1,153,064
----------- -----------
Effect of exchange rate changes on cash (46,967) 19,768
----------- -----------
Net increase (decrease) in cash and
cash equivalents 232,817 (361,917)
Cash and cash equivalents at beginning of year 324,298 686,215
----------- -----------
Cash and cash equivalents at end of year $ 557,115 $ 324,298
=========== ===========
The accompanying notes are an integral part of these statements.
<PAGE>
33
IL INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
(1A) Background and Nature of Business
IL International Inc. (the "Company") was incorporated in June 1991
in connection with the Amended Plan of Reorganization (the "Plan") of Chartwell
Group Ltd. ("Chartwell") and CGL Finance, Inc., a wholly-owned subsidiary of
Chartwell (together with Chartwell, the "Debtors"), which filed a voluntary
petition for reorganization pursuant to Chapter 11 of the United States
Bankruptcy Code in April 1991. The Effective Date of the Plan was November 27,
1991. In October 1992, the Court issued a Final Decree approving the closure of
the estates of the Debtors.
On the Effective Date, ownership of certain assets and properties of
Chartwell, including the stock of Italiana Luce S.r.l., an Italian corporation
("Italiana Luce"), and its wholly-owned subsidiary, IL USA, Inc. (at that time
named PAF USA, Inc.) ("IL USA"), vested in the Company free and clear of all
liens, claims and encumbrances.
The Company's business, transacted through its operating
subsidiaries, is the design, marketing and worldwide distribution of
contemporary lamps and lighting products.
As more fully described in Note 21, on March 5, 1998, the Company
signed a conditional agreement to sell substantially all of its assets to Nemo
S.r.l., an Italian corporation ("Nemo").
(1B) Basis of Presentation
The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles, which contemplate
continuation of the Company as a going concern. However, during the years ended
December 31, 1997 and 1996, the Company experienced declining sales and
decreasing margins which resulted in operating losses of $513,849 and $714,415,
respectively.
In early 1997, management implemented a plan it had developed in the
prior year to revise its operating and
<PAGE>
34
IL INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
financial requirements. Actions taken included termination of one-third of the
Company's workforce in Italy; reduced compensation for the Company's officers
and directors; elimination of approximately 13,000 square feet of warehouse
space in Italy; and close out of many of the Company's slower selling products.
Despite these significant steps which it is estimated resulted in annual savings
of approximately $500,000, the Company reported another loss in 1997.
In view of the matters described above, recoverability of a major
portion of the recorded asset amounts shown in the accompanying balance sheet is
dependent upon continued operations of the Company, which in turn is dependent
upon the Company's ability to meet its financing requirements on a continuing
basis, to maintain present financing, and to succeed in its future operations.
Except for the write-down of fixed assets (see Note 5), the financial statements
do not include any adjustments relating to the recoverability and classification
of recorded asset amounts or amounts and classification of liabilities that
might be necessary should the Company be unable to continue as a going concern.
(2) Summary of Significant Accounting Policies
(a) Fresh Start Accounting
The Company has implemented the accounting for entities emerging
from Chapter 11 and reorganization as set forth in Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization under the Bankruptcy Code"
issued by the American Institute of Certified Public Accountants ("Fresh Start
Accounting").
(b) Principles of Consolidation
The consolidated financial statements include the accounts of IL
International Inc. and its subsidiaries, all of which are wholly-owned. All
significant intercompany balances and transactions have been eliminated in
consolidation.
(c) Using Estimates in Financial Statements
In preparing financial statements in conformity
<PAGE>
35
IL INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
with generally accepted accounting principles, management makes estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from these estimates.
(d) Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Fair Value of
Financial Instruments," requires disclosure of the estimated fair value of an
entity's financial instrument assets and liabilities. For the Company, financial
instruments consist principally of cash and cash equivalents and short-term
debt.
The following methods and assumptions were used to estimate the fair
value of each class of financial instrument for which it is practicable to
estimate that value:
Cash and cash equivalents:
The carrying amount reasonably approximates fair value because of
the short maturity of those instruments.
Short-term debt:
The carrying amount reasonably approximates fair value because of
the short maturity of those instruments.
(e) Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and amounts due from
banks. Short-term investments which have a maturity of three months or less are
considered cash equivalents.
(f) Impairment
In 1996, the Company adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" ("SFAS 121"). Accordingly, when
<PAGE>
36
IL INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
indicators of impairment are present, the Company periodically evaluates the
carrying value of property, plant and equipment and intangibles in relation to
the operating performance and future undiscounted cash flows of the underlying
business. The Company adjusts the carrying amounts of the respective assets if
the expected future cash flows are less than the book value. In accordance with
SFAS 121, the Company wrote down the value of its fixed assets in 1997 (see Note
5).
(g) Accounting for Stock-Based Compensation Plans
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123") which defines the fair value based method of
accounting for an employee stock option. Under the fair value based method,
compensation cost is measured at the grant date based on the fair value of the
award and is recognized over the service period. A company may elect to adopt
the fair value method or elect to continue accounting for its stock option or
similar equity awards using the intrinsic method, where compensation cost is
measured at the date of grant based on the excess of the market value of the
underlying stock over the exercise price. If a company elects not to adopt the
fair value method, it must provide a pro forma disclosure of net income and
earnings per share, as if the fair value based method had been applied.
SFAS 123 is effective for transactions entered into for fiscal years
that begin after December 15, 1995. Pro forma disclosures for entities that
elect to continue to measure compensation cost under the old method must include
the effects of all awards granted in fiscal years that begin after December 15,
1994. At present, the Company does not have any stock-based compensation plans.
However, it is currently anticipated that the Company will account for any
stock-based compensation plan it introduces in the future under the intrinsic
method and will make the appropriate pro forma disclosures. Therefore, SFAS 123
is not expected to have any effect on the Company's consolidated financial
statements.
(h) Inventories
Inventories are stated at the lower of cost or
<PAGE>
37
IL INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
market (net realizable value) using the first-in, first-out ("FIFO") method.
(i) Plant and Equipment
In accordance with Fresh Start Accounting, plant and equipment were
restated at approximate fair value as of November 30, 1991 (see Note 3).
Commencing December 1, 1991, depreciation and amortization of all newly acquired
plant and equipment as well as the plant and equipment stated at approximate
fair value have been provided by the straight-line method using the following
estimated useful lives:
Leasehold improvements 5 years
Machinery and equipment 3 to 10 years
Furniture and fixtures 3 to 10 years
(j) Intangible Assets
The unamortized balances of all intangible assets were written off
as of November 30, 1991. Intangible assets capitalized subsequent to November
30, 1991 are being amortized on a straight-line basis over five years.
(k) Income Taxes
The provision for income taxes is computed on the basis of financial
statement income. Deferred taxes result from temporary differences between the
amounts reported for financial statement and income tax purposes. These
temporary differences give rise to deferred tax assets. In view of the
uncertainty as to whether the Company would produce sufficient taxable income in
the future to utilize the benefits related to deferred tax assets available at
the time of reorganization, the Company did not record those deferred tax assets
in the consolidated financial statements. Instead, all such tax benefits are
reported as additions to paid-in capital when realized.
(l) Foreign Currency Translation
The financial statements of the foreign subsidiary of the Company
have been translated into U.S. dollars in accordance with Statement of Financial
Accounting Standards No. 52, "Foreign Currency Translation." All balance sheet
accounts have been translated using the current exchange
<PAGE>
38
IL INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
rate at the balance sheet date. Income statement amounts have been translated
using the average exchange rate for the year. The gains and losses resulting
from the change in exchange rates from year to year have been reported
separately as a component of stockholders' equity. Foreign currency transaction
gains and losses are included in determining net income. Their effect on the
statement of operations is insignificant.
(m) Loss Per Common Share
Loss per common share is based on 76,821,384 shares of common stock,
being the sum of the 79,375,497 shares of common stock issued under the Plan
less 2,554,113 shares of common stock held in treasury and has been computed in
accordance with Statement of Financial Accounting Standards No 128, "Earnings
Per Share." Basic loss per share is computed using the weighted average common
shares outstanding during the period. Diluted loss per share is computed using
the weighted average common shares and common equivalent shares outstanding
during the period. The Company does not have any common equivalent shares
outstanding.
(n) Information about Capital Structure
In February 1997, the Financial Accounting Standards Board issued
Statement of Accounting Standards No. 129 (SFAS 129), "Disclosure of Information
about Capital Structure," is effective for financial statements issued for
fiscal years ending after December 15, 1997. As the purpose of SFAS 129 was
primarily to consolidate certain disclosure requirements previously contained in
other pronouncements with which the Company was already in compliance, the
adoption of this statement had no effect on the Company's consolidated financial
statements.
(3) Fresh Start Accounting
In 1991, the Company adopted Fresh Start Accounting in accordance
with Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization under the Bankruptcy Code." Under this method, all assets and
liabilities were restated to reflect the emergence equity value of the
reorganized entity, which was determined to be $2,000,000.
<PAGE>
39
IL INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
In accordance with the provisions of Statement of Position 90-7, the
excess of the carrying value of the assets of the Company immediately prior to
its reorganization over the emergence equity value of the entity was utilized to
reduce the carrying values of the non-current assets as of the Effective Date by
$1,106,220. Consequently, depreciation and amortization charges in the income
statement in subsequent years, principally 1992 through 1996, were less than
they would otherwise have been by a cumulative amount equal to the amount of the
write-down (as adjusted for exchange rate changes).
(4) Restructuring Charges
During 1996, the Company recorded restructuring charges of $165,000.
These charges related to the downsizing of the Italian operations in reaction to
persistent weak demand in Europe for the Company's products. The charges
consisted of $132,000 for severance and related costs and the balance
principally for lease termination expenses. All employee severances occurred in
February 1997 and the lease termination was effective March 31, 1997.
(5) Write-Down of Assets
In accordance with SFAS 121 and in connection with the proposed sale
of substantially all of its assets, the Company wrote down the value of its
fixed assets and intangibles by $380,000 in 1997 to reflect the estimated net
proceeds from the liquidation of the fixed assets not being acquired by Nemo
(see Notes 1(B) and 21), as follows:
Plant and
Equipment Intangibles
--------- -----------
Net book value prior
to write-down $ 556,525 $ 5,522
Write-down (374,478) (5,522)
--------- ---------
$ 182,047 $ --
========= =========
<PAGE>
40
IL INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
The carrying amount of the fixed assets at December 31, 1997
represents fair value less cost to sell.
The carrying value of assets to be sold to Nemo and assets to be
sold under the liquidation plan at December 31, 1997 are:
Cash and cash
equivalents and
Assets to assets to be
be sold sold under
to Nemo Liquidation Plan
--------- ----------------
Total assets
at December 31, 1997
at historical value $ 1,926,329 $ 3,124,386
Write-down -- (380,000)
----------- -----------
Total assets
at December 31, 1997
at carrying value $ 1,926,329 $ 2,744,386
=========== ===========
Included in "Cash and cash equivalents and assets to be sold under
Liquidation Plan" at December 31, 1997 are cash and cash equivalents of
$557,115.
(6) Inventories
Inventories consist of the following:
December 31,
1997 1996
---------- ----------
Raw materials $ 733,775 $1,076,372
Work-in-progress 233,782 456,212
Finished goods 834,260 955,422
---------- ----------
$1,801,817 $2,488,006
========== ==========
Work-in-progress represents partially completed inventories acquired
from third parties.
<PAGE>
41
IL INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(7) Other Current Assets
Other current assets consist of the following:
December 31,
1997 1996
-------- --------
Advances $ 96,834 $156,226
Credit notes receivable 33,285 1,307
Prepaid rent 28,641 2,347
Catalogs 28,423 79,857
Tax refunds 27,414 40,073
Miscellaneous prepaid expenses 13,158 13,588
Product development costs 6,640 18,672
Interest receivable 512 27,495
Other 3,953 29,228
-------- --------
$238,860 $368,793
======== ========
(8) Plant and Equipment
Plant and equipment consist of the following:
December 31,
1997 1996
----------- -----------
Leasehold improvements $ 39,470 $ 42,204
Machinery and equipment 1,773,785 1,889,472
Furniture and fixtures 12,229 14,103
----------- -----------
1,825,484 1,945,779
Less accumulated depreciation
and amortization (1,643,437) (1,170,250)
----------- -----------
$ 182,047 $ 775,529
=========== ===========
Amortization of capitalized leases amounted to $28,354 in 1997 and
$39,077 in 1996.
All fixed assets acquired prior to December 1, 1991 have been
recorded at their approximate fair value in accordance with Fresh Start
Accounting (see Note 3).
<PAGE>
42
IL INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(10) Short-term Debt
Loan arrangements have been established with certain Italian banks
under which the Company's foreign subsidiary may borrow on an overdraft and
short-term basis. These unsecured lines of credit may be terminated at the
option of the banks or the Company. At December 31, 1997, the amount available
under these arrangements aggregated Lit. 7,450,000,000 ($4,214,000 when
converted at the December 31, 1997 exchange rate), of which Lit. 1,628,259,000
($920,961) was outstanding, bearing a weighted average interest rate of 8.5%. At
December 31, 1996, Lit. 2,587,209,000 ($1,704,354 when converted at the December
31, 1996 exchange rate) was outstanding, bearing a weighted average interest
rate of 10.9%.
(9) Other Accrued Liabilities
Other accrued liabilities consist of the following:
December 31,
1997 1996
---------- ----------
Salaries, benefits and
payroll taxes $ 169,864 $ 253,807
Reorganization liabilities
(see Note 17) 311,711 287,218
Restructuring charge (see Note 4) -- 165,000
Sales commissions 121,336 135,385
Product warranty reserves 104,842 122,314
Professional fees 109,450 117,282
Royalties 52,671 102,366
Other 129,339 188,302
---------- ----------
$ 999,213 $1,371,674
========== ==========
<PAGE>
43
IL INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(11) Long-term Debt
Long-term debt consists of the following:
December 31,
1997 1996
-------- --------
Capitalized leases (see Note 14) $ 25,848 $ 65,746
Less current installments (16,255) (35,642)
-------- --------
$ 9,593 $ 30,104
======== ========
As of December 31, 1997, long-term debt, including current
installments, matures as follows:
1998 $ 16,256
1999 7,817
2000 1,775
--------
$ 25,848
========
Cash paid for interest was $98,378 in 1997 and $104,313 in 1996.
(12) Income Taxes
The Company and its domestic subsidiaries file a consolidated
Federal income tax return. Income tax expense is computed on the basis of
financial statement loss before income taxes as follows:
Years Ended December 31,
1997 1996
--------- ---------
Domestic $ 63,050 $ 30,917
Foreign (665,703) (838,828)
--------- ---------
$(602,653) $(807,911)
========= =========
<PAGE>
44
IL INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
The income tax provision consists of:
Years Ended December 31,
1997 1996
-------- --------
Current tax expense
Federal $ 18,696 $ --
State 2,833 3,276
Foreign 9,127 318,438
-------- --------
$ 30,656 $321,714
======== ========
Deferred tax assets are comprised of the following:
December 31,
1997 1996
----------- -----------
Operating loss carryforwards
Pre-reorganization $ 763,635 $ 635,835
Post-reorganization 582,366 428,298
Write-down of fixed assets 202,160 --
Bad debt allowances 139,367 146,443
Product warranty reserves 54,043 51,720
Inventory reserves 55,609 43,889
Other 12,916 54,518
----------- -----------
Gross deferred tax assets 1,810,096 1,360,703
Valuation allowance (1,810,096) (1,360,703)
----------- -----------
$ -- $ --
=========== ===========
Cash paid for income taxes was $5,050 in 1997 and $5,638 in 1996.
In view of the uncertainty as to whether it will generate sufficient
taxable income to utilize its deferred tax assets, the Company has set up an
allowance equal to 100% of such deferred tax assets, inclusive of its net
operating loss carryforwards.
The provision for income taxes differs from the amount of income tax
determined by applying the statutory Federal income tax rate of 34.0% to profit
before income taxes as a result of the following differences:
<PAGE>
45
IL INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Years Ended December 31,
1997 1996
--------- ---------
Computed expected tax provision $(204,902) $(274,689)
Foreign earnings at
different rates (127,815) (156,836)
Permanent tax differences
in Italy 61,664 188,723
Valuation allowance in Italy 292,490 571,140
Foreign withholding taxes 9,127 13,695
Other items 92 (20,319)
--------- ---------
$ 30,656 $ 321,714
========= =========
(13) Pre-Reorganization Tax Benefits
The Company has available to it certain tax benefits which arose
prior to the Effective Date. In view of the uncertainty as to whether the
Company would ever produce sufficient taxable income to utilize such benefits,
these tax assets were never recorded in the consolidated financial statements as
of the Effective Date. Instead, the Company determined that it would report any
benefits derived from such tax assets as additions to paid-in capital as they
were realized.
As of the Effective Date, the Company acquired from Chartwell
$2,000,000 in net operating loss carryforwards which expire in 2006. These net
operating loss carryforwards may be used to offset taxable income in the United
States and are subject to a cumulative annual limitation of $127,800. At
December 31, 1997, $763,635 were available for immediate use.
For the years ended December 31, 1997 and 1996, $18,696 and $0,
respectively, arising from the utilization of unrecorded tax assets have been
reported as direct additions to paid-in capital. Additional paid-in capital was
also credited in 1997 and 1996 with $0 and $844, respectively, in respect of the
reversal of tax liabilities set up on the Effective Date which were no longer
required.
As of December 31, 1997, pre-reorganization tax assets remaining
unrecorded and potentially available to reduce future tax liabilities amounted
to approximately
<PAGE>
46
IL INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
$1,901,000, of which $1,787,000 related to tax loss carryforwards ($1,221,000 in
the United States with an expiration date of 2006 and $566,000 in Italy with
expiration dates between 1998 and 2002).
(14) Severance Indemnities
Other long-term liabilities consist of the Company's obligations to
its employees and sales representatives in Italy and to its agents in other
European countries, payable upon the termination of their employment or agency
relationship, as applicable. The amounts payable are calculated in accordance
with existing legal requirements, national labor contracts and individual
agreements. These liabilities are fully provided for and have been charged to
consolidated income in the period in which the liabilities vest.
(15) Leases
As of December 31, 1997, the Company leased certain property, plant
and equipment under both capital and operating lease arrangements. Some of the
operating leases provide that the Company pay taxes, maintenance, insuranceand
other expenses applicable to leased premises and are subject to escalation.
Future minimum lease payments for leases as of December 31, 1997
were as follows:
<PAGE>
47
IL INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Year ending Capital Operating
December 31, Leases Leases
- ------------ ------ ------
1998 $ 18,823 $171,653
1999 8,769 98,416
2000 1,775 98,416
2001 -- 98,416
2002 and thereafter -- 196,833
-------- --------
Total minimum lease payments 29,367 $663,734
========
Less amounts representing
interest at an effective
annual rate of 9.50% (3,519)
--------
Present value of minimum
lease payments $ 25,848
========
Rent expense was $198,305 in 1997 and $276,233 in 1996.
(16) Foreign and Domestic Operations
Years Ended December 31,
1997 1996
---------- ----------
Net sales by geographic area:
United States $2,461,780 $2,336,466
Italy 2,513,690 3,389,958
Germany 1,198,460 1,560,432
France 419,998 571,331
Other European countries 1,058,073 1,257,936
Rest of the world 578,729 619,371
---------- ----------
$8,230,730 $9,735,494
========== ==========
Net sales to unaffiliated customers:
United States (a) $2,509,174 $2,381,598
Italy 2,513,690 3,389,958
Germany 1,198,460 1,560,432
Other countries 2,009,406 2,403,506
---------- ----------
$8,230,730 $9,735,494
========== ==========
<PAGE>
48
IL INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Years Ended December 31,
1997 1996
----------- -----------
Net sales between geographic areas (b):
Italy $ 807,543 $ 877,620
=========== ===========
Operating profits/(losses):
United States $ 187,942 $ 27,562
Italy (701,791) (741,977)
----------- -----------
$ (513,849) $ (714,415)
=========== ===========
December 31,
1997 1996
----------- -----------
Identifiable assets:
United States $ 1,063,640 $ 1,078,840
Italy 3,970,123 5,654,301
----------- -----------
$ 5,033,763 $ 6,733,141
=========== ===========
- ----------
(a) Includes export sales of $47,394 and $45,132 during the years ended
December 31, 1997 and 1996, respectively.
(b) Net sales between geographic areas refers to products sold by Italiana
Luce to IL USA. These sales have been eliminated in consolidation.
(17) Contingency
Certain potential liabilities (pre-reorganization claims) of
Chartwell, principally foreign national and domestic state income taxes, are
still under negotiation and are the responsibility of the Company. At December
31, 1997, the Company has received cash of $311,711, net of expenses, relating
to the liquidation of certain pre-reorganization assets of Chartwell which
vested in the Company on the Effective Date (see Note 1) and is included in
Other Accrued Liabilities (see Note 10). In addition, the former owners of
Italiana Luce have paid into escrow Lit. 125,693,000 ($71,093 when converted at
the December 31, 1997 exchange rate) in respect of the potential foreign
national income tax liabilities. The Company's management believes that the net
<PAGE>
49
IL INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
cash received from the liquidation of Chartwell's assets together with the
amount in escrow will be sufficient to pay any agreed assessments in respect of
the pre-reorganization claims. Any amounts remaining after settlement of all
claims will be reported as a direct addition to paid-in capital.
(18) Related Party Transactions
For the years ended December 31, 1997 and 1996, the Company paid
$25,800 and $135,049, respectively, plus out-of-pocket expenses, for consulting
services to a consulting firm of which a director and officer of the Company is
a director.
For the year ended December 31, 1997, the Company paid $15,915 for
composition and related services to a desk-top publishing company affiliated
with a director of the Company.
(19) 1996 Fourth Quarter Adjustment
During the fourth quarter of 1996, the Company increased the
valuation allowance for its deferred tax assets by $571,140, consisting of
$262,193 which had been deferred in the current year and $308,947 which had been
deferred in prior years.
(20) Recent Accounting Pronouncements
In July 1997, the Financial Accounting Standards Board issued
Statement of Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive
Income," which requires a separate financial statement showing changes in
comprehensive income. SFAS 130 is effective for financial statements issued for
fiscal years beginning after December 15, 1997 and requires reclassification of
all prior-period financial statements for comparative purposes. The Company is
evaluating alternative formats for presenting this information, but does not
expect this pronouncement will materially impact the Company's results of
operations.
In July 1997, the Financial Accounting Standards Board issued
Statement of Accounting Standards No. 131,
<PAGE>
50
IL INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(SFAS 131), "Disclosures about Segments of an Enterprise and Related
Information," which requires companies to report certain information about
operating segments, including certain information about their products,
services, the geographic areas in which they operate and their major customers.
This statement supersedes FASB Statements Nos. 14, 18, 24 and 30. SFAS 131 is
effective for financial statements for fiscal years beginning after December 31,
1997. The Company is evaluating the requirements of SFAS 131 and the effects, if
any, on the Company's current reporting and disclosures.
(21) Subsequent Event
On March 5, 1998, the Company entered into an Asset Purchase
Agreement ("Agreement") with Nemo S.r.l. ("Nemo"), an Italian corporation,
providing for the sale of substantially all of the Company's assets and
business. Consummation of the Agreement is conditional upon, among other things,
clearance by the Securities and Exchange Commission and completion of certain
legal formalities in Italy relating to personnel matters.
Nemo has agreed to acquire the goodwill and operations, certain
inventory and fixed assets of the Company for an aggregate estimated purchase
price of $4,570,000 (when the estimated proceeds receivable in lire are
converted at an exchange rate of Lit. 1,800). The Company intends to collect its
receivables outstanding at the date of closing and to liquidate the inventory
and fixed assets which Nemo has elected not to purchase and expects the gross
proceeds therefrom will approximate $2,000,000. The Company estimates that it
will have to pay approximately $3,400,000 in respect of its liabilities
outstanding at the date of closing, severance pay, taxes and expenses associated
with the sale and with winding up the affairs of the Company. The ultimate
amount of proceeds to be received and liabilities incurred relating to the sale
and liquidation of the Company may be significantly different from the amounts
stated above. However, management believes that the Company will not incur a
loss on such sale and liquidation.
<PAGE>
51
Index to Exhibits*
Page
----
2.1 Amended Plan of Reorganization of Chartwell --
Group Ltd. and CGL Finance, Inc. dated
August 16, 1991 (the "Amended Plan of
Reorganization") (incorporated by reference
to Exhibit 2.1 to Chartwell's Current
Report on Form 8-K dated November 6, 1991)
2.2 Order confirming Amended Plan of --
Reorganization dated November 6, 1991
(incorporated by reference to Exhibit 2.2
to Chartwell's Current Report on Form 8-K
dated November 6, 1991)
2.3 Notice of Entry of Order Confirming Amended --
Plan of Reorganization, and Discharge,
dated November 6, 1991 (incorporated by
reference to Exhibit 2.3 to Chartwell's
Current Report on Form 8-K dated November 6,
1991)
3.1 Certificate of Incorporation of the Company --
as amended to date (incorporated by reference
to Exhibit 3.1 to the Company's Current
Report on Form 8-K dated November 27, 1991)
3.2 By-Laws of the Company, as amended to date --
(incorporated by reference to Exhibit 3.2
to the Company's Current Report on Form 8-K
dated November 27, 1991)
- ----------
* Copies of the exhibits filed with this Annual Report on Form 10-KSB or
incorporated by reference herein do not accompany copies hereof for
distribution to stockholders of the Company. The Company will furnish a
copy of any of such exhibits to any stockholder requesting the same for a
nominal charge to cover duplicating costs.
<PAGE>
52
Page
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21 Subsidiaries of the Registrant 53
24 Power of Attorney (see "Power of Attorney" --
in Form 10-KSB)
