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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
(FEE REQUIRED)
For the fiscal year ended JANUARY 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
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Commission file number 33-06827LA
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SEQUESTER HOLDINGS, INCORPORATED
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(Formerly KCD Holdings Incorporated)
(Exact name of small business issuer as specified in its charter)
NEVADA 95-4532103
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(State or other jurisdiction of (Formerly 95-4029439)
incorporation or organization) (IRS Employer Identification No.)
2835 TOWNSGATE ROAD, SUITE 110, WESTLAKE VILLAGE, CALIFORNIA 91361
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(Address of principal executive offices)
(805) 494-6687
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(Registrant's telephone number)
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Securities registered under Section 12(b) of the Exchange Act: NONE.
Securities registered under Section 12(g) of the Exchange Act: NONE.
Check whether the registrant (1) has 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
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Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B not contained in this form, and 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]
For the fiscal year ended January 31, 1997, the Registrant's revenues
were approximately $2,846,000.
As of April 15, 1997, the aggregate market value of Registrant's voting
stock held by non-affiliates was approximately $1,983,000.
As of April 15, 1997, the Registrant had 15,808,163 shares of common
stock outstanding.
Documents Incorporated by Reference: NONE
Transitional Small Business Disclosure Format: Yes No X
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
Business Development
SeQuester Holdings, Incorporated (the "Company"), formerly KCD Holdings
Incorporated, was incorporated in the State of Nevada on February 13, 1986. The
Company's principal offices are located at 2835 Townsgate Road Suite 110,
Westlake Village, California, 91301.
On July 30, 1994, the sole director of the Company consented, subject
to shareholder approval, (i) to authorize the execution of the Plan and
Agreement of Reorganization (the "Plan") by and between KCD Incorporated, a
California corporation ("KCD"), and the Company; (ii) to amend the Articles of
Incorporation to change the name of the Company from Commonwealth Associates,
Inc. to KCD Holdings Incorporated; and (iii) to authorize the sale and issuance
of not more than 100,000 shares of stock in cancellation of indebtedness.
At a special meeting of the Company's shareholders held on October 5,
1994, the shareholders (i) ratified the action of the Board of Directors in
entering into the Plan with KCD; (ii) adopted the resolution of the Board of
Directors amending the Articles of Incorporation to change the name of the
Company to KCD Holdings Incorporated; and (iii) elected a new Board of
Directors. Pursuant to the Plan, as amended, the Company exchanged 14,000,000
shares of its common stock for 100% of the outstanding shares of KCD, making KCD
a wholly owned subsidiary.
On July 5, 1996, KCD Incorporated changed its name to SeQuester
Incorporated ("SeQuester"). On March 12, 1997, KCD Holdings Incorporated changed
its name to SeQuester Holdings, Incorporated.
Business Description
The Company is engaged in marketing and distributing a line of diet aid
products, including a specially formulated dietary supplement sold under the
name "SeQuester(R) 1" as well as an appetite suppressant sold under the name
"SeQuester(R) 2," a Chromium dietary supplement with L-Carnitine, sold under the
name "ChromaQuest(TM)" and a Phytosterol dietary supplement which inhibits
dietary cholesterol absorption sold under the name "PhytoQuest(TM)",
collectively referred to herein as the Company's "SeQuester products".
Principal Product
SeQuester(R) 1
SeQuester(R) 1 is a dietary supplement marketed as part of a plan to
aid in weight loss (the "SeQuester Plan"). The SeQuester Plan consists of three
components: a recommended low-calorie, low-fat diet; an exercise regimen; and
the SeQuester(R) 1 dietary supplement itself.
The SeQuester(R) 1 dietary supplement contains a combination of soluble
and insoluble fibers. Dietary fiber has been shown in published studies to
reduce feelings of hunger and contribute to weight loss, although no specific
weight loss claims are made for the SeQuester(R) 1 dietary supplement except as
part of the SeQuester Plan. In clinical studies sponsored by the Company at the
University of California at Los Angeles, subjects who followed a diet and
exercise plan similar to the SeQuester Plan experienced meaningful weight loss,
although no weight loss effect was shown for the SeQuester dietary supplement
alone.
Additional Products
During the 1996 fiscal year, the Company introduced two new products,
SeQuester(R) 2 and ChromaQuest(TM), which were developed to complement
SeQuester(R) 1 and increase the Company's product line and name recognition.
SeQuester(R) 2 is an appetite suppressant which functions to decrease feelings
of hunger, and ChromaQuest(TM) is a Chromium dietary supplement with
L-Carnitine. These products are marketed as a dietary supplement program.
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SeQuester(R) 2
SeQuester(R) 2 is a scientifically balanced formula that aids in the
reduction of appetite. Phenylpropanolamine Hydrochloride, the active agent in
the formula, has been found by the FDA to be a safe and effective
over-the-counter drug for appetite reduction and thus weight control. The main
mechanism of action for Phenylpropanolamine Hydrochloride is to function as a
sympathomimetic agent. Thus, it functions to control weight and curb appetite.
ChromaQuest(TM)
ChromaQuest(TM) is a scientifically balanced formula that contains
various synergistic factors. One of the ingredients, Chromium, has been shown to
regulate blood sugar levels. Additionally in the formula, L-Carnitine has been
suggested to increase the Basal Metabolic Rate which, in effect, increases
lipogenesis (fat metabolism). Additional ingredients are included in
ChromaQuest(TM) to synergistically affect vitamin requirements as well as other
metabolic functions.
PhytoQuest(TM)
During the 1997 fiscal year, the Company introduced a fourth product,
PhytoQuest(TM), a phytosterol dietary supplement which inhibits dietary
cholesterol absorption.
Trademarks
The Company's trademark, SeQuester(R), was registered on May 28, 1996.
The Company filed trademark applications for ChromaQuest(TM) and PhytoQuest(TM)
in February 1997. The Company will continue the ongoing process of application
and expects final approval of its trademark applications within the next year.
However, if these approvals are not ultimately received, this could adversely
impact the Company's exclusive rights to the product names and market identity.
Manufacturing
SeQuester(R) 1 is manufactured for the Company by a West Coast
Manufacturer in their facility. The Company places purchase orders for
SeQuester(R) 1 tablets on an as needed basis and the manufacturer delivers the
finished tablets in bulk to the Company's packagers. The Company's manufacturer
of SeQuester(R) 1 is generally able to deliver purchase orders in their entirety
within five to seven weeks, with partial delivery commencing within three weeks
from when the purchase order is placed.
SeQuester(R) 2 is manufactured for the Company by licensed drug
manufacturers on the West Coast. They manufacture in their own facilities. The
Company places purchase orders for SeQuester(R) 2 tablets on an as needed basis
and the manufacturers deliver the finished tablets in bulk to the Company's
packagers. The Company's manufacturers of SeQuester(R) 2 are generally able to
deliver purchase orders in their entirety within seven to eight weeks, with
partial delivery commencing within six weeks from when the purchase order is
placed.
ChromaQuest(TM) and PhytoQuest(TM) are manufactured by the same West
Coast manufacturer the Company uses for SeQuester(R) 1 and are produced in the
same time frame as SeQuester(R) 1.
In April 1996, the Company entered into a five year supply agreement
with a major manufacturer to produce all of the Company's SeQuester(R) 1 product
requirements for resale within the United States and Canada. This agreement also
provides exclusive rights for the Company to sell the SeQuester(R) 1 product to
retail stores and certain wholesalers.
The Company believes that its current manufacturers have sufficient
capacity to satisfy its purchase orders for product during the foreseeable
future. Additional manufacturers have been identified by the Company in the
event additional capacity is required, or the Company experiences any unforeseen
problems with its current manufacturers.
The boxes and package inserts are prepared and printed for the Company
and delivered to the packagers for inclusion in all the Company's SeQuester(R)
products.
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In April 1996, the Company entered into a five year packaging agreement
with an East Coast packager which covers a significant portion of the Company's
packaging requirements. When SeQuester(R) tablets and the packaging and insert
material has been delivered, the packager packs the tablets into blister cards.
The blister cards, containing the tablets and the package inserts, are then
placed into a tamper proof box. One box is intended to be a one month supply.
Six packaged boxes of SeQuester(R) are then shrink wrapped together and six of
these shrink wrapped packages are packed into a case which is then placed on a
pallet to be delivered to the Company's East Coast warehouse.
The West Coast packager then delivers the pallets to the Company's
warehouse in Westlake Village, California. The East Coast packager places the
pallets in their warehouse for East Coast distribution. The Company processes
orders and thereafter ships the product from its warehouses via trucking lines,
UPS, RPS and other selected carriers. Freight is prepaid by the Company and
averages 2% of the invoice total.
The Company has no current plans to manufacture SeQuester(R) products
itself and intends to rely on outside manufacturers who the Company believes
have the capacity to fill all of its order requirements.
Advertising and Marketing
The Company believes that SeQuester(R) 1 is a technologically unique
product in comparison with existing dietary supplements and that the addition of
SeQuester(R) 2, ChromaQuest(TM) and PhytoQuest(TM) to the Company's product line
will greatly increase SeQuester's(R) brand recognition. However, in order to
more aggressively compete in the weight loss industry, the Company believes that
it is essential to educate the consumer concerning the SeQuester Plan and the
SeQuester(R) 1 technology and distinguish SeQuester(R) 1 from existing diet aid
products, as well as familiarize the public with all SeQuester(R) products. To
this end, the Company has determined that, based upon test market data, print,
radio and television media most effectively market its SeQuester(R) products.
The Company provides a cooperative advertising allowance which
approximates 10% of the invoice price to its customers upon proof of
performance. Retailers typically use this allowance for the advertising and
marketing of its SeQuester(R) products through various media, including direct
mailings, coupon books, inserts and print.
The Company has advertised its SeQuester(R) products in regional
newspapers and marketed its products in magazines and has marketed the product
on national network radio programs, as well as cable television.
The Company markets its SeQuester(R) products to wholesalers and
retailers through direct sales to wholesalers and through commissioned brokers
to drug and food chain retailers and mass merchandisers. The Company has
approximately 12 brokers who market SeQuester(R) products throughout the United
States. The Company has successfully placed SeQuester(R) products on the shelves
of over 35,000 retail store locations nationally in major drug and food chain
retailers, including Walgreen(TM), Eckerd Drug(TM), Sav-On/Osco Drug(TM), Drug
Emporium(TM), CVS Drug(TM), Rite-Aid(TM), Revco(TM), Payless Drug(TM),
Fedco(TM), Lucky(TM), Ralphs(TM), Longs(TM), Vons(TM), and Albertsons(TM).
In addition to the aforementioned drug and food chain retailers,
SeQuester(R) products are available in K-Mart(TM), Wal-Mart(TM), and Target(TM).
Significant Customers
The Company earned substantially all of its revenue for the fiscal
years ended January 31, 1996 and 1997, from the sale of its SeQuester(R)
products to major drug and food chain wholesalers and retailers.
Major customers accounting for 52.3% of revenues for the fiscal year
ended January 31, 1997 include Wal-mart Stores 26.1%, K-Mart Corp. 13.7% and
American Drug Stores 12.5%. Major customers accounting for 53.4% of revenues for
the fiscal year ended January 31, 1996 include Wal-mart Stores 13.1%, McKesson
Drug Company 8.7%, American Drug Stores 7.6%, K-Mart Corp. 7.5%, Revco D.S. Inc.
6.5%, Mark Stevens (CVS, Inc.) 5.2% and Target Stores 4.8%. A loss of one or
more of these customers could have a material impact on sales. It is anticipated
that sales will increase and that additional customers will be acquired. In
spite of the Company's positive outlook, there are no assurances that the
Company will maintain its existing customer base or that it will acquire new
customers.
There are currently no sales made outside the United States.
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Insurance
Although the Company considers its SeQuester(R) products to be safe, it
may be subject to product liability claims from persons injured through their
use. Accordingly, the Company is currently insured and intends to maintain
product liability insurance. This policy covers products and operations for an
aggregate of $2,000,000, with a $2,000,000 limit per occurrence.
The Company also carries insurance coverage for general commercial
liability. The aggregate amount of the policy is $2,000,000 and is limited to
$1,000,000 per occurrence, $1,000,000 for fire damage legal liability and
$10,000 for medical per person. The Company also carries an umbrella liability
policy for an aggregate of $3,000,000, with a limit of $3,000,000 per
occurrence.
The commercial policy provides coverage for business property at 31265
La Baya Drive, Westlake Village, CA 91361 for $275,000 and at 2835 Townsgate
Road Suite 110, Westlake, CA for $60,000 and data processing equipment for
$30,000. This policy also covers property located at the East Coast packager for
$2,000,000 and the West Coast packager for $123,900. The Company currently does
not maintain Directors and Officers liability coverage.
Government Regulation
Food and Drug Administration.
For purposes of regulation by the Food and Drug Administration ("FDA") under the
Food, Drug, and Cosmetic Act ("FDCA"), certain of the Company's products are
considered to be dietary supplements, and certain of the Company's products are
considered to be over-the-counter ("OTC") drugs. The manufacture, distribution,
marketing, storage, record-keeping, and labeling, as well as other specified
items relating to dietary supplements and OTC drugs, are subject to
comprehensive FDA regulation. Among the restrictions applicable to dietary
supplement products are that all labeling claims must be truthful and
substantiated and may not include any claims that the product diagnoses, treats,
cures, or prevents any disease. For OTC drugs such as those marketed by the
Company, ingredients and labeling claims must be in conformity with specific
product monographs contained in FDA regulations. Although the Company believes
that its SeQuester(R) products currently comply with applicable laws and
regulations administered by the FDA in these respective areas, FDA enforcement
policy is still evolving, particularly with respect to dietary supplements.
There can be no assurance that the FDA will not take enforcement action against
one or more of the Company's products on labeling or other grounds. Such
enforcement action could have serious negative implications for the Company.
FDA approval is required before any new drug can be marketed.
SeQuester(R) 1 and ChromaQuest(TM) and PhytoQuest(TM) are dietary supplements
and therefore are not subject to FDA approval as drugs, provided that, in the
course of marketing or advertising such products, the Company does not make
claims of a medicinal or therapeutic nature. SeQuester(R) 2 is an FDA approved
over-the-counter drug formulation for appetite control to aid weight reduction,
containing Phenylpropanolamine Hydrochloride. The Company believes that it is
currently in substantial compliance with all applicable material FDA
regulations.
Federal Trade Commission.
The advertising and promotion of the Company's SeQuester(R) products is
subject to regulation by the Federal Trade Commission ("FTC") under the Federal
Trade Commission Act ("FTCA"). Among other requirements, the FTC requires that
all claims made in advertising be truthful and substantiated in accordance with
standards that have been developed by the FTC. The Company's advertising claims
for its SeQuester(R) 1 product were recently the subject of inquiry by the
Seattle Regional Office of the FTC which alleged that previous claims for the
SeQuester(R) 1 product were false and/or unsubstantiated in violation of the
FTCA. On December 18, 1996, the Company's Board of Directors approved a proposed
administrative consent order which, if accepted by the FTC, would require the
Company to pay $150,000 to the FTC and maintain adequate substantiation for
future advertising claims. The proposed consent order would also require Clark
M. Holcomb, a former officer and director of the Company and Bonnie L. Richards,
a current officer and director of the Company, to maintain adequate
substantiation for the future advertising claims and would impose joint and
several liability for the $150,000 payment to the FTC on the Company and Bonnie
L. Richards. The proposed consent order will not become final until it is
approved by the FTC after being published for notice and comment. In the event
the proposed consent order is not approved, the Company intends to resume
settlement discussions with the FTC. Once the proposed order becomes final, the
Company, Mr. Holcomb and Ms. Richards will be subject
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to substantial monetary penalties in the event of non-compliance. Such
penalties, if imposed, could have a material adverse effect on the Company.
Environmental Compliance.
The Company's SeQuester(R) products are not subject to material environmental
regulation at this time and the Company does not anticipate future regulation
will affect the manufacture of its SeQuester(R) products.
Competition
The Company operates within a highly competitive environment. The
Company competes primarily on the basis of the uniqueness of its products,
quality, technological content, service and reliability as perceived by the
user, and to a lesser extent, on the basis of price. The Company competes, or
will compete, either directly or indirectly, with other companies involved in
the diet and weight loss industry. Many of the Company's present and potential
competitors have substantially greater financial resources, larger research and
development budgets and staff, greater sales volume and larger sales forces than
the Company.
The Company believes that it can compete against even its largest
competitors on the basis of the uniqueness of its SeQuester(R) products and as a
result of its potential to increase its product lines. The Company estimates
that there are in excess of 100 diet aid products on the market which fall into
various categories. There are "Appetite Suppressants," which are
Phenyl-propanolamine based products such as Dexatrim(TM) and Accutrim(TM);
"Thermogenics(TM)," which are Chromium Picolinate based products such as Chroma
Slim(TM), and the so called "fat burning" products; "Diuretics" which aid in
water weight reduction, with products such as Diurex(TM) and Aqua-ban(TM). The
Company believes that its SeQuester(R) products are unique, however, there can
be no assurance that SeQuester(R) products will retain their unique position in
the marketplace. With the anticipated addition of new products and existing
product lines, the Company can increase its name recognition and better provide
for its customer's dietary needs, thereby improving its market position.
However, the diet industry is highly competitive and there can be no assurance
that the Company's anticipated additional products can effectively compete with
similar existing products that currently have greater name recognition.
Employees
The Company has 8 employees, of which 6 are full-time and 2 are
part-time. The full time employees were engaged in management, marketing,
administrative and support activities. None of the Company's employees are
subject to a collective bargaining agreement and the Company believes its
relations with its employees are good.
The Company also enlists the services of approximately 12 independent
contractors who work as sales brokers to solicit sales of SeQuester(R) products.
The sales brokers are paid a 5% commission on the gross sales amounts.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company's principal place of business is located at 2835 Townsgate
Road, Suite 110, Westlake Village, California 91361. The Company entered into a
lease agreement with Westlake Office Plaza Partnership effective January 1, 1995
for a period of three (3) years. The three year term commenced on January 1,
1995 and terminates on December 31, 1997 with an option to extend for an
additional five (5) year period. The premises measure approximately 1,750 square
feet and are leased for general office and administrative purposes. The base
monthly rent on the premises is $3,938.
The Company's warehouse is located at 31265 La Baya Drive, Suite B,
Westlake Village, California 91361. This property is leased from West Oaks
Investment #60, a California Limited Partnership. The base monthly rent is
$3,226 for an approximate 4,800 square foot storage facility. The Company uses
the property to warehouse and distribute its SeQuester(R) products. The lease
commenced on June 1,1994 and terminates on May 30, 1997.
The Company also leases warehouse space on a month to month basis in
Pine Brook, New Jersey at the facilities of its East Coast packager which
approximates 5,000 square feet for $4,167 per month.
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ITEM 3. LEGAL PROCEEDINGS.
The advertising and promotion of the Company's SeQuester(R) products is
subject to regulation by the Federal Trade Commission ("FTC") under the Federal
Trade Commission Act ("FTCA"). Among other requirements, the FTC requires that
all claims made in advertising be truthful and substantiated in accordance with
standards that have been developed by the FTC. The Company's advertising claims
for its SeQuester(R) products were recently the subject of inquiry by the
Seattle Regional Office of the FTC which alleged that previous claims for the
SeQuester(R) 1 product were false and/or unsubstantiated in violation of the
FTCA. On December 18, 1996, the Company's Board of Directors approved a proposed
administrative consent order which, if accepted by the FTC, would require the
Company to pay $150,000 to the FTC and maintain adequate substantiation for
future advertising claims. The proposed consent order would also require Clark
M. Holcomb, a former officer and director of the Company and Bonnie L. Richards,
a current officer and director of the Company, to maintain adequate
substantiation for the future advertising claims and would impose joint and
several liability for the $150,000 payment to the FTC on the Company and Bonnie
L. Richards. The proposed consent order will not become final until it is
approved by the FTC after being published for notice and comment. In the event
the proposed consent order is not approved, the Company intends to resume
settlement discussions with the FTC. Once the proposed order becomes final, the
Company, Mr. Holcomb and Ms. Richards will be subject to substantial monetary
penalties in the event of non-compliance. Such penalties, if imposed, could have
a material adverse effect on the Company.
Charles McClendon ("McClendon") filed a complaint on October 12, 1995
in the Superior Court of the State of California for the County of Los Angeles
against Clark M. Holcomb ("Holcomb") and SeQuester alleging breach of contract,
fraud, fraudulent misrepresentation, violation of California Corporate
Securities Law, money had and received and account stated. McClendon alleged
that Holcomb fraudulently breached a contract by and between McClendon and
Holcomb pursuant to which Holcomb agreed to sell shares of Interactive Medical
Technologies Ltd. ("IMT") stock to McClendon. Plaintiff named SeQuester as the
alter-ego of Holcomb. McClendon is seeking damages in a sum in excess of $50,000
as well as attorneys' fees, exemplary and punitive damages. It is the Company's
position that it has no obligation or liability to McClendon in connection with
this matter. In February 1997, the Company settled these disputed and doubtful
claims for the sum of $24,000 to avoid further litigation costs inherent in
defending the action, which was dismissed with prejudice.
In December 1995, the Company entered into a Management Consulting
Agreement ("Consulting Agreement") with Peter D. Bistrian Consulting, Inc.
("PBC") for management and marketing consulting services. As compensation for
the foregoing consulting services, PBC received 225,000 shares of the Company's
common stock (the "Consulting Shares"). The Company acted to register the offer
and sale of the Consulting Shares on Form S-8 which was filed in January 1996.
In January 1996, the Company terminated the Consulting Agreement as a result of
PBC's use of the Company's confidential information for PBC's own benefit. The
Company requested in such notice of termination that PBC immediately return the
Consulting Shares for cancellation and that PBC immediately cease and desist
from trading in the Company's securities. Notwithstanding the Company's notice,
it appears that PBC subsequently acted to sell a substantial portion of the
Consulting Shares in the open market which was in violation of a lock-up
agreement prohibiting the sale of the Consulting Shares. In an attempt to
resolve this matter in an expeditious manner, and to secure the Consulting
Shares for cancellation, the Company entered into a conditional settlement
agreement, contingent upon the return to the Company of all of the Consulting
Shares, which required PBC to deliver the Consulting Shares to an escrow account
maintained by the law firm of Horowitz, Cutler & Beam ("HC&B") for delivery to
the Company. In February 1996, HC&B delivered 155,200 of the 225,000 Consulting
Shares to the Company. In May of 1996, the Company filed a Complaint in the
Superior Court of the State of California for the County of Los Angeles against
PBC; Peter D. Bistrian; HC&B; M. Richard Cutler; Gateway Financial Group, Inc.;
and Lisa Paige for breach of written contract; legal malpractice; intentional
misrepresentation; negligent misrepresentation; securities fraud; conversion;
constructive fraud; breach of fiduciary duty; insider trading; breach of
covenant of good faith and fair dealing; and violation of the racketeering
influenced and corrupt organizations act. The Company is currently in settlement
negotiations with respect to defendants PBC; Peter D. Bistrian; HC&B and M.
Richard Cutler and has approved a proposed settlement in which certain of the
foregoing defendants would pay the Company the sum of $225,000 to settle this
action solely with respect to those defendants.
Except as otherwise specifically indicated above, management believes
that the Company does not have any material liability for any lawsuits,
settlements, judgments or fees of defense counsel which have not been paid or
accrued as of January 31, 1997.
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As there is no assurance that the Company will prevail in any of the
foregoing lawsuits, the Company may incur substantial expense in connection with
this litigation. Any unfavorable settlement or judgment against the Company, in
which the Company is a defendant, could have a material adverse effect upon the
financial condition and operational results of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the fourth quarter of the 1996-97 fiscal year, the Company did
not submit any matter to a vote of security holders through the solicitation of
proxies or otherwise.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is quoted on the OTC Bulletin Board under
the symbol "SQST" (formerly "KCDH"). A limited trading market has developed for
the Company's Common Stock. The high and low bid prices for the Common Stock, as
reported by the National Quotation Bureau, Inc., are indicated for the periods
described below. Such prices are interdealer prices without retail mark-ups,
mark-downs, or commissions and may not necessarily represent actual
transactions.
<TABLE>
<CAPTION>
Quarter Ended Bid Prices
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High Low
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<S> <C> <C>
April 30, 1995 3 1/16 2 1/2
July 31, 1995 9 1/2 3 1/16
October 31, 1995 6 5/8 5 1/2
January 31, 1996 6 5/8 2 1/4
April 30, 1996 5 5/16 1
July 31, 1996 5 1/8 3 5/8
October 31, 1996 4 7/16 2 1/2
January 31, 1997 2 11/16 1 1/16
</TABLE>
On April 15, 1997, there were approximately 600 shareholders of record
of the Company's Common Stock. On April 15, 1997, the closing bid and ask prices
for the Common Stock reported by the Reuters Limited were $0.32 and $0.36
respectively.
To date, the Company has not declared or paid any cash dividends with
respect to its Common Stock. The current policy of the Board of Directors is to
retain earnings, if any, in order to provide for the growth of the Company.
Consequently, no cash dividend or any other dividend is expected to be paid on
the common stock in the foreseeable future. Furthermore, there can be no
assurance that the future operations of the Company will generate the revenues
and cash flow needed to declare a cash dividend or that the Company will have
legally available funds to pay dividends.
The Company presently has outstanding 398,850 "A" Public Warrants,
488,600 "B" Public Warrants and 488,600 "C" Public Warrants that are
exercisable, subject to an effective registration statement with the Securities
and Exchange Commission, at the following prices through the following
expiration dates:
<TABLE>
<S> <C> <C>
A Warrants $0.50 June 30, 1997
B Warrants $0.75 June 30, 1997
C Warrants $1.00 June 30, 1997
</TABLE>
Transfer and Warrant Agent:
The Transfer and Warrant Agent for the Company is Jersey Transfer &
Trust Company, located in Verona, New Jersey.
Changes in Securities - During the fourth quarter of the 1996-97 fiscal year
In November 1996, the Company issued 16,851 shares of its $.002 par
value common stock to an independent contractor for services rendered. The
Company relied upon the exemption from registration contained in Section 4(2) of
the Securities Act of 1933, as amended, on the basis that the offer and sale of
the shares did not involve any public offering. All of the foregoing shares were
issued with the appropriate restrictive legend.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
General
SeQuester Holdings, Incorporated ("the Company"), formerly KCD Holdings
Incorporated, was incorporated in the state of Nevada on February 13, 1986. The
Company's activities from inception until 1993 consisted primarily of reviewing
possible business opportunities and acquisitions, and maintaining the business
entity. The Company had only nominal net assets and no operational activities
from the fiscal years 1989 through 1993 and all expenses incurred were solely
related to maintaining the entity and reviewing potential business
opportunities.
The Company is a holding company which operates primarily through its
wholly-owned subsidiary, SeQuester Incorporated ("SeQuester"), formerly KCD
Incorporated, which was incorporated in November 1993. The Company is a
distributor and marketer of technically advanced health products. The Company
currently markets dietary aid products under the names SeQuester(R),
ChromaQuest(TM) and PhytoQuest(TM). These products are sold to national drug and
food chain retailers, wholesalers and mass merchandisers throughout the United
States using several of the nation's largest food brokerage firms.
In October 1994, the Company acquired 100% of the ownership of
SeQuester in a reverse merger by issuing 14,100,000 shares of its common stock,
$0.002 par value, which consisted of 100,000 shares to the stockholders of the
Company for cancellation of indebtedness then outstanding and 14,000,000 shares
to the stockholders of SeQuester when unrestricted shares were trading at
approximately $1.00 per share. The stock exchange was recorded as a
recapitalization of SeQuester using the Company's historical cost. SeQuester,
which is engaged in the business of marketing and distributing dietary aids,
commenced its operations in February 1994.
The Company's activities through 1995 consisted primarily of the
development and marketing of its dietary supplement product, SeQuester(R) 1. The
Company introduced an appetite suppressant (SeQuester(R) 2) and a chromium based
dietary supplement (ChromaQuest(TM)) in addition to SeQuester(R) 1 in December
1995. Additionally, the Company introduced its fourth product, PhytoQuest(TM),
in October 1996. It is composed of phytosterols, which in recent research shows
potential to inhibit the gastrointestinal absorption of cholesterol. Additional
new health and beauty aid category products are scheduled for introduction in
1997, all under the trademark SeQuester(R). To date, the Company has developed
access to major domestic retail, pharmacy and mass merchandiser chains in the
United States.
The weight loss industry represents an estimated 1 billion dollars in
revenues. Millions of Americans begin diets every year and buy diet supplements.
The primary target for the Company's SeQuester(R) products appears to
be relatively sophisticated females, 24 to 49 years old with a history of weight
loss efforts. These women are interested in products that are natural, sensible
and effective in aiding their struggle to lose unwanted fat. They understand
that reduced caloric intake is part of any effective weight loss plan and they
are inclined to use the product as directed.
Market leaders in the weight reduction industry include Dexatrim(TM)
and Accutrim(TM), with several additional smaller product marketers.
Market research indicates that there is a substantial market for
dietary supplements that are natural, drug-free products. SeQuester(R) 1 and
ChromaQuest(TM) do not contain any diuretics, stimulants, or drugs. SeQuester(R)
2, an appetite suppressant, does not contain any caffeine, diuretic, or sodium.
SeQuester(R) 2 is an FDA approved over-the-counter drug formulation for appetite
control to aid weight reduction, containing Phenylpropanolamine Hydrochloride.
PhytoQuest(TM) contains plant sterols. All of the ingredients comprising the
SeQuester(R) 1 product are included in published Food and Drug Administration
guidelines for ingredients generally recognized as safe ("GRAS").
ChromaQuest(TM), consists of a synergistic combination of 5 different sources of
Chromium, as well as Amino Acids, Vitamin C and Potassium. Chromium is an
essential trace mineral which is necessary for proper carbohydrate metabolism.
The Company believes that there is a tremendous possibility to assume the lead
in this market, well ahead of any other participants who may attempt to enter
the market.
10
<PAGE> 11
Results of Operations
The Company commenced operations for the marketing and distribution of
its SeQuester(R) products in the first calendar months of 1994. Certain costs
and necessary expenditures were incurred that will have delayed results on
sales, such as sales travel calls and re-visits to wholesalers, brokers and
retailers across the nation, as well as a national media advertising campaign.
It is now clear that the results of these efforts have brought the Company's
SeQuester(R) products to national attention.
For the twelve month period ended January 31, 1997 compared to the twelve month
period ended January 31, 1996:
Revenues are derived from sales of the dietary fat sequestrant product and an
appetite suppressant under the name SeQuester(R), a chromium based dietary
supplement product sold under the name ChromaQuest(TM) and, commencing in
October 1996, from PhytoQuest(TM), a dietary supplement designed to reduce
cholesterol from the food you eat. Gross Revenues for the twelve months ended
January 31, 1997 were $4,144,295 compared to $7,017,442 for the twelve months
ended January 31, 1996, or a 41% decrease. Gross Revenues have been reduced for
a variety of discounts to provide Net Revenues of $2,845,590 for the twelve
months ended January 31, 1997 and $5,861,232 for the twelve months ended January
31, 1996 or a 51% decrease.
The significant decrease in Gross Revenues resulted from a hold on the Company's
marketing campaign pending (i) preparation of advertising materials which could
be utilized upon completion of clinical trials for the SeQuester(R) 1 product
(ii) the settlement of certain advertising litigation and (iii) adequate
financing. During April 1996, the pending advertising litigation was settled and
the initial phase of financing was completed. Clinical trials for the
SeQuester(R) 1 product were completed during the third quarter of 1996.
The Company is currently rebuilding its marketing campaign. Newspaper
advertising commenced in major markets in July 1996 and was supported by radio
advertising which commenced in August 1996. In February 1997, the Company
commenced a television campaign. The decrease in Net Revenues resulted from a
decrease in sales and an increase in refunds and returns.
<TABLE>
<CAPTION>
Twelve Months Ended
-------------------
January 31, 1997 January 31, 1996
----------------------- --------------------
$ % $ %
- - - -
<S> <C> <C> <C> <C>
Gross Revenues 4,144,295 100 7,017,442 100
--------- --- --------- ---
Discounts:
Refunds and Returns 698,743 17 212,398 3
Introductory and Promotional 224,685 5 470,067 6
Co-op Advertising 292,355 7 352,787 5
Other 82,922 2 120,958 2
---------- - ------- -
Total Discounts 1,298,705 31 1,156,210 16
--------- -- --------- --
Net Revenues 2,845,590 69 5,861,232 84
========= == ========= ==
</TABLE>
The increase in refunds and returns resulted primarily from (i) return of dated
products which had remained unsold by retailers and which could not be resold,
(ii) disposal by retailers of unsaleable products and (iii) a reserve recorded
for estimated sales returns.
Gross Profits are comprised of Net Revenues less direct costs of products,
packaging and services. The Cost of Sales of the dietary products for the twelve
month period ended January 31, 1997 was $1,104,520 or 39% of Net Revenues which
provided a Gross Profit of $1,741,070 or 61% of Net Revenues. For the twelve
month period ended January 31, 1996, the Cost of Sales was $1,422,088 or
11
<PAGE> 12
24% of Net Revenues, which provided a Gross Profit of $4,439,144 or 76% of Net
Revenues. The decrease in the Gross Profit percentage resulted primarily from an
increase in returns and the continuation of fixed co-op advertising costs. In
addition, the Company recorded an allowance for obsolescence of $121,535 which
was charged to cost of goods sold during the twelve months ended January 31,
1997.
<TABLE>
<CAPTION>
Twelve Months Ended
-------------------
January 31, 1997 January 31, 1996
--------------------------- -------------------------
$ % $ %
<S> <C> <C> <C> <C>
Net Revenues 2,845,590 100 5,861,232 100
Cost of Goods Sold 1,104,520 39 1,422,088 24
--------- -- --------- --
Gross Profit 1,741,070 61 4,439,144 76
========= == ========= ==
</TABLE>
Advertising expenses consist of a multi-media advertising campaign
which included newspaper and radio, signage and other displays. Selling and
marketing expenses consist of sales commissions and salaries, coupon redemption,
warehouse, freight, supplies and travel expenses. General and administrative
expenses consist of salaries and benefits for officers and staff, accounting,
legal and other professionals, rent and occupancy costs, bad debt expense,
travel expenses and other administrative costs.
Advertising expense decreased significantly to $1,479,124 for the
twelve months ended January 31, 1997 from $3,128,885 for the twelve months ended
January 31, 1996. The Company placed a hold on its marketing campaign through
June 1996 pending (i) preparation of advertising materials which could be
utilized upon completion of clinical trials for the SeQuester(R) 1 product (ii)
the settlement of certain advertising litigation and (iii) adequate financing.
The Company also experienced difficulties in obtaining financing to maintain
adequate inventory levels of SeQuester(R) 2 and ChromaQuest(TM). Inventory
financing became available beginning in April 1996 and inventory buildups to
adequate levels occurred by August of 1996. Newspaper advertising commenced in
major markets in July 1996 and was supported by radio advertising which
commenced in August 1996. Pending advertising litigation was settled in April
1996. A significant portion of the 1996 expense was paid by issuance of
restricted shares of Company common stock. In April 1996, the Company reached a
settlement of the advertising litigation which resulted in a gain of $845,482.
The Company is currently evaluating all of its marketing programs and
anticipates significant advertising expenses during 1997, subject to adequate
financing.
Selling and Marketing expenses decreased to $893,884 for the twelve
months ended January 31, 1997 from $1,009,150 for the twelve months ended
January 31, 1996. The Company experienced decreases in sales commissions due to
reduced sales volumes and a reduction in rates for the current period and
decreases in coupon redemption, freight and travel expenses. The decreases were
partially offset by increases in salaries, consulting fees, marketing supplies
and rent expense. Selling and marketing expenses are expected to increase during
fiscal 1998.
General and Administrative expenses increased to $1,812,517 for the
twelve months ended January 31, 1997 from $1,774,143 for the twelve months ended
January 31, 1996. The Company experienced increases in legal and accounting
fees, consulting fees, insurance, bad debt expense and shareholder expenses
offset by decreases in salaries, travel expenses, office expenses and interest
in connection with accounts receivable financing. General and Administrative
expenses are expected to decrease during fiscal 1998.
No royalty expense was incurred for the twelve months ended January 31,
1997 compared with $522,858 for the twelve months ended January 31, 1996.
Royalties had been due under the terms of a license agreement which was
terminated in March 1996.
Interest expense decreased to $78,394 for the twelve months ended
January 31, 1997 from $275,487 for the twelve months ended January 31, 1996.
Interest expense for the twelve months ended January 31, 1997 reflects a reduced
rate of interest and reduced principal balances on short term loans from
stockholders, which decreased from $1,317,597 as of January 31, 1996 to
12
<PAGE> 13
$356,999 as of January 31, 1997. Interest expense for the twelve months ended
January 31, 1996 included interest on then outstanding balances due for
royalties and inventory.
Interest income for the twelve months ended January 31, 1996 was
$101,310 which resulted from interest accrued, at 8% per annum, on the loan
receivable from Clark Holcomb.
In April 1996, the Company settled certain advertising litigation
resulting in a gain of $845,482 and settled certain litigation, resulting in a
loss of $80,000, regarding a former sales broker in order to avoid the costs
inherent in defending the action. In August 1996, the Company settled certain
litigation regarding a license agreement and royalties with Effective Health
Inc., a wholly-owned subsidiary of Interactive Medical Technologies Ltd., which
resulted in a net gain of $151,245. In December 1996, the Company approved a
proposed administrative consent order with the FTC regarding alleged
unsubstantiated advertising claims which would require the Company to pay
$150,000 to the FTC. In February 1997, the Company settled certain other
disputed and doubtful claims for the sum of $24,000 to avoid further litigation
costs inherent in defending the action.
In April 1996, Clark Holcomb resigned as a Director and President of
the Company and retired 3,800,000 shares of Company common stock personally
owned by him in satisfaction of the Company's outstanding loan receivable from
him in the amount of $2,223,707. As of January 31, 1996, the balance of
principal and interest receivable on this loan was $2,145,964 which was expensed
for the twelve months ended January 31, 1996. An additional $70,143 was expensed
during the twelve months ended January 31, 1997.
The provision for income taxes is the minimum for the States of New
Jersey and California Franchise taxes. No provision was made for Federal income
tax since the Company has significant net operating loss carryforwards.
The net loss for the twelve month period ended January 31, 1997 of
$1,852,365 was the result of gains on settlement of certain litigation matters
which were offset by a loss from operations. The net loss for the twelve month
period ended January 31, 1996 of $4,317,833 was incurred principally as a result
of the significant expenditures made by the Company for its (i) multi-media
advertising campaign and initial introduction of the SeQuester(R) products to
major retail pharmacy and mass merchandiser chains and (ii) the stockholder loan
to Mr. Holcomb which was expensed.
Net loss per common share was $0.13 for the twelve months ended
January 31, 1997 and $0.27 for the twelve months ended January 31, 1996 based on
the weighted average shares of common stock outstanding.
The Company believes that net losses for the period from inception
through January 31, 1997 are consistent with the initial development of the
Company, its major advertising campaign and its introduction of the SeQuester(R)
products.
For the twelve month period ended January 31, 1996 compared to the twelve month
period ended January 31, 1995:
Revenues are derived from sales of the dietary fat sequestrant product,
an appetite suppressant and a chromium based dietary supplement sold under the
name SeQuester(R). Gross Revenues for the twelve months ended January 31, 1996
increased to $7,017,442 from $3,243,226 for the twelve months ended January 31,
1995.
Gross Revenues have been reduced for a variety of discounts to provide
Net Revenues of $5,861,232 for the twelve months ended January 31, 1996 and
$2,714,232 for the twelve months ended January 31, 1995 or a 116% increase. The
increase is attributed to a concerted marketing campaign and a significant
increase in the number of retail outlets carrying the Company's SeQuester(R)
products.
13
<PAGE> 14
<TABLE>
<CAPTION>
Twelve Months Ended
-------------------
January 31, 1996 January 31, 1995
---------------------- -------------------
$ % $ %
- - - -
<S> <C> <C> <C> <C>
Gross Revenues 7,017,442 100 3,243,226 100
--------- --- --------- ---
Discounts:
Refunds and Returns 212,398 3 17,929 1
Introductory and Promotional 470,067 6 145,589 4
Co-op Advertising 352,787 5 324,323 10
Other 120,958 2 41,153 1
--------- - --------- --
Total Discounts 1,156,210 16 528,994 16
--------- -- --------- --
Net Revenues 5,861,232 84 2,714,232 84
========= == ========= ==
</TABLE>
Gross Profits are comprised of Net Revenues less direct costs of
products, packaging and services. The Cost of Sales of the dietary products for
the twelve month period ended January 31, 1996 was $1,422,088 or 24% of Net
Revenues which provided a Gross Profit of $4,439,144 or 76% of Net Revenues. For
the twelve month period ended January 31,1995 the Cost of Sales was $763,149 or
28% of Net Revenues, which provided a Gross Profit for the twelve month period
of the previous year of $1,951,083 or 72% of Net Revenues. The steady increase
in Gross Profits is consistent with the increase in revenue which can be
attributed to the concerted marketing campaign and a significant increase in the
number of retail outlets carrying the Company's SeQuester(R) products.
<TABLE>
<CAPTION>
Twelve Months Ended
-------------------
January 31, 1996 January 31, 1995
---------------------- -------------------
$ % $ %
- - - -
<S> <C> <C> <C> <C>
Net Revenues 5,861,232 100 2,714,232 100
Cost of Goods Sold 1,422,088 24 763,149 28
--------- -- --------- --
Gross Profit 4,439,144 76 1,951,083 72
========= == ========= ==
</TABLE>
Advertising expenses consist of a multi-media advertising campaign
which included magazines, TV and radio, signage and other displays. Selling and
Marketing expenses consist of sales commissions and salaries, coupon redemption,
warehouse, freight, supplies and travel expenses. General and Administrative
expenses consist of salaries and benefits of officers and staff, accounting,
legal and other professionals, rent and occupancy costs, factoring commissions
and fees, bad debt expense, travel expenses and other administrative costs.
Advertising expense increased to $3,128,885 for the twelve months ended
January 31, 1996 from $723,341 for the twelve months ended January 31, 1995 as
the Company accelerated its marketing campaign, particularly TV and radio media.
A significant portion of this expense was paid by issuance of restricted shares
of Company common stock.
Selling and Marketing expenses increased to $1,009,150 for the twelve
months ended January 31, 1996 from $834,875 for the twelve months ended January
31, 1995. The Company experienced increases in sales commissions, coupon
redemption and travel expenses as sales volumes increased.
General and Administrative expenses increased to $1,774,143 for the
twelve months ended January 31, 1996 from $1,518,768 for the twelve months ended
January 31, 1995. The Company experienced increases in accounting and legal
fees, travel expenses and incurred factoring fees and commissions in connection
with accounts receivable financing. In January 1996, the Company expensed the
remaining balance of the unamortized license fee of $38,889.
14
<PAGE> 15
Royalty expense decreased to $522,858 for the twelve months ended
January 31, 1996 from $550,101 for the twelve months ended January 31, 1995 as a
result of sales volume increases, offset by a reduction in the royalty rate
effective in April 1995.
Interest expense increased to $275,487 for the twelve months ended
January 31, 1996 from $30,582 for the twelve months ended January 31, 1995.
Interest expense for the twelve months ended January 31, 1995 includes interest
on short term loans from stockholders and interest on balances due for royalties
and inventory.
Interest income increased for the twelve months ended January 31,
1996 to $101,310 which resulted from interest accrued, at 8% per annum, on a
loan due from an officer.
The Company reached a settlement of certain advertising litigation
which resulted in a gain of $845,482 which was recorded in April, 1996.
In April 1996, Clark Holcomb resigned as a Director and President of
the Company and retired 3,800,000 shares of Company common stock personally
owned by him in further satisfaction of the Company's outstanding loan
receivable from him in the amount of $2,223,707. As of January 31, 1996, the
balance of principal and interest receivable on this loan was $2,145,964 which
was expensed for the twelve months ended January 31, 1996.
The provision for income taxes is for the State of California
Franchise taxes. No provision was made for Federal Income Tax since the Company
has incurred net operating losses from inception.
The net loss for the twelve month period ended January 31, 1996 of
$4,317,833 was incurred principally as a result of the significant expenditures
made by the Company for its multi-media advertising campaign and the stockholder
loan to Mr. Holcomb which was expensed. The net loss for the twelve month period
ended January 31, 1995 was $1,708,184.
Net loss per common share was $0.27 for the twelve months ended
January 31, 1996 and $0.12 for January 31, 1995 based on the weighted average
shares of common stock outstanding.
The Company believes that net losses for the twelve month periods ended
January 31, 1996 and 1995, are consistent with the initial development of the
Company, the major advertising campaign and its introduction of the Company's
SeQuester(R) products.
Liquidity and Capital Resources
Since inception, the Company has received capital for operations and
development from private investors in the Company's securities, issuance of
private party debt, loans from stockholders and financing from factors as well
as revenues from operations. Through January 31, 1997, revenues from operations
have been insufficient to satisfy operating expenses, product development and
legal costs. The Company, therefore has been dependent on the private placement
of securities and loans from private investors and stockholders.
The Company faces continuing significant business risks, including but
not limited to, its ability to maintain vendor and supplier relationships by
making timely payments when due. The accompanying financial statements have been
prepared assuming that the Company will continue as a going concern. The
financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might result should the Company be unable to
continue as a going concern.
There are no assurances that private capital will continue to be
available or that revenues from operations will increase to meet the Company's
cash needs, particularly as these needs relate to funding manufacturing costs
and advertising campaigns and the development of new products which the Company
believes represents its most significant long-term growth opportunities.
15
<PAGE> 16
As shown in the accompanying financial statements, the Company has
incurred net losses from inception to January 31, 1997 of $7,857,673 including
net losses of $1,852,365 and $4,317,833 during the fiscal years ended January
31, 1997 and 1996, respectively.
Management devoted considerable effort during the fiscal year ended
January 31, 1997 towards (i) obtaining additional equity financing (ii)
settlement of remaining litigation matters (iii) building adequate product
inventories and (iv) rebuilding its marketing campaign. Newspaper advertising
commenced in major markets in July 1996 and was supported by radio advertising
commencing in August 1996. In February 1997, the Company commenced a television
campaign.
Management has reduced its administrative expenses and anticipates
growth of revenues from its SeQuester(R) products during 1997. The Company
introduced an appetite suppressant and a chromium based dietary supplement in
December, 1995 and a phytosterol based dietary supplement in October 1996.
Additional new health and beauty aid category products are scheduled for
introduction in fiscal 1998.
During the twelve months ended January 31, 1996, the Company issued an
aggregate of 1,267,500 shares of restricted Company stock as consideration for
approximately $4,135,000 of advertising. In April 1996, the Company reached a
settlement of certain advertising litigation which resulted in return and
retirement of 640,000 of these previously issued shares.
In February 1995, the Company retired 2,000,000 shares of common stock
previously held by an officer and stockholder of the Company as partial
consideration for a loan by the Company to that officer.
In May 1995, the Company issued 275,000 shares of common stock to a
consultant for services and cash consideration of $55,000.
In May 1995, the Company issued 100,000 shares of restricted common
stock to IMT as consideration for past due royalties and interest in the amount
of $217,243.
In January 1996, the Company issued 225,000 shares of common stock to a
consultant, for services which were subsequently terminated. In April 1996,
155,200 of these shares were returned to the Company and retired.
During the twelve months ended January 31, 1996, the Company issued an
aggregate of 172,500 shares of restricted common stock for other services.
During the twelve months ended January 31, 1996, the Company completed
private placements for an aggregate of 735,000 shares of restricted common stock
for cash consideration of $952,500.
In April 1996, the Company issued 1,200,000 shares of common stock for
net proceeds of $1,665,000 in a private placement. Upon completion of this
transaction, the Company issued to the placement agent 300,000 warrants to
purchase additional shares of common stock at $2.50 per share. These warrants
have a five year life and contain certain registration rights.
In connection with this private placement, Clark Holcomb resigned as a
Director and President of the Company and agreed to manage the sales and
marketing programs on the following terms: (1) an annual base salary of
$100,000; (2) a sales incentive equal to 2% of net sales over the prior base
quarter; provided that, the Company has net income during the subject quarter;
and (3) an equity incentive equal to the sales incentive, and subject to the
same conditions, based on the average bid price during the subject quarter. In
addition, the Company will not increase the salaries of any of its officers or
make any loan to any officer, director or shareholder for a period of twelve
months and Clark Holcomb retired 3,800,000 shares of Company common stock
personally owned by him in further satisfaction of the Company's outstanding
loan receivable from him in the amount of $2,223,707.
In May 1996, the Company issued 40,000 shares of restricted common
stock in settlement of litigation.
In June 1996, the Company issued 300,000 shares of common stock to a
consultant for services and cash consideration of $15,000. In August 1996, the
Company issued 150,000 shares of common stock under the terms of a consulting
agreement for advertising, design and marketing services, and a stock purchase
agreement. In April 1997, the stock purchase agreement was canceled and
previously issued shares thereunder were returned to the Company and retired.
16
<PAGE> 17
During the twelve months ended January 31, 1997, the Company issued an
aggregate of 44,047 shares of restricted common stock to commission sales
brokers and 62,851 shares of restricted common stock for other services.
In June 1996, the Company entered into a stock purchase agreement
pursuant to which the Company agreed to issue a maximum of 1,000,000 shares of
common stock offered at a price per share equal to the lesser of (i) 50% below
the closing bid price of the Company's common stock or (ii) $2.00 per share.
During the period June 1996 through January 31, 1997, 695,027 shares were issued
for net proceeds of $1,192,022.
From February to October 1995, the Company pledged and encumbered a
substantial portion of its accounts receivable for cash advances to accelerate
cash flow for operations. An agreement with the factor (lender) was terminated
in October 1995, and the Company executed a promissory note for the sum of
$750,000, or the aggregate unpaid principal amount of advances up to the sum of
$750,000, with interest payable at 10% per annum on the outstanding balance,
with a current shareholder. The note plus interest was payable based upon 50% of
net collections from product sales with any remaining balance due in full on or
before October 17, 1996. The note was subject to a security agreement which
covers all of the accounts receivable, contract rights and inventory of the
Company. In August 1996, the balance of principal and interest outstanding of
this note was satisfied. In August 1996, the Company entered into a stock
purchase agreement with the same stockholder wherein the Company issued 125,000
shares of restricted common stock for satisfaction of $250,000 of the principal
balance of the secured promissory note dated October 17, 1995 due to that
stockholder. In connection with this transaction, the Company entered into a put
option agreement wherein that stockholder has the right, upon his election, to
sell to the Company a total of 125,000 shares of Company common stock at $2.00
per share at any time between October 17, 1996 and April 17, 1997. The put
option agreement expired on April 17, 1997.
In January 1997, the Company authorized issuance of a series of 5,000
shares of Convertible Preferred Stock and designated an initial issuance of 750
shares of Series A Convertible Preferred Stock with a par value of $1,000 per
share. In January 1997, the Company sold 375 shares and in February 1997 sold an
additional 375 shares to two accredited investors receiving gross proceeds of
$750,000. The Company paid placement and finder's fees aggregating 15% of the
gross proceeds in connection with this financing.
The Series A Shares are convertible into the Company's common stock, in
phases following the date of issuance (the "Closing Date"). The Series A Shares
are entitled to a 6% cumulative dividend payable in common stock at the time of
conversion and all of the Series A Shares are subject to a mandatory 12 month
conversion feature. One-third of the Series A Shares are convertible into common
stock at any time 45 days after the Closing Date; an additional one-third
(two-thirds cumulatively) are convertible into common stock at any time 60 days
after the Closing Date; and an additional one-third (the entire amount
cumulatively) are convertible into common stock at any time 75 days after the
Closing Date. The number of common shares issuable upon conversion of the Series
A Shares equals the par value of the Series A Shares plus accrued dividends
through the date of conversion divided by the lessor of (i) 70% of the "Market
Price" (the 5 day average closing bid for the common stock for the 5 business
days immediately preceding the conversion date); or (ii) 100% of the 5 day
average closing bid for the common stock for the 5 business days immediately
preceding the Closing Date. Provided, that, for any conversions of the Series A
Shares occurring after the 89th day following the Closing Date the conversion
rate will be the lessor of (i) 65% of the Market Price; or (ii) 100% of the 5
day average closing bid for the common stock for the 5 business days immediately
preceding the Closing Date.
Through April 15, 1997, an aggregate of 190 shares of outstanding
preferred stock were converted into 914,438 shares of Company common stock.
As of January 31, 1997, the Company's working capital position
increased from a negative $1,315,263 at January 31, 1996 to a positive $639,789
at January 31, 1997. Increases in current assets include increases in cash of
$360,838 and inventory of $1,283,843 offset by a decrease in accounts receivable
of $289,059 and other assets of $2,547. Changes in current liabilities include
increases in accounts payable of $249,699, accrued expenses of $76,409, accrued
advertising of $52,432, FTC payable of $125,000 and commissions payable of
$5,596. Notes payable and loans from stockholders decreased $960,598. Royalties
payable decreased $150,515 as a result of a litigation settlement. Current
assets increased a net of $1,353,075 and current liabilities decreased a net of
$601,977 for the fiscal year ended January 31, 1997, primarily as a result of
private placements. The net loss for fiscal year ended January 31, 1997 of
$1,852,365 was reduced by non-cash charges for depreciation and amortization of
$769,062 and issuance of common stock for advertising and other services of
$85,595 and was increased by retirement/issuance of stock of $479,762 in
connection with settlements of litigation.
17
<PAGE> 18
The Company currently has no firm commitments for material capital
expenditures. The Company does not anticipate that future compliance with
existing environmental and occupational safety regulations will have a
significant impact on its financial condition or future operating results.
The Company does not believe that general inflation would have a
material effect on its operations.
Included in this Item 6. "Management's Discussion and Analysis or Plan
of Operation" are certain forward-looking statements reflecting the Company's
current expectations. Although the Company believes that its expectations are
based on reasonable assumptions, there can be no assurance that the Company's
financial goals or expectations will be realized. Numerous factors (such as the
availability of capital and the effectiveness of advertising) may affect the
Company's actual results and may cause results to differ materially from those
expressed in forward-looking statements made by the Company.
ITEM 7. FINANCIAL STATEMENTS
The following financial statements are filed as part of this
Form 10-KSB
<TABLE>
<CAPTION>
Financial Statements: Page
--------------------- ----
<S> <C>
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets at
January 31, 1997 and January 31, 1996 F-3
Consolidated Statements of Operations for the
twelve months ended January 31, 1997 and 1996 F-4
Consolidated Statement of Stockholders' Investment (Deficit)
for the twelve months ended January 31, 1997 and 1996 F-5
Consolidated Statements of Cash Flows
for the twelve months ended January 31, 1997 and 1996 F-6
Notes to Consolidated Financial Statements F-7
</TABLE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH THE ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
As reported in the Current Report on Form 8-K filed with the Commission
on April 18, 1996, the accountancy corporation of Horsfall, Murphy & Pindroh
("Horsfall") resigned as the Company's principal accountant. The audit report of
Horsfall on the consolidated financial statements of KCD Holdings Incorporated
and subsidiary as of and for the year ended January 31, 1995 did not contain any
adverse opinion or disclaimer of opinion, nor was it qualified or modified as to
uncertainty, audit scope, or accounting principles. However, during the
subsequent period through March 29, 1996, Horsfall, Murphy & Pindroh had
expressed that they believe that there are several issues which require the
immediate attention of the management of the Company. The issues raised by
Horsfall, Murphy & Pindroh with the Company are as follows: (i) a loan made by
the Company to a principal shareholder and former chief executive officer is
significant relative to the assets of the Company. The valuation and the
ultimate collectibility of the loan, as of January 31, 1996, warrants
significant additional consideration and review; and (ii) securities issued or
pledged for services, both consulting and advertising, during the year ended
January 31, 1996 deserve detailed valuation analysis regarding the fair value of
the services received by the Company. Management of the Company believes that it
has addressed the foregoing issues raised by Horsfall, Murphy & Pindroh as of
this date, and such issues were properly reflected in the Company's Annual
Report on Form 10-KSB for the year ended January 31, 1996.
18
<PAGE> 19
On April 22, 1996 the Company engaged the firm of Grant Thornton LLP as
its principal independent accountants to audit the Company's financial
statements for its fiscal year ended January 31, 1996 as reported in the
Company's Form 8-K which was filed with the Commission on April 24, 1996.
The engagement of Grant Thornton LLP as the Company's principal
independent accountants was approved by the Board of Directors of the Company.
19
<PAGE> 20
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
Officers and Directors
The Officers and Directors of the Company are:
<TABLE>
<CAPTION>
Officer and/or
Names and Addresses Age Position Director Since
------------------- --- -------- --------------
<S> <C> <C> <C>
Wellington A. Ewen. 57 President, Chief Financial 1995
2835 Townsgate Rd., Suite 110 Officer and Director
Westlake Village, CA 91361
Bonnie L. Richards 30 Vice President, Secretary 1994
2835 Townsgate Rd., Suite 110 and Director
Westlake Village, CA 91361
Denise van Daalen Wetters 40 Chief Administrative 1995
2835 Townsgate Rd., Suite 110 Officer
Westlake Village, CA 91361
Oleg Batratchenko 30 Director 1996
Berkshire International Finance, Inc.
551 Fifth Avenue, Suite 605
New York, NY 10017
Stephen R. Miller, M.D. 54 Director 1996
3000 East County Road, 400 North
Muncie, IN 47303
</TABLE>
Control Person
Clark M. Holcomb
2835 Townsgate Rd., Suite 110
Westlake Village, CA 91361
All directors hold office until the next annual meeting of
stockholders, and until they or their successors have been elected and
qualified. Officers serve at the discretion of the Board of Directors.
Wellington A. Ewen: Wellington A. Ewen has been the Company's Chief Financial
Officer since October 1995, a Director since April 1996 and President since May
1996. He was the owner and manager of Wellington A. Ewen & Associates, a
business consulting firm in Malibu, California from 1988 through 1995. He has
acted as a financial and accounting officer for various businesses during that
time. He was, prior to that, a senior manager at the public accounting firms of
Coopers & Lybrand, Los Angeles, California and Arthur Andersen & Co., New York,
New York. Mr. Ewen is a C.P.A. in the states of New York and California and has
MBA and BS degrees from Cornell University.
Bonnie L. Richards: Ms. Richards has served as the Vice President, Secretary
and Director of the Company since its inception and has established all areas of
the Company's operations including: Manufacturing, Packaging, and Sales
distribution. Ms. Richards' experience with the retail trade industry extends
from her employment at Parfums Houbigant Paris, as an Account Executive handling
the Western Regional sales for Nordstrom, Neiman Marcus and JC Penney from
1989-1993. Ms. Richards is subject to a pending Federal Trade Commission Consent
Order described under Item 3. "Legal Proceedings."
20
<PAGE> 21
Denise van Daalen Wetters: From 1987 - 1994, Ms. van Daalen Wetters served
as Vice President of Law Printing Company, Inc., a privately held firm
specializing in printing for the Automotive Industry and National Lending
Institutions such as Chase Manhattan Bank and Chrysler Credit Corporation. Ms.
van Daalen Wetters was responsible for daily operations of the entire
organization and reported directly to the President. In 1995, Ms. van Daalen
Wetters joined the Company as General Manager and has served as Chief
Administrative Officer since August 1995. She has a BA degree from California
State University Northridge.
Oleg Batratchenko: Oleg Batratchenko is the Vice President, Research of
Berkshire International Finance, Inc., New York, New York. He has an
international background and over seven years of financial research experience,
including analytical positions at major New York money management and investment
research firms. Mr. Batratchenko has an M.A. in Economics from Moscow Institute
of World Economy and International Relations (the leading Russian "think tank"),
where he majored in Corporate Finance, and an M.A. in International Political
General Securities Representative and an associate member of the New York
Financial Analysts and Money Managers Society.
Stephen R. Miller, M.D.: Stephen Miller, M.D. was an emergency room staff
physician at Ball Memorial Hospital and a Director of Emergency Physicians
Delaware County, Indiana during the period 1971-1994. Since 1995, Stephen Miller
has been the owner and operator of the Immediate Care Center in Muncie, Indiana.
He has a B.S. degree from De Pauw University and an M.S. and M.D. from Indiana
University.
Clark M. Holcomb: From 1990 until November 1993, Mr. Holcomb was both a
commercial/industrial real estate broker with Lee & Associates, Inc., City of
Industry, California and a principal in the Holcomb Group, a privately held firm
which consulted with emerging growth companies. In 1993, Mr. Holcomb founded
SeQuester Incorporated, the Company's wholly owned subsidiary. From October 7,
1994 through April 12, 1996, Mr. Holcomb served as the President, Chairman of
the Board and Director of the Company. Effective April 12, 1996, Mr. Holcomb
resigned as an Officer and Director of the Company. Mr. Holcomb is subject to a
pending Federal Trade Commission Consent Order described under Item 3. "Legal
Proceedings." Mr. Holcomb is also subject to a Securities and Exchange
Commission Consent Decree requiring an effective registration statement under
Section 5 of the Securities Act of 1933 and compliance with Section 15 of the
Securities Exchange Act of 1934 in connection with any future offer or sale of
securities. In September 1996, Mr. Holcomb filed for protection under Chapter 11
of the United States Bankruptcy Code.
21
<PAGE> 22
ITEM 10. EXECUTIVE COMPENSATION.
The following table sets forth compensation paid by the Company for
the three prior fiscal years ended January 31, 1997 to all its executive
officers.
SUMMARY COMPENSATION TABLE
--------------------------
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------- -------------------------------
AWARDS PAYOUTS
------------------------- -------
Under- All Other
Restricted lying LTIP Compen-
Name and Current Other Annual Stock Options/ Payouts sation
Principal Positions Year Salary Bonus Compensation Award(s)($) SARs(#) ($) ($)
- ------------------- ---- ------ ----- ------------ ----------- ------- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Wellington A. Ewen 1997 $ 86,875 - - - (3) - -
President and
Chief Financial Officer 1996 24,375 - - - (3) - -
1995 - - - - - - -
Bonnie L. Richards 1997 $ 96,883 - $ 6,000(1) - (3) - -
Vice President and Secretary 1996 104,423 $ 7,500 9,556(1) - (3) - -
1995 41,923 - 2,426(1) - - - -
Denise van Daalen Wetters 1997 $ 81,623 - - - (3) - -
Chief Administrative Officer 1996 69,000 - $ 5,833(2) - (3) - -
1995 - - - - - - -
Clark M. Holcomb (former) 1997 $ 99,673 - $ 11,815(4) - - - (3)
Chairman of the Board, President 1996 (4) - 25,488(4) - - - -
and Chief Executive Officer 1995 240,000 - 13,068(4) - - - -
</TABLE>
(1) Included in the compensation of Bonnie L. Richards is a monthly
automobile allowance of $796, which was reduced to $500 per month
effective February 1996.
(2) Included in the compensation of Denise van Daalen Wetters is a monthly
automobile allowance of $972 (from August 1995 through January 1996),
which was eliminated in February 1996.
(3) Refer to employment agreements and stock compensation plan described
below.
(4) Included in the compensation of Clark M. Holcomb is a monthly
automobile allowance. No salary was paid during the fiscal year ended
January 31, 1996.
In April 1996, Clark Holcomb resigned as a Director and President of
the Company and retired 3,800,000 shares of Company common stock personally
owned by him in further satisfaction of the Company's outstanding loan
receivable from him in the amount of $2,223,707. As of January 31, 1996, the
balance of principal and interest receivable on this loan was $2,145,964 which
was expensed for the twelve months ended January 31, 1996. An additional $70,143
was expensed during the twelve months ended January 31, 1997.
22
<PAGE> 23
Employment Agreements
The Company has entered into Employment Agreements with its Officers
and key employees.
Effective October 15, 1995, the Company entered into an Employment
Agreement with Wellington Ewen. Mr. Ewen was engaged as the Company's Chief
Financial Officer at an annual salary of $90,000 with annual increases, if any,
to be determined by the Board of Directors and to be effective October 15 of
each successive year thereafter for the duration of the Employment Agreement.
Mr. Ewen is also entitled to health and medical insurance and other benefits as
are customarily available from time to time to all other executive employees of
the Company.
The Company entered into an Employment Agreement with Bonnie Richards,
effective July 1, 1995 whereby Ms. Richards was engaged as the Vice President of
the Company. Ms. Richards receives an annual base salary equal to $100,000, with
increases in base salary, if any, to be determined by the Board of Directors and
to be effective July 1 of each successive year thereafter for the duration of
the Employment Agreement. Ms. Richards is also entitled to a monthly automobile
allowance equal to $500 per month, health and medical insurance, and other
benefits as are customarily available from time to time to all other executive
employees of the Company.
Effective August 15, 1995, the Company entered into an Employment
Agreement with Denise van Daalen Wetters. Ms. van Daalen Wetters was engaged as
the Company's Chief Administrative Officer at an annual salary of $80,000 with
annual increases, if any to be determined by the Board of Directors and to be
effective August 15 of each successive year thereafter for the duration of the
Employment Agreement. Ms. van Daalen Wetters is also entitled to health and
medical insurance and other benefits as are customarily available from time to
time to all other executive employees of the Company.
Clark M. Holcomb is employed by the Company as the Director of Sales
and Marketing, effective March 25, 1996. Mr. Holcomb is entitled to an annual
base salary of $100,000; a sales incentive equal to 2% of net sales over the
prior base quarter; provided that, KCD has net income during the subject
quarter; and an equity incentive equal to the sales incentive, and subject to
the same conditions, based on the average bid price during the subject quarter.
Stock Compensation Plan
In March 1997, the Company established the 1997 Stock Plan ("Plan") and
reserved 3,000,000 shares of Company common stock for issuance under the Plan
with a grant limit per participant of 1,750,000 shares. Pursuant to the Plan,
the Company granted non-qualified stock options as follows:
<TABLE>
<CAPTION>
Officer Position Options Granted
------- -------- ---------------
<S> <C> <C>
Wellington Ewen President & Chief Financial Officer 500,000 shares
Bonnie Richards Vice President & Secretary 500,000 shares
Denise van Daalen Wetters Chief Administrative Officer 250,000 shares
----------
1,250,000 shares
=========
</TABLE>
The exercise price for all options granted was fair market value on the date of
grant which was $0.53 per share. All such options vest on the date of grant,
contain registration rights, and terminate 10 years from date of grant. In
connection with these option grants, each such officer entered into an amended
employment agreement which provided for the waiver by each officer of his or her
stock purchase rights thereunder.
The Company offers group health insurance and other medical benefits to
all its full-time employees. The Company has not adopted a retirement, pension
or profit sharing plan. However, such plans may be adopted by the Company in the
future upon authorization and approval by the Board of Directors.
Directors received no compensation for their services as such for the
three fiscal years ended January 31, 1997. The Company does not currently intend
to pay directors any cash compensation for services, but will reimburse them for
out-of-pocket expenses they may incur on behalf of the Company. No such expenses
were reported or reimbursements provided for the two fiscal years ended January
31, 1996. During the fiscal year ended January 31, 1997, $2,565 of such expenses
were reimbursed
23
<PAGE> 24
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The table below sets forth certain information regarding the beneficial
ownership of the Company's common stock as of April 15, 1997 based on
information available to the Company by (i) each person who is known by the
Company to own more than 5% of the outstanding common stock; (ii) each of the
Company's directors; (iii) each of the Named Executive Officers; and (iv) all
officers and directors of the Company as a group.
<TABLE>
<CAPTION>
Name and Address Number of Shares Percentage
of Beneficial Owner Beneficially Owned of Class(1)
------------------- -------------------- -----------
<S> <C> <C>
Clark M. Holcomb 6,420,000 40.6 %
2835 Townsgate Road, Suite 110
Westlake Village, CA 91361
Bonnie L. Richards (2) 635,614 4.0 %
2835 Townsgate Road, Suite 110
Westlake Village, CA 91361
Arista Capital Growth Fund, Ltd 842,052 5.3 %
British American Centre
Dr. Roy's Drive
George Town, Grand Cayman, BWI
Trevor and Kate Phillips 900,000 5.7 %
2929 Sycamore Canyon Rd.
Santa Barbara, CA 93108
Wellington A. Ewen (2) -0- -0- %
2835 Townsgate Road, Suite 110
Westlake Village, CA 91361
Denise van Daalen Wetters(2) 1,000 -0- %
2835 Townsgate Road, Suite 110
Westlake Village, CA 91361
Mike Ditka 1,000,000 6.3 %
2835 Townsgate Road, Suite 110
Westlake Village, CA 91361
Directors and Officers as 636,614 4.0 %
a Group (Two Persons)
</TABLE>
24
<PAGE> 25
(1) Included for the purposes of this calculation are 15,808,163 shares of
Common Stock outstanding as of April 15, 1997.
(2) In March 1997, the Company established the 1997 Stock Plan ("Plan") and
reserved 3,000,000 shares of Company common stock for issuance under the Plan
with a grant limit per participant of 1,750,000 shares. Pursuant to the Plan,
the Company granted non-qualified stock options as follows:
<TABLE>
<CAPTION>
Officer Position Options Granted
------- -------- ---------------
<S> <C> <C>
Wellington Ewen President & Chief Financial Officer 500,000 shares
Bonnie Richards Vice President & Secretary 500,000 shares
Denise van Daalen Wetters Chief Administrative Officer 250,000 shares
---------
1,250,000 shares
=========
</TABLE>
The exercise price for all options granted was fair market value on the date of
grant which was $0.53 per share. All such options vest on the date of grant,
contain registration rights, and terminate 10 years from the date of grant. In
connection with these option grants, each such officer entered into an amended
employment agreement which provided for the waiver by each officer of his or her
stock purchase rights thereunder.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On February 1, 1995 the Company agreed to loan Clark Holcomb, the
President of the Company at that time, up to the principal amount of $2,000,000,
from the Company's cash flow from operations, with interest payable at the rate
of 8% per annum on the unpaid balance. The loan was payable on demand upon sixty
days prior notice. In consideration for the loan, Mr. Holcomb agreed and acted
to retire 2,000,000 shares of the Company's common stock owned by him and
further agreed to personally guarantee and collateralize certain advertising
agreements and future borrowings by the Company up to the principal balance of
the loan. No salary was paid or accrued for Mr. Holcomb for the twelve months
ended January 31, 1996. As of January 31, 1996, the balance of principal and
interest receivable on this loan was $2,145,964 was determined to be
uncollectible and was expensed during the twelve months ended January 31, 1996.
In April 1996, Clark Holcomb resigned as a Director and President of the Company
and retired 3,800,000 shares of Company common stock personally owned by him in
further satisfaction of the Company's outstanding loan receivable from him which
was $2,223,707 at that date.
On October 17, 1995, the Company executed a promissory note for the sum
of $750,000, or the aggregate unpaid principal amount of advances up to the sum
of $750,000, with interest payable at 10% per annum on the outstanding balance
with Trevor Phillips (a stockholder). The Company issued 25,000 shares of
restricted common stock to Trevor Phillips as consideration for the note and
expensed $62,500 as interest. The note, principal plus interest, was payable
based upon 50% of net collections from product sales with any remaining balance
due in full on or before October 17, 1996. The note was subject to a security
agreement which covered all of the accounts receivable, contract rights and
inventory of the Company. In August 1996, the balance of principal and interest
outstanding of this note was satisfied. In August 1996, the Company entered into
a stock purchase agreement with Trevor Phillips wherein the Company issued
125,000 shares of restricted common stock in satisfaction of $250,000 of the
principal balance of the secured promissory note dated October 17, 1995 due to
Trevor Phillips. In connection with this transaction, the Company entered into a
put option agreement wherein Trevor Phillips has the right, upon his election,
to sell to the Company a total of 125,000 shares of Company common stock at
$2.00 per share at any time between October 17, 1996 and April 17, 1997. The put
option agreement expired on April 17, 1997.
In January 1997, (amended in March 1997) the Company entered into an
agreement with Mike Ditka to render services as a performer in television
commercials endorsing Company products and to provide other marketing services
for a one-year period. In consideration for his services, Mr. Ditka received (i)
a cash payment of $75,000 in January 1997 and (ii) 1,000,000 in shares of the
Company's restricted common stock in March 1997.
In March 1997, the Company established the 1997 Stock Plan pursuant to
which certain directors and officers of the Company were granted options to
purchase an aggregate of 1,250,000 shares at $0.53 per share. See "Item 11.
Security Ownership of Certain Beneficial Owners and Management."
25
<PAGE> 26
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
<TABLE>
(a) Exhibits
Exhibit Number Title of Exhibit
-------------- ----------------
<S> <C> <C>
2.1 Articles of Incorporation of the Company, as amended (1)
2.2 Certificate of Amendment to the Articles of Incorporation
2.3 Bylaws of the Company, as amended (1)
3.1 Warrant Agreement and Form of Warrant Applicable to the A, B, and C Warrants (1)
6.1 First Amended License Agreement dated May 10, 1995 (2)
6.2 Lease Agreement for Westlake Village Warehouse, dated May 20, 1994 (2)
6.3 Lease Agreement for Westlake Village Office Facility, dated October 31, 1994 (2)
6.4 Employment Agreement with Bonnie Richards, dated July 1, 1995 (3)
6.5 Employment Agreement with Denise van Daalen Wetters, dated August 15, 1995 (3)
6.6 Employment Agreement with Wellington Ewen, dated October 15, 1995 (3)
6.7 Management Consulting Agreement with Peter D. Bistrian Consulting, Inc., dated December 21, 1995 (4)
6.8 Secured Promissory Note, dated October 17, 1995, by and between the Company and Trevor & Kate Phillips (3)
6.9 Security Agreement, dated October 17, 1995, by and between the Company and Trevor & Kate Phillips (3)
6.10 Agreement for National Network Radio Advertising, dated May 26, 1995, by and between the Company and
Premiere Radio Networks, Inc. (3)
6.11 Agreement to extend term of Secured Promissory Note dated April 17, 1996, by and between the Company and
Trevor & Kate Phillips.
6.12 Put Option Agreement, dated August 14, 1996, by and between the Company and Trevor Phillips.
6.13 Consulting Agreement and Stock Plan, dated February 1, 1996, by and between the Company and Hy Ochberg (5)
6.14 Common Stock Purchase Agreement, dated August 14, 1996, by and between the Company and Phillips Management
6.15 Indemnification Agreement, dated May 29, 1996, by and between the Company and Wellington Ewen
6.16 Indemnification Agreement, dated May 29, 1996, by and between the Company and Bonnie Richards
6.17 Indemnification Agreement, dated May 29, 1996, by and between the Company and Oleg Batratchenko
</TABLE>
26
<PAGE> 27
<TABLE>
<CAPTION>
Exhibit Number Title of Exhibit
-------------- ----------------
<S> <C>
6.18 Indemnification Agreement, dated May 29, 1996, by and between the Company and Gerald Epstein
6.19 Indemnification Agreement, dated May 29, 1996, by and between the Company and Dr. Stephen Miller
6.20 Agreement Containing Consent Order, dated December 18, 1996, by and between the Company and the
Federal Trade Commission
6.21 SeQuester Holdings Incorporated 1997 Stock Plan
6.22 Agreement for Retirement of KCD Holdings Option Shares, dated September 12, 1996, by and between the
Company and Bonnie Richards
6.23 Agreement for Retirement of KCD Holdings Option Shares, dated September 12, 1996, by and between the
Company and Denise van Daalen Wetters
6.24 Agreement for Retirement of KCD Holdings Option Shares, dated September 12, 1996, by and between the
Company and Wellington Ewen
6.25 Amendment to Employment Agreement, dated March 26, 1997, by and between the Company and Bonnie Richards
6.26 Amendment to Employment Agreement, dated March 26, 1997, by and between the Company and
Denise van Daalen Wetters
6.27 Amendment to Employment Agreement, dated March 26, 1997, by and between the Company and Wellington Ewen
6.28 Letter Agreement for Conversion of Outstanding Debt, dated March 24, 1997, by and between the Company
and Pelle Leather, Ltd.; Growth Science Ventures, Inc.; L.E. International Ltd.; Phillip Dascher;
Joseph Tischler; Gerald Epstein; and Stuart Needleman
6.29 Consulting Services Agreement, dated March 24, 1997, by and between the Company and Mike Ditka
6.30 Consulting Services Agreement, dated April 15, 1997, by and between the Company and Gerald Hatto
6.31 Termination Agreement, dated April 15, 1997, by and between the Company and Gerald Hatto
6.32 Stock Option Grant Agreement, dated March 26, 1997, by and between the Company and Bonnie Richards
6.33 Stock Option Grant Agreement, dated March 26, 1997, by and between the Company and Wellington Ewen
6.34 Stock Option Grant Agreement, dated March 26, 1997, by and between the Company and
Denise van Daalen Wetters
6.35 Stock Option Grant Agreement, dated March 26, 1997, by and between the Company and Gerald Hatto
6.36 Amendment to Stock Option Grant Agreement, dated April 15, 1997, by and between the Company and
Bonnie Richards
</TABLE>
27
<PAGE> 28
<TABLE>
<CAPTION>
Exhibit Number Title of Exhibit
-------------- ----------------
<S> <C> <C>
6.37 Regulation S Distribution Agreement, dated March 29, 1996, by and between the Company and
Berkshire International Finance
6.38 Covenant Agreement, dated March 29, 1996, by and between the Company and Berkshire International Finance
6.39 Amendment to Regulation S Distribution Agreement, dated April 17, 1996, by and between the Company and
Berkshire International Finance
6.40 Regulation S Distribution Agreement, dated June 26, 1996, by and between the Company and
Berkshire International Finance
6.41 Covenant Agreement, dated June 26, 1996, by and between the Company and Berkshire International Finance
6.42 Offshore Securities Subscription Agreement
6.43 Warrant Agreement dated April 15, 1997, by and between the Company and Berkshire International Finance
6.44 Finders Agreement, dated March 29, 1996, by and between the Company and BRG, Inc.
</TABLE>
(1) Previously filed as an exhibit to the Company's Registration Statement on
Form S-18, which was declared effective by the Commission on August 7, 1987, and
incorporated herein by this reference.
(2) Previously filed as an exhibit to the Company's Annual Report on Form
10-KSB, filed with the Commission on May 14, 1995, and incorporated herein by
this reference.
(3) Previously filed as an exhibit to the Company's Annual Report on Form
10-KSB, filed with the Commission on May 10, 1996, and incorporated herein by
this reference.
(4) Previously filed as an exhibit to the Company's Registration Statement on
Form S-8, which was filed with the Commission on January 2, 1996, and
incorporated herein by this reference.
(5) Previously filed as an exhibit to the Company's Registration Statement on
Form S-8, which was filed with the Commission on June 28, 1996, and incorporated
herein by this reference.
(b) Reports on Form 8-K:
The Company did not file any reports on Form 8-K during the last fiscal
quarter of the period covered by this report.
28
<PAGE> 29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SEQUESTER HOLDINGS, INCORPORATED
--------------------------------
(Registrant)
Dated April 30, 1997 By: /s/ Wellington A. Ewen
----------------------
Wellington A. Ewen
President
Pursuant to the requirements of Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Wellington A. Ewen President, Principal Accounting Officer, and Director April 30, 1997
- ------------------------------------
Wellington A. Ewen
/s/ Bonnie L. Richards Vice President, Secretary, and Director April 30, 1997
- ------------------------------------
Bonnie L. Richards
/s/ Oleg Batratchenko Director April 30, 1997
- ------------------------------------
Oleg Batratchenko
/s/ Stephen R. Miller, M.D. Director April 30, 1997
- ------------------------------------
Stephen R. Miller, M.D.
</TABLE>
29
<PAGE> 30
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets at
January 31, 1997 and January 31, 1996 F-3
Consolidated Statements of Operations for the
twelve months ended January 31, 1997 and 1996 F-4
Consolidated Statement of Stockholders' Investment (Deficit)
for the twelve months ended January 31, 1997 and 1996 F-5
Consolidated Statements of Cash Flows
for the twelve months ended January 31, 1997 and 1996 F-6
Notes to Consolidated Financial Statements F-7
</TABLE>
F-1
<PAGE> 31
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
SeQuester Holdings, Incorporated
We have audited the accompanying consolidated balance sheets of SeQuester
Holdings, Incorporated (a Nevada corporation) and subsidiary (the "Company") as
of January 31, 1997, and 1996, and the related consolidated statements of
operations, stockholders' investment (deficit), and cash flows for the twelve
months 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 audit.
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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of SeQuester Holdings,
Incorporated and subsidiary as of January 31, 1997, and 1996, and the results of
their operations and their cash flows for the twelve months then ended in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements,
the Company incurred a net loss of $1,852,365 during the year ended January 31,
1997. This factor, among others, as discussed in Note 3 to the financial
statements, raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 3. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ Grant Thornton LLP
Los Angeles, California
April 18, 1997
F-2
<PAGE> 32
SEQUESTER HOLDINGS, INCORPORATED
CONSOLIDATED BALANCE SHEETS
ASSETS
------
<TABLE>
<CAPTION>
JANUARY 31, 1997 JANUARY 31, 1996
---------------- ----------------
CURRENT ASSETS:
<S> <C> <C>
Cash $ 409,117 $ 48,279
Accounts receivable, net 195,337 381,098
Accounts receivable - other 11,767 115,065
Inventory 2,148,390 864,547
Other 7,173 9,720
--------------- ----------------
Total current assets 2,771,784 1,418,709
--------------- ----------------
PROPERTY AND EQUIPMENT, net 101,256 184,357
--------------- ----------------
OTHER ASSETS:
Deposits 4,888 3,938
Intangibles, net 2,074 2,333
--------------- ----------------
Total other assets 6,962 6,271
--------------- ----------------
Total assets $ 2,880,002 $ 1,609,337
=============== ================
</TABLE>
LIABILITIES AND STOCKHOLDERS' INVESTMENT (DEFICIT)
--------------------------------------------------
<TABLE>
<CAPTION>
CURRENT LIABILITIES:
<S> <C> <C>
Accounts payable $ 1,086,183 $ 836,484
Accrued expenses 300,420 224,011
Accrued advertising 225,849 173,417
Commissions payable 37,544 31,948
Royalties payable - 150,515
FTC payable 125,000 -
Collateralized note payable-related party - 621,018
Loans from stockholders 356,999 696,579
--------------- ----------------
Total current liabilities 2,131,995 2,733,972
--------------- ----------------
Commitments and contingencies (see Notes)
STOCKHOLDERS' INVESTMENT (DEFICIT)
Convertible Preferred stock, par value $1,000 per share; 5000 shares 375,000 -
authorized; issued and outstanding 375 series A as of January 31, 1997
Common stock, par value $.002 per share; 25,000,000 shares 29,247 33,204
authorized; issued and outstanding 14,623,725 as of January 31, 1997
and 16,602,000 as of January 31, 1996
Additional paid in capital 9,341,004 8,365,580
Accumulated deficit (7,857,673) (6,005,308)
Prepaid advertising and consulting fees (1,139,571) (3,518,111)
--------------- ----------------
Total stockholders' investment (deficit) 748,007 (1,124,635)
--------------- ----------------
Total liabilities and stockholders' investment (deficit) $ 2,880,002 $ 1,609,337
=============== ================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-3
<PAGE> 33
SEQUESTER HOLDINGS, INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE TWELVE MONTHS ENDED JANUARY 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
--------------- ---------------
<S> <C> <C>
Net Revenues $2,845,590 $5,861,232
Cost of Goods Sold 1,104,520 1,422,088
--------------- ---------------
Gross Profit 1,741,070 4,439,144
--------------- ---------------
Operating Expenses:
Advertising 1,479,124 3,128,885
Selling and marketing 893,884 1,009,150
General and administrative 1,812,517 1,774,143
Royalties - 522,858
--------------- ---------------
4,185,525 6,435,036
--------------- ---------------
Loss from Operations (2,444,455) (1,995,892)
--------------- ---------------
Non - Operating Income (Expense)
Interest expense (78,394) (275,487)
Interest income - 101,310
Litigation Settlements, net 742,227 -
Payments to Officer and Stockholder (70,143) (2,145,964)
--------------- ---------------
593,690 (2,320,141)
--------------- ---------------
Loss before Income Taxes (1,850,765) (4,316,033)
Provision for Income Taxes 1,600 1,800
--------------- ---------------
Net Loss ($1,852,365) ($4,317,833)
=============== ===============
Weighted average shares of
Common Stock Outstanding: 14,587,882 16,081,329
=============== ===============
Net Loss per share: ($0.13) ($0.27)
=============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
<PAGE> 34
SEQUESTER HOLDINGS, INCORPORATED
CONSOLIDATED STATEMENT OF STOCKHOLDERS' INVESTMENT (DEFICIT)
FOR THE TWELVE MONTHS ENDED JANUARY 31, 1997 AND 1996
<TABLE>
<CAPTION>
Preferred Stock Common Stock
--------------- ------------ Additional
Number of shares Par value Number of shares Par value Paid In Capital
---------------- ----------- ---------------- --------- ---------------
<S> <C> <C> <C> <C> <C>
Balance at January 31, 1995 -- $ -- 15,827,000 $ 31,654 $ 724,887
Issuance of common stock
for advertising services -- -- 1,267,500 2,535 4,132,465
Issuance of common stock
for cash and consulting services -- -- 500,000 1,000 2,205,250
Issuance of common stock
for other services -- -- 172,500 345 130,905
Issuance of common stock
in private placements -- -- 735,000 1,470 951,030
Debt payable converted to
equity -- -- 100,000 200 217,043
Common stock retired -- -- (2,000,000) (4,000) 4,000
Net loss for twelve months
ended January 31, 1996 -- -- -- -- --
Less:
Prepaid advertising and
consulting fees -- -- -- -- --
----------- ----------- ---------- ----------- -----------
Balance January 31, 1996 -- $ -- 16,602,000 $ 33,204 $ 8,365,580
Common stock retired,
advertising settlement -- -- (640,000) (1,280) (1,918,720)
Issuance of common stock
in litigation settlement -- -- 40,000 80 59,920
Common stock retired,
consulting services -- -- (155,200) (310) (1,047,290)
Common stock retired,
satisfaction of loan -- -- (3,800,000) (7,600) --
Issuance of common stock
for cash, consulting and
other services -- -- 556,898 1,113 834,782
Issuance of common stock
in private placements -- -- 1,895,027 3,790 2,853,232
Issuance of common stock
for satisfaction of debt -- -- 125,000 250 249,750
Issuance of convertible
preferred stock in
private placement 375 375,000 -- -- (56,250)
Net loss for twelve months
ended January 31, 1997 -- -- -- -- --
Amortization of prepaid
advertising and consulting
fees -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Balance January 31, 1997 375 $ 375,000 14,623,725 $ 29,247 $ 9,341,004
=========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Accumulated Equity Stockholder's
Deficit Reductions Investment (Deficit)
------------ ---------- --------------------
<S> <C> <C> <C>
Balance at January 31, 1995 $(1,687,475) $ -- $ (930,934)
Issuance of common stock
for advertising services -- -- 4,135,000
Issuance of common stock
for cash and consulting
services -- -- 2,206,250
Issuance of common stock
for other services -- -- 131,250
Issuance of common stock
in private placements -- -- 952,500
Debt payable converted to
equity -- -- 217,243
Common stock retired -- -- --
Net loss for twelve months
ended January 31, 1996 (4,317,833) -- (4,317,833)
Less:
Prepaid advertising and
consulting fees -- (3,518,111) (3,518,111)
----------- ----------- -----------
Balance January 31, 1996 $(6,005,308) $(3,518,111) $ 1,124,635)
Common stock retired,
advertising settlement -- 1,380,238 (539,762)
Issuance of common stock
in litigation settlement -- -- 60,000
Common stock retired,
consulting services -- 1,047,600 --
Common stock retired,
satisfaction of loan -- -- (7,600)
Issuance of common stock
for cash, consulting and
other services -- (735,000) 100,895
Issuance of common stock
in private placements -- -- 2,857,022
Issuance of common stock
for satisfaction of debt -- -- 250,000
Issuance of convertible
preferred stock in
private placement -- -- 318,750
Net loss for twelve months
ended January 31, 1997 (1,852,365) -- (1,852,365)
Amortization of prepaid
advertising and consulting
fees -- 685,702 685,702
----------- ----------- -----------
Balance January 31, 1997 $(7,857,673) $(1,139,571) $ 748,007
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
<PAGE> 35
SEQUESTER HOLDINGS, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE TWELVE MONTHS ENDED JANUARY 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
--------------------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Loss ($1,852,365) ($4,317,833)
Adjustments to reconcile Net Loss to net cash used
in operating activities:
Depreciation and amortization 769,062 97,161
Stock issued for advertising and other services 85,595 3,116,633
Litigation settlements (479,762) -
--------------------- ------------------
(1,477,470) (1,104,039)
--------------------- ------------------
(Increase) / decrease in assets:
Accounts receivable, net 289,059 403,331
Inventory (1,283,843) (845,489)
Deposits (950) (3,938)
Other current assets 2,547 2,514
Increase / (decrease) in liabilities:
Accounts payable 249,699 (1,688)
Accrued expenses 76,409 (10,131)
Accrued advertising 52,432 (18,694)
FTC payable 125,000 -
Commissions payable 5,596 (154,324)
Royalties payable (150,515) (239,149)
--------------------- ------------------
(634,566) (867,568)
--------------------- ------------------
Net cash used in operating activities (2,112,036) (1,971,607)
--------------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment - (125,142)
CASH FLOWS FROM FINANCING ACTIVITIES:
Retirement of common stock (7,600) -
Proceeds from sale of common stock 2,872,322 1,007,500
Proceeds from sale of preferred stock 318,750 -
Collateralized Note payable - related party (371,018) 621,018
Loans from stockholders (339,580) 507,422
--------------------- ------------------
Net cash provided by financing activities 2,472,874 2,135,940
NET INCREASE IN CASH 360,838 39,191
CASH, BEGINNING BALANCE 48,279 9,088
--------------------- ------------------
CASH, ENDING BALANCE $409,117 $48,279
===================== ==================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-6
<PAGE> 36
SEQUESTER HOLDINGS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997 AND 1996
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
SeQuester Holdings, Incorporated ("the Company"), formerly KCD Holdings
Incorporated, was incorporated in the state of Nevada on February 13, 1986. The
Company's activities from inception until 1993 consisted primarily of reviewing
possible business opportunities and acquisitions, and maintaining the business
entity. The Company had only nominal net assets and no operational activities
from the fiscal years 1989 through 1993 and all expenses incurred were solely
related to maintaining the entity and reviewing potential business
opportunities.
The Company is a holding company which operates primarily through its
wholly-owned subsidiary, SeQuester Incorporated ("SeQuester"), formerly KCD
Incorporated, which was incorporated in November 1993. The Company is a
distributor and marketer of technically advanced health products. The Company
currently markets dietary aid products under the names SeQuester(R),
ChromaQuest(TM) and PhytoQuest(TM). These products are sold to national drug and
food chain retailers, wholesalers and mass merchandisers throughout the United
States using several of the nation's largest food brokerage firms.
In October 1994, in connection with the issuance of 14,100,000 shares of its
common stock, $0.002 par value, which consisted of 100,000 shares to the
stockholders of the Company for cancellation of indebtedness then outstanding
and 14,000,000 shares to the stockholders of SeQuester when unrestricted shares
were trading at approximately $1.00 per share, the Company acquired 100% of the
ownership of SeQuester, as a reverse merger. The stock exchange was recorded as
a recapitalization of SeQuester using the Company's historical cost. SeQuester,
which is engaged in the business of marketing and distributing dietary aids,
commenced its operations in February 1994. For financial reporting purposes, the
operations of SeQuester have been included in the accompanying consolidated
financial statements since that date.
The Company's activities through 1995 consisted primarily of the development and
marketing of its dietary supplement product, SeQuester(R) 1. The Company
introduced an appetite suppressant, SeQuester(R) 2 and a chromium based dietary
supplement, ChromaQuest(TM) in addition to SeQuester(R) 1 in December 1995.
Additionally, the Company introduced its fourth product, PhytoQuest(TM), in
October 1996. It is composed of phytosterols, which in recent research shows
potential to inhibit the gastrointestinal absorption of cholesterol. Additional
new health products are scheduled for introduction in fiscal 1998, all under the
trademark SeQuester(R). To date, the Company has developed access to major
domestic retail, pharmacy and mass merchandiser chains in the United States.
The accompanying consolidated financial statements of the Company and its
subsidiary have been prepared in accordance with generally accepted accounting
principles. All significant intercompany balances and transactions have been
eliminated in consolidation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Certain reclassifications were made to the 1996 consolidated financial statement
presentation to conform with the 1997 consolidated financial statement
presentation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Revenue Recognition -- The Company recognizes revenue from wholesalers,
distributors and retailers at the time of shipment, net of sales returns and
allowances. The Company maintains a reserve for returns which management
considers adequate to cover estimated losses. In determining the reserve to be
maintained, management evaluates many factors including items which may be
resold and historical loss experience. The reserve for returns was $207,215 at
January 31, 1997.
F-7
<PAGE> 37
SEQUESTER HOLDINGS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997 AND 1996
Significant customers accounting for 52.3% of revenues for the fiscal year ended
January 31, 1997 include Wal-Mart Stores 26.1%, K-Mart Corp. 13.7% and American
Drug Stores 12.5%. Significant customers accounting for 53.4% of revenues for
the fiscal year ended January 31, 1996 include Wal-Mart Stores 13.1%, McKesson
Drug Company 8.7%, American Drug Stores 7.6%, K-Mart Corp. 7.5%, Revco D.S. Inc.
6.5%, Mark Stevens (CVS Inc.) 5.2% and Target Stores 4.8%.
(b) Fair Value of Financial Instruments and Credit Risk -- The carrying value of
cash, receivables and payables approximates their fair values due to the
relatively short maturity of these instruments.
(c) Allowance for Doubtful Accounts -- In determining the allowance to be
maintained, management evaluates many factors including industry and historical
loss experience. The allowance for doubtful accounts is maintained at an amount
management deems adequate to cover estimated losses. The allowance for doubtful
accounts at January 31, 1997 and 1996 was $47,820 and $52,163.
(d) Advertising -- The Company expenses advertising costs as incurred.
(e) Inventory -- Inventory is valued at the lower of cost or market value.
Cost is determined using the first-in, first-out method. Inventory
consisted of:
<TABLE>
<CAPTION>
January 31, 1997 January 31, 1996
---------------- ----------------
<S> <C> <C>
Product Units $2,030,635 $ 704,741
Packaging and Product Displays 212,035 153,578
Shipping Supplies 10,666 6,228
Consignment 16,589 --
---------- ----------
2,269,925 864,547
Less: Allowance for Obsolescence (121,535) --
---------- ----------
$2,148,390 $ 864,547
========== ==========
</TABLE>
The allowance for obsolescence is maintained at an amount management deems
adequate to cover unsaleable inventory. In determining the allowance to be
maintained, management evaluates many factors including alternate uses and a
specific review for items no longer saleable.
(f) Property and Equipment -- The Company records property and equipment at cost
and depreciates it over the useful life of the asset using the straight-line
method of depreciation. Renewals and betterments are capitalized while repairs
and maintenance are charged to expense. Leasehold improvements are amortized
over their expected useful life, or the term of the lease, whichever is shorter.
Estimated useful lives are as follows:
<TABLE>
<S> <C>
Product Tooling 2 years
Machinery and Equipment 5-10 years
Furniture and Fixtures 5 years
Computer Equipment 5 years
</TABLE>
(g) Income Taxes -- Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases at enacted rates when such amounts are expected to be
realized or settled.
(h) Loss Per Common Share -- Loss per common share is based on the weighted
average number of common shares outstanding. Common share equivalents have not
been considered in determining the weighted average number of shares outstanding
as their effect would either be antidilutive or result in no material dilution
of earnings per share.
(i) Risks and Uncertainties -- In the normal course of business, the Company is
subject to certain risks and uncertainties as follows:
F-8
<PAGE> 38
SEQUESTER HOLDINGS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997 AND 1996
- The Company's primary source of revenue has been from a single product,
SeQuester(R) 1; however, the Company introduced two new dietary aid products in
December 1995 (SeQuester(R) 2 and ChromaQuest(TM)) and introduced a fourth
product, PhytoQuest(TM) in October 1996.
- The Company has a significant accumulated deficit and has incurred
substantial losses from operations for the period from inception through January
31, 1997.
- The marketing of the Company's products is subject to the rules and
regulations of the Federal Trade Commission.
- The Company provides its product on unsecured credit to most of its
customers, the majority of which are national retail outlets.
(j) The Company accounts for stock-based employee compensation as prescribed by
APB Opinion 25, and has adopted the disclosure provisions of FAS 123. FAS 123
requires pro forma disclosures of net income and earnings per share as if the
fair value based method of accounting for stock-based awards had been applied.
The adoption of FAS 123 disclosure provisions has no effect on either the
Company's balance sheet or its results of operations.
3. REALIZATION OF ASSETS
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, the Company has incurred net losses from
inception to January 31, 1997 of $7,857,673 including net losses of $1,852,365
and $4,317,833 during the fiscal years ended January 31, 1997 and 1996,
respectively. The continuing losses have adversely affected the liquidity of the
Company. Losses are expected to continue for the immediate future. The Company
faces continuing significant business risks, including but not limited to, its
ability to maintain vendor and supplier relationships by making timely payments
when due.
In view of the matters described in the preceding paragraph, 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 raise additional capital, obtain
financing and to succeed in its future operations. 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.
Management has taken the following steps to revise its operating and financial
requirements, which it believes are sufficient to provide the Company with the
ability to continue as a going concern. Management devoted considerable effort
during the fiscal year ended January 31, 1997, towards (i) obtaining additional
equity financing (ii) settlement of remaining litigation matters and (iii)
reduction of salaries and general and administrative expenses. Newspaper
advertising commenced in major markets in July 1996 and was supported by radio
advertising commencing in August 1996. In February 1997, the Company commenced a
television campaign. In addition, subsequent to January 31, 1997, the Company
sold additional shares of preferred stock and exchanged debt for equity,
however, there are no assurances that private capital will continue to be
available.
F-9
<PAGE> 39
SEQUESTER HOLDINGS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997 AND 1996
4. REVENUES
In the normal course of business during the twelve month periods ended January
31, 1997 and 1996, the Company granted its customers a variety of discounts. The
discounts granted were as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Gross Revenues $ 4,144,295 $ 7,017,442
============ ============
Discounts:
Refunds and Returns $ 698,743 $ 212,398
Introductory and Promotional 224,685 470,067
Co-op Advertising 292,355 352,787
Other 82,922 120,958
----------- ------------
Total Discounts $ 1,298,705 $ 1,156,210
=========== ============
Net Revenues $ 2,845,590 $ 5,861,232
=========== ============
</TABLE>
5. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Product Tooling $ 43,900 $ 43,900
Machinery and Equipment 79,280 79,280
Furniture and Fixtures 6,231 6,231
Computer Equipment 31,198 31,198
Leasehold Improvements 54,291 54,291
--------- ------
214,900 214,900
Less: Accumulated Depreciation (113,644) (30,543)
--------- --------
$ 101,256 $ 184,357
========= =========
</TABLE>
6. LOAN RECEIVABLE FROM OFFICER AND STOCKHOLDER
On February 1, 1995 the Company agreed to loan Clark Holcomb, the President of
the Company at that time, up to the principal amount of $2,000,000, from the
Company's cash flow from operations, with interest payable at the rate of 8% per
annum on the unpaid balance. The loan was payable on demand upon sixty days
prior notice. In consideration for the loan, Mr. Holcomb agreed and acted to
retire 2,000,000 shares of the Company's common stock owned by him and further
agreed to personally guarantee and collateralize certain advertising agreements
and future borrowings by the Company up to the principal balance of the loan. No
salary was paid or accrued for Mr. Holcomb for the twelve months ended January
31, 1996. As of January 31, 1996, the balance of principal and interest
receivable on this loan of $2,145,964 was determined to be uncollectible and was
expensed during the twelve months ended January 31, 1996. In April 1996, Mr.
Holcomb retired 3,800,000 shares of Company common stock personally owned by him
in further satisfaction of the Company's outstanding loan receivable from him
which was $2,223,707 at that date. An additional $70,143 was expensed during the
twelve months ended January 31, 1997.
7. LOANS PAYABLE TO STOCKHOLDERS AND COLLATERALIZED PROMISSORY NOTE
(a) On January 31, 1997, the Company owed stockholders $356,999 including
principal and interest. These loans are interest bearing, at a rate of 9% per
annum, and have varying repayment terms, all of which mature on May 1, 1997,
principally for the purpose of providing the Company with working capital. These
notes are subject to a security agreement which covers all of the accounts
receivable of the Company.
F-10
<PAGE> 40
SEQUESTER HOLDINGS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997 AND 1996
In March 1997, the Company entered into an agreement with these stockholders to
convert the outstanding principal balance of such loans as of March 31, 1997 to
approximately 1,047,242 restricted common shares of Company stock. The principal
balance of such loans will be converted at a price 25% below the closing bid
price of the Company's common stock as of March 31, 1997 (approximately $0.328).
The shares to be issued contain certain registration rights.
(b) On October 17, 1995, the Company executed a promissory note for the sum of
$750,000, or the aggregate unpaid principal amount of advances up to the sum of
$750,000, with interest payable at 10% per annum on the outstanding balance with
a stockholder. The Company issued 25,000 shares of restricted common stock as
consideration for the note and expensed $62,500 as interest. The note, principal
plus interest, was payable based upon 50% of net collections from product sales
with any remaining balance due in full on or before October 17, 1996. The note
was subject to a security agreement which covered all of the accounts
receivable, contract rights and inventory of the Company. In August 1996, the
balance of principal and interest outstanding of this note was satisfied. In
August 1996, the Company entered into a stock purchase agreement with the same
stockholder wherein the Company issued 125,000 shares of restricted common stock
in satisfaction of $250,000 of the principal balance of the secured promissory
note dated October 17, 1995 due to that stockholder. In connection with this
transaction, the Company entered into a put option agreement wherein that
stockholder has the right, upon his election, to sell to the Company a total of
125,000 shares of Company common stock at $2.00 per share at any time between
October 17, 1996 and April 17, 1997. The put option agreement expired on April
17, 1997.
8. INCOME TAXES
No provision was made for Federal income tax since the Company has significant
net operating loss carryforwards. Through January 31, 1997, the Company incurred
net operating losses for tax purposes of approximately $6,650,000. Differences
between financial statement and tax losses consist primarily of amortization,
allowance for doubtful accounts, and termination of sub-chapter S status for a
subsidiary in connection with a merger in October, 1994. The net operating loss
carryforwards may be used to reduce taxable income through the year 2011. Net
operating loss carryforwards for the State of California are approximately
$3,110,000 and are generally available to reduce taxable income through the year
2001. Net operating loss carryforwards for the State of New Jersey are
approximately $455,000 and are generally available to reduce taxable income
through 2003. The availability of the Company's net operating loss carryforwards
are subject to limitation if there is a 50% or more positive change in the
ownership of the Company's stock. During the three taxable years ended January
31, 1997, the Company incurred a 50% or more change in ownership. Therefore, the
availability of the Company's net operating loss carryforwards may be limited.
The provision for income taxes consists of the California and New Jersey state
minimum taxes imposed on corporations.
The gross deferred tax asset balance as of January 31, 1997 was approximately
$2,678,000. A 100% valuation reserve has been established against the deferred
tax assets, as the utilization of the loss carryforwards can not reasonably be
assured.
9. CONTRACTS AND AGREEMENTS
(a) Advertising Agreement -- In May 1995, the Company entered into an agreement
with Premiere Radio Networks ("Premiere") for bartered advertising in the amount
of $1,000,000. As consideration for this advertising, the Company issued 200,000
shares of restricted common stock to Premiere. As of January 31, 1997, $144,737
of unused advertising is currently available in connection with this agreement.
(b) Supply and Packaging Agreements -- In April 1996, the Company entered into
a five year supply agreement with a major manufacturer to provide dietary
supplements for resale within the United States and Canada. This agreement also
provides exclusive rights for the Company to sell products to certain retail
stores and wholesalers. In addition, in April 1996, the Company entered into a
five year packaging agreement which covers a significant portion of the
Company's packaging requirements.
F-11
<PAGE> 41
SEQUESTER HOLDINGS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997 AND 1996
(c) Employment Agreements -- The Company has entered into Employment
Agreements with its officers and key executives.
The Company entered into an Employment Agreement with Bonnie Richards, effective
July 1, 1995 whereby Ms. Richards was engaged as the Vice President of the
Company. Ms. Richards receives an annual base salary equal to $100,000.
Effective August 15, 1995, the Company entered into an Employment Agreement with
Denise van Daalen Wetters. Ms. van Daalen Wetters was engaged as the Company's
Chief Administrative Officer at an annual salary of $80,000. Effective October
15, 1995, the Company entered into an Employment agreement with Wellington Ewen.
Mr. Ewen was engaged as the Company's Chief Financial Officer at an annual
salary of $90,000.
Clark M. Holcomb is employed by the Company as the Director of Sales and
Marketing, effective March 25, 1996. Mr. Holcomb is entitled to an annual base
salary of $100,000; a sales incentive equal to 2% of net sales over the prior
base quarter; provided that, the Company has net income during the subject
quarter; and an equity incentive equal to the sales incentive, and subject to
the same conditions, based on the average bid price during the subject quarter.
(d) Stock Compensation Plan -- In March 1997, the Company established the 1997
Stock Plan ("Plan") and reserved 3,000,000 shares of Company common stock for
issuance under the Plan with a grant limit per participant of 1,750,000 shares.
Pursuant to the Plan, the Company granted non-qualified stock options as
follows:
<TABLE>
Officer Position Options Granted
------- -------- ---------------
<S> <C> <C>
Wellington Ewen President & Chief Financial Officer 500,000 shares
Bonnie Richards Vice President & Secretary 500,000 shares
Denise van Daalen Wetters Chief Administrative Officer 250,000 shares
----------
1,250,000 shares
</TABLE>
The exercise price for all options granted was fair market value on the date of
grant which was $0.53 per share. All such options vest on the date of grant,
contain registration rights, and terminate 10 years from date of grant. In
connection with these option grants, each such officer entered into an amended
employment agreement which provided for the waiver by each officer of his or her
stock purchase rights thereunder.
In connection with an agreement with a consultant to provide certain
advertising, design and marketing services, the Company also entered into a
common stock purchase agreement. Under the terms of the stock purchase
agreement, the Company was obligated to issue up to an aggregate of 250,000
shares of Company common stock at a purchase price of par value through August
1998. In August 1996, the Company issued 150,000 shares under this agreement.
The shares were subject to repurchase by the Company at par value for a period
of two years from date of purchase. In April 1997, the common stock purchase
agreement was canceled and the previously issued shares thereunder were returned
to the Company and retired. The Company then granted 250,000 non-qualified
options to such consultant pursuant to the Plan. The exercise price for this
option grant was fair market value on the date of grant which was $.34 per
share. All such options vest on the date of grant, contain registration rights,
and terminate 10 years from date of grant.
(e) Other Agreements -- In January 1997 (amended in March 1997), the Company
entered into an agreement with Mike Ditka to render services as a performer in
television commercials endorsing Company products and to provide other marketing
services for a one-year period. In consideration for his services, Mr. Ditka
received (i) a cash payment of $75,000 in January 1997 and (ii) 1,000,000 in
shares of the Company's restricted common stock in March 1997.
10. STOCKHOLDERS' INVESTMENT (DEFICIT)
(a) Common Stock -- In January 1996, the Company issued 225,000 shares of
common stock for management consulting services to be provided over a
twenty-four month period. The Company recorded $1,518,750 (the value of the
shares) as prepaid consulting fees which was offset to equity. In January 1996,
these services were terminated and
F-12
<PAGE> 42
SEQUESTER HOLDINGS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997 AND 1996
155,200 of the shares issued were returned to the Company and retired.
Prepaid consulting fees were reduced by $1,047,600 (the value of the shares
retired). The balance of the issued shares of 69,800 are in litigation.
During the twelve months ended January 31, 1996, the Company issued 1,267,500
shares of restricted common stock as consideration for $4,135,000 of
advertising. In April 1996, in connection with a settlement agreement, 640,000
of the shares issued were retired and prepaid advertising was reduced by
$1,380,238. During the twelve months ended January 31, 1997 and 1996, $423,260
and $2,186,165 of such advertising has been utilized by the Company with a
balance of prepaid advertising of $144,737 as of January 31, 1997.
In February 1996, the Company amended and restated its Consulting Agreement and
Stock Plan with a consultant, dated February 15, 1995 to extend the term of such
agreement for an additional three (3) year period and, in June 1996, issued an
additional 300,000 shares of Company common stock, to such consultant.
In April 1996, the Company retired 3,800,000 shares of common stock, at par
value, in satisfaction of the Company's outstanding loan to Clark Holcomb.
In April 1996, the Company issued 1,200,000 shares of common stock for net
proceeds of $1,665,000 in a private placement. Upon completion of this
transaction, the Company issued to the placement agent 300,000 warrants to
purchase additional shares of common stock at $2.50 per share. These warrants
have a five year life and contain certain registration rights.
In June 1996, the Company entered into a stock purchase agreement pursuant to
which the Company agreed to issue a maximum of 1,000,000 shares of common stock
offered at a price per share equal to the lesser of (i) 50% below the closing
bid price of the Company's common stock or (ii) $2.00 per share. During the
period June 1996 through January 31, 1997, 695,027 shares were issued for net
proceeds of $1,192,022. Upon completion of this agreement, the Company agreed to
issue, to the placement agent, 300,000 warrants to purchase common stock at the
offering price. These warrants will have a five year life and contain certain
registration rights. In addition, upon completion of this agreement, the Company
agreed to enter into certain investment relationship agreements for a one year
period which provide for aggregate payments of $4,000 per month and the issuance
of an aggregate of 200,000 warrants to purchase common stock at the offering
price. These warrants will have a five year life and contain certain
registration rights.
In connection with an agreement with a consultant to provide certain
advertising, design and marketing services, the Company also entered into a
common stock purchase agreement. Under the terms of the stock purchase
agreement, the Company was obligated to issue up to an aggregate of 250,000
shares of Company common stock at a purchase price of par value through August
1998. In August 1996, the Company issued 150,000 shares under this agreement.
The shares were subject to repurchase by the Company at par value for a period
of two years from date of purchase. In April 1997, this common stock agreement
was canceled and the previously issued shares thereunder were returned to the
Company and retired.
In August 1996, the Company entered into a stock purchase agreement with a
stockholder wherein the Company issued 125,000 shares of restricted common stock
in satisfaction of $250,000 of the principal balance of the secured promissory
note dated October 17, 1995 due to that stockholder. In connection with this
transaction, the Company entered into a put option agreement wherein that
stockholder has the right, upon his election, to sell to the Company a total of
125,000 shares of Company common stock at $2.00 per share at any time between
October 17, 1996 and April 17, 1997. The put option agreement expired on April
17, 1997.
During the twelve months ended January 31, 1997, the Company issued (i) 44,047
shares of restricted common stock to commission sales brokers (ii) 40,000 shares
of restricted common stock in settlement of litigation and (iii) 62,851 shares
of restricted common stock for other services.
(b) Warrants -- The public warrants outstanding were issued as part of a
250,000 unit offering in August 1987. Each unit was offered at $0.75 and
consisted of one share of common stock, four "A" warrants, four "B" warrants,
and four "C" warrants.
F-13
<PAGE> 43
SEQUESTER HOLDINGS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997 AND 1996
In May 1996, the Company extended the date within which the outstanding warrants
of the Company could be exercised to June 30, 1997. Exercise of the extended
warrants is subject to an effective registration statement with the Securities
and Exchange Commission. The outstanding warrants of the Company at January 31,
1997 are as follows:
<TABLE>
<CAPTION>
Warrant Class Amount Outstanding Exercise Price
------------- ------------------ --------------
<S> <C> <C>
A 398,850 $ 0.50
B 488,600 0.75
C 488,600 1.00
-------
1,376,050
=========
</TABLE>
No warrants were exercised during the twelve months ended January 31, 1997 and
1996.
The Company has an additional 300,000 warrants outstanding to purchase common
stock at $2.50 per share. These warrants have a five year life and contain
certain registration rights.
(c) Preferred Stock -- In January 1997, the Company authorized issuance of a
series of 5,000 shares of Convertible Preferred Stock and designated an initial
issuance of 750 shares of Series A Convertible Preferred Stock with a par value
of $1,000 per share. In January 1997, the Company sold 375 shares and in
February 1997 sold an additional 375 shares to two accredited investors
receiving gross proceeds of $750,000. The Company paid placement and finder's
fees aggregating 15% of the gross proceeds in connection with this financing.
The Series A Shares are convertible into the Company's common stock, in phases
following the date of issuance (the "Closing Date"). The Series A Shares are
entitled to a 6% cumulative dividend payable in common stock at the time of
conversion and all of the Series A Shares are subject to a mandatory 12 month
conversion feature. One-third of the Series A Shares are convertible into common
stock at any time 45 days after the Closing Date; an additional one-third
(two-thirds cumulatively) are convertible into common stock at any time 60 days
after the Closing Date; and an additional one-third (the entire amount
cumulatively) are convertible into common stock at any time 75 days after the
Closing Date. The number of common shares issuable upon conversion of the Series
A Shares equals the par value of the Series A Shares plus accrued dividends
through the date of conversion divided by the lessor of (i) 70% of the "Market
Price" (the 5 day average closing bid for the common stock for the 5 business
days immediately preceding the conversion date); or (ii) 100% of the 5 day
average closing bid for the common stock for the 5 business days immediately
preceding the Closing Date. Provided, that, for any conversions of the Series A
Shares occurring after the 89th day following the Closing Date the conversion
rate will be the lessor of (i) 65% of the Market Price; or (ii) 100% of the 5
day average closing bid for the common stock for the 5 business days immediately
preceding the Closing Date.
Through April 15, 1997, an aggregate of 190 shares of outstanding preferred
stock were converted into 914,438 shares of Company common stock.
11. TRADEMARK AND LEASES
(a) Trademark -- The Company's trademark SeQuester(R) was registered on May 28,
1996. The Company filed trademark applications for ChromaQuest(TM) and
PhytoQuest(TM) in February 1997. The Company will continue the ongoing process
of application and expects final approval of these trademark applications within
the next year. However, if these approvals are not ultimately received, this
could adversely impact the Company's exclusive rights to the product names and
market identity.
(b) Leases -- The Company leases its office and warehouse facilities in Westlake
Village, California under noncancelable operating leases which expire in
December 1997 and May 1997, respectively. The office facility lease agreement
contains a provision for a single five year renewal option at the expiration of
the lease. The Company also leases warehouse space on a month to month basis in
Pine Brook, New Jersey. Rent expense incurred under all of these
F-14
<PAGE> 44
SEQUESTER HOLDINGS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997 AND 1996
lease agreements for the twelve months ended January 31, 1997 and 1996 was
$119,811 and $68,712 respectively. Future minimum lease commitments for the
twelve months ending January 31, 1998 are $53,067.
12. LITIGATION
Charles McClendon vs. Clark M. Holcomb and KCD
Charles McClendon ("McClendon") filed a complaint on October 12, 1995 in the
Superior Court of the State of California for the County of Los Angeles against
Clark M. Holcomb ("Holcomb") and SeQuester alleging breach of contract, fraud,
fraudulent misrepresentation, violation of California Corporate Securities Law,
money had and received and account stated. McClendon alleged that Holcomb
fraudulently breached a contract by and between McClendon and Holcomb pursuant
to which Holcomb agreed to sell shares of Interactive Medical Technologies Ltd.
("IMT") stock to McClendon. Plaintiff named SeQuester as the alter-ego of
Holcomb. McClendon is seeking damages in a sum in excess of $50,000 as well as
attorneys' fees, exemplary and punitive damages. It is the Company's position
that it has no obligation or liability to McClendon in connection with this
matter. In February 1997, the Company settled these disputed and doubtful claims
for the sum of $24,000 to avoid further litigation costs inherent in defending
the action, which was dismissed with prejudice.
Federal Trade Commission
The advertising and promotion of the Company's products is subject to regulation
by the Federal Trade Commission ("FTC") under the Federal Trade Commission Act
("FTCA"). Among other requirements, the FTC requires that all claims made in
advertising be truthful and substantiated in accordance with standards that have
been developed by the FTC. The Company's advertising claims for its SeQuester(R)
products were recently the subject of inquiry by the Seattle Regional Office of
the FTC which alleged that previous claims for the SeQuester(R) 1 product were
false and/or unsubstantiated in violation of the FTCA. On December 18, 1996, the
Company's Board of Directors approved a proposed administrative consent order
which, if accepted by the FTC, would require the Company to pay $150,000 to the
FTC and maintain adequate substantiation for future advertising claims. The
proposed consent order would also require Clark M. Holcomb, a former officer and
director of the Company and Bonnie L. Richards, a current officer and director
of the Company, to maintain adequate substantiation for the future advertising
claims and would impose joint and several liability for the $150,000 payment to
the FTC between the Company and Ms. Richards. The proposed consent order will
not become final until it is approved by the FTC after being published for
notice and comment. In the event the proposed consent order is not approved, the
Company intends to resume settlement discussions with the FTC. Once the proposed
order becomes final, the Company, Mr. Holcomb and Ms. Richards will be subject
to substantial monetary penalties in the event of non-compliance. Such
penalties, if imposed, could have a material adverse effect on the Company.
KCD Holdings, Incorporated vs. Peter D. Bistrian and Horowitz, Cutler & Beam
In December 1995, the Company entered into a Management Consulting Agreement
("Consulting Agreement") with Peter D. Bistrian Consulting, Inc. ("PBC") for
management and marketing consulting services. As compensation for the foregoing
consulting services, PBC received 225,000 shares of the Company's common stock
(the "Consulting Shares"). The Company acted to register the offer and sale of
the Consulting Shares on Form S-8 which was filed in January 1996. In January
1996, the Company terminated the Consulting Agreement as a result of PBC's use
of the Company's confidential information for PBC's own benefit. The Company
requested in such notice of termination that PBC immediately return the
Consulting Shares for cancellation and that PBC immediately cease and desist
from trading in the Company's securities. Notwithstanding the Company's notice,
it appears that PBC subsequently acted to sell a substantial portion of the
Consulting Shares in the open market which was in violation of a lock-up
agreement prohibiting the sale of the Consulting Shares. In an attempt to
resolve this matter in an expeditious manner, and to secure the Consulting
Shares for cancellation, the Company entered into a conditional settlement
agreement, contingent upon the return to the Company of all of the Consulting
Shares, which required PBC to deliver the Consulting Shares to an escrow account
maintained by the law firm of Horowitz, Cutler & Beam ("HC&B") for delivery to
the Company. In February 1996, HC&B delivered 155,200 of the 225,000 Consulting
Shares to the Company. In May of 1996, the Company filed a Complaint in the
Superior Court of the State of California for the County of
F-15
<PAGE> 45
SEQUESTER HOLDINGS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997 AND 1996
Los Angeles against PBC; Peter D. Bistrian; HC&B; M. Richard Cutler; Gateway
Financial Group, Inc.; and Lisa Paige for breach of written contract; legal
malpractice; intentional misrepresentation; negligent misrepresentation;
securities fraud; conversion; constructive fraud; breach of fiduciary duty;
insider trading; breach of covenant of good faith and fair dealing; and
violation of the racketeering influenced and corrupt organizations act. The
Company is currently in settlement negotiations with respect to defendants PBC;
Peter D. Bistrian; HC&B and M. Richard Cutler and has approved a proposed
settlement in which certain of the foregoing defendants would pay the Company
the sum of $225,000 to settle this action solely with respect to those
defendants.
In April 1996, the Company settled certain advertising litigation resulting in a
gain of $845,482 and settled certain litigation, resulting in a loss of $80,000,
regarding a former sales broker in order to avoid the costs inherent in
defending the action. In August 1996, the Company settled certain litigation
regarding a license agreement and royalties with Effective Health Inc., a
wholly-owned subsidiary of Interactive Medical Technologies Ltd., which resulted
in a net gain of $151,245. In December 1996, the Company approved a proposed
administrative consent order with the FTC regarding alleged unsubstantiated
advertising claims which would require the Company to pay $150,000 to the FTC.
In February 1997, the Company settled certain other disputed and doubtful claims
for the sum of $24,000 to avoid further litigation costs inherent in defending
the action.
Except as otherwise specifically indicated above, management believes that the
Company does not have any material liability for any lawsuits, settlements,
judgments or fees of defense counsel which have not been paid or accrued as of
January 31, 1997.
As there is no assurance that the Company will prevail in any of the foregoing
lawsuits, the Company may incur substantial expense in connection with this
litigation. Any unfavorable settlement or judgment against the Company, in which
the Company is a defendant, could have a material adverse effect upon the
financial condition and operational results of the Company.
F-16
<PAGE> 46
SEQUESTER HOLDINGS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997 AND 1996
13. UNAUDITED QUARTERLY RESULTS
Unaudited quarterly results of operations for each of the quarters in the twelve
months ended January 31, 1997 and 1996:
Fiscal 1997 by Quarter
----------------------
<TABLE>
<CAPTION>
First Second Third Fourth Year
------------ ----------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Revenues $1,116,259 $ 456,102 $ 953,511 $ 319,718 $ 2,845,590
Gross profit 810,043 68,821 591,417 270,789 1,741,070
Litigation settlements,
net (a) 765,482 - 151,245 (174,500) 742,227
Payments to officer
and shareholder (b) (70,143) - - - (70,143)
Net income (loss) 730,645 (893,683) (555,432) (1,133,895) (1,852,365)
Net income (loss) per share $0.05 ($0.07) ($0.04) ($0.08) ($0.13)
</TABLE>
<TABLE>
<CAPTION>
Fiscal 1996 by Quarter
----------------------
First Second Third Fourth Year
--------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues (c) $888,941 $3,231,260 $990,345 $ 750,686 $5,861,232
Gross profit 669,331 2,473,265 728,922 567,626 4,439,144
Payments to officer
and shareholder (b) - - - (2,145,964) (2,145,964)
Net loss (1,150,564) (626,653) (158,917) (2,381,699) (4,317,833)
Net loss per share ($0.07) ($0.04) ($0.01) ($0.15) ($0.27)
</TABLE>
(a) In April 1996, the Company settled certain advertising litigation resulting
in a gain of $845,482 and settled certain litigation, resulting in a loss of
$80,000, regarding a former sales broker in order to avoid the costs inherent in
defending the action. In August 1996, the Company settled certain litigation
regarding a license agreement and royalties with Effective Health Inc., a
wholly-owned subsidiary of Interactive Medical Technologies Ltd., which resulted
in a net gain of $151,245. In December 1996, the Company approved a proposed
administrative consent order with the FTC regarding alleged unsubstantiated
advertising claims which would require the Company to pay $150,000 to the FTC.
In February 1997, the Company settled certain other disputed and doubtful claims
for the sum of $24,000 to avoid further litigation costs inherent in defending
the action.
(b) On February 1, 1995 the Company agreed to loan Clark Holcomb, the President
of the Company at that time, up to the principal amount of $2,000,000, from the
Company's cash flow from operations, with interest payable at the rate of 8% per
annum on the unpaid balance. The loan was payable on demand upon sixty days
prior notice. In consideration for the loan, Mr. Holcomb agreed and acted to
retire 2,000,000 shares of the Company's common stock owned by him and further
agreed to personally guarantee and collateralize certain advertising agreements
and future borrowings by the Company up to the principal balance of the loan. No
salary was paid or accrued for Mr. Holcomb for the twelve months ended January
31, 1996. As of January 31, 1996, the balance of principal and interest
receivable on this loan of $2,145,964 was determined to be uncollectible and was
expensed during the twelve months ended January 31, 1996. In April 1996, Mr.
Holcomb retired 3,800,000 shares of Company common stock personally owned by him
in further satisfaction of the Company's outstanding loan receivable from him
which was $2,223,707 at that date. An additional $70,143 was expensed during the
twelve months ended January 31, 1997.
(c) During the second quarter of fiscal 1996, the Company received an
unsolicited promotional endorsement for SeQuester(R) 1 which was featured by
several network and local radio and television media. This publicity, combined
with a multi-media advertising campaign resulted in a significant increase in
sales for that quarter.
F-17
<PAGE> 47
SEQUESTER HOLDINGS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997 AND 1996
14. SUPPLEMENTAL DISCLOSURE OF CASH FLOWS
The Company prepares its statements of cash flows using the indirect method as
defined under the Financial Accounting Standard No. 95. Cash equivalents include
cash in banks and short-term money market funds with original maturities of less
than three months.
In January 1996, the Company issued 225,000 shares of common stock for
management consulting services to be provided over a twenty-four month period.
The Company recorded $1,518,750 (the value of the shares) as prepaid consulting
fees which was offset to equity. In February 1996, these services were
terminated and 155,200 of the shares issued were retired. Prepaid consulting
fees were reduced by $1,047,600 (the value of the shares retired). The balance
of the issued shares of 69,800 are in litigation.
During the twelve months ended January 31, 1997 and 1996, the Company paid
interest of approximately $122,400 and $130,000. In October 1995, the Company
issued 25,000 shares of restricted common stock to a current stockholder in
consideration for a loan granted to the Company and expensed $62,500 as
interest.
During the twelve months ended January 31, 1996, the Company issued 1,267,500
shares of restricted common stock as consideration for $4,135,000 of
advertising. In April 1996, in connection with a settlement agreement, 640,000
of the shares issued were retired and prepaid advertising was reduced by
$1,380,238. During the twelve months ended January 31, 1997 and 1996, $423,860
and $2,186,165 of such advertising has been utilized by the Company with a
balance of prepaid advertising of $144,737 as of January 31, 1997.
In May 1995, the Company issued 275,000 shares of common stock under Form S-8 to
consultants for $632,500 of services and cash consideration of $55,000. Services
of $581,975 were expensed during the twelve months ended January 31, 1996.
In February 1996, the Company amended and restated its Consulting Agreement and
Stock Plan with a consultant, to extend the term of such agreement for an
additional three (3) year period and, in June 1996, issued an additional 300,000
shares of Company common stock, to such consultant for $735,000 of services and
cash consideration of $15,000. Services of $261,842 were expensed during the
twelve months ended January 31, 1997.
On February 1, 1995 the Company agreed to loan Clark Holcomb, the President of
the Company at that time, up to the principal amount of $2,000,000, from the
Company's cash flow from operations, with interest payable at the rate of 8% per
annum on the unpaid balance. The loan was payable on demand upon sixty days
prior notice. In consideration for the loan, Mr. Holcomb agreed and acted to
retire, at par value, 2,000,000 shares of the Company's common stock owned by
him and further agreed to personally guarantee and collateralize future
borrowings by the Company up to the principal balance of the loan. No salary was
paid or accrued for Mr. Holcomb for the twelve months ended January 31, 1996. As
of January 31, 1996, the balance of principal and interest receivable on this
loan of $2,145,964 was determined to be uncollectible and was expensed during
the twelve months ended January 31, 1996. In April 1996, Mr. Holcomb retired, at
par value, 3,800,000 shares of Company common stock personally owned by him in
further satisfaction of the Company's outstanding loan receivable from him which
was $2,223,707 at that date. An additional $70,143 was expensed during the
twelve months ended January 31, 1997.
In August 1996, the Company entered into a stock purchase agreement with a
stockholder wherein the Company issued 125,000 shares of restricted common stock
in satisfaction of $250,000 of the principal balance of the secured promissory
note dated October 17, 1995 due to that stockholder. In connection with this
transaction, the Company entered into a put option agreement wherein that
stockholder has the right, upon his election, to sell to the Company a total of
125,000 shares of Company common stock at $2.00 per share at any time between
October 17, 1996 and April 17, 1997. The put option agreement expired on April
17, 1997.
During the twelve months ended January 31, 1996, the Company issued 20,000
shares of restricted common stock to certain employees and 27,500 shares of
restricted common stock to packagers for $68,750 of services which was
F-18
<PAGE> 48
SEQUESTER HOLDINGS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997 AND 1996
expensed as cost of goods sold. During the twelve months ended January 31, 1997,
the Company issued 44,047 shares of restricted common stock to commission sales
brokers and 10,000 shares of restricted common stock to packagers. Selling and
marketing was expensed $70,595 and cost of goods sold was expensed $15,000.
In May 1995, the Company issued 100,000 shares of restricted common stock to IMT
as consideration for past due royalties and interest in the amount of $217,243.
F-19
<PAGE> 49
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
EXHIBIT NUMBER TITLE OF EXHIBIT
- -------------- ----------------
<S> <C>
2.1 Articles of Incorporation of the Company(1)
2.2 Certificate of Amendment to the Articles of Incorporation
2.3 Bylaws of the Company, as amended(1)
3.1 Warrant Agreement and Form of Warrant Applicable
to the A, B, and C Warrants(1)
6.1 First Amended License Agreement, dated May 10, 1995(2)
6.2 Lease Agreement for Westlake Village Warehouse, dated
May 20, 1994(2)
6.3 Lease Agreement for Westlake Village Office Facility,
dated October 31, 1994(2)
6.4 Employment Agreement with Bonnie Richards, dated
July 1, 1995(3)
6.5 Employment Agreement with Denise van Daalen Wetters,
dated August 15, 1995(3)
6.6 Employment Agreement with Wellington Ewen, dated
October 15, 1995(3)
6.7 Management Consulting Agreement with Peter D.
Bistrian Consulting, Inc., dated December 21, 1995(4)
6.8 Secured Promissory Note, dated October 17, 1995, by and
between the Company and Trevor and Kate Phillips(3)
6.9 Security Agreement, dated October 17, 1995, by and
between the Company and Trevor and Kate Phillips(3)
6.10 Agreement for National Network Radio Advertising, dated
May 26, 1995, by and between the Company and Premiere
Radio Networks, Inc.(3)
6.11 Agreement to extend term of Secured Promissory Note,
dated April 17, 1996, by and between the Company and
Trevor and Kate Phillips
6.12 Put Option Agreement, dated August 14, 1996, by and
between the Company and Trevor Phillips
6.13 Consulting Agreement and Stock Plan, dated February 1,
1996, by and between the Company and Hy Ochberg(5)
</TABLE>
<PAGE> 50
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
EXHIBIT NUMBER TITLE OF EXHIBIT
- -------------- ----------------
<S> <C>
6.14 Common Stock Purchase Agreement, dated
August 14, 1996, by and between the Company
and Phillips Management
6.15 Indemnification Agreement, dated May 29, 1996,
by and between the Company and Wellington Ewen
6.16 Indemnification Agreement, dated May 29, 1996, by
and between the Company and Bonnie Richards
6.17 Indemnification Agreement, dated May 29, 1996, by
and between the Company and Oleg Batratchenko
6.18 Indemnification Agreement, dated May 29, 1996, by
and between the Company and Gerald Epstein
6.19 Indemnification Agreement, dated May 29, 1996, by
and between the Company and Dr. Stephen Miller
6.20 Agreement Containing Consent Order, dated December 18,
1996, by and between the Company and the Federal Trade
Commission
6.21 SeQuester Holdings Incorporated 1997 Stock Plan
6.22 Agreement for Retirement of KCD Holdings Option Shares,
dated September 12, 1996, by and between the Company and
Bonnie Richards
6.23 Agreement for Retirement of KCD Holdings Option Shares,
dated September 12, 1996, by and between the Company and
Denise van Daalen Wetters
6.24 Agreement for Retirement of KCD Holdings Option Shares,
dated September 12, 1996, by and between the Company and
Wellington Ewen
6.25 Amendment to Employment Agreement, dated March 26,
1997, by and between the Company and Bonnie Richards
6.26 Amendment to Employment Agreement, dated
March 26, 1997, by and between the Company and
Denise van Daalen Wetters
6.27 Amendment to Employment Agreement, dated March 26,
1997, by and between the Company and Wellington Ewen
</TABLE>
<PAGE> 51
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
EXHIBIT NUMBER TITLE OF EXHIBIT
- -------------- ----------------
<S> <C>
6.28 Lettr Agreement for Conversion of Outstanding Debt, dated
March 24, 1997, by and between the Company and Pelle
Leather, Ltd; Growth Science Ventures, Inc.; L.E. International
Ltd.; Phillip Dascher; Joseph Tischler; Gerald Epstein; and
Stuart Needleman
6.29 Consulting Services Agreement, dated March 24, 1997, by
and between the Company and Mike Ditka
6.30 Consulting Services Agreement, dated April 15, 1997, by
and between the Company and Gerald Hatto
6.31 Termination Agreement, dated April 15, 1997, by
and between the Company and Gerald Hatto
6.32 Stock Option Grant Agreement, dated March 26, 1997,
by and between the Company and Bonnie Richards
6.33 Stock Option Grant Agreement, dated March 26, 1997,
by and between the Company and Wellington Ewen
6.34 Stock Option Grant Agreement, dated March 26, 1997, by
and between the Company and Denise van Daalen Wetters
6.35 Stock Option Grant Agreement, dated April 15, 1997, by
and between the Company and Gerald Hatto
6.36 Amendment to Stock Option Grant Agreement, dated
April 15, 1997, by and between the Company and
Bonnie Richards
6.37 Regulation S Distribution Agreement, dated March 29,
1996, by and between the Company and Berkshire
International Finance
6.38 Covenant Agreement, dated March 29, 1996, by and
between the Company, Clark Holcomb, and
Berkshire International Finance
6.39 Amendment to Regulation S Distribution Agreement, dated
April 17, 1996, by and between the Company and Berkshire
International Finance
</TABLE>
<PAGE> 52
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
EXHIBIT NUMBER TITLE OF EXHIBIT
- -------------- ----------------
<S> <C>
6.40 Regulation S Distribution Agreement, dated June 26,
1996, by and between the Company and Berkshire
International Finance
6.41 Covenant Agreement, dated June 26, 1996, by and between
the Company and Berkshire International Finance
6.42 Offshore Securities Subscription Agreement
6.43 Warrant Agreement, dated April 15, 1996, by
and between the Company and Berkshire International
Finance
6.44 Finders Agreement, dated March 29, 1996, by and
between the Company and BRG, Inc.
</TABLE>
(1) Previously filed as an exhibit to the Company's Registration Statement on
Form S-18, which was declared effective by the Commission on August 7, 1987, and
incorporated herein by this reference.
(2) Previously filed as an exhibit to the Company's Annual Report on Form
10-KSB, filed with the Commission on May 14, 1995, and incorporated herein by
this reference.
(3) Previously filed as an exhibit to the Company's Annual Report on Form
10-KSB, filed with the Commission on May 10, 1996, and incorporated herein by
this reference.
(4) Previously filed as an exhibit to the Company's Registration Statement on
Form S-8, which was filed with the Commission on January 2, 1996, and
incorporated herein by this reference.
(5) Previously filed as an exhibit to the Company's Registration Statement on
Form S-8, which was filed with the Commission on June 28, 1996, and incorporated
herein by this reference.
<PAGE> 1
EXHIBIT 2.2
A CERTIFIED COPY OF ARTICLES OF AMENDMENT
TO THE ARTICLES OF INCORPORATION, DATED MARCH 4, 1997
<PAGE> 2
UNANIMOUS WRITTEN CONSENT OF DIRECTORS
OF
KCD HOLDINGS, INC.
The undersigned, being all of the members of the Board of Directors of
KCD Holdings, Inc. (the "Corporation"), a Nevada corporation, in accordance
with Section 315 of the Nevada Business Corporation Act, without the formality
of convening a meeting, do hereby unanimously adopt, approve, and consent to
the following resolutions.
RESOLVED, that pursuant to the authority vested in the Board
of Directors of this Corporation, and in accordance with the
provisions of its Articles of Incorporation, that the following
proposed amendment of the Certificate of Incorporation of the
Corporation is advisable and that the shareholders of the
Corporation should approve the proposed resolution as required
by Nevada law. The proposed resolution setting forth the proposed
amendment is as follows:
"RESOLVED, that Article One of the Articles of Incorporation of
the Corporation shall be amended to read in full as follows: The
name of this corporation is SeQuester Holdings, Incorporated."
<PAGE> 3
RESOLVED FURTHER, that each of the officers of this Corporation is
authorized, directed, and empowered on behalf of this Corporation and its
name to execute the Certificate of Amendment of the Certificate of
Incorporation upon proper shareholder approval and any agreements, or other
instruments, documents, or supplements thereto, and to do or to cause to be
done all other acts and things such as officers may, in their discretion,
deem necessary or appropriate to carry out the purposes of the foregoing
resolution.
DATED: March 4, 1997
--------------------------------
Wellington A. Ewen
--------------------------------
Bonnie L. Richards
--------------------------------
Oleg Batrachenko
--------------------------------
Stephen R. Miller M.D.
--------------------------------
Gerald S. Epstein
<PAGE> 1
EXHIBIT 6.11
AGREEMENT TO EXTEND TERM OF SECURED PROMISSORY NOTE, DATED
APRIL 17, 1996, BY AND BETWEEN THE COMPANY AND
TREVOR AND KATE PHILLIPS
<PAGE> 2
AGREEMENT TO EXTEND TERM OF SECURED PROMISSORY NOTE
THIS AGREEMENT ("AGREEMENT") is made this 17th day of April, 1996 by
and between KCD HOLDINGS INCORPORATED, a Nevada corporation; KCD INCORPORATED, a
California corporation (collectively referred to herein as "Borrower"); and
TREVOR AND KATE PHILLIPS (collectively referred to herein as "Lender").
W I T N E S S E T H
WHEREAS, Borrower has previously executed a Secured Promissory Note
dated October 17, 1995 (the "Note") in favor of Lender;
WHEREAS, Borrower and Lender desire to extend the term of the Note from
April 17, 1996 to October 17, 1996.
NOW THEREFORE, in consideration of the mutual promises herein
contained, the parties hereto agree as follows:
1. The term of the Note is hereby extended to October 17, 1996 from
April 17, 1996.
2. All of the remaining terms and conditions of the Note shall remain
in full force and effect and shall not be affected by this Agreement.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound,
have executed this Agreement.
KCD HOLDINGS INCORPORATED
By:
----------------------------
Bonnie Richards, President
KCD INCORPORATED
By:
----------------------------
Bonnie Richards, President
----------------------------
Trevor Phillips
----------------------------
Kate Phillips
<PAGE> 1
EXHIBIT 6.12
PUT OPTION AGREEMENT, DATED AUGUST 14, 1996, BY AND
BETWEEN THE COMPANY AND TREVOR PHILLIPS
<PAGE> 2
PUT OPTION AGREEMENT
THIS PUT OPTION AGREEMENT (the "Agreement"), dated as of the 14th day
of August, 1996, by and between TREVOR PHILLIPS, an individual ("Phillips") and
KCD HOLDINGS INCORPORATED, a Nevada corporation ("KCD").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Put Option.
KCD hereby grants to Phillips a "Put Option" (the "Option") pursuant to
which Phillips has the right to sell to KCD, upon Phillip's election, a total of
125,000 shares of KCD Common Stock (the "Shares") at $2.00 per Share (the
"Option Price"), subject to the terms and conditions set forth herein.
2. Option Exercise.
This Option may only be exercised by Phillips upon 10 days prior
written notice ("Notice") to KCD, at any time commencing on or after October 17,
1996 and continuing up to and including April 17, 1997. The Notice shall specify
the number of Shares being surrendered by Phillips and for which payment is
demanded pursuant to the Option.
3. Condition Precedent.
By executing this Agreement, Phillips acknowledges and agrees that the
rights granted under the Option and KCD's obligation to purchase the Shares
hereunder are subject at all times to and conditioned upon KCD's ability to
comply with any applicable state law governing corporate
<PAGE> 3
distributions, including, but not limited to, Section 288 of the Nevada Business
Corporation Act and Section 500 et seq. of the California General Corporation
Law.
4. Termination.
This Option will expire at 5:00 p.m. (Pacific Standard Time) on April
17, 1997.
5. Rights as a Shareholder.
Prior to exercising the Option in its entirety, Phillips shall have all
of the rights of a shareholder as to the Shares not yet surrendered for purchase
by KCD. Upon purchase of any of the Shares by KCD, Phillips shall cease to have
the rights of and to be treated as a shareholder with respect to the Shares so
purchased.
6. Payment of the Purchase Price.
KCD shall have a period of fifteen (15) days from expiration of the 10
day period under the Notice requirement in Paragraph 2 in which to pay the
Option Price in full.
7. Notices.
All notices required or desired to be given hereunder shall be in
writing and shall be deemed properly given to a party if personally delivered,
mailed by certified mail, return receipt requested, or by overnight delivery
service to such party at the address set forth in this Agreement or to such
other address as shall be specified by notice duly given. Notices given by
overnight delivery service shall be deemed given on the date of delivery,
certified mail shall be deemed given three business days after the date of
mailing, and notices delivered in person shall be deemed given on the date of
delivery.
2
<PAGE> 4
8. Counterparts.
This Agreement may be executed in several counterparts, each of which
shall be deemed an original but all of which together shall constitute one and
the same instrument.
9. Construction.
This Agreement shall be governed by, and construed in accordance with,
the local laws of the State of California.
10. Headings.
The headings are solely for the convenience of reference and shall be
given no effect in the construction or interpretation hereof and shall not
constitute, or be deemed to constitute, a part thereof.
11. California Corporate Securities Law.
THE GRANT OF THE OPTION WHICH IS THE SUBJECT OF THIS AGREEMENT
HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF
CALIFORNIA AND THE ISSUANCE OF SUCH OPTION OR THE PAYMENT OR RECEIPT OF ANY PART
OF THE CONSIDERATION FOR SUCH OPTION PRIOR TO SUCH QUALIFICATION IS UNLAWFUL,
UNLESS THE GRANT OF THE OPTION IS EXEMPT FROM QUALIFICATION UNDER THE CALIFORNIA
GENERAL CORPORATION LAW. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE
EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE
ISSUANCE IS SO EXEMPT.
(SIGNATURES ON FOLLOWING PAGE)
3
<PAGE> 5
IN WITNESS WHEREOF, KCD and Phillips have executed this Agreement as of
the day and year first above written.
KCD HOLDINGS INCORPORATED
By: ________________________
Wellington Ewen, President
Address: 2835 Townsgate Road
Suite 110
Westlake Village, CA 91361
TREVOR PHILLIPS
By: ________________________
Trevor Phillips
Address: 2959 Sycamore Canyon Road
Santa Barbara, CA 93108
4
<PAGE> 1
EXHIBIT 6.14
COMMON STOCK PURCHASE AGREEMENT, DATED AUGUST 14, 1996,
BY AND BETWEEN THE COMPANY AND PHILLIPS MANAGEMENT
<PAGE> 2
COMMON STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made as of the 14th
day of August, 1996, by and between KCD Holdings Incorporated, a Nevada
corporation ("KCD"), and Trevor Phillips, an individual ("Phillips").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. PURCHASE AND SALE OF STOCK.
1.1 SALE AND PURCHASE OF COMMON STOCK.
Subject to the terms and conditions of this Agreement,
Phillips agrees to purchase at the Closing (as defined hereinbelow) and KCD
agrees to issue to Phillips at the Closing 125,000 restricted shares of KCD's
common stock (the "Common Stock") in consideration for the full and complete
satisfaction of $250,000 of the principal balance of that certain Secured
Promissory Note dated October 17, 1995 by and between KCD and Phillips (the
"Note").
1.2 CLOSING.
The closing (hereinafter "Closing") shall occur on the date first above
written. At the Closing, KCD shall deliver to Phillips a certificate
representing the shares of Common Stock that Phillips is purchasing against
satisfaction of $250,000 of the principal balance of the Note.
2. REPRESENTATIONS AND WARRANTIES OF KCD.
KCD hereby represents and warrants that:
2.1 ORGANIZATION; GOOD STANDING; QUALIFICATION.
KCD is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Nevada, has all requisite corporate
power and authority to own and operate its properties and assets and to carry on
its business as now conducted, to execute and deliver this Agreement, to issue
and sell the Common Stock at the Closing, and to carry out the provisions of
this Agreement. KCD is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure to so qualify would have a
material adverse effect on its business, properties, prospects, or financial
conditions.
2.2 AUTHORIZATION.
All corporate action on the part of KCD, its officers, directors and
stockholders necessary for the authorization, execution and delivery of this
Agreement, the performance of all obligations of KCD hereunder at the Closing
and the authorization, issuance, sale, and delivery of the Common
<PAGE> 3
Stock being sold hereunder has been taken or will be taken prior to the Closing,
and this Agreement constitutes a valid and legally binding obligation of KCD,
enforceable in accordance with its terms except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, and other laws of general
application affecting enforcement of creditors' rights generally, and (ii) as
limited by or relating to the availability of specific performance, injunctive
relief, or other equitable remedies.
2.3 VALID ISSUANCE OF COMMON STOCK.
The Common Stock that is being purchased by Phillips hereunder, when
issued, sold, and delivered in accordance with the terms of this Agreement for
the consideration expressed herein, will be duly and validly issued, fully paid,
and nonassessable, and will be free of restrictions on transfer other than
restrictions on transfer under this Agreement and under applicable state and
federal securities laws.
2.4 GOVERNMENTAL CONSENTS.
No consent, approval, qualification, order or authorization of, or
filing with, any local, state or federal governmental authority is required on
the part of KCD in connection with KCD's valid execution, delivery, or
performance of this Agreement, the offer, sale or issuance of the Common Stock
by KCD, except such filings which will be made prior to the Closing, except that
any notices of sale required to be filed with the Securities Exchange Commission
under the Securities Act of 1933, as amended (the "Securities Act"), or such
post-closing filings as may be required under applicable state securities laws,
which will be timely filed within the applicable periods therefor.
2.5 LITIGATION.
There is no action, suit, proceeding, or investigation pending or
currently threatened against KCD that questions the validity of this Agreement,
or the consummation of the transactions contemplated hereby.
2.6 DISCLOSURE.
KCD has provided Phillips with all the information reasonably available
to it without undue expense that Phillips has requested for deciding whether to
purchase the Common Stock.
3. REPRESENTATIONS AND WARRANTIES OF PHILLIPS.
Phillips hereby represents and warrants that:
2
<PAGE> 4
3.1 AUTHORIZATION.
Phillips has full power and authority to enter into this Agreement and
that this Agreement constitutes a valid and legally binding obligation of
Phillips.
3.2 PURCHASE ENTIRELY FOR OWN ACCOUNT.
This Agreement is made with Phillips in reliance upon Phillips's
representation to KCD, which by Phillips's execution of this Agreement Phillips
hereby confirms, that the Common Stock to be purchased by Phillips (sometimes
referred to herein as the "Securities"), will be acquired for investment for
Phillips's own account, not as a nominee or agent, and not with a view to the
resale or distribution of any part thereof, and that Phillips has no present
intention of selling, granting any participation in, or otherwise distributing
the same. By executing this Agreement, Phillips further represents that Phillips
does not have any contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participation to such person or to any third
person, with respect to any of the Securities.
3.3 RELIANCE UPON PHILLIPS'S REPRESENTATIONS.
Phillips understands that the Common Stock is not registered under the
Securities Act on the ground that the sale provided for in this Agreement is
exempt from registration under the Securities Act pursuant to Sections 4(6) and
4(2) thereof and Regulation D promulgated thereunder, and that KCD's reliance on
such exemption is predicated on Phillips's representations set forth herein.
3.4 RECEIPT OF INFORMATION.
Phillips acknowledges he has received all the information he considers
necessary or appropriate for deciding whether to purchase the Common Stock.
Phillips further represents that he has had an opportunity to ask questions and
receive answers from KCD regarding the terms and conditions of the offering of
the Common Stock and the business, properties, prospects, and financial
condition of KCD and to obtain additional information (to the extent KCD
possessed such information or could acquire it without unreasonable effort or
expense) necessary to verify the accuracy of any information furnished to him or
which he had access.
3.5 INVESTMENT EXPERIENCE.
Phillips represents that he is experienced in evaluating and investing
in securities of companies in the development stage and acknowledges that he is
able to fend for himself, can bear the economic risk of his investment, and has
such knowledge and experience in financial and business matters that he is
capable of evaluating the merits and risks of the investment in the Common
Stock.
3
<PAGE> 5
3.6 ACCREDITED INVESTOR.
(a) The term "Accredited Investor" as used herein refers to:
(1) A person or entity who is a director or executive
officer of the Company;
(2) Any bank as defined in Section 3(a)(2) of the
Securities Act, or any savings and loan association or other
institution as defined in Section 3(a)(5)(A) of the Securities Act
whether acting in its individual or fiduciary capacity; any broker or
dealer registered pursuant to Section 15 of the Securities Exchange Act
of 1934; any insurance company as defined in Section 2(13) of the
Securities Act; any investment company registered under the Investment
Company Act of 1940 or a business development company as defined in
Section 2(a)(48) of that Act; any Small Business Investment Company
licensed by the U.S. Small Business Administration under Section 301(c)
or (d) of the Small Business Investment Act of 1958; any plan
established and maintained by a state, its political subdivisions, or
any agency or instrumentality of a state or its political subdivisions,
for the benefit of its employees, if such plan has total assets in
excess of $5,000,000; any employee benefit plan within the meaning of
Title I of the Employee Retirement Income Security Act of 1974, if the
investment decision is made by a plan fiduciary, as defined in Section
3(21) of such Act, which is either a bank, savings and loan
association, insurance company, or registered investment adviser, or if
the employee benefit plan has total assets in excess of $5,000,000 or,
of a self-directed plan, with investment decisions made solely by
persons that are accredited investors;
(3) Any private business development company as
defined in Section 202(a)(22) of the Investment Advisers Act of 1940;
(4) Any organization described in Section 501(c)(3)
of the Internal Revenue Code, corporation, Massachusetts or similar
business trust, or partnership, not formed for the specific purpose of
acquiring the securities offered, with total assets in excess of
$5,000,000;
(5) Any natural person whose individual net worth, or
joint net worth with that person's spouse, at the time of his purchase
exceeds $1,000,000;
(6) Any natural person who had an individual income
in excess of $200,000 in each of the two most recent years or joint
income with that person's spouse in excess of $300,000 in each of those
years and has a reasonable expectation of reaching the same income
level in the current year;
(7) Any trust, with total assets in excess of
$5,000,000, not formed for the specific purpose of acquiring the
securities offered, whose purchase is directed by a person who has such
knowledge and experience in financial and business matters that he is
capable of evaluating the merits and risks of the prospective
investment; or
4
<PAGE> 6
(8) Any entity in which all of the equity owners are
accredited investors.
As used in this Section 3.6(a), the term "net worth" means the excess
of total assets over total liabilities. For the purpose of determining a
person's net worth, the principal residence owned by an individual should be
valued at fair market value, including the cost of improvements, net of current
encumbrances. As used in this Section 3.6(a), "income" means actual economic
income, which may differ from adjusted gross income for income tax purposes.
Accordingly, the undersigned should consider whether it should add any or all of
the following items to its adjusted gross income for income tax purposes in
order to reflect more accurately its actual economic income:
any amounts attributable to tax exempt income received, losses claimed as a
limited partner in any limited partnership, deductions claimed for depletion,
contributions to an IRA or Keogh retirement plan, and alimony payments.
(b) PHILLIPS HEREBY REPRESENTS TO KCD THAT PHILLIPS IS AN
ACCREDITED INVESTOR.
3.7 RESTRICTED SECURITIES.
Phillips understands that the Securities may not be sold, transferred,
or otherwise disposed of without registration under the Securities Act or an
exemption therefrom, and that in the absence of an effective registration
statement covering the Securities or an available exemption from registration
under the Securities Act, the Securities must be held indefinitely. In
particular, Phillips is aware that the Securities may not be sold pursuant to
Rule 144 promulgated under the Securities Act unless all of the conditions for
use of Rule 144 are satisfied. Phillips is aware that one of the conditions for
use of Rule 144 is the availability of current information to the public about
KCD and that no assurance can be made that such information will be available in
the future.
3.8 LEGENDS.
To the extent applicable, each certificate or other document evidencing
any of the Common Stock shall be endorsed with the legend set forth below, and
Phillips covenants that, except to the extent such restrictions are waived by
KCD, Phillips shall not transfer the shares represented by any such certificate
without complying with the restrictions on transfer described in the legend
endorsed on such certificate:
(a) The following legend under the Securities Act:
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED, PLEDGED, OR HYPOTHECATED, ABSENT AN EFFECTIVE
REGISTRATION THEREOF UNDER SUCH ACT OR COMPLIANCE WITH RULE 144
PROMULGATED UNDER SUCH ACT, OR UNLESS THE COMPANY HAS RECEIVED AN
5
<PAGE> 7
OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT
SUCH REGISTRATION IS NOT REQUIRED."
4. CONDITIONS OF KCD'S OBLIGATIONS AT CLOSING.
The obligations of KCD to Phillips under this Agreement are subject to
the fulfillment on or before the Closing of each of the following conditions by
Phillips.
4.1 REPRESENTATIONS AND WARRANTIES.
The representations and warranties of Phillips contained in Section 3
shall be true on and as of the Closing with the same effect as though such
representations and warranties had been made on and as of the date of the
Closing.
4.2 QUALIFICATIONS.
All authorizations, approvals, or permits, if any, of any governmental
authority or regulatory body of the United States or of any state that are
required in connection with the lawful sale of the Common Stock pursuant to this
Agreement shall be duly obtained and effective as of the Closing.
5. MISCELLANEOUS.
5.1 ENTIRE AGREEMENT.
This Agreement and the documents referred to herein constitute the
entire agreement among the parties and no party shall be liable or bound to any
other party in any manner by any warranties, representations, or covenants
except as specifically set forth herein or therein.
5.2 SURVIVAL OF WARRANTIES.
The warranties, representations, and covenants of KCD and Phillips
contained in or made pursuant to this Agreement shall survive the execution of
this Agreement and the Closing.
5.3 SUCCESSORS AND ASSIGNS.
Except as otherwise provided herein, the terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties (including permitted transferees of any
shares of Common Stock sold hereunder). Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
6
<PAGE> 8
5.4 GOVERNING LAW.
This Agreement shall be governed by and construed under the laws of the
State of California as applied to agreements among California residents entered
into and to be performed entirely within California.
5.5 COUNTERPARTS.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
5.6 TITLES AND SUBTITLES.
The titles and subtitles used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting this
Agreement.
5.7 NOTICES.
Unless otherwise provided, any notice required or permitted under this
Agreement shall be given in writing and shall be deemed effectively given upon
personal delivery to the party to be notified by hand or professional courier
service or five days after deposit with the United States Post Office, by
registered or certified mail, postage prepaid and addressed to the party to be
notified at the address indicated for such party on the signature page hereof,
or at such other address as such party may designate by ten (10) days' advance
written notice to the other parties.
5.8 FINDER'S FEES.
Each party represents that it neither is nor will be obligated for any
finder's fees or commission in connection with this transaction.
Phillips agrees to indemnify and to hold harmless KCD from any
liability for any commission or compensation in the nature of a finder's fee
(and the cost and expenses of defending against such liability or asserted
liability) for which Phillips or any of its officers, partners, employees, or
representatives is responsible.
KCD agrees to indemnify and hold harmless Phillips from any liability
for any commission or compensation in the nature of a finder's fee (and the
costs and expenses of defending against such liability or asserted liability)
for which KCD or any of its officers, employees, or representatives is
responsible.
7
<PAGE> 9
5.9 ATTORNEY'S FEES.
If any action at law or in equity is necessary to enforce or interpret
the terms of this Agreement the prevailing party shall be entitled to reasonable
attorneys' fees, costs and disbursements in addition to any other relief to
which such party may be entitled.
5.10 AMENDMENTS AND WAIVERS.
Any terms of this Agreement may be amended and the observance of any
term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written
consent of KCD and Phillips.
5.11 SEVERABILITY.
If one or more provisions of this Agreement are held to be
unenforceable under applicable law, such provision shall be excluded from this
Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
5.12 FURTHER ASSURANCE.
The undersigned will execute and deliver such agreements and all other
documents and things and will do or cause to be done all such acts or things as
may be necessary or desirable to give effect to the provisions of this Agreement
and to carry out the intent of this Agreement.
(SIGNATURES ON FOLLOWING PAGE)
8
<PAGE> 10
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
KCD HOLDINGS INCORPORATED
By:
-----------------------------
Name: Wellington Ewen, President
Address: 2835 Townsgate Road
Suite 110
Westlake Village, CA 91361
TREVOR PHILLIPS
By:
-----------------------------
Trevor Phillips
Address: 2959 Sycamore Canyon Road
Santa Barbara, CA 93108
9
<PAGE> 1
EXHIBIT 6.15
INDEMNIFICATION AGREEMENT, DATED MAY 29, 1996,
BY AND BETWEEN THE COMPANY AND WELLINGTON EWEN
<PAGE> 2
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT ("Agreement") is made by and between KCD
Holdings Incorporated, a Nevada Corporation ("KCD"), and Wellington Ewen
"Director") as of May 29, 1996, with reference to the following facts:
A. KCD desires that Director serve as a member of KCD's Board of
Directors and Director is willing to do so provided that KCD indemnifies
Director against certain potential liability.
B. KCD is wiling to provide such indemnity on the terms and conditions
set forth in this Agreement.
ACCORDINGLY, the parties now agree as follows.
Article 1
Definitions
Capitalized words and phrases used in this Agreement are defined as
follows:
1.1 "Agent" means any person who is or was a director, officer,
employee or other agent of KCD.
1.2 "Expenses" includes attorney's fees and other expenses actually and
reasonably incurred in establishing a right to indemnification under Article 2
or 3.
1.3 "Derivative Proceeding" means any threatened, pending or completed
action by or in the right of KCD to obtain a judgment in KCD's favor, in which
Director was or is or a defendant or is threatened to be made a defendant by
reason of the fact that Director is or was an Agent. The term does not include
an action by or in the right of KCD to obtain a judgment in KCD's favor.
1.4 "Primary Proceeding" means any threatened, pending or completed
action or proceeding, whether civil, criminal, administrative or investigative,
in which Director is or was a defendant, or is threatened to be made a defendant
by reason of the fact that Director is or was an Agent. The term does not
include an action by or in the right of KCD to obtain a judgment in KCD's favor.
Article 2
Indemnification
2.1 Primary Proceeding. KCD shall indemnify Director against expenses,
judgments, fines, settlements and other amounts actually and reasonably incurred
in connection with a Primary Proceeding, but only if (a) Director acted in good
faith and in a manner that Director
<PAGE> 3
reasonably believed to be in the best interests of KCD and (b) in the case of a
criminal proceeding, Director had no reasonable cause to believe that Director's
conduct was unlawful.
2.2 Termination. Termination of a Primary Proceeding by judgment,
order, settlement, conviction or plea of nolo contendere or its equivalent shall
not, of itself, create a presumption that Director failed to satisfy the
conditions in clauses (a) and (b) of Section 2.1.
2.3 Derivative Proceeding. KCD shall indemnify Director against
expenses actually and reasonably incurred by Director in connection with the
defense or settlement of any Derivative Proceeding if Director acted in good
faith, in a manner that Director believed to be in the best interest of KCD's
shareholders.
2.4 Authorization. Except as provided in Article 3, KCD shall indemnify
Director under this Article 2 only upon authorization in the specific case, upon
a determination by any of the following that indemnification of Director is
proper in the circumstances because Director has met the applicable standard of
conduct set forth in Section 2.1 or 2.3:
a. A majority vote of a quorum of KCD's Board of Directors,
which quorum shall consist of directors who are not parties to the proceeding;
or, if such a quorum is not obtainable, by independent legal counsel in a
written opinion;
b. Approval of shareholders as provided in, or otherwise
complying with, Section 320 of the Nevada Business Corporation Act, with the
shares owned by Director not being entitled to vote thereon; or
c. The court where the proceeding is or was pending, upon
application by KCD, Director or the attorney or another person rendering
services in connection with the defense, whether or not such application is
opposed by KCD.
Article 3
Successful Defense
To the extent that Director is successful on the merits in defense of
any Primary Proceeding or Derivative Proceeding, or in defense of any claim,
issue or matter in such a proceeding, KCD shall indemnify Director against
expenses actually and reasonably incurred by Director in connection with it.
Article 4
Advances
KCD shall advance expenses incurred in defending any Primary Proceeding
or Derivative Proceeding prior to its final disposition upon receipt of a
written undertaking, by or on behalf of
2
<PAGE> 4
Director, in form satisfactory to KCD, to repay such amount advanced if it shall
be determined ultimately that Director is not entitled to be indemnified as
provided in this Agreement.
Article 5
Additional Conditions and Exceptions
5.1 Effect of Section. Notwithstanding any other provision of this
Agreement, KCD's obligations under this Agreement to indemnify or make advances
to or on behalf of Director shall also be subject to the conditions and
exceptions in Sections 5.2 through 5.7.
5.2 Notice and Information. Director shall give KCD (a) notice in
writing as soon as possible of any claim made against Director for which
indemnity will or could be sought under this Agreement and (b) such information
and cooperation (including executing documents and instruments) as KCD may
reasonably request in connection with any Primary Proceeding or Derivative
Proceeding.
5.3 Consent. No costs, charges or expenses for which indemnity shall be
sought under this Agreement shall be incurred without KCD's consent, which
consent shall not be unreasonably withheld.
5.4 Court Decisions. KCD shall not indemnify Director in respect of any
claim, issue or matter as to which a court adjudges Director liable to KCD in
performing Director's duty to KCD and KCD's shareholders, unless the court shall
determine upon application that, in view of all the circumstances of the case,
Director is fairly and reasonably entitled to indemnify for expenses, and then
only to the extent that the court shall determine.
5.5 Settlements
a. KCD shall not indemnify Director for amounts paid in
settling or otherwise disposing of a pending action without court approval, or
for expenses incurred in defending a pending action that is settled or otherwise
disposed of without court approval.
b. KCD shall not be obligated to indemnify Director for
amounts paid in connection with any settlement to which KCD has not consented or
agreed.
c. If Director unreasonably fails to enter into a settlement
offered or assented to by the opposing party or parties in any Primary
Proceeding or Derivative Proceeding and the settlement is acceptable to KCD,
then, notwithstanding any provision of this Agreement, KCD's obligations to
indemnify or advance expenses to or on behalf of Director shall not exceed the
amount at which settlement could have been made, plus expenses incurred by
Director before the settlement could reasonably have been effected.
3
<PAGE> 5
5.6 Conflict with Other Provisions. Except as provided in Article 3 or
with the approval of shareholders as described in Section 2.4(b), this Agreement
shall not obligate KCD to indemnify or advance expenses to or on behalf of
Director in any circumstances where it reasonably appears to KCD that:
a. It would be inconsistent with a provision of KCD's Articles
of Incorporation, Bylaws, a resolution of shareholders, or an agreement in
effect at the time of the accrual of the alleged cause of action asserted in the
proceeding in which the expenses were incurred of other amounts were paid, which
prohibits or otherwise permits indemnification; or
b. It would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
5.7 Other Limitations. KCD shall have no obligation under this
Agreement to indemnify or advance expenses to or on behalf of Director:
a. For amounts for which payment is made to Director under a
valid and collectible insurance policy or other source, except in respect of any
deductible amount or excess beyond the amount of payment under such policy or
other sources;
b. For amounts for which Director is indemnified by KCD other
than pursuant to this Agreement;
c. For acts or omissions of Director that involve intentional
misconduct or knowing and culpable violation of law;
d. Based upon or attributable to any transaction from which
Director derived improper personal benefit or advantage to which Director was
not legally entitled;
e. For acts or omissions that show a reckless disregard for
Director's duty to KCD or KCD's shareholders in circumstances in which Director
was aware, or should have been aware in the ordinary course of performing
Director's duties, of a risk of serious injury to KCD or KCD's shareholders;
f. For acts or omissions that constitute an unexcused pattern
of inattention amounting to abdication of Director's duty to KCD or KCD's
shareholders;
g. For transactions governed by Section 140 or 300 of the
Nevada Business Corporation Act;
h. For an accounting of profits made from the purchase or sale
by Director of securities of KCD within the meaning of Section 16(b) of the
Securities Exchange Act of 1934 or similar provisions of any state law; or
4
<PAGE> 6
i. If in KCD's reasonable judgment Director fails to cooperate
with KCD or to provide all information reasonably requested by KCD in connection
with the defense of any action in which KCD or Director are defendants.
Article 6
Other Provisions
6.1 Subrogation. In the event of payment to Director under this
Agreement, KCD is hereby subrogated to the extent of such payment to all
Director's rights of recovery.
6.2 Reports. KCD shall have the right to make all reports to
shareholders or others regarding indemnification and/or advances relating to
this Agreement, as KCD deems necessary or appropriate.
6.3 Termination. This Agreement shall terminate upon any of the
following events:
a. Mutual agreement of the parties; or
b. Director's resignation or termination, for any reason, as a
director of KCD.
6.4 Effect of Termination. KCD shall have no obligation to Director
under this Agreement for any event, act or omission arising after termination of
this Agreement. Director's rights under this Agreement arising from events, acts
and/or omissions prior to termination shall survive termination of this
Agreement under Section 6.3(b).
6.5 Assignment and Third Parties. Director shall have no right or power
to assign or delegate any rights or obligation under this Agreement. This
Agreement is not intended to confer any benefits or rights on any other or
successor member of KCD's Board of Directors or on any other third party.
6.6 Notices. All notice or other communications provided for in this
Agreement shall be in writing and shall be deemed delivered upon personal
delivery or 48 hours after deposit with the United States Postal Service as
registered or certified mail, postage prepaid and addressed as follows:
a. If to KCD, to the principal office of KCD in the State of
California, marked "Attention: President"; or
b. If to Director, to the most recent address for Director
appearing in KCD's records.
5
<PAGE> 7
6.7 Entire Agreement. This Agreement, including the attached exhibit,
constitutes the entire agreement between the parties pertaining to the subject
matter of this Agreement and completely supersedes all other agreements, all
summaries and drafts of agreements, understanding, negotiations and discussions
among the parties pertaining to such subject matter, whether oral or written.
6.8 Governing Law. Nothing in this Agreement shall diminish or
otherwise restrict Director's right to indemnification under any provision of
the Articles of Incorporation or Bylaws of KCD, as amended, or under Nevada law.
This Agreement and any agreement to adopt or amend this Agreement shall be
construed and enforced in accordance with laws applicable to contracts made and
to be performed within the State of Nevada.
6.9 Severable Provisions. The provisions of this Agreement are
severable, and if any provision is determined to be illegal or otherwise
unenforceable, in whole or in part, then the remaining provisions, and any
partially unenforceable provisions to the extent enforceable, shall nevertheless
be binding and enforceable and shall be construed as closely as possible to
their original meanings.
6.10 Rules of Construction. This Agreement has been negotiated by the
parties and is to be interpreted according to its fair meaning as if the parties
had prepared it together and not strictly for or against any party. References
in this Agreement to "ARTICLES" and "SECTIONS" refer to Articles and Sections of
this Agreement, unless the context expressly indicates otherwise. References to
"PROVISIONS" of this Agreement refer to the terms, conditions and promises
contained in this Agreement. References in this Agreement to laws and
regulations refer to such laws and regulations as in effect on this date and to
the corresponding provisions, if any, of any successor law or regulation. At
each place in this Agreement where the context so requires, the masculine,
feminine or neuter gender includes the others and the singular or plural number
includes the other. Forms of the verb "INCLUDING" mean "including without
limitation." "OR" is inclusive and includes "and." The introductory headings at
the beginning of Articles and Section of this Agreement are solely for the
convenience of the parties and do not affect any provisions of this Agreement.
6.11 Amendment or Waiver. No amendment or waiver of any provision of
this Agreement shall be effective unless and until an instrument reflecting the
amendment or waive has been signed by the party against whom it is sought to be
enforced.
6.12 Arbitration. If a dispute arises, those involved in the dispute
shall first consult together in good faith to try to settle such dispute. If the
dispute is not settled after consultation, or if the parties fail to enter into
such consultation, then they shall arbitrate in accordance with the procedures
set forth in the attached Exhibit A. For purposes of this Section 6.12, a
"DISPUTE" includes any disagreement concerning the formation, construction or
interpretation of this Agreement or concerning matters related to or in
connection with this Agreement, but which matter is not covered by this
Agreement.
6
<PAGE> 8
6.13 Litigation Costs. If any party takes legal action or initiates an
arbitration proceeding concerning this Agreement, the unsuccessful party to such
action or proceeding shall pay the successful party's expenses, including fees
or attorneys and expert witnesses, actually and reasonably incurred in such
action.
6.14 Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original and which together shall constitute a
single agreement.
EXECUTED at Westlake Village, California, on the date first above
written.
DIRECTOR
-----------------------------
Wellington Ewen
KCD HOLDINGS INCORPORATED
-----------------------------
Bonnie Richards, Vice-President
7
<PAGE> 9
EXHIBIT A
ARBITRATION PROCEDURES
A-1. Submission to Arbitration. Any dispute (as defined in Section 6.12
(Arbitration)) shall, if demanded by any party, be finally resolved and
determined by arbitration to be held in the County of Los Angeles, State of
California, in accordance with the law of the State of Nevada and the rules of
the American Arbitration Association (collectively, the "RULES") and under the
administration of the American Arbitration Association.
A-2. Selection of Arbitrators. There shall be three arbitrators. If
there are two parties to the arbitration, each party shall choose one
arbitrator, with the third arbitrator to be chosen by the two chosen
arbitrators, which third arbitrator shall serve as the "neutral arbitrator" for
purposes of the Rules. If there are more than two parties to the arbitration,
the two arbitrators shall be chosen pursuant to the Rules, with the third
arbitrator chosen as above, which third arbitrator shall serve as the "neutral
arbitrator" for purposes of the Rules.
A-3. The Panel. The three arbitrators so chosen shall serve as the
arbitration panel which shall resolve the dispute (the "PANEL"). The powers and
duties reserved to the neutral arbitrator under the Rules, shall be exercised by
a majority of the members of the Panel after due consideration and in accordance
with the Rules.
A-4. Proceedings. Subject to appropriate protective orders, the parties
to the arbitration shall facilitate the arbitration by: (a) making available to
one another and to the Panel for inspection, copying and extraction all
documents, books, and records under the control of such party which are relevant
to the subject matter of the arbitration proceeding; (b) conducting arbitration
hearings to the greatest extent possible on successive days; (c) observing
strictly the periods established by the Rules or by the Panel for the submission
of evidence or briefs; and (d) making reasonably available to one another in
arbitration discovery and to the Panel all personnel who are under the control
of such party or who control such party and who have information relevant to the
arbitration proceeding.
A-5. Discovery. In the arbitration proceeding, depositions may be taken
and discovery obtained in accordance with the Rules. The Panel, in its
discretion, may impose sanctions to enforce discovery or may limit discovery.
A-6. Awards. Any award rendered by the Panel shall be final and binding
upon each party to the arbitration and judgment on the award may be entered in
any court of competent jurisdiction. The arbitral award, where appropriate, may
be enforced by such court through injunctive or other equitable relief, as well
as all relief at law, including damages. The Panel also may issue decisions for
interim, interlocutory, provisional or partial relief, including temporary
restraining orders, preliminary injunctions, orders to compel discovery, orders
of attachment, or
A-1
<PAGE> 10
protective orders, any of which may be enforced as an arbitral award by any
court of competent jurisdiction. Any arbitral award for money shall be made and
shall be payable in U.S. dollars. The Panel may award interest from the date of
any breach of this Agreement and shall fix the rate of interest on any amount
awarded for the date of the award to the date the award is paid in full.
A-7. Arbitration Costs. During the course of the arbitration
proceedings, all costs, charges and expenses of the arbitration (including the
fees, charges and expenses of the Panel and the American Arbitration
Association) shall be borne equally by the parties to the arbitration. However,
upon the issuance of the arbitral award, the losing party to the arbitration
shall bear the entire costs of the arbitration.
A-8. Interim Appeals. No party to the arbitration shall have any right
to apply or appeal to any court in connection with any question of law arising
in the course of the arbitration except for purposes of enforcing Section 6.12
(Arbitration) or a resulting arbitral award, except that any such party may
apply to any court of competent jurisdiction for an injunction or other
provisional or interim relief in support of arbitration or pursuant to Section
A-5 and any such application shall not be deemed incompatible with or a waiver
of this agreement to arbitrate.
A-2
<PAGE> 1
EXHIBIT 6.16
INDEMNIFICATION AGREEMENT, DATED MAY 29, 1996, BY
AND BETWEEN THE COMPANY AND BONNIE RICHARDS
<PAGE> 2
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT ("Agreement") is made by and between KCD
Holdings Incorporated, a Nevada Corporation ("KCD"), and Bonnie Richards
"Director") as of May 29, 1996, with reference to the following facts:
A. KCD desires that Director serve as a member of KCD's Board of
Directors and Director is willing to do so provided that KCD indemnifies
Director against certain potential liability.
B. KCD is willing to provide such indemnity on the terms and conditions
set forth in this Agreement.
ACCORDINGLY, the parties now agree as follows.
Article 1
Definitions
Capitalized words and phrases used in this Agreement are defined as
follows:
1.1 "Agent" means any person who is or was a director, officer,
employee or other agent of KCD.
1.2 "Expenses" includes attorney's fees and other expenses actually and
reasonably incurred in establishing a right to indemnification under Article 2
or 3.
1.3 "Derivative Proceeding" means any threatened, pending or completed
action by or in the right of KCD to obtain a judgment in KCD's favor, in which
Director was or is or a defendant or is threatened to be made a defendant by
reason of the fact that Director is or was an Agent. The term does not include
an action by or in the right of KCD to obtain a judgment in KCD's favor.
1.4 "Primary Proceeding" means any threatened, pending or completed
action or proceeding, whether civil, criminal, administrative or investigative,
in which Director is or was a defendant, or is threatened to be made a defendant
by reason of the fact that Director is or was an Agent. The term does not
include an action by or in the right of KCD to obtain a judgment in KCD's favor.
Article 2
Indemnification
2.1 Primary Proceeding. KCD shall indemnify Director against expenses,
judgments, fines, settlements and other amounts actually and reasonably incurred
in connection with a Primary Proceeding, but only if (a) Director acted in good
faith and in a manner that Director
<PAGE> 3
reasonably believed to be in the best interests of KCD and (b) in the case of a
criminal proceeding, Director had no reasonable cause to believe that Director's
conduct was unlawful.
2.2 Termination. Termination of a Primary Proceeding by judgment,
order, settlement, conviction or plea of nolo contendere or its equivalent shall
not, of itself, create a presumption that Director failed to satisfy the
conditions in clauses (a) and (b) of Section 2.1.
2.3 Derivative Proceeding. KCD shall indemnify Director against
expenses actually and reasonably incurred by Director in connection with the
defense or settlement of any Derivative Proceeding if Director acted in good
faith, in a manner that Director believed to be in the best interest of KCD's
shareholders.
2.4 Authorization. Except as provided in Article 3, KCD shall indemnify
Director under this Article 2 only upon authorization in the specific case, upon
a determination by any of the following that indemnification of Director is
proper in the circumstances because Director has met the applicable standard of
conduct set forth in Section 2.1 or 2.3:
a. A majority vote of a quorum of KCD's Board of Directors,
which quorum shall consist of directors who are not parties to the proceeding;
or, if such a quorum is not obtainable, by independent legal counsel in a
written opinion;
b. Approval of shareholders as provided in, or otherwise
complying with, Section 320 of the Nevada Business Corporation Act, with the
shares owned by Director not being entitled to vote thereon; or
c. The court where the proceeding is or was pending, upon
application by KCD, Director or the attorney or another person rendering
services in connection with the defense, whether or not such application is
opposed by KCD.
Article 3
Successful Defense
To the extent that Director is successful on the merits in defense of
any Primary Proceeding or Derivative Proceeding, or in defense of any claim,
issue or matter in such a proceeding, KCD shall indemnify Director against
expenses actually and reasonably incurred by Director in connection with it.
Article 4
Advances
KCD shall advance expenses incurred in defending any Primary Proceeding
or Derivative Proceeding prior to its final disposition upon receipt of a
written undertaking, by or on behalf of
2
<PAGE> 4
Director, in form satisfactory to KCD, to repay such amount advanced if it shall
be determined ultimately that Director is not entitled to be indemnified as
provided in this Agreement.
Article 5
Additional Conditions and Exceptions
5.1 Effect of Section. Notwithstanding any other provision of this
Agreement, KCD's obligations under this Agreement to indemnify or make advances
to or on behalf of Director shall also be subject to the conditions and
exceptions in Sections 5.2 through 5.7.
5.2 Notice and Information. Director shall give KCD (a) notice in
writing as soon as possible of any claim made against Director for which
indemnity will or could be sought under this Agreement and (b) such information
and cooperation (including executing documents and instruments) as KCD may
reasonably request in connection with any Primary Proceeding or Derivative
Proceeding.
5.3 Consent. No costs, charges or expenses for which indemnity shall be
sought under this Agreement shall be incurred without KCD's consent, which
consent shall not be unreasonably withheld.
5.4 Court Decisions. KCD shall not indemnify Director in respect of any
claim, issue or matter as to which a court adjudges Director liable to KCD in
performing Director's duty to KCD and KCD's shareholders, unless the court shall
determine upon application that, in view of all the circumstances of the case,
Director is fairly and reasonably entitled to indemnify for expenses, and then
only to the extent that the court shall determine.
5.5 Settlements
a. KCD shall not indemnify Director for amounts paid in
settling or otherwise disposing of a pending action without court approval, or
for expenses incurred in defending a pending action that is settled or otherwise
disposed of without court approval.
b. KCD shall not be obligated to indemnify Director for
amounts paid in connection with any settlement to which KCD has not consented or
agreed.
c. If Director unreasonably fails to enter into a settlement
offered or assented to by the opposing party or parties in any Primary
Proceeding or Derivative Proceeding and the settlement is acceptable to KCD,
then, notwithstanding any provision of this Agreement, KCD's obligations to
indemnify or advance expenses to or on behalf of Director shall not exceed the
amount at which settlement could have been made, plus expenses incurred by
Director before the settlement could reasonably have been effected.
3
<PAGE> 5
5.6 Conflict with Other Provisions. Except as provided in Article 3 or
with the approval of shareholders as described in Section 2.4(b), this Agreement
shall not obligate KCD to indemnify or advance expenses to or on behalf of
Director in any circumstances where it reasonably appears to KCD that:
a. It would be inconsistent with a provision of KCD's Articles
of Incorporation, Bylaws, a resolution of shareholders, or an agreement in
effect at the time of the accrual of the alleged cause of action asserted in the
proceeding in which the expenses were incurred of other amounts were paid, which
prohibits or otherwise permits indemnification; or
b. It would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
5.7 Other Limitations. KCD shall have no obligation under this
Agreement to indemnify or advance expenses to or on behalf of Director:
a. For amounts for which payment is made to Director under a
valid and collectible insurance policy or other source, except in respect of any
deductible amount or excess beyond the amount of payment under such policy or
other sources;
b. For amounts for which Director is indemnified by KCD other
than pursuant to this Agreement;
c. For acts or omissions of Director that involve intentional
misconduct or knowing and culpable violation of law;
d. Based upon or attributable to any transaction from which
Director derived improper personal benefit or advantage to which Director was
not legally entitled;
e. For acts or omissions that show a reckless disregard for
Director's duty to KCD or KCD's shareholders in circumstances in which Director
was aware, or should have been aware in the ordinary course of performing
Director's duties, of a risk of serious injury to KCD or KCD's shareholders;
f. For acts or omissions that constitute an unexcused pattern
of inattention amounting to abdication of Director's duty to KCD or KCD's
shareholders;
g. For transactions governed by Section 140 or 300 of the
Nevada Business Corporation Act;
h. For an accounting of profits made from the purchase or sale
by Director of securities of KCD within the meaning of Section 16(b) of the
Securities Exchange Act of 1934 or similar provisions of any state law; or
4
<PAGE> 6
i. If in KCD's reasonable judgment Director fails to cooperate
with KCD or to provide all information reasonably requested by KCD in connection
with the defense of any action in which KCD or Director are defendants.
Article 6
Other Provisions
6.1 Subrogation. In the event of payment to Director under this
Agreement, KCD is hereby subrogated to the extent of such payment to all
Director's rights of recovery.
6.2 Reports. KCD shall have the right to make all reports to
shareholders or others regarding indemnification and/or advances relating to
this Agreement, as KCD deems necessary or appropriate.
6.3 Termination. This Agreement shall terminate upon any of the
following events:
a. Mutual agreement of the parties; or
b. Director's resignation or termination, for any reason, as a
director of KCD.
6.4 Effect of Termination. KCD shall have no obligation to Director
under this Agreement for any event, act or omission arising after termination of
this Agreement. Director's rights under this Agreement arising from events, acts
and/or omissions prior to termination shall survive termination of this
Agreement under Section 6.3(b).
6.5 Assignment and Third Parties. Director shall have no right or power
to assign or delegate any rights or obligation under this Agreement. This
Agreement is not intended to confer any benefits or rights on any other or
successor member of KCD's Board of Directors or on any other third party.
6.6 Notices. All notice or other communications provided for in this
Agreement shall be in writing and shall be deemed delivered upon personal
delivery or 48 hours after deposit with the United States Postal Service as
registered or certified mail, postage prepaid and addressed as follows:
a. If to KCD, to the principal office of KCD in the State of
California, marked "Attention: President"; or
b. If to Director, to the most recent address for Director
appearing in KCD's records.
5
<PAGE> 7
6.7 Entire Agreement. This Agreement, including the attached exhibit,
constitutes the entire agreement between the parties pertaining to the subject
matter of this Agreement and completely supersedes all other agreements, all
summaries and drafts of agreements, understanding, negotiations and discussions
among the parties pertaining to such subject matter, whether oral or written.
6.8 Governing Law. Nothing in this Agreement shall diminish or
otherwise restrict Director's right to indemnification under any provision of
the Articles of Incorporation or Bylaws of KCD, as amended, or under Nevada law.
This Agreement and any agreement to adopt or amend this Agreement shall be
construed and enforced in accordance with laws applicable to contracts made and
to be performed within the State of Nevada.
6.9 Severable Provisions. The provisions of this Agreement are
severable, and if any provision is determined to be illegal or otherwise
unenforceable, in whole or in part, then the remaining provisions, and any
partially unenforceable provisions to the extent enforceable, shall nevertheless
be binding and enforceable and shall be construed as closely as possible to
their original meanings.
6.10 Rules of Construction. This Agreement has been negotiated by the
parties and is to be interpreted according to its fair meaning as if the parties
had prepared it together and not strictly for or against any party. References
in this Agreement to "ARTICLES" and "SECTIONS" refer to Articles and Sections of
this Agreement, unless the context expressly indicates otherwise. References to
"PROVISIONS" of this Agreement refer to the terms, conditions and promises
contained in this Agreement. References in this Agreement to laws and
regulations refer to such laws and regulations as in effect on this date and to
the corresponding provisions, if any, of any successor law or regulation. At
each place in this Agreement where the context so requires, the masculine,
feminine or neuter gender includes the others and the singular or plural number
includes the other. Forms of the verb "INCLUDING" mean "including without
limitation." "OR" is inclusive and includes "and." The introductory headings at
the beginning of Articles and Section of this Agreement are solely for the
convenience of the parties and do not affect any provisions of this Agreement.
6.11 Amendment or Waiver. No amendment or waiver of any provision of
this Agreement shall be effective unless and until an instrument reflecting the
amendment or waive has been signed by the party against whom it is sought to be
enforced.
6.12 Arbitration. If a dispute arises, those involved in the dispute
shall first consult together in good faith to try to settle such dispute. If the
dispute is not settled after consultation, or if the parties fail to enter into
such consultation, then they shall arbitrate in accordance with the procedures
set forth in the attached Exhibit A. For purposes of this Section 6.12, a
"DISPUTE" includes any disagreement concerning the formation, construction or
interpretation of this Agreement or concerning matters related to or in
connection with this Agreement, but which matter is not covered by this
Agreement.
6
<PAGE> 8
6.13 Litigation Costs. If any party takes legal action or initiates an
arbitration proceeding concerning this Agreement, the unsuccessful party to such
action or proceeding shall pay the successful party's expenses, including fees
or attorneys and expert witnesses, actually and reasonably incurred in such
action.
6.14 Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original and which together shall constitute a
single agreement.
EXECUTED at Westlake Village, California, on the date first above
written.
DIRECTOR
-----------------------------
Bonnie Richards
KCD HOLDINGS INCORPORATED
-----------------------------
Wellington Ewen, President
7
<PAGE> 9
EXHIBIT A
ARBITRATION PROCEDURES
A-1. Submission to Arbitration. Any dispute (as defined in Section 6.12
(Arbitration)) shall, if demanded by any party, be finally resolved and
determined by arbitration to be held in the County of Los Angeles, State of
California, in accordance with the law of the State of Nevada and the rules of
the American Arbitration Association (collectively, the "RULES") and under the
administration of the American Arbitration Association.
A-2. Selection of Arbitrators. There shall be three arbitrators. If
there are two parties to the arbitration, each party shall choose one
arbitrator, with the third arbitrator to be chosen by the two chosen
arbitrators, which third arbitrator shall serve as the "neutral arbitrator" for
purposes of the Rules. If there are more than two parties to the arbitration,
the two arbitrators shall be chosen pursuant to the Rules, with the third
arbitrator chosen as above, which third arbitrator shall serve as the "neutral
arbitrator" for purposes of the Rules.
A-3. The Panel. The three arbitrators so chosen shall serve as the
arbitration panel which shall resolve the dispute (the "PANEL"). The powers and
duties reserved to the neutral arbitrator under the Rules, shall be exercised by
a majority of the members of the Panel after due consideration and in accordance
with the Rules.
A-4. Proceedings. Subject to appropriate protective orders, the parties
to the arbitration shall facilitate the arbitration by: (a) making available to
one another and to the Panel for inspection, copying and extraction all
documents, books, and records under the control of such party which are relevant
to the subject matter of the arbitration proceeding; (b) conducting arbitration
hearings to the greatest extent possible on successive days; (c) observing
strictly the periods established by the Rules or by the Panel for the submission
of evidence or briefs; and (d) making reasonably available to one another in
arbitration discovery and to the Panel all personnel who are under the control
of such party or who control such party and who have information relevant to the
arbitration proceeding.
A-5. Discovery. In the arbitration proceeding, depositions may be taken
and discovery obtained in accordance with the Rules. The Panel, in its
discretion, may impose sanctions to enforce discovery or may limit discovery.
A-6. Awards. Any award rendered by the Panel shall be final and binding
upon each party to the arbitration and judgment on the award may be entered in
any court of competent jurisdiction. The arbitral award, where appropriate, may
be enforced by such court through injunctive or other equitable relief, as well
as all relief at law, including damages. The Panel also may issue decisions for
interim, interlocutory, provisional or partial relief, including temporary
restraining orders, preliminary injunctions, orders to compel discovery, orders
of attachment, or
A-1
<PAGE> 10
protective orders, any of which may be enforced as an arbitral award by any
court of competent jurisdiction. Any arbitral award for money shall be made and
shall be payable in U.S. dollars. The Panel may award interest from the date of
any breach of this Agreement and shall fix the rate of interest on any amount
awarded for the date of the award to the date the award is paid in full.
A-7. Arbitration Costs. During the course of the arbitration
proceedings, all costs, charges and expenses of the arbitration (including the
fees, charges and expenses of the Panel and the American Arbitration
Association) shall be borne equally by the parties to the arbitration. However,
upon the issuance of the arbitral award, the losing party to the arbitration
shall bear the entire costs of the arbitration.
A-8. Interim Appeals. No party to the arbitration shall have any right
to apply or appeal to any court in connection with any question of law arising
in the course of the arbitration except for purposes of enforcing Section 6.12
(Arbitration) or a resulting arbitral award, except that any such party may
apply to any court of competent jurisdiction for an injunction or other
provisional or interim relief in support of arbitration or pursuant to Section
A-5 and any such application shall not be deemed incompatible with or a waiver
of this agreement to arbitrate.
A-2
<PAGE> 1
EXHIBIT 6.17
INDEMNIFICATION AGREEMENT, DATED MAY 29, 1996, BY
AND BETWEEN THE COMPANY AND OLEG BATRATCHENKO
<PAGE> 2
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT ("Agreement") is made by and between KCD
Holdings Incorporated, a Nevada Corporation ("KCD"), and Oleg Batratchenko
.("Director") as of May 29, 1996, with reference to the following facts:
A. KCD desires that Director serve as a member of KCD's Board of
Directors and Director is willing to do so provided that KCD indemnifies
Director against certain potential liability.
B. KCD is wiling to provide such indemnity on the terms and conditions
set forth in this Agreement.
ACCORDINGLY, the parties now agree as follows.
Article 1
Definitions
Capitalized words and phrases used in this Agreement are defined as
follows:
1.1 "Agent" means any person who is or was a director, officer,
employee or other agent of KCD.
1.2 "Expenses" includes attorney's fees and other expenses actually and
reasonably incurred in establishing a right to indemnification under Article 2
or 3.
1.3 "Derivative Proceeding" means any threatened, pending or completed
action by or in the right of KCD to obtain a judgment in KCD's favor, in which
Director was or is or a defendant or is threatened to be made a defendant by
reason of the fact that Director is or was an Agent. The term does not include
an action by or in the right of KCD to obtain a judgment in KCD's favor.
1.4 "Primary Proceeding" means any threatened, pending or completed
action or proceeding, whether civil, criminal, administrative or investigative,
in which Director is or was a defendant, or is threatened to be made a defendant
by reason of the fact that Director is or was an Agent. The term does not
include an action by or in the right of KCD to obtain a judgment in KCD's favor.
Article 2
Indemnification
2.1 Primary Proceeding. KCD shall indemnify Director against expenses,
judgments, fines, settlements and other amounts actually and reasonably incurred
in connection with a Primary Proceeding, but only if (a) Director acted in good
faith and in a manner that Director
<PAGE> 3
reasonably believed to be in the best interests of KCD and (b) in the case of a
criminal proceeding, Director had no reasonable cause to believe that Director's
conduct was unlawful.
2.2 Termination. Termination of a Primary Proceeding by judgment,
order, settlement, conviction or plea of nolo contendere or its equivalent shall
not, of itself, create a presumption that Director failed to satisfy the
conditions in clauses (a) and (b) of Section 2.1.
2.3 Derivative Proceeding. KCD shall indemnify Director against
expenses actually and reasonably incurred by Director in connection with the
defense or settlement of any Derivative Proceeding if Director acted in good
faith, in a manner that Director believed to be in the best interest of KCD's
shareholders.
2.4 Authorization. Except as provided in Article 3, KCD shall indemnify
Director under this Article 2 only upon authorization in the specific case, upon
a determination by any of the following that indemnification of Director is
proper in the circumstances because Director has met the applicable standard of
conduct set forth in Section 2.1 or 2.3:
a. A majority vote of a quorum of KCD's Board of Directors,
which quorum shall consist of directors who are not parties to the proceeding;
or, if such a quorum is not obtainable, by independent legal counsel in a
written opinion;
b. Approval of shareholders as provided in, or otherwise
complying with, Section 320 of the Nevada Business Corporation Act, with the
shares owned by Director not being entitled to vote thereon; or
c. The court where the proceeding is or was pending, upon
application by KCD, Director or the attorney or another person rendering
services in connection with the defense, whether or not such application is
opposed by KCD.
Article 3
Successful Defense
To the extent that Director is successful on the merits in defense of
any Primary Proceeding or Derivative Proceeding, or in defense of any claim,
issue or matter in such a proceeding, KCD shall indemnify Director against
expenses actually and reasonably incurred by Director in connection with it.
Article 4
Advances
KCD shall advance expenses incurred in defending any Primary Proceeding
or Derivative Proceeding prior to its final disposition upon receipt of a
written undertaking, by or on behalf of
2
<PAGE> 4
Director, in form satisfactory to KCD, to repay such amount advanced if it shall
be determined ultimately that Director is not entitled to be indemnified as
provided in this Agreement.
Article 5
Additional Conditions and Exceptions
5.1 Effect of Section. Notwithstanding any other provision of this
Agreement, KCD's obligations under this Agreement to indemnify or make advances
to or on behalf of Director shall also be subject to the conditions and
exceptions in Sections 5.2 through 5.7.
5.2 Notice and Information. Director shall give KCD (a) notice in
writing as soon as possible of any claim made against Director for which
indemnity will or could be sought under this Agreement and (b) such information
and cooperation (including executing documents and instruments) as KCD may
reasonably request in connection with any Primary Proceeding or Derivative
Proceeding.
5.3 Consent. No costs, charges or expenses for which indemnity shall be
sought under this Agreement shall be incurred without KCD's consent, which
consent shall not be unreasonably withheld.
5.4 Court Decisions. KCD shall not indemnify Director in respect of any
claim, issue or matter as to which a court adjudges Director liable to KCD in
performing Director's duty to KCD and KCD's shareholders, unless the court shall
determine upon application that, in view of all the circumstances of the case,
Director is fairly and reasonably entitled to indemnify for expenses, and then
only to the extent that the court shall determine.
5.5 Settlements
a. KCD shall not indemnify Director for amounts paid in
settling or otherwise disposing of a pending action without court approval, or
for expenses incurred in defending a pending action that is settled or otherwise
disposed of without court approval.
b. KCD shall not be obligated to indemnify Director for
amounts paid in connection with any settlement to which KCD has not consented or
agreed.
c. If Director unreasonably fails to enter into a settlement
offered or assented to by the opposing party or parties in any Primary
Proceeding or Derivative Proceeding and the settlement is acceptable to KCD,
then, notwithstanding any provision of this Agreement, KCD's obligations to
indemnify or advance expenses to or on behalf of Director shall not exceed the
amount at which settlement could have been made, plus expenses incurred by
Director before the settlement could reasonably have been effected.
3
<PAGE> 5
5.6 Conflict with Other Provisions. Except as provided in Article 3 or
with the approval of shareholders as described in Section 2.4(b), this Agreement
shall not obligate KCD to indemnify or advance expenses to or on behalf of
Director in any circumstances where it reasonably appears to KCD that:
a. It would be inconsistent with a provision of KCD's Articles
of Incorporation, Bylaws, a resolution of shareholders, or an agreement in
effect at the time of the accrual of the alleged cause of action asserted in the
proceeding in which the expenses were incurred of other amounts were paid, which
prohibits or otherwise permits indemnification; or
b. It would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
5.7 Other Limitations. KCD shall have no obligation under this
Agreement to indemnify or advance expenses to or on behalf of Director:
a. For amounts for which payment is made to Director under a
valid and collectible insurance policy or other source, except in respect of any
deductible amount or excess beyond the amount of payment under such policy or
other sources;
b. For amounts for which Director is indemnified by KCD other
than pursuant to this Agreement;
c. For acts or omissions of Director that involve intentional
misconduct or knowing and culpable violation of law;
d. Based upon or attributable to any transaction from which
Director derived improper personal benefit or advantage to which Director was
not legally entitled;
e. For acts or omissions that show a reckless disregard for
Director's duty to KCD or KCD's shareholders in circumstances in which Director
was aware, or should have been aware in the ordinary course of performing
Director's duties, of a risk of serious injury to KCD or KCD's shareholders;
f. For acts or omissions that constitute an unexcused pattern
of inattention amounting to abdication of Director's duty to KCD or KCD's
shareholders;
g. For transactions governed by Section 140 or 300 of the
Nevada Business Corporation Act;
h. For an accounting of profits made from the purchase or sale
by Director of securities of KCD within the meaning of Section 16(b) of the
Securities Exchange Act of 1934 or similar provisions of any state law; or
4
<PAGE> 6
i. If in KCD's reasonable judgment Director fails to cooperate
with KCD or to provide all information reasonably requested by KCD in connection
with the defense of any action in which KCD or Director are defendants.
Article 6
Other Provisions
6.1 Subrogation. In the event of payment to Director under this
Agreement, KCD is hereby subrogated to the extent of such payment to all
Director's rights of recovery.
6.2 Reports. KCD shall have the right to make all reports to
shareholders or others regarding indemnification and/or advances relating to
this Agreement, as KCD deems necessary or appropriate.
6.3 Termination. This Agreement shall terminate upon any of the
following events:
a. Mutual agreement of the parties; or
b. Director's resignation or termination, for any reason, as a
director of KCD.
6.4 Effect of Termination. KCD shall have no obligation to Director
under this Agreement for any event, act or omission arising after termination of
this Agreement. Director's rights under this Agreement arising from events, acts
and/or omissions prior to termination shall survive termination of this
Agreement under Section 6.3(b).
6.5 Assignment and Third Parties. Director shall have no right or power
to assign or delegate any rights or obligation under this Agreement. This
Agreement is not intended to confer any benefits or rights on any other or
successor member of KCD's Board of Directors or on any other third party.
6.6 Notices. All notice or other communications provided for in this
Agreement shall be in writing and shall be deemed delivered upon personal
delivery or 48 hours after deposit with the United States Postal Service as
registered or certified mail, postage prepaid and addressed as follows:
a. If to KCD, to the principal office of KCD in the State of
California, marked "Attention: President"; or
b. If to Director, to the most recent address for Director
appearing in KCD's records.
5
<PAGE> 7
6.7 Entire Agreement. This Agreement, including the attached exhibit,
constitutes the entire agreement between the parties pertaining to the subject
matter of this Agreement and completely supersedes all other agreements, all
summaries and drafts of agreements, understanding, negotiations and discussions
among the parties pertaining to such subject matter, whether oral or written.
6.8 Governing Law. Nothing in this Agreement shall diminish or
otherwise restrict Director's right to indemnification under any provision of
the Articles of Incorporation or Bylaws of KCD, as amended, or under Nevada law.
This Agreement and any agreement to adopt or amend this Agreement shall be
construed and enforced in accordance with laws applicable to contracts made and
to be performed within the State of Nevada.
6.9 Severable Provisions. The provisions of this Agreement are
severable, and if any provision is determined to be illegal or otherwise
unenforceable, in whole or in part, then the remaining provisions, and any
partially unenforceable provisions to the extent enforceable, shall nevertheless
be binding and enforceable and shall be construed as closely as possible to
their original meanings.
6.10 Rules of Construction. This Agreement has been negotiated by the
parties and is to be interpreted according to its fair meaning as if the parties
had prepared it together and not strictly for or against any party. References
in this Agreement to "ARTICLES" and "SECTIONS" refer to Articles and Sections of
this Agreement, unless the context expressly indicates otherwise. References to
"PROVISIONS" of this Agreement refer to the terms, conditions and promises
contained in this Agreement. References in this Agreement to laws and
regulations refer to such laws and regulations as in effect on this date and to
the corresponding provisions, if any, of any successor law or regulation. At
each place in this Agreement where the context so requires, the masculine,
feminine or neuter gender includes the others and the singular or plural number
includes the other. Forms of the verb "INCLUDING" mean "including without
limitation." "OR" is inclusive and includes "and." The introductory headings at
the beginning of Articles and Section of this Agreement are solely for the
convenience of the parties and do not affect any provisions of this Agreement.
6.11 Amendment or Waiver. No amendment or waiver of any provision of
this Agreement shall be effective unless and until an instrument reflecting the
amendment or waive has been signed by the party against whom it is sought to be
enforced.
6.12 Arbitration. If a dispute arises, those involved in the dispute
shall first consult together in good faith to try to settle such dispute. If the
dispute is not settled after consultation, or if the parties fail to enter into
such consultation, then they shall arbitrate in accordance with the procedures
set forth in the attached Exhibit A. For purposes of this Section 6.12, a
"DISPUTE" includes any disagreement concerning the formation, construction or
interpretation of this Agreement or concerning matters related to or in
connection with this Agreement, but which matter is not covered by this
Agreement.
6
<PAGE> 8
6.13 Litigation Costs. If any party takes legal action or initiates an
arbitration proceeding concerning this Agreement, the unsuccessful party to such
action or proceeding shall pay the successful party's expenses, including fees
or attorneys and expert witnesses, actually and reasonably incurred in such
action.
6.14 Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original and which together shall constitute a
single agreement.
EXECUTED at Westlake Village, California, on the date first above
written.
DIRECTOR
-----------------------------
Oleg Batratchenko
KCD HOLDINGS INCORPORATED
-----------------------------
Wellington Ewen, President
7
<PAGE> 9
EXHIBIT A
ARBITRATION PROCEDURES
A-1. Submission to Arbitration. Any dispute (as defined in Section 6.12
(Arbitration)) shall, if demanded by any party, be finally resolved and
determined by arbitration to be held in the County of Los Angeles, State of
California, in accordance with the law of the State of Nevada and the rules of
the American Arbitration Association (collectively, the "RULES") and under the
administration of the American Arbitration Association.
A-2. Selection of Arbitrators. There shall be three arbitrators. If
there are two parties to the arbitration, each party shall choose one
arbitrator, with the third arbitrator to be chosen by the two chosen
arbitrators, which third arbitrator shall serve as the "neutral arbitrator" for
purposes of the Rules. If there are more than two parties to the arbitration,
the two arbitrators shall be chosen pursuant to the Rules, with the third
arbitrator chosen as above, which third arbitrator shall serve as the "neutral
arbitrator" for purposes of the Rules.
A-3. The Panel. The three arbitrators so chosen shall serve as the
arbitration panel which shall resolve the dispute (the "PANEL"). The powers and
duties reserved to the neutral arbitrator under the Rules, shall be exercised by
a majority of the members of the Panel after due consideration and in accordance
with the Rules.
A-4. Proceedings. Subject to appropriate protective orders, the parties
to the arbitration shall facilitate the arbitration by: (a) making available to
one another and to the Panel for inspection, copying and extraction all
documents, books, and records under the control of such party which are relevant
to the subject matter of the arbitration proceeding; (b) conducting arbitration
hearings to the greatest extent possible on successive days; (c) observing
strictly the periods established by the Rules or by the Panel for the submission
of evidence or briefs; and (d) making reasonably available to one another in
arbitration discovery and to the Panel all personnel who are under the control
of such party or who control such party and who have information relevant to the
arbitration proceeding.
A-5. Discovery. In the arbitration proceeding, depositions may be taken
and discovery obtained in accordance with the Rules. The Panel, in its
discretion, may impose sanctions to enforce discovery or may limit discovery.
A-6. Awards. Any award rendered by the Panel shall be final and binding
upon each party to the arbitration and judgment on the award may be entered in
any court of competent jurisdiction. The arbitral award, where appropriate, may
be enforced by such court through injunctive or other equitable relief, as well
as all relief at law, including damages. The Panel also may issue decisions for
interim, interlocutory, provisional or partial relief, including temporary
restraining orders, preliminary injunctions, orders to compel discovery, orders
of attachment, or
A-1
<PAGE> 10
protective orders, any of which may be enforced as an arbitral award by any
court of competent jurisdiction. Any arbitral award for money shall be made and
shall be payable in U.S. dollars. The Panel may award interest from the date of
any breach of this Agreement and shall fix the rate of interest on any amount
awarded for the date of the award to the date the award is paid in full.
A-7. Arbitration Costs. During the course of the arbitration
proceedings, all costs, charges and expenses of the arbitration (including the
fees, charges and expenses of the Panel and the American Arbitration
Association) shall be borne equally by the parties to the arbitration. However,
upon the issuance of the arbitral award, the losing party to the arbitration
shall bear the entire costs of the arbitration.
A-8. Interim Appeals. No party to the arbitration shall have any right
to apply or appeal to any court in connection with any question of law arising
in the course of the arbitration except for purposes of enforcing Section 6.12
(Arbitration) or a resulting arbitral award, except that any such party may
apply to any court of competent jurisdiction for an injunction or other
provisional or interim relief in support of arbitration or pursuant to Section
A-5 and any such application shall not be deemed incompatible with or a waiver
of this agreement to arbitrate.
A-2
<PAGE> 1
EXHIBIT 6.18
INDEMNIFICATION AGREEMENT, DATED MAY 29, 1996, BY
AND BETWEEN THE COMPANY AND GERALD EPSTEIN
<PAGE> 2
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT ("Agreement") is made by and between KCD
Holdings Incorporated, a Nevada Corporation ("KCD"), and Gerald Epstein
("Director") as of May 29, 1996, with reference to the following facts:
A. KCD desires that Director serve as a member of KCD's Board of
Directors and Director is willing to do so provided that KCD indemnifies
Director against certain potential liability.
B. KCD is willing to provide such indemnity on the terms and
conditions set forth in this Agreement.
ACCORDINGLY, the parties now agree as follows.
Article 1
Definitions
Capitalized words and phrases used in this Agreement are defined as
follows:
1.1 "Agent" means any person who is or was a director, officer,
employee or other agent of KCD.
1.2 "Expenses" includes attorney's fees and other expenses actually and
reasonably incurred in establishing a right to indemnification under Article 2
or 3.
1.3 "Derivative Proceeding" means any threatened, pending or completed
action by or in the right of KCD to obtain a judgment in KCD's favor, in which
Director was or is or a defendant or is threatened to be made a defendant by
reason of the fact that Director is or was an Agent. The term does not include
an action by or in the right of KCD to obtain a judgment in KCD's favor.
1.4 "Primary Proceeding" means any threatened, pending or completed
action or proceeding, whether civil, criminal, administrative or investigative,
in which Director is or was a defendant, or is threatened to be made a defendant
by reason of the fact that Director is or was an Agent. The term does not
include an action by or in the right of KCD to obtain a judgment in KCD's favor.
Article 2
Indemnification
2.1 Primary Proceeding. KCD shall indemnify Director against expenses,
judgments, fines, settlements and other amounts actually and reasonably incurred
in connection with a Primary Proceeding, but only if (a) Director acted in good
faith and in a manner that Director
<PAGE> 3
reasonably believed to be in the best interests of KCD and (b) in the case of a
criminal proceeding, Director had no reasonable cause to believe that Director's
conduct was unlawful.
2.2 Termination. Termination of a Primary Proceeding by judgment,
order, settlement, conviction or plea of nolo contendere or its equivalent shall
not, of itself, create a presumption that Director failed to satisfy the
conditions in clauses (a) and (b) of Section 2.1.
2.3 Derivative Proceeding. KCD shall indemnify Director against
expenses actually and reasonably incurred by Director in connection with the
defense or settlement of any Derivative Proceeding if Director acted in good
faith, in a manner that Director believed to be in the best interest of KCD's
shareholders.
2.4 Authorization. Except as provided in Article 3, KCD shall indemnify
Director under this Article 2 only upon authorization in the specific case, upon
a determination by any of the following that indemnification of Director is
proper in the circumstances because Director has met the applicable standard of
conduct set forth in Section 2.1 or 2.3:
a. A majority vote of a quorum of KCD's Board of Directors,
which quorum shall consist of directors who are not parties to the proceeding;
or, if such a quorum is not obtainable, by independent legal counsel in a
written opinion;
b. Approval of shareholders as provided in, or otherwise
complying with, Section 320 of the Nevada Business Corporation Act, with the
shares owned by Director not being entitled to vote thereon; or
c. The court where the proceeding is or was pending, upon
application by KCD, Director or the attorney or another person rendering
services in connection with the defense, whether or not such application is
opposed by KCD.
Article 3
Successful Defense
To the extent that Director is successful on the merits in defense of
any Primary Proceeding or Derivative Proceeding, or in defense of any claim,
issue or matter in such a proceeding, KCD shall indemnify Director against
expenses actually and reasonably incurred by Director in connection with it.
Article 4
Advances
KCD shall advance expenses incurred in defending any Primary Proceeding
or Derivative Proceeding prior to its final disposition upon receipt of a
written undertaking, by or on behalf of
2
<PAGE> 4
Director, in form satisfactory to KCD, to repay such amount advanced if it shall
be determined ultimately that Director is not entitled to be indemnified as
provided in this Agreement.
Article 5
Additional Conditions and Exceptions
5.1 Effect of Section. Notwithstanding any other provision of this
Agreement, KCD's obligations under this Agreement to indemnify or make advances
to or on behalf of Director shall also be subject to the conditions and
exceptions in Sections 5.2 through 5.7.
5.2 Notice and Information. Director shall give KCD (a) notice in
writing as soon as possible of any claim made against Director for which
indemnity will or could be sought under this Agreement and (b) such information
and cooperation (including executing documents and instruments) as KCD may
reasonably request in connection with any Primary Proceeding or Derivative
Proceeding.
5.3 Consent. No costs, charges or expenses for which indemnity shall be
sought under this Agreement shall be incurred without KCD's consent, which
consent shall not be unreasonably withheld.
5.4 Court Decisions. KCD shall not indemnify Director in respect of any
claim, issue or matter as to which a court adjudges Director liable to KCD in
performing Director's duty to KCD and KCD's shareholders, unless the court shall
determine upon application that, in view of all the circumstances of the case,
Director is fairly and reasonably entitled to indemnify for expenses, and then
only to the extent that the court shall determine.
5.5 Settlements
a. KCD shall not indemnify Director for amounts paid in
settling or otherwise disposing of a pending action without court approval, or
for expenses incurred in defending a pending action that is settled or otherwise
disposed of without court approval.
b. KCD shall not be obligated to indemnify Director for
amounts paid in connection with any settlement to which KCD has not consented or
agreed.
c. If Director unreasonably fails to enter into a settlement
offered or assented to by the opposing party or parties in any Primary
Proceeding or Derivative Proceeding and the settlement is acceptable to KCD,
then, notwithstanding any provision of this Agreement, KCD's obligations to
indemnify or advance expenses to or on behalf of Director shall not exceed the
amount at which settlement could have been made, plus expenses incurred by
Director before the settlement could reasonably have been effected.
3
<PAGE> 5
5.6 Conflict with Other Provisions. Except as provided in Article 3 or
with the approval of shareholders as described in Section 2.4(b), this Agreement
shall not obligate KCD to indemnify or advance expenses to or on behalf of
Director in any circumstances where it reasonably appears to KCD that:
a. It would be inconsistent with a provision of KCD's Articles
of Incorporation, Bylaws, a resolution of shareholders, or an agreement in
effect at the time of the accrual of the alleged cause of action asserted in the
proceeding in which the expenses were incurred of other amounts were paid, which
prohibits or otherwise permits indemnification; or
b. It would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
5.7 Other Limitations. KCD shall have no obligation under this
Agreement to indemnify or advance expenses to or on behalf of Director:
a. For amounts for which payment is made to Director under a
valid and collectible insurance policy or other source, except in respect of any
deductible amount or excess beyond the amount of payment under such policy or
other sources;
b. For amounts for which Director is indemnified by KCD other
than pursuant to this Agreement;
c. For acts or omissions of Director that involve intentional
misconduct or knowing and culpable violation of law;
d. Based upon or attributable to any transaction from which
Director derived improper personal benefit or advantage to which Director was
not legally entitled;
e. For acts or omissions that show a reckless disregard for
Director's duty to KCD or KCD's shareholders in circumstances in which Director
was aware, or should have been aware in the ordinary course of performing
Director's duties, of a risk of serious injury to KCD or KCD's shareholders;
f. For acts or omissions that constitute an unexcused pattern
of inattention amounting to abdication of Director's duty to KCD or KCD's
shareholders;
g. For transactions governed by Section 140 or 300 of the
Nevada Business Corporation Act;
h. For an accounting of profits made from the purchase or sale
by Director of securities of KCD within the meaning of Section 16(b) of the
Securities Exchange Act of 1934 or similar provisions of any state law; or
4
<PAGE> 6
i. If in KCD's reasonable judgment Director fails to cooperate
with KCD or to provide all information reasonably requested by KCD in connection
with the defense of any action in which KCD or Director are defendants.
Article 6
Other Provisions
6.1 Subrogation. In the event of payment to Director under this
Agreement, KCD is hereby subrogated to the extent of such payment to all
Director's rights of recovery.
6.2 Reports. KCD shall have the right to make all reports to
shareholders or others regarding indemnification and/or advances relating to
this Agreement, as KCD deems necessary or appropriate.
6.3 Termination. This Agreement shall terminate upon any of the
following events:
a. Mutual agreement of the parties; or
b. Director's resignation or termination, for any reason, as a
director of KCD.
6.4 Effect of Termination. KCD shall have no obligation to Director
under this Agreement for any event, act or omission arising after termination of
this Agreement. Director's rights under this Agreement arising from events, acts
and/or omissions prior to termination shall survive termination of this
Agreement under Section 6.3(b).
6.5 Assignment and Third Parties. Director shall have no right or power
to assign or delegate any rights or obligation under this Agreement. This
Agreement is not intended to confer any benefits or rights on any other or
successor member of KCD's Board of Directors or on any other third party.
6.6 Notices. All notice or other communications provided for in this
Agreement shall be in writing and shall be deemed delivered upon personal
delivery or 48 hours after deposit with the United States Postal Service as
registered or certified mail, postage prepaid and addressed as follows:
a. If to KCD, to the principal office of KCD in the State of
California, marked "Attention: President"; or
b. If to Director, to the most recent address for Director
appearing in KCD's records.
5
<PAGE> 7
6.7 Entire Agreement. This Agreement, including the attached exhibit,
constitutes the entire agreement between the parties pertaining to the subject
matter of this Agreement and completely supersedes all other agreements, all
summaries and drafts of agreements, understanding, negotiations and discussions
among the parties pertaining to such subject matter, whether oral or written.
6.8 Governing Law. Nothing in this Agreement shall diminish or
otherwise restrict Director's right to indemnification under any provision of
the Articles of Incorporation or Bylaws of KCD, as amended, or under Nevada law.
This Agreement and any agreement to adopt or amend this Agreement shall be
construed and enforced in accordance with laws applicable to contracts made and
to be performed within the State of Nevada.
6.9 Severable Provisions. The provisions of this Agreement are
severable, and if any provision is determined to be illegal or otherwise
unenforceable, in whole or in part, then the remaining provisions, and any
partially unenforceable provisions to the extent enforceable, shall nevertheless
be binding and enforceable and shall be construed as closely as possible to
their original meanings.
6.10 Rules of Construction. This Agreement has been negotiated by the
parties and is to be interpreted according to its fair meaning as if the parties
had prepared it together and not strictly for or against any party. References
in this Agreement to "ARTICLES" and "SECTIONS" refer to Articles and Sections of
this Agreement, unless the context expressly indicates otherwise. References to
"PROVISIONS" of this Agreement refer to the terms, conditions and promises
contained in this Agreement. References in this Agreement to laws and
regulations refer to such laws and regulations as in effect on this date and to
the corresponding provisions, if any, of any successor law or regulation. At
each place in this Agreement where the context so requires, the masculine,
feminine or neuter gender includes the others and the singular or plural number
includes the other. Forms of the verb "INCLUDING" mean "including without
limitation." "OR" is inclusive and includes "and." The introductory headings at
the beginning of Articles and Section of this Agreement are solely for the
convenience of the parties and do not affect any provisions of this Agreement.
6.11 Amendment or Waiver. No amendment or waiver of any provision of
this Agreement shall be effective unless and until an instrument reflecting the
amendment or waive has been signed by the party against whom it is sought to be
enforced.
6.12 Arbitration. If a dispute arises, those involved in the dispute
shall first consult together in good faith to try to settle such dispute. If the
dispute is not settled after consultation, or if the parties fail to enter into
such consultation, then they shall arbitrate in accordance with the procedures
set forth in the attached Exhibit A. For purposes of this Section 6.12, a
"DISPUTE" includes any disagreement concerning the formation, construction or
interpretation of this Agreement or concerning matters related to or in
connection with this Agreement, but which matter is not covered by this
Agreement.
6
<PAGE> 8
6.13 Litigation Costs. If any party takes legal action or initiates an
arbitration proceeding concerning this Agreement, the unsuccessful party to such
action or proceeding shall pay the successful party's expenses, including fees
or attorneys and expert witnesses, actually and reasonably incurred in such
action.
6.14 Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original and which together shall constitute a
single agreement.
EXECUTED at Westlake Village, California, on the date first above
written.
DIRECTOR
-----------------------------
Gerald Epstein
KCD HOLDINGS INCORPORATED
-----------------------------
Wellington Ewen, President
7
<PAGE> 9
EXHIBIT A
ARBITRATION PROCEDURES
A-1. Submission to Arbitration. Any dispute (as defined in Section 6.12
(Arbitration)) shall, if demanded by any party, be finally resolved and
determined by arbitration to be held in the County of Los Angeles, State of
California, in accordance with the law of the State of Nevada and the rules of
the American Arbitration Association (collectively, the "RULES") and under the
administration of the American Arbitration Association.
A-2. Selection of Arbitrators. There shall be three arbitrators. If
there are two parties to the arbitration, each party shall choose one
arbitrator, with the third arbitrator to be chosen by the two chosen
arbitrators, which third arbitrator shall serve as the "neutral arbitrator" for
purposes of the Rules. If there are more than two parties to the arbitration,
the two arbitrators shall be chosen pursuant to the Rules, with the third
arbitrator chosen as above, which third arbitrator shall serve as the "neutral
arbitrator" for purposes of the Rules.
A-3. The Panel. The three arbitrators so chosen shall serve as the
arbitration panel which shall resolve the dispute (the "PANEL"). The powers and
duties reserved to the neutral arbitrator under the Rules, shall be exercised by
a majority of the members of the Panel after due consideration and in accordance
with the Rules.
A-4. Proceedings. Subject to appropriate protective orders, the parties
to the arbitration shall facilitate the arbitration by: (a) making available to
one another and to the Panel for inspection, copying and extraction all
documents, books, and records under the control of such party which are relevant
to the subject matter of the arbitration proceeding; (b) conducting arbitration
hearings to the greatest extent possible on successive days; (c) observing
strictly the periods established by the Rules or by the Panel for the submission
of evidence or briefs; and (d) making reasonably available to one another in
arbitration discovery and to the Panel all personnel who are under the control
of such party or who control such party and who have information relevant to the
arbitration proceeding.
A-5. Discovery. In the arbitration proceeding, depositions may be taken
and discovery obtained in accordance with the Rules. The Panel, in its
discretion, may impose sanctions to enforce discovery or may limit discovery.
A-6. Awards. Any award rendered by the Panel shall be final and binding
upon each party to the arbitration and judgment on the award may be entered in
any court of competent jurisdiction. The arbitral award, where appropriate, may
be enforced by such court through injunctive or other equitable relief, as well
as all relief at law, including damages. The Panel also may issue decisions for
interim, interlocutory, provisional or partial relief, including temporary
restraining orders, preliminary injunctions, orders to compel discovery, orders
of attachment, or
A-1
<PAGE> 10
protective orders, any of which may be enforced as an arbitral award by any
court of competent jurisdiction. Any arbitral award for money shall be made and
shall be payable in U.S. dollars. The Panel may award interest from the date of
any breach of this Agreement and shall fix the rate of interest on any amount
awarded for the date of the award to the date the award is paid in full.
A-7. Arbitration Costs. During the course of the arbitration
proceedings, all costs, charges and expenses of the arbitration (including the
fees, charges and expenses of the Panel and the American Arbitration
Association) shall be borne equally by the parties to the arbitration. However,
upon the issuance of the arbitral award, the losing party to the arbitration
shall bear the entire costs of the arbitration.
A-8. Interim Appeals. No party to the arbitration shall have any right
to apply or appeal to any court in connection with any question of law arising
in the course of the arbitration except for purposes of enforcing Section 6.12
(Arbitration) or a resulting arbitral award, except that any such party may
apply to any court of competent jurisdiction for an injunction or other
provisional or interim relief in support of arbitration or pursuant to Section
A-5 and any such application shall not be deemed incompatible with or a waiver
of this agreement to arbitrate.
A-2
<PAGE> 1
EXHIBIT 6.19
INDEMNIFICATION AGREEMENT, DATED MAY 29, 1996, BY
AND BETWEEN THE COMPANY AND DR. STEPHEN MILLER
<PAGE> 2
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT ("Agreement") is made by and between KCD
Holdings Incorporated, a Nevada Corporation ("KCD"), and Stephen Miller,
M.D.("Director") as of May 29, 1996, with reference to the following facts:
A. KCD desires that Director serve as a member of KCD's Board of
Directors and Director is willing to do so provided that KCD indemnifies
Director against certain potential liability.
B. KCD is wiling to provide such indemnity on the terms and conditions
set forth in this Agreement.
ACCORDINGLY, the parties now agree as follows.
Article 1
Definitions
Capitalized words and phrases used in this Agreement are defined as
follows:
1.1 "Agent" means any person who is or was a director, officer,
employee or other agent of KCD.
1.2 "Expenses" includes attorney's fees and other expenses actually and
reasonably incurred in establishing a right to indemnification under Article 2
or 3.
1.3 "Derivative Proceeding" means any threatened, pending or completed
action by or in the right of KCD to obtain a judgment in KCD's favor, in which
Director was or is or a defendant or is threatened to be made a defendant by
reason of the fact that Director is or was an Agent. The term does not include
an action by or in the right of KCD to obtain a judgment in KCD's favor.
1.4 "Primary Proceeding" means any threatened, pending or completed
action or proceeding, whether civil, criminal, administrative or investigative,
in which Director is or was a defendant, or is threatened to be made a defendant
by reason of the fact that Director is or was an Agent. The term does not
include an action by or in the right of KCD to obtain a judgment in KCD's favor.
Article 2
Indemnification
2.1 Primary Proceeding. KCD shall indemnify Director against expenses,
judgments, fines, settlements and other amounts actually and reasonably incurred
in connection with a Primary Proceeding, but only if (a) Director acted in good
faith and in a manner that Director
56
<PAGE> 3
reasonably believed to be in the best interests of KCD and (b) in the case of a
criminal proceeding, Director had no reasonable cause to believe that Director's
conduct was unlawful.
2.2 Termination. Termination of a Primary Proceeding by judgment,
order, settlement, conviction or plea of nolo contendere or its equivalent shall
not, of itself, create a presumption that Director failed to satisfy the
conditions in clauses (a) and (b) of Section 2.1.
2.3 Derivative Proceeding. KCD shall indemnify Director against
expenses actually and reasonably incurred by Director in connection with the
defense or settlement of any Derivative Proceeding if Director acted in good
faith, in a manner that Director believed to be in the best interest of KCD's
shareholders.
2.4 Authorization. Except as provided in Article 3, KCD shall indemnify
Director under this Article 2 only upon authorization in the specific case, upon
a determination by any of the following that indemnification of Director is
proper in the circumstances because Director has met the applicable standard of
conduct set forth in Section 2.1 or 2.3:
a. A majority vote of a quorum of KCD's Board of Directors,
which quorum shall consist of directors who are not parties to the proceeding;
or, if such a quorum is not obtainable, by independent legal counsel in a
written opinion;
b. Approval of shareholders as provided in, or otherwise
complying with, Section 320 of the Nevada Business Corporation Act, with the
shares owned by Director not being entitled to vote thereon; or
c. The court where the proceeding is or was pending, upon
application by KCD, Director or the attorney or another person rendering
services in connection with the defense, whether or not such application is
opposed by KCD.
Article 3
Successful Defense
To the extent that Director is successful on the merits in defense of
any Primary Proceeding or Derivative Proceeding, or in defense of any claim,
issue or matter in such a proceeding, KCD shall indemnify Director against
expenses actually and reasonably incurred by Director in connection with it.
Article 4
Advances
KCD shall advance expenses incurred in defending any Primary Proceeding
or Derivative Proceeding prior to its final disposition upon receipt of a
written undertaking, by or on behalf of
2
<PAGE> 4
Director, in form satisfactory to KCD, to repay such amount advanced if it shall
be determined ultimately that Director is not entitled to be indemnified as
provided in this Agreement.
Article 5
Additional Conditions and Exceptions
5.1 Effect of Section. Notwithstanding any other provision of this
Agreement, KCD's obligations under this Agreement to indemnify or make advances
to or on behalf of Director shall also be subject to the conditions and
exceptions in Sections 5.2 through 5.7.
5.2 Notice and Information. Director shall give KCD (a) notice in
writing as soon as possible of any claim made against Director for which
indemnity will or could be sought under this Agreement and (b) such information
and cooperation (including executing documents and instruments) as KCD may
reasonably request in connection with any Primary Proceeding or Derivative
Proceeding.
5.3 Consent. No costs, charges or expenses for which indemnity shall be
sought under this Agreement shall be incurred without KCD's consent, which
consent shall not be unreasonably withheld.
5.4 Court Decisions. KCD shall not indemnify Director in respect of any
claim, issue or matter as to which a court adjudges Director liable to KCD in
performing Director's duty to KCD and KCD's shareholders, unless the court shall
determine upon application that, in view of all the circumstances of the case,
Director is fairly and reasonably entitled to indemnify for expenses, and then
only to the extent that the court shall determine.
5.5 Settlements
a. KCD shall not indemnify Director for amounts paid in
settling or otherwise disposing of a pending action without court approval, or
for expenses incurred in defending a pending action that is settled or otherwise
disposed of without court approval.
b. KCD shall not be obligated to indemnify Director for
amounts paid in connection with any settlement to which KCD has not consented or
agreed.
c. If Director unreasonably fails to enter into a settlement
offered or assented to by the opposing party or parties in any Primary
Proceeding or Derivative Proceeding and the settlement is acceptable to KCD,
then, notwithstanding any provision of this Agreement, KCD's obligations to
indemnify or advance expenses to or on behalf of Director shall not exceed the
amount at which settlement could have been made, plus expenses incurred by
Director before the settlement could reasonably have been effected.
3
<PAGE> 5
5.6 Conflict with Other Provisions. Except as provided in Article 3 or
with the approval of shareholders as described in Section 2.4(b), this Agreement
shall not obligate KCD to indemnify or advance expenses to or on behalf of
Director in any circumstances where it reasonably appears to KCD that:
a. It would be inconsistent with a provision of KCD's Articles
of Incorporation, Bylaws, a resolution of shareholders, or an agreement in
effect at the time of the accrual of the alleged cause of action asserted in the
proceeding in which the expenses were incurred of other amounts were paid, which
prohibits or otherwise permits indemnification; or
b. It would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
5.7 Other Limitations. KCD shall have no obligation under this
Agreement to indemnify or advance expenses to or on behalf of Director:
a. For amounts for which payment is made to Director under a
valid and collectible insurance policy or other source, except in respect of any
deductible amount or excess beyond the amount of payment under such policy or
other sources;
b. For amounts for which Director is indemnified by KCD other
than pursuant to this Agreement;
c. For acts or omissions of Director that involve intentional
misconduct or knowing and culpable violation of law;
d. Based upon or attributable to any transaction from which
Director derived improper personal benefit or advantage to which Director was
not legally entitled;
e. For acts or omissions that show a reckless disregard for
Director's duty to KCD or KCD's shareholders in circumstances in which Director
was aware, or should have been aware in the ordinary course of performing
Director's duties, of a risk of serious injury to KCD or KCD's shareholders;
f. For acts or omissions that constitute an unexcused pattern
of inattention amounting to abdication of Director's duty to KCD or KCD's
shareholders;
g. For transactions governed by Section 140 or 300 of the
Nevada Business Corporation Act;
h. For an accounting of profits made from the purchase or sale
by Director of securities of KCD within the meaning of Section 16(b) of the
Securities Exchange Act of 1934 or similar provisions of any state law; or
4
<PAGE> 6
i. If in KCD's reasonable judgment Director fails to cooperate
with KCD or to provide all information reasonably requested by KCD in connection
with the defense of any action in which KCD or Director are defendants.
Article 6
Other Provisions
6.1 Subrogation. In the event of payment to Director under this
Agreement, KCD is hereby subrogated to the extent of such payment to all
Director's rights of recovery.
6.2 Reports. KCD shall have the right to make all reports to
shareholders or others regarding indemnification and/or advances relating to
this Agreement, as KCD deems necessary or appropriate.
6.3 Termination. This Agreement shall terminate upon any of the
following events:
a. Mutual agreement of the parties; or
b. Director's resignation or termination, for any reason, as a
director of KCD.
6.4 Effect of Termination. KCD shall have no obligation to Director
under this Agreement for any event, act or omission arising after termination of
this Agreement. Director's rights under this Agreement arising from events, acts
and/or omissions prior to termination shall survive termination of this
Agreement under Section 6.3(b).
6.5 Assignment and Third Parties. Director shall have no right or power
to assign or delegate any rights or obligation under this Agreement. This
Agreement is not intended to confer any benefits or rights on any other or
successor member of KCD's Board of Directors or on any other third party.
6.6 Notices. All notice or other communications provided for in this
Agreement shall be in writing and shall be deemed delivered upon personal
delivery or 48 hours after deposit with the United States Postal Service as
registered or certified mail, postage prepaid and addressed as follows:
a. If to KCD, to the principal office of KCD in the State of
California, marked "Attention: President"; or
b. If to Director, to the most recent address for Director
appearing in KCD's records.
5
<PAGE> 7
6.7 Entire Agreement. This Agreement, including the attached exhibit,
constitutes the entire agreement between the parties pertaining to the subject
matter of this Agreement and completely supersedes all other agreements, all
summaries and drafts of agreements, understanding, negotiations and discussions
among the parties pertaining to such subject matter, whether oral or written.
6.8 Governing Law. Nothing in this Agreement shall diminish or
otherwise restrict Director's right to indemnification under any provision of
the Articles of Incorporation or Bylaws of KCD, as amended, or under Nevada law.
This Agreement and any agreement to adopt or amend this Agreement shall be
construed and enforced in accordance with laws applicable to contracts made and
to be performed within the State of Nevada.
6.9 Severable Provisions. The provisions of this Agreement are
severable, and if any provision is determined to be illegal or otherwise
unenforceable, in whole or in part, then the remaining provisions, and any
partially unenforceable provisions to the extent enforceable, shall nevertheless
be binding and enforceable and shall be construed as closely as possible to
their original meanings.
6.10 Rules of Construction. This Agreement has been negotiated by the
parties and is to be interpreted according to its fair meaning as if the parties
had prepared it together and not strictly for or against any party. References
in this Agreement to "ARTICLES" and "SECTIONS" refer to Articles and Sections of
this Agreement, unless the context expressly indicates otherwise. References to
"PROVISIONS" of this Agreement refer to the terms, conditions and promises
contained in this Agreement. References in this Agreement to laws and
regulations refer to such laws and regulations as in effect on this date and to
the corresponding provisions, if any, of any successor law or regulation. At
each place in this Agreement where the context so requires, the masculine,
feminine or neuter gender includes the others and the singular or plural number
includes the other. Forms of the verb "INCLUDING" mean "including without
limitation." "OR" is inclusive and includes "and." The introductory headings at
the beginning of Articles and Section of this Agreement are solely for the
convenience of the parties and do not affect any provisions of this Agreement.
6.11 Amendment or Waiver. No amendment or waiver of any provision of
this Agreement shall be effective unless and until an instrument reflecting the
amendment or waive has been signed by the party against whom it is sought to be
enforced.
6.12 Arbitration. If a dispute arises, those involved in the dispute
shall first consult together in good faith to try to settle such dispute. If the
dispute is not settled after consultation, or if the parties fail to enter into
such consultation, then they shall arbitrate in accordance with the procedures
set forth in the attached Exhibit A. For purposes of this Section 6.12, a
"DISPUTE" includes any disagreement concerning the formation, construction or
interpretation of this Agreement or concerning matters related to or in
connection with this Agreement, but which matter is not covered by this
Agreement.
6
<PAGE> 8
6.13 Litigation Costs. If any party takes legal action or initiates an
arbitration proceeding concerning this Agreement, the unsuccessful party to such
action or proceeding shall pay the successful party's expenses, including fees
or attorneys and expert witnesses, actually and reasonably incurred in such
action.
6.14 Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original and which together shall constitute a
single agreement.
EXECUTED at Westlake Village, California, on the date first above
written.
DIRECTOR
-----------------------------
Stephen Miller, M.D.
KCD HOLDINGS INCORPORATED
-----------------------------
Wellington Ewen, President
7
<PAGE> 9
EXHIBIT A
ARBITRATION PROCEDURES
A-1. Submission to Arbitration. Any dispute (as defined in Section 6.12
(Arbitration)) shall, if demanded by any party, be finally resolved and
determined by arbitration to be held in the County of Los Angeles, State of
California, in accordance with the law of the State of Nevada and the rules of
the American Arbitration Association (collectively, the "RULES") and under the
administration of the American Arbitration Association.
A-2. Selection of Arbitrators. There shall be three arbitrators. If
there are two parties to the arbitration, each party shall choose one
arbitrator, with the third arbitrator to be chosen by the two chosen
arbitrators, which third arbitrator shall serve as the "neutral arbitrator" for
purposes of the Rules. If there are more than two parties to the arbitration,
the two arbitrators shall be chosen pursuant to the Rules, with the third
arbitrator chosen as above, which third arbitrator shall serve as the "neutral
arbitrator" for purposes of the Rules.
A-3. The Panel. The three arbitrators so chosen shall serve as the
arbitration panel which shall resolve the dispute (the "PANEL"). The powers and
duties reserved to the neutral arbitrator under the Rules, shall be exercised by
a majority of the members of the Panel after due consideration and in accordance
with the Rules.
A-4. Proceedings. Subject to appropriate protective orders, the parties
to the arbitration shall facilitate the arbitration by: (a) making available to
one another and to the Panel for inspection, copying and extraction all
documents, books, and records under the control of such party which are relevant
to the subject matter of the arbitration proceeding; (b) conducting arbitration
hearings to the greatest extent possible on successive days; (c) observing
strictly the periods established by the Rules or by the Panel for the submission
of evidence or briefs; and (d) making reasonably available to one another in
arbitration discovery and to the Panel all personnel who are under the control
of such party or who control such party and who have information relevant to the
arbitration proceeding.
A-5. Discovery. In the arbitration proceeding, depositions may be taken
and discovery obtained in accordance with the Rules. The Panel, in its
discretion, may impose sanctions to enforce discovery or may limit discovery.
A-6. Awards. Any award rendered by the Panel shall be final and binding
upon each party to the arbitration and judgment on the award may be entered in
any court of competent jurisdiction. The arbitral award, where appropriate, may
be enforced by such court through injunctive or other equitable relief, as well
as all relief at law, including damages. The Panel also may issue decisions for
interim, interlocutory, provisional or partial relief, including temporary
restraining orders, preliminary injunctions, orders to compel discovery, orders
of attachment, or
A-1
<PAGE> 10
protective orders, any of which may be enforced as an arbitral award by any
court of competent jurisdiction. Any arbitral award for money shall be made and
shall be payable in U.S. dollars. The Panel may award interest from the date of
any breach of this Agreement and shall fix the rate of interest on any amount
awarded for the date of the award to the date the award is paid in full.
A-7. Arbitration Costs. During the course of the arbitration
proceedings, all costs, charges and expenses of the arbitration (including the
fees, charges and expenses of the Panel and the American Arbitration
Association) shall be borne equally by the parties to the arbitration. However,
upon the issuance of the arbitral award, the losing party to the arbitration
shall bear the entire costs of the arbitration.
A-8. Interim Appeals. No party to the arbitration shall have any right
to apply or appeal to any court in connection with any question of law arising
in the course of the arbitration except for purposes of enforcing Section 6.12
(Arbitration) or a resulting arbitral award, except that any such party may
apply to any court of competent jurisdiction for an injunction or other
provisional or interim relief in support of arbitration or pursuant to Section
A-5 and any such application shall not be deemed incompatible with or a waiver
of this agreement to arbitrate.
A-2
<PAGE> 1
EXHIBIT 6.20
AGREEMENT CONTAINING CONSENT ORDER, DATED DECEMBER 18, 1996,
BY AND BETWEEN THE COMPANY AND THE FEDERAL TRADE COMMISSION
<PAGE> 2
UNITED STATES OF AMERICA
FEDERAL TRADE COMMISSION
In the Matter of
KCD HOLDINGS, INC.,
KCD, INCORPORATED,
and DEERFIELD CORPORATION,
corporations, and
CLARK M. HOLCOMB,
individually and as a former officer of
KCD Holdings, Inc., and KCD Incorporated,
BONNIE L. RICHARDS,
individually and as an officer of
KCD Holdings, Inc., and KCD Incorporated,
and
GERALD E. HATTO,
individually and as an officer of
Deerfield Corporation.
FILE NO. 942 3237
AGREEMENT CONTAINING
CONSENT ORDER AS TO
KCD HOLDINGS, INC.,
KCD, INCORPORATED,
DEERFIELD CORPORATION,
CLARK M. HOLCOMB,
BONNIE L. RICHARDS AND
GERALD E. HATTO
The Federal Trade Commission ("Commission") has conducted an
investigation of certain acts and practices of KCD Holdings, Inc. ("KCD
Holdings"), KCD, Incorporated ("KCD"), corporations, and their former
officer, Clark M. Holcomb, and current officer, Bonnie L. Richards, and
Deerfield Corporation ("Deerfield"), a corporation, and its principal, Gerald
E. Hatto ("proposed respondents"). Proposed respondents, having been
represented by counsel, are willing to enter into an agreement containing a
consent order resolving the allegations contained in the attached draft
complaint. Therefore,
IT IS HEREBY AGREED by and between KCD Holdings, KCD and Deerfield, by
their duly authorized officers, and Clark M. Holcomb, individually and as a
former officer of KCD
Page 1 of 11
<PAGE> 3
Holdings and KCD, Bonnie L. Richards, individually and as an officer of KCD
Holdings and KCD, and Gerald E. Hatto, individually and as a principal of
Deerfield, and counsel for the Commission that:
1.a. Proposed respondent KCD Holdings is a Nevada corporation with its
principal office or place of business at 2835 Townsgate Road, Suite 110,
Westlake Village, California 91361.
1.b. Proposed respondent KCD is a California corporation with its principal
office or place of business at 2835 Townsgate Road, Suite 110, Westlake
Village, California 91361. KCD is a wholly owned subsidiary of KCD Holdings.
1.c. Proposed respondent Deerfield is a California corporation with its
principal office or place of business at 1455 Valley High Avenue, Thousand Oaks,
California 91359. Respondent Deerfield is an advertising agency of KCD and KCD
Holdings.
1.d. Proposed respondent Clark M. Holcomb was the president, director and a
majority shareholder of KCD Holdings and KCD from November 1993 through April
1996. Individually or in concert with others, he has formulated, directed,
controlled or participated in the acts and practices of KCD Holdings and KCD.
His principal office or place of business is the same as that of KCD Holdings
and KCD.
1.e. Proposed respondent Bonnie L. Richards is vice president, secretary and
director of KCD Holdings and KCD. Individually or in concert with others, she
formulates, directs, controls or participates in the acts and practices of KCD
Holdings and KCD. Her principal office or place of business is the same as that
of KCD Holdings and KCD.
1.f. Proposed respondent Gerald E. Hatto is an officer and the owner of
Deerfield. Individually or in concert with others, he formulates, directs,
controls or participates in the acts and practices of Deerfield. His principal
office or place of business is the same as that of Deerfield.
2. Proposed respondents admit all the jurisdictional facts set forth in the
draft complaint.
3. Proposed respondents waive:
a. Any further procedural steps;
b. The requirement that the Commission's decision contain a
statement of findings of fact and conclusions of law; and
c. All rights to seek judicial review or otherwise to challenge or contest
the validity of the order entered pursuant to this agreement.
Page 2 of 11
<PAGE> 4
4. This agreement shall not become part of the public record of the
proceeding unless and until it is accepted by the Commission. If this agreement
is accepted by the Commission, it, together with (the draft complaint, will be
placed on the public record for a period of sixty (60) days and information
about it publicly released. The Commission thereafter may either withdraw its
acceptance of this agreement and so notify proposed respondents, in which event
it will take such action as it may consider appropriate, or issue and serve its
complaint (in such form as (the circumstances may require) and decision in
disposition of the proceeding.
5. This agreement is for settlement purposes only and does not constitute
an admission by proposed respondents that the law has been violated as alleged
in the draft complaint, or that the facts as alleged in the draft complaint,
other than the jurisdictional facts, are true.
6. This agreement contemplates that, if it is accepted by the Commission,
and if such acceptance is not subsequently withdrawn by the Commission pursuant
to the provisions of Section 2.34 of the Commission's Rules, the Commission may,
without further notice to proposed respondents, (1) issue its complaint
corresponding in form and substance with the attached draft complaint and its
decision containing the following order in disposition of the proceeding, and
(2) make information about it public. When so entered, the order shall have the
same force and effect and may be altered, modified, or set aside in the same
manner and within the same time provided by statute for other orders. The order
shall become final upon service. Delivery of the complaint and the decision and
order to proposed respondents by any means specified in Section 4.4 of the
Commission's Rules shall constitute service. Proposed respondents waive any
right they may have to any other manner of service. The complaint may be used in
construing the terms of the order. No agreement, understanding, representation,
or interpretation not contained in the order or in the agreement may be used to
vary or contradict the terms of the order.
7. Proposed respondents have read the draft complaint and consent order.
They understand that they may be liable for civil penalties in the amount
provided by law and other appropriate relief for each violation of the order
after it becomes final.
ORDER
DEFINITIONS
For purposes of this Order, the following definitions shall apply:
1. "Competent and reliable scientific evidence" shall mean tests,
analyses, research, studies or other evidence based on the expertise of
professionals in the relevant area, that has been conducted and evaluated in an
objective manner by persons qualified to do so, using procedures generally
accepted in the profession to yield accurate and reliable results.
Page 3 of 11
<PAGE> 5
2. "KCD respondents" shall mean KCD Holdings, Inc. ("KCD
Holdings"), KCD Incorporated ("KCD"), corporations, their successors and assigns
and their officers, Clark M. Holcomb ("Holcomb"), individually and as a former
officer of the corporations; Bonnie L. Richards ("Richards"), individually and
as an officer of the corporations; and each of their agents, representatives and
employees.
3. "Deerfield respondents" shall mean Deerfield Corporation
("Deerfield"), a corporation, its successors and assigns and its officers;
Gerald E. Hatto ("Hatto"), individually and as an officer of the corporation;
and each of their agents, representatives and employees.
4. Unless otherwise specified, "respondents" shall mean KCD
Holdings, KCD and Deerfield, corporations, their successors and assigns and
their officers; Holcomb, Richards and Hatto, individually and as officers or
former officers of the corporations; and each of the above's agents,
representatives and employees.
5. "Commerce" shall mean as defined in Section 4 of the Federal
Trade Commission Act, 15 U.S.C. Section 44.
I.
IT IS ORDERED that respondents, directly or through any corporation,
subsidiary, division or other device, in connection with the labeling,
advertising, promotion, offering for sale, sale or distribution of SeQuester or
any product or program, marketed or sold under any name, in or affecting
commerce, shall not represent, in any manner, expressly or by implication, that
such product or program prevents or reduces the body's absorption of fat or
sugar from consumed food, unless the representation is true and, at the time it
is made, respondents possess and rely upon competent and reliable scientific
evidence that substantiates the representation.
II.
IT IS FURTHER ORDERED that respondents, directly or through any
corporation, subsidiary, division or other device, in connection with the
labeling, advertising, promotion, offering for sale, sale or distribution of
SeQuester or any product or program, in or affecting commerce, shall not make
any representation, in any manner, expressly or by implication, that any such
product or program:
A. Provides any weight loss benefit
B. Causes greater loss of body fat than diet and exercise alone;
Page 4 of 11
<PAGE> 6
C. Allows consumers to eat high-fat foods without increasing their
risk of high cholesterol, clogged arteries, heart disease or
other health problems associated with a high-fat diet; or
D. Reduces, or reduces the risk of, high cholesterol, clogged
arteries, heart disease and other health problems associated
with a high-fat diet,
unless, at the time the representation is made, respondents possess and rely
upon competent and reliable scientific evidence that substantiates the
representation
III.
IT IS FURTHER ORDERED that the KCD respondents, directly or through any
corporation, subsidiary, division or other device, in connection with the
labeling, advertising, promotion, offering for sale, sale or distribution of
SeQuester or any product or program, in or affecting commerce, shall not make
any representation, in any manner, expressly or by implication, that any such
product or program can be used, beneficially and safely, in amounts or with
frequency sufficient to cause diarrhea, unless, at the time the representation
is made, the KCD respondents possess and rely upon competent and reliable
scientific evidence that substantiates the representation.
IV.
IT IS FURTHER ORDERED that respondents, directly or through any
corporation, subsidiary, division or other device, in connection with the
labeling, advertising, promotion, offering for sale, sale or distribution of
SeQuester or any product or program, in or affecting commerce, shall not
misrepresent, in any manner, expressly or by implication, the existence,
contents, validity, results, conclusions or interpretations of any test, study
or research.
V.
IT IS FURTHER ORDERED that respondents, directly or through any
corporation, subsidiary, division or other device, in connection with the
labeling, advertising, promotion, offering for sale, sale or distribution of
SeQuester or any product or program, in or affecting commerce, shall not make
any representation, in any manner, expressly or by implication, about the
benefits, performance, efficacy or safety of any such product or program unless,
at the time the representation is made, respondents possess and rely upon
competent and reliable evidence, which when appropriate must be competent and
reliable scientific evidence, that substantiates the representation.
Page 5 of 11
<PAGE> 7
VI.
IT IS FURTHER ORDERED that with respect to the Deerfield respondents, it
shall be a defense to Sections 1, 11 and V of this order that they neither knew
nor had reason to know of an inadequacy of substantiation for any such
representation; provided further that it shall be a defense to Section IV of
this order that they neither knew nor had reason to know that the test, study or
research did not prove, demonstrate or confirm that representation.
VII.
IT IS FURTHER ORDERED that KCD Holdings, Inc., KCD Incorporated and Bonnie
L. Richards, their successors and assigns, shall deposit into an escrow account,
to be established by the Commission for the purpose of receiving payment due
under this order ("escrow account"), the sum of one hundred and fifty thousand
dollars ($150,000). This payment shall be made in the following manner:
A. By certified or cashier's check made payable to the Federal
Trade Commission, in thirteen installments, the first installment of twenty-five
thousand dollars ($25,000) to be made no later than the date that this order
becomes final; the next eleven payments of ten thousand, four hundred and
sixteen dollars ($10,416) to be made no later than the first day of each of the
following eleven months; and the final installment of ten thousand, four hundred
and twenty-four dollars ($10,424) to be made no later than one year from the
date that this order becomes final. The checks shall be deliverable to Regional
Director, Federal Trade Commission, 915 Second Avenue, Suite 2896, Seattle,
Washington 98174.
B. In the event of any default in payment, which default continues
for ten (10) days beyond the due date of payment, the entire amount due,
together with interest, as computed pursuant to 28 U.S.C. Section 1961 from the
date of default to the date of payment, shall immediately become due and
payable.
C. In order to secure payment of respondents' indebtedness to the
Commission, within seven (7) days of the date that this order becomes final,
respondents shall cause to be transferred to the Commission a security interest
in the property described in Appendix A, which property has been determined by
an independent appraisal to have a value of one hundred and twenty-five thousand
dollars ($125,000) or more in excess of all other perfected security interests,
as security for the payments required to be made by respondents in Part VII(A)
of this order. The respondents shall, within seven (7) days of the date that
this order becomes final, file all documents necessary to perfect and record
(the Commission's security interest in (the property described in Appendix A,
in conformity with appropriate state law. The respondents shall, within ten
(10) days of the date that
Page 6 of 11
<PAGE> 8
this order becomes final, furnish to counsel for the Commission complete
documentation evidencing that the Commission's security interest in the property
described in Appendix A has been correctly perfected and recorded. The
Commission will release this security interest upon receipt of all payments
required by Part VII(A) of this order.
D. The funds paid by respondents, together with accrued interest,
shall, in the discretion of the Commission, be used by the Commission to
provide direct redress to purchasers of SeQuester in connection with the acts or
practices alleged in the complaint, and to pay any attendant costs of
administration. If the Commission determines, in its sole discretion, that
redress to purchasers of this product is wholly or partially impracticable or is
otherwise unwarranted, any funds not so used shall be paid to the United States
Treasury. Respondents shall be notified as to how the funds are distributed, but
shall have no right to contest the manner of distribution chosen by the
Commission. No portion of the payment as herein provided shall be deemed a
payment of any fine, penalty or punitive assessment.
E. At any time after this order becomes final, the Commission may
direct the escrow agent to transfer funds from the escrow account, including
accrued interest, to the Commission to be distributed as herein provided. The
Commission, or its representative, shall, in its sole discretion, select the
escrow agent.
F. Respondents relinquish all dominion, control and title to the
funds paid into the escrow account, and all legal and equitable title to the
funds vests in the Treasurer of the United States and in the designated
consumers. Respondents shall make no claim to or demand for return of the funds,
directly or indirectly, through counsel or otherwise; and in the event of
bankruptcy of respondents, respondents acknowledge that the funds are not part
of the debtor's estate, nor does the estate have any claim or interest therein.
VIII.
Nothing in this order shall prohibit respondents from making any
representation for any drug that is permitted in labeling for any drug under any
tentative final or final standard promulgated by the Food and Drug
Administration ("FDA"), or under any new drug application approved by the FDA.
IX.
Nothing in this order shall prohibit respondents from making any
representation for any product that is specifically permitted in labeling for
such product by regulations promulgated by the FDA pursuant to the Nutrition
Labeling and Education Act of 1990.
7 of 11
<PAGE> 9
X.
IT IS FURTHER ORDERED that respondents shall, for five (5) years after the
last (date of dissemination of any representation covered by this order,
maintain and upon reasonable written request make available to the Commission
for inspection and copying:
A. All advertisements or promotional materials containing the
representation;
B. All materials that were relied upon in disseminating the
representation; and
C. All tests, reports, studies, surveys, demonstrations or other
evidence in their possession or control that contradict, qualify
or call into question the representation, or the basis relied
upon for the representation, including complaints and other
communications with consumers or with governmental or consumer
protection organizations.
XI.
IT IS FURTHER ORDERED that respondents shall deliver a copy of this
order to all current and future principals, officers, directors and managers,
and to all current and future employees, agents and representatives having
responsibilities with respect to the subject matter of this order, and shall
secure from each such person a signed and dated statement acknowledging receipt
of the order, such statements to be retained by respondents for a period of five
(5) years. Respondents shall deliver this order to current personnel within
thirty (30) days after the date of service of this order, and to future
personnel within thirty (30) days after the person assumes such position or
responsibilities.
XII.
IT IS FURTHER ORDERED that respondents KCD Holdings, KCD and Deerfield,
and their successors and assigns, shall notify the Commission at least thirty
(30) days prior to any change in the corporations that may affect compliance
obligations arising under this order, including but not limited to a
dissolution, assignment, sale, merger or other action that would result in the
emergence of a successor corporation; the creation or dissolution of a
subsidiary, parent or affiliate that engages in any acts or practices subject to
this order; the proposed filing of a bankruptcy petition; or a change in
corporate name or address. Provided, however, that, with respect to any proposed
change in the corporation about which respondents learn less than thirty (30)
days prior to the date such
Page 8 of 11
<PAGE> 10
action is to take place, respondents shall notify the Commission as soon as is
practicable after obtaining such knowledge. All notices required by this Part
shall be sent by certified mail to the Associate Director, Division of
Enforcement, Bureau of Consumer Protection, Federal Trade Commission,
Washington, D.C. 20580.
XIII.
IT IS FURTHER ORDERED that respondents Holcomb, Richards, and Hatto
shall, for a period of five (5) years after the date of issuance of this order,
notify the Commission within thirty (30) days of the discontinuance of their
current business or employment, and of their affiliation with any new business
or employment. The notice shall include the respondents' new business addresses
and telephone numbers, current home addresses, and a description of the nature
of the business or employment and their duties and responsibilities. All notices
required by this Part shall be sent by certified mail to the Associate Director,
Division of Enforcement, Bureau of Consumer Protection, Federal Trade
Commission, Washington, D.C. 20580.
XIV.
IT IS FURTHER ORDERED that respondents shall, within sixty (60) days
after the date of service of this order, and at other such times as the Federal
Trade Commission may require, file with the Commission a report, in writing,
setting forth in detail the manner and form in which they have complied with
this order.
XV.
This order will terminate twenty (20) years from the date of its
issuance, or twenty (20) years from the most recent date that the United States
or the Federal Trade Commission files a complaint (with or without an
accompanying consent decree) in federal court alleging any violation of the
order, whichever comes later; provided, however, that the filing of such a
complaint will not affect the duration of:
A. Any Part in this order that terminates in less than twenty (20)
years;
B. This order's application to any respondent that is not named as
a defendant in such complaint; and
C. This order if such complaint is filed after (the order has
terminated pursuant to this Part.
Page 9 of 11
<PAGE> 11
Provided, further that if such complaint is dismissed or a federal court rules
that the respondent did not violate any provision of the order, and the
dismissal or ruling is either not appealed or upheld on appeal, then the order
will terminate according to this Part as though the complaint had never been
filed, except that the order will not terminate between the date such complaint
is filed and the later of the deadline for appealing such dismissal or ruling
and the date such dismissal or ruling is upheld on appeal.
Signed this day of , 1996
KCD HOLDINGS, INC. AND KCD, INCORPORATED
-------------------------------------------
By: President and Chief Executive Officer
DEERFIELD CORPORATION
------------------------------------------
By: GERALD E. HATTO
Officer and Principal
-----------------------------------------------
CLARK M. HOLCOMB, individually and as a former
officer of KCD Holdings, Inc., and KCD,
Incorporated
------------------------------------------------
BONNIE L. RICHARDS, individually and as an
officer of KCD Holdings, Inc., and KCD,
Incorporated
Page 10 of 11
<PAGE> 12
_______________________________________________
GERALD E. HATTO, individually and as an officer
and principal of Deerfield Corporation
_______________________________________________
GEOFFREY M. LEVITT
Venable, Baetjer, Howard & Civiletti, LLP
1201 New York Avenue, N.W., Suite 1000
Washington, D.C. 20005-3917
Attorney for Respondents
_______________________________________________
NADINE S. SAMTER
Counsel for the Federal Trade Commission
APPROVED:
_______________________________
CHARLES A. HARWOOD
Regional Director
Seattle Regional Office
Page 11 of 11
<PAGE> 1
EXHIBIT 6.21
SEQUESTER HOLDINGS INCORPORATED 1997 STOCK PLAN
<PAGE> 2
SEQUESTER HOLDINGS, INCORPORATED
1997 STOCK PLAN
1. Purpose. The purposes of the Sequester Holdings, Incorporated 1997 Stock
Plan ("Plan") are to encourage key personnel of Sequester Holdings, Incorporated
(the "Company") and its subsidiaries to increase their interest in the Company's
long-term success, to enhance the profitability and value of the Company for the
benefit of its shareholders and to assist the Company and its subsidiaries in
attracting, retaining and motivating key personnel by giving suitable
recognition for services which contribute materially to the Company's success.
2. Definitions. The following definitions shall be applicable throughout the
Plan:
"Act" means the Securities Act of 1933, as amended from time to
time.
"Affiliate" means any parent or subsidiary (as defined in Section
424(e) and (f) of the Code) of the Company.
"Award" means an Option, Stock Appreciation Right or Other Stock
Award.
"Board" means the Board of Directors of the Company.
"Change of Control" means, unless the Board otherwise directs by
resolution adopted prior thereto, (i) the acquisition by any entity, person
or group (other than the Company or its Affiliates or an employee benefit
plan maintained by the Company or one of its Affiliates) of beneficial
ownership of 20% or more of the outstanding voting stock of the Company; or
(ii) the occurrence of a transaction requiring shareholder approval for the
acquisition of the Company by the purchase of stock or assets, or by merger,
or otherwise; or (iii) the election during any period of 24 months or less
of 50% or more of the members of the Board without the approval of the
nomination of such members by a majority of the Board consisting of members
who were serving at the beginning of such period.
"Code" means the Internal Revenue Code of 1986, as amended from
time to time.
"Committee" means the Committee of the Board consisting of two or
more directors, each of whom is not an employee or former employee of the
Company.
"Consultant" means any consultant or advisor engaged by the Company
who renders bona fide services to the Company or an Affiliate in connection
with its business, provided that such services must not be in connection
with the offer or sale of securities in a capital-raising transaction.
"Disability" means permanent and total disability as defined in
Section 22(e)(3) of the Code.
"Company" means Sequester Holdings, Incorporated, a Nevada
corporation.
"Employee" means any person who is employed by the Company or an
Affiliate.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Fair Market Value" means for any given day (i) the closing price
on such date of a share of Stock as reported on the principal securities
exchange on which such shares of Stock are then listed or admitted to
trading, or as reported on the National Association of Securities Dealers
Automated Quotation ("Nasdaq") National Market System, or (ii) if not so
reported, the average of the bid and ask prices on such date as reported by
the National Quotation Bureau, Inc., or (iii) if no such quotations are
available, as determined by the Committee in good faith in their absolute
discretion.
<PAGE> 3
"Grant Limit" means the total number of shares of Stock that can be
issued to any Participant in any fiscal year pursuant to an Award granted
hereunder.
"Incentive Stock Option" means an Option granted by the Committee
to an Employee Participant under the Plan which is designated by the
Committee as an Incentive Stock Option pursuant to Section 422 of the Code.
"Non-Qualified Stock Option" means an Option granted by the
Committee to a Participant under the Plan which is not designated by the
Committee as an Incentive Stock Option.
"Option" means an Award granted under Section 6 of the Plan.
"Other Stock Awards" means an Award granted under Section 8 of the
Plan.
"Participant" means any individual designated by the Committee to
participate in the Plan.
"Performance-Based Compensation" means (i) an Option granted at
less than 100% of the Fair Market Value of the Stock at the time of grant,
(ii) a Restricted Stock Award or (iii) a Stock Bonus, in each case which has
been granted with the intention that such award will be deductible under
Section 162(m) of the Code, or successor provision.
"Plan" means this Sequester Holdings, Incorporated 1997 Stock Plan.
"Restricted Stock Award" means an Award granted under Section 8(a)
of the Plan.
"Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act,
or any successor rule or regulation.
"Stock" means the common stock of the Company, $.002 par value.
"Stock Appreciation Right" means an Award granted under Section 7
of the Plan.
"Stock Bonus" means an Award granted under Section 8(b) of the
Plan.
"Termination Date" means the date an optionee ceases to be employed
or engaged by the Company.
3. Administration. The Plan shall be administered by the Committee. The
Committee shall have full power, discretion and authority to interpret, construe
and administer the Plan, to prescribe, amend and rescind rules and regulations
relating to the Plan, to provide for conditions and assurances deemed necessary
or advisable to protect the interests of the Company and to make all other
determinations necessary or advisable for the administration of the Plan, to the
extent not contrary to the explicit provisions of the Plan. Determinations,
interpretations and other actions by the Committee pursuant to the Plan shall be
final, conclusive and binding on all persons for all purposes.
The Committee shall have full power, discretion and authority to
establish applicable performance measures for Awards intended to be
Performance-Based Compensation, which performance measures shall include one or
more of the following: improvements in revenues, earnings per share, profit
before taxes, net income or operating income; return on shareholder equity;
return on net assets; and stock price performance. Further, the Committee shall
determine the specific targets related to each such performance measure and the
performance period for each such Award. The Committee shall establish in writing
such performance measures, specific targets and performance periods as provided
in Section 162(m) of the Code and the regulations promulgated thereunder, or
successor provision or regulation, to the extent Section 162(m) is applicable.
2
<PAGE> 4
The Committee's decisions and determinations under the Plan need
not be uniform and may be made selectively among Participants whether or not
such Participants are similarly situated. The Committee may, in its discretion,
delegate to others responsibilities to assist in administering the Plan.
Prior to the date a Committee is appointed or at any time there are
less than two directors serving on the Committee, the Plan shall be administered
by the Board which will exercise the powers and authority of the Committee as
set forth herein.
4. Eligibility. Any Employee selected by the Committee, except a member of
the Committee or a director whose principal employment is not with the Company
or an Affiliate, and any Consultant selected by the Committee shall be eligible
for Awards contemplated under the Plan except that Consultants shall not be
eligible for Incentive Stock Option grants.
5. Stock Subject to Plan and Grant Limits. The total number of shares of
Stock subject to issuance under the Plan may not exceed 3,000,000 subject to
adjustments as provided in the Plan. Shares to be delivered under the Plan may
consist, in whole or in part, of authorized but unissued shares or shares
purchased by the Company on the open market or by private purchase. The Grant
Limit shall equal 1,750,000 shares, subject to adjustment as provided in Section
10 hereof.
Except as otherwise provided in the Plan, shares of Stock that are
subject to an Option or Stock Appreciation Right which, for any reason, expires
or is terminated unexercised as to such shares, and shares of Stock subject to a
Restricted Stock Award made under the Plan which are reacquired by the Company
pursuant to the Plan, shall again become available for issuance under the Plan.
6. Stock Options. The Committee may grant stock Options alone or in addition
to any other Awards granted under the Plan. Options granted under the Plan may
be of two types: (i) Incentive Stock Options; and (ii) Non-Qualified Stock
Options. Subject to the limitations contained herein with respect to Incentive
Stock Options, the Committee may grant Incentive Stock Options, Non-Qualified
Stock Options, or both types of Options to a Participant and the Committee shall
have complete discretion in determining the number of Options granted to each
Participant, subject to the Grant Limit. To the extent that any Option does not
qualify as an Incentive Stock Option, it shall constitute a separate
Non-Qualified Stock Option. The provisions of Options need not be the same with
respect to each Participant granted an Option.
Each Option shall be set forth in a written agreement, shall be
subject to the following terms and conditions and shall contain such additional
terms and conditions not inconsistent with the terms of the Plan as the
Committee deems appropriate:
(a) The exercise price of shares subject to any Incentive Stock
Option shall not be less than the Fair Market Value of the Stock at the time
the Incentive Stock Option is granted; the exercise price of shares subject
to any Non-Qualified Stock Option shall be such price as the Committee shall
determine on the date on which such Non-Qualified Stock Option is granted,
provided that such exercise price may not be less than 85% of the Fair
Market Value of the Stock at the time the Non-Qualified Stock Option is
granted;
(b) If the exercise price of a Non-Qualified Stock Option is less
than 100% of the Fair Market Value of the Stock at the time the
Non-Qualified Stock Option is granted, the Committee may designate such
award as Performance-Based Compensation in which event the Committee shall
establish performance measures for such award, the specific targets
applicable to such measures and the performance period for such award;
(c) The exercise price of any shares exercised under any Option
must be paid in full upon such exercise in cash, stock or such other form as
the Committee may determine, including by promissory note;
3
<PAGE> 5
(d) The term of each Option shall be fixed by the Committee but no
Option may be exercised after the expiration of 10 years from the date such
Option is granted;
(e) In the event that an optionee shall cease to be employed or
engaged by the Company or an Affiliate, the vesting of such optionee's
Options shall immediately and automatically terminate on the Termination
Date and if the cessation of employment or engagement is:
(1) due to any reason other than due to retirement,
Disability or death, such optionee's Options exercisable on the
Termination Date shall remain exercisable for 30 days after the
Termination Date;
(2) due to retirement, such optionee's Options exercisable
on the Termination Date shall remain exercisable for three months
after the Termination Date;
(3) due to a Disability, such optionee's Options
exercisable on the Termination Date shall remain exercisable for
one year after the Termination Date, or;
(4) due to death while employed or engaged by the Company
or its Affiliate, or during the three month period following
retirement or during the one year period following cessation of
employment due to a Disability, the optionee's Options exercisable
at the time of death shall remain exercisable for one year after
the date of the optionee's death;
provided, however, that notwithstanding anything herein to the contrary, if
any Option would otherwise expire on an earlier date than described above,
such Option shall remain exercisable only until the earlier expiration date;
(f) Options shall become exercisable at such time or times and
subject to such terms and conditions (including, without limitation,
installment exercise provisions) as shall be determined by the Committee and
if the Committee provides that any Option is exercisable only in
installments, the Committee may waive such installment exercise provisions
at any time in whole or in part based on any factors as the Committee may
determine;
(g) Incentive Stock Options may be granted only to Employees;
(h) In the case of an Incentive Stock Option, the aggregate Fair
Market Value (determined as of the time the Option is granted) of the Stock
with respect to which Options are exercisable for the first time by any
Employee during any calendar year (under all such plans of the Company and
its Affiliates) shall not exceed $100,000;
(i) No Incentive Stock Option shall be granted to a Participant
who, at the time the Incentive Stock Option is granted, owns (within the
meaning of Section 422 of the Code) Stock possessing more than 10% of the
total combined voting power of all classes of stock of the Company or any
Affiliate unless the exercise price per share of Stock is at least 110% of
the Fair Market Value of the Stock at the time the Incentive Stock Option is
granted and the Incentive Stock Option by its terms is not exercisable after
the expiration of five years from the date of grant;
(j) No Option shall be sold, transferred, pledged, assigned or
otherwise alienated or hypothecated otherwise than by will or by the laws of
descent and distribution or pursuant to a qualified domestic relations order
as defined in the Code; and
(k) All Options shall be exercisable during the optionee's lifetime
only by the optionee or by a transferee permitted pursuant to Section 6(j)
above.
4
<PAGE> 6
Anything in the Plan to the contrary notwithstanding, no term of
this Plan relating to Incentive Stock Options shall be interpreted, amended or
altered, nor shall any discretion or authority granted under the Plan be
exercised, so as to disqualify the Plan under Section 422 of the Code or,
without the consent of the Participants affected, to disqualify any Incentive
Stock Option under Section 422.
7. Stock Appreciation Rights. The Committee may grant Stock Appreciation
Rights alone or in conjunction with all or part of any Option granted under the
Plan, subject to the Grant Limit. In the case of a Non-Qualified Stock Option,
such Stock Appreciation Rights may be granted either at or after the time of the
grant of such Non-Qualified Stock Option. In the case of an Incentive Stock
Option, such Stock Appreciation Rights may be granted only at the time of the
grant of the Incentive Stock Option.
Each Stock Appreciation Right shall be set forth in a written
agreement, shall be subject to the following terms and conditions and shall
contain such additional terms and conditions not inconsistent with the terms of
the Plan as the Committee deems appropriate:
(a) Subject to subparagraphs (b) and (c) below, a Stock
Appreciation Right granted in connection with an Option shall become
exercisable and shall lapse according to the same vesting schedule and lapse
rules that are established for the Option; a Stock Appreciation Right
granted independently of an Option shall become exercisable and shall lapse
in accordance with the vesting schedule and lapse rules established by the
Committee;
(b) A Stock Appreciation Right and any related Option shall not be
exercisable during the first six months of their terms by any Participant;
(c) A Stock Appreciation Right shall be exercisable only when the
Fair Market Value of the Stock relating to the Stock Appreciation Right
exceeds the exercise price thereof;
(d) If the exercise price of a Stock Appreciation Right is less
than 100% of the Fair Market Value of the Stock at the time the Stock
Appreciation Right is granted, such award may be designated by the Committee
to be Performance-Based Compensation in which event the Committee shall
establish performance measures for such award, the specific targets
applicable to such measures and the performance period for such award;
(e) Upon the exercise of a Stock Appreciation Right with respect to
any number of shares of Stock, the holder shall be entitled to receive
payment of an amount (subject to subparagraph (f), below) determined by
multiplying (i) the difference between the Fair Market Value per share of
Stock on the date of exercise and the exercise price of the related Option
(or in the case of an Stock Appreciation Right granted independent of an
Option, the exercise price of the Stock Appreciation Right as established by
the Committee) by (ii) the number of shares in respect of which the Stock
Appreciation Right is exercised. At the discretion of the Committee, payment
for Stock Appreciation Rights may be made in cash or stock, or in a
combination thereof. If payment is made in Stock, the value of such Stock
shall be the Fair Market Value determined as of the date of exercise;
(f) At the time of grant, the Committee may establish, in its sole
discretion, a maximum amount per share which will be payable upon exercise
of a Stock Appreciation Right;
(g) Notwithstanding any other provisions of the Plan, the Committee
may impose such conditions on exercise of a Stock Appreciation Right
(including, without limitation, the right of the Committee to limit the time
of exercise to specified periods) as may be required to satisfy the
requirements of Rule 16b-3;
(h) The Committee may provide that upon exercise of a Stock
Appreciation Right granted in conjunction with an Option, the number of
shares of Stock for which the related Option shall be exercisable shall
reduce by the number of shares of Stock for which the Stock Appreciation
Right shall have been exercised and the number of shares of Stock for which
a Stock Appreciation Right shall be exercisable shall be reduced upon any
5
<PAGE> 7
exercise of a related Option by the number of shares of Stock for which such
Option shall have been exercised;
(i) The term of a Stock Appreciation Right granted under the Plan
shall not exceed ten years;
(j) No Stock Appreciation Right granted under the Plan may be sold,
transferred, pledged, assigned or otherwise alienated or hypothecated
otherwise than by will or by the laws of descent and distribution or
pursuant to a qualified domestic relations order as defined in the Code, and
all Stock Appreciation Rights shall be exercisable during the Participant's
lifetime only by the Participant or by a transferee permitted pursuant to
Section 7(j) above;
(k) The Committee may provide, at the time of grant, that such
Stock Appreciation Right can be exercised only in the event of a Change of
Control, subject to terms and conditions as the Committee may specify at
grant.
8. Other Stock Awards. In addition to Options and Stock Appreciation Rights,
the Committee may grant Other Stock Awards payable in Stock upon such terms and
conditions as the Committee may determine, subject to the provisions of the
Plan. Other Stock Awards may include, but are not limited to, the following
types of Awards:
(a) Restricted Stock Awards. The Committee may grant Restricted
Stock Awards, each of which consists of a grant of shares of Stock subject
to restrictions, terms and conditions not inconsistent with the terms of the
Plan, including the Grant Limit, as the Committee deems appropriate, which
such restrictions, terms and conditions shall be set forth in written
agreements. The Committee may designate a Restricted Stock Award as
Performance-Based Compensation in which event the Committee shall establish
performance measures for such award, the specific targets applicable to such
measures and the performance period for such award. Stock certificates
evidencing a Restricted Stock Award shall be issued by the Company in the
name of the Participant, and such Participant shall be entitled to all
voting rights, rights to dividends and other rights of holders of Stock,
subject to the provisions of the Plan. The certificates representing a
Restricted Stock Award issued under the Plan and any dividends paid thereon,
shall remain in the physical custody of the Company or an escrow holder or
be placed in trust until the restrictions imposed under the Plan have
lapsed. The Committee may also require that a legend or legends be placed on
any certificates representing a Restricted Stock Award to reference the
various restrictions imposed on such Stock. If a Restricted Stock Award is
granted which requires the payment of an exercise price by the Participant,
then such Award must be accepted within a period of 60 days (or such shorter
periods as the Committee may specify at grant) after the date of grant. The
shares of Stock granted under a Restricted Stock Award may not be sold,
transferred, assigned, or otherwise alienated or hypothecated until the
lapse or release of restrictions in accordance with the terms of the
Restricted Stock Award agreement and the Plan. Prior to the lapse or release
of restrictions, all shares of Stock are subject to forfeiture in accordance
with conditions as may be determined by the Committee. The provisions of a
Restricted Stock Award need not be the same with respect to each recipient.
(b) Stock Bonuses. The Committee may grant Stock Bonuses in such
amounts as it shall determine from time to time, subject to the Grant Limit.
A Stock Bonus shall be paid at such time and be subject to such conditions
as the Committee shall determine at the time of the grant of such Stock
Bonus. The Committee may designate a Stock Bonus as Performance-Based
Compensation in which event the Committee shall establish performance
measures for such award, the specific targets applicable to such measures
and the performance period for such award. Certificates for shares of Stock
granted as a Stock Bonus shall be issued in the name of the Participant to
whom such grant was made and delivered to such Participant as soon as
practicable after the date on which such Stock Bonus is required to be paid.
9. General Provisions.
(a) The grant of any Award under the Plan may also be subject to
such other provisions (whether or not applicable to any Award granted to any
other Participant) as the Committee determines appropriate including,
without limitation, provisions to assist the Participant in financing the
purchase of Stock through the exercise of
6
<PAGE> 8
Options, provisions for restrictions on resale or other disposition of
shares acquired under any Award, provisions giving the Company the right to
repurchase Stock acquired under any Award in the event the Participant
elects to dispose of such Stock, provisions to comply with compensation
expense deductibility under the Code and provisions to comply with federal
and state securities laws and federal and state income tax withholding
requirements.
(b) The obligation of the Company to make payment of Awards in
Stock or otherwise shall be subject to applicable laws, rules and
regulations, and to such approvals by governmental agencies as may be
required. The Company shall be under no obligation to register under the Act
any of the shares of Stock delivered under the Plan; provided, however,
that, notwithstanding the foregoing, the Committee shall have the authority
to obligate the Company to register awards made under this Plan by the
filing of a Form S-8 registration statement. All certificates for shares of
Stock or other securities delivered under the Plan shall be subject to such
stock-transfer orders and other restrictions as the Committee may deem
advisable under the rules, regulations and other requirements of the
Securities and Exchange Commission, any stock exchange upon which the Stock
is then listed and any applicable federal or state securities laws, and the
Committee may cause a legend or legends to be put on any such certificates
to make appropriate reference to such restrictions. The Committee may
require each Participant acquiring shares pursuant to an Award under the
Plan to represent to and agree with the Company in writing that the
Participant is acquiring the Stock without a view to distribution thereof.
(c) The Company shall have the right to deduct from all Awards, to
the extent paid in cash, all federal state or local taxes as required by law
to be withheld with respect to such Awards and, in the case of Awards paid
in Stock, the Participant or other person receiving such Stock may be
required to pay to the Company prior to delivery of such Stock, the amount
of any such tax which the Company is required to withhold, if any, with
respect to such Stock. At the discretion of the Committee, the Company may
accept shares of Stock, or withhold shares of Stock otherwise issuable upon
exercise of an Award, of equivalent Fair Market Value in payment of such
withholding tax obligations or provide alternative methods of complying with
such withholding tax obligations.
(d) No Employee or other person shall have any claim or right to be
granted an Award under the Plan nor, having been selected for the grant of
an Award, to be selected for a grant of any other Award. Neither this Plan
nor any action taken hereunder shall be construed as giving any Participant
any right to be retained in the employ of the Company or its Affiliates.
(e) Each Participant may file with the Committee a written
designation of one or more persons as the beneficiary who shall be entitled
to receive the amounts payable with respect to the benefits of an Award, if
any, due under the Plan upon such Participant's death. A Participant may,
from time to time, revoke or change the beneficiary designation without the
consent of any prior beneficiary by filing a new designation with the
Committee. The last designation received by the Committee shall be
controlling; provided, however, that no designation, or change or revocation
therein shall be effective unless received by the Committee prior to the
Participant's death, and in no event shall it be effective as of a date
prior to such receipt. In the absence of any such designation, benefits
remaining unpaid at the Participant's death shall be paid to the
Participant's estate.
(f) Except as otherwise specifically provided in the Plan, no
Participant shall be entitled to the privileges of stock ownership in
respect of Stock which is subject to an Option, Stock Appreciation Right or
Other Stock Award until such Stock has been issued to that Participant upon
exercise of an Option or Stock Appreciation Right according to its terms or
upon sale or grant of Stock in accordance with an Other Stock Award.
(g) No Participant or other person shall have any right with
respect to this Plan, shares reserved under this Plan, or in any Award,
contingent or otherwise, until written evidence of the Award shall have been
delivered to the Participant and all the terms, conditions and provisions of
the Plan applicable to such Participant have been met.
7
<PAGE> 9
10. Changes in Capital Structure. In the event of changes in the outstanding
Stock or in the capital structure of the Company by reason of any stock
dividend, stock split, exchange of shares, recapitalization, reorganization, sub
division or consolidation of shares, or other similar transaction, the aggregate
number of shares available under the Plan, the number of shares subject to each
outstanding Award and the price per share of any Award, shall all be
proportionately adjusted. In the event the Company shall be a party to a
transaction involving a sale of substantially all of its assets, a merger or a
consolidation, the Board shall make such adjustment as shall be necessary or
appropriate which may include assumption of Awards by the surviving Company, for
their continuation, for the acceleration of vesting and expiration, or for
settlement in cash. In the case of dissolution of the Company (other than a
dissolution following the sale of substantially all of the Company's assets),
the Awards outstanding hereunder shall terminate; provided, however, that each
Participant shall have 30 days' prior written notice of such event, during which
time the Participant shall have the right to exercise in full any partly or
wholly unexercised Award, including the portion not yet exercisable pursuant to
the vesting schedule set forth in any Award agreement. In the event of any
change in applicable laws or any change in circumstances which results in or
would result in any substantial dilution or enlargement of the rights granted to
or available for Participants in the Plan, or which otherwise warrants equitable
adjustment because it interferes with the intended operation of the Plan, the
Committee may make such adjustments or substitutions to Awards or agreements
evidencing Awards as the Committee determines appropriate in its sole
discretion. Any adjustment in Incentive Stock Options under this Section 10
shall be made only to the extent not constituting a "modification" within the
meaning of Section 424(h)(3) of the Code. The Company shall give each
Participant notice of an adjustment hereunder and, upon notice, such adjustments
shall be conclusive and binding for all purposes.
11. Change of Control. Upon the occurrence of an event constituting a Change
of Control, the following transactions, in the sole discretion of the Committee,
may be triggered: (i) all Options and Stock Appreciation Rights shall become
immediately exercisable in full for the remainder of their terms; and (ii)
restrictions on alienation or hypothecation of Stock granted pursuant to a
Restricted Stock Award shall lapse and in such case the Participant shall be
issued Stock certificates free of any such restrictions.
12. Amendments and Termination. The Board may, from time to time, amend,
suspend or terminate the Plan in whole or in part and, if terminated, may
reinstate any or all of the provisions of the Plan, except that no amendment,
suspension or termination shall be made which would impair the rights of a
Participant under an Award theretofore granted, without such Participant's
consent.
13. Effective Date and Term. The Plan shall become effective as of March 26,
1997, the date of its adoption by the Board. Unless sooner terminated by the
Committee, the Plan shall continue until March 26, 2007, the tenth anniversary
of the Plan's effective date, when it shall terminate and no Award shall be
granted under the Plan thereafter. The Plan shall continue in effect, however,
insofar as is necessary to complete all the Company's obligations under
outstanding Awards and to conclude the administration of the Plan.
14. Governing Law. The Plan and all agreements hereunder shall be construed
in accordance with and be governed by the laws of the State of Nevada.
8
<PAGE> 1
EXHIBIT 6.22
AGREEMENT FOR RETIREMENT OF KCD HOLDINGS OPTION SHARES,
DATED SEPTEMBER 12, 1996, BY AND BETWEEN THE COMPANY AND BONNIE RICHARDS
<PAGE> 2
September 12, 1996
Ms. Bonnie Richards
2835 Townsgate Road, Suite 110
Westlake Village, CA 91361
Re: Retirement of KCD Holdings ("KCD") Option Shares
Dear Bonnie:
In connection with your agreement to tender to KCD for retirement the
250,000 shares of KCD common stock issued to you upon exercise of "Option 1"
under paragraph 4.1.1 of your Employment Agreement with KCD dated July 1, 1995,
KCD has agreed to extend the Option 1 exercise period through and including the
expiration of the Option 2 exercise period set forth in paragraph 4.1.1 of your
Employment Agreement.
If you are in agreement with the foregoing, please act to countersign this
letter where indicated hereinbelow and return same to KCD.
Sincerely,
KCD HOLDINGS INCORPORATED
Wellington Ewen, President
AGREED AND ACCEPTED:
- --------------------------------
Bonnie Richards
<PAGE> 1
EXHIBIT 6.23
AGREEMENT FOR RETIREMENT OF KCD HOLDINGS OPTION
SHARES, DATED SEPTEMBER 12, 1996, BY AND BETWEEN THE COMPANY
AND DENISE VAN DAALEN WETTERS
<PAGE> 2
September 12, 1996
Ms. Denise van Daalen Wetters
2835 Townsgate Road, Suite 110
Westlake Village, CA 91361
Re: Retirement of KCD Holdings ("KCD") Option Shares
Dear Denise:
In connection with your agreement to tender to KCD for retirement the
100,000 shares of KCD common stock issued to you upon exercise of "Option 1" and
"Option 2" under paragraph 4.1.1 of your Employment Agreement with KCD dated
August 15, 1995, KCD has agreed to extend the Option 1 exercise period through
and including the expiration of the Option 2 exercise period set forth in
paragraph 4.1.1 of your Employment Agreement.
If you are in agreement with the foregoing, please act to countersign this
letter where indicated hereinbelow and return same to KCD.
Sincerely,
KCD HOLDINGS INCORPORATED
Wellington Ewen, President
AGREED AND ACCEPTED:
- --------------------------------
Denise van Daalen Wetters
<PAGE> 1
EXHIBIT 6.24
AGREEMENT FOR RETIREMENT OF KCD HOLDINGS OPTION SHARES, DATED
SEPTEMBER 12, 1996, BY AND BETWEEN THE COMPANY AND WELLINGTON EWEN
<PAGE> 2
September 12, 1996
Mr. Wellington Ewen
2835 Townsgate Road, Suite 110
Westlake Village, CA 91361
Re: Retirement of KCD Holdings ("KCD") Option Shares
Dear Wellington:
In connection with your agreement to tender to KCD for retirement the
250,000 shares of KCD common stock issued to you upon exercise of "Option 1"
under paragraph 4.1.1 of your Employment Agreement with KCD dated October 15,
1995, KCD has agreed to extend the Option 1 exercise period through and
including the expiration of the Option 2 exercise period set forth in paragraph
4.1.1 of your Employment Agreement.
If you are in agreement with the foregoing, please act to countersign this
letter where indicated hereinbelow and return same to KCD.
Sincerely,
KCD HOLDINGS INCORPORATED
Bonnie Richards, Vice President
AGREED AND ACCEPTED:
- --------------------------------
Wellington Ewen
<PAGE> 1
EXHIBIT 6.25
AMENDMENT TO EMPLOYMENT AGREEMENT, DATED MARCH 26, 1997
BY AND BETWEEN THE COMPANY AND BONNIE RICHARDS
<PAGE> 2
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT (the "Amendment") dated as of March 26, 1997 amends
that certain Employment Agreement (the "Employment Agreement") between Sequester
Holdings, Incorporated (formerly, KCD Holdings Incorporated), a Nevada
corporation ("Employer"), and Bonnie L. Richards ("Executive"), dated as of July
1, 1995, as follows:
WHEREAS, Employer granted Executive certain stock purchase rights
in Section 4 of the Employment Agreement and has requested the cancellation of
such stock purchase rights; and
WHEREAS, Executive has agreed to such cancellation in exchange for
the grant of common stock options (the "Options") set forth in that certain
Stock Option Grant Agreement between the parties of even date herewith;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and conditions contained herein, the parties agree as follows:
1. Amendment of the Employment Agreement. Section 4 of the Employment
Agreement is deleted in its entirety.
2. Release. Effective upon receipt of the Options, Executive hereby
unconditionally and irrevocably releases, discharges, waives and renounces any
and all rights, benefits, claims, actions and causes of action, counterclaims,
third-party claims, offsets, demands, affirmative defenses, debts,
controversies, contracts, promises, damages, costs, losses and expenses of every
kind, character and description whatsoever, liquidated or unliquidated, known or
unknown, whether matured or unmatured (collectively "Claims") arising under or
relating to Section 4 of the Employment Agreement. In connection with the
foregoing release, Executive waives and relinquishes all rights and benefits
conferred by California Civil Code Section 1542, which provides that:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS THAT THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING
THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED
HIS SETTLEMENT WITH THE DEBTOR."
3. Effectiveness. This Amendment is effective as of March 26, 1997.
<PAGE> 3
4. Integration. This Amendment shall supersede that certain letter agreement
between the parties regarding retirement of option shares dated September 12,
1996, and all other prior agreements, arrangements and understandings, whether
oral or written, with respect to the subject matter hereof.
5. Confirmation of Employment Agreement. Except as expressly provided in
this Amendment, the Employment Agreement shall remain in full force and effect
and is hereby ratified and confirmed.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
as of the date first above written.
"Employer"
SEQUESTER HOLDINGS, INCORPORATED
By ______________________________________
Title ___________________________________
"Executive"
_________________________________________
Bonnie L. Richards
2
<PAGE> 1
EXHIBIT 6.26
AMENDMENT TO EMPLOYMENT AGREEMENT, DATED MARCH 26, 1997,
BY AND BETWEEN THE COMPANY AND DENISE VAN DAALEN WETTERS
<PAGE> 2
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT (the "Amendment") dated as of March 26, 1997 amends
that certain Employment Agreement (the "Employment Agreement") between Sequester
Holdings, Incorporated (formerly, KCD Holdings Incorporated), a Nevada
corporation ("Employer"), and Denise van Daalen Wetters ("Executive"), dated as
of August 15, 1995, as follows:
WHEREAS, Employer granted Executive certain stock purchase rights
in Section 4 of the Employment Agreement and has requested the cancellation of
such stock purchase rights; and
WHEREAS, Executive has agreed to such cancellation in exchange for
the grant of common stock options (the "Options") set forth in that certain
Stock Option Grant Agreement between the parties of even date herewith;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and conditions contained herein, the parties agree as follows:
6. Amendment of the Employment Agreement. Section 4 of the Employment
Agreement is deleted in its entirety.
7. Release. Effective upon receipt of the Options, Executive hereby
unconditionally and irrevocably releases, discharges, waives and renounces any
and all rights, benefits, claims, actions and causes of action, counterclaims,
third-party claims, offsets, demands, affirmative defenses, debts,
controversies, contracts, promises, damages, costs, losses and expenses of every
kind, character and description whatsoever, liquidated or unliquidated, known or
unknown, whether matured or unmatured (collectively "Claims") arising under or
relating to Section 4 of the Employment Agreement. In connection with the
foregoing release, Executive waives and relinquishes all rights and benefits
conferred by California Civil Code Section 1542, which provides that:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS THAT THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING
THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED
HIS SETTLEMENT WITH THE DEBTOR."
8. Effectiveness. This Amendment is effective as of March 26, 1997.
<PAGE> 3
9. Integration. This Amendment shall supersede that certain letter agreement
between the parties regarding retirement of option shares dated September 12,
1996, and all other prior agreements, arrangements and understandings, whether
oral or written, with respect to the subject matter hereof.
10. Confirmation of Employment Agreement. Except as expressly provided in
this Amendment, the Employment Agreement shall remain in full force and effect
and is hereby ratified and confirmed.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
as of the date first above written.
"Employer"
SEQUESTER HOLDINGS, INCORPORATED
By ______________________________________
Title ___________________________________
"Executive"
_________________________________________
Denise van Daalen Wetters
2
<PAGE> 1
EXHIBIT 6.27
AMENDMENT TO EMPLOYMENT AGREEMENT, DATED MARCH 26, 1997,
BY AND BETWEEN THE COMPANY AND WELLINGTON EWEN
<PAGE> 2
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT (the "Amendment") dated as of March 26, 1997 amends
that certain Employment Agreement (the "Employment Agreement") between Sequester
Holdings, Incorporated (formerly, KCD Holdings Incorporated), a Nevada
corporation ("Employer"), and Wellington A. Ewen ("Executive"), dated as of
October 15, 1995, as follows:
WHEREAS, Employer granted Executive certain stock purchase rights
in Section 4 of the Employment Agreement and has requested the cancellation of
such stock purchase rights; and
WHEREAS, Executive has agreed to such cancellation in exchange for
the grant of common stock options (the "Options") set forth in that certain
Stock Option Grant Agreement between the parties of even date herewith;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and conditions contained herein, the parties agree as follows:
11. Amendment of the Employment Agreement. Section 4 of the Employment
Agreement is deleted in its entirety.
12. Release. Effective upon receipt of the Options, Executive hereby
unconditionally and irrevocably releases, discharges, waives and renounces any
and all rights, benefits, claims, actions and causes of action, counterclaims,
third-party claims, offsets, demands, affirmative defenses, debts,
controversies, contracts, promises, damages, costs, losses and expenses of every
kind, character and description whatsoever, liquidated or unliquidated, known or
unknown, whether matured or unmatured (collectively "Claims") arising under or
relating to Section 4 of the Employment Agreement. In connection with the
foregoing release, Executive waives and relinquishes all rights and benefits
conferred by California Civil Code Section 1542, which provides that:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS THAT THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING
THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED
HIS SETTLEMENT WITH THE DEBTOR."
13. Effectiveness. This Amendment is effective as of March 26, 1997.
<PAGE> 3
14. Integration. This Amendment shall supersede that certain letter
agreement between the parties regarding retirement of option shares dated
September 12, 1996, and all other prior agreements, arrangements and
understandings, whether oral or written, with respect to the subject matter
hereof.
15. Confirmation of Employment Agreement. Except as expressly provided in
this Amendment, the Employment Agreement shall remain in full force and effect
and is hereby ratified and confirmed.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
as of the date first above written.
"Employer"
SEQUESTER HOLDINGS, INCORPORATED
By ______________________________________
Title ___________________________________
"Executive"
_________________________________________
Wellington A. Ewen
2
<PAGE> 1
EXHIBIT 6.28
LETTER AGREEMENT FOR CONVERSION OF OUTSTANDING DEBT, DATED MARCH 24, 1997 BY
AND BETWEEN THE COMPANY AND PELLE LEATHER, LTD; GROWTH SCIENCE VENTURES, INC.;
L.E. INTERNATIONAL LTD.; PHILLIP DASCHER; JOSEPH TISCHLER; GERALD EPSTEIN; AND
STUART NEEDLEMAN
<PAGE> 2
March 24, 1997
VIA FACSIMILE AND U.S. MAIL
Bruce P. Needleman, Esq.
Needleman & Schulman
21700 Oxnard Street, Suite 1290
Woodland Hills, CA 91367
RE: KCD HOLDINGS, INCORPORATED ("KCD")
Dear Mr. Needleman:
This letter will memorialize the proposed agreement reached with KCD
concerning the purchase of KCD common stock in complete satisfaction of
promissory notes dated May 1, 1996 made by KCD in favor of Pelle Leather, Ltd.,
Growth Sciences Ventures, Inc., L.E. International, Ltd., Philip Dascher, Joseph
Tischler, Gerald Epstein, and Stuart Needleman, O.D. (the "Noteholders").
The terms of the proposed agreement are as follows. KCD will pay interest to
the Noteholders due and payable through March 15, 1997, in cash on or before
March 19, 1997. KCD will issue to the Noteholders restricted common stock (the
"Shares") equivalent to the unpaid balance as of March 31, 1997 on the
promissory notes (the "Balance"). KCD will file the necessary documents to have
the restricted common stock (the "Shares") registered on Form S-3 on or before
May 15, 1997. The stock price upon which the Balance will be converted to the
Shares will be determined as of March 31, 1997. The Balance will be converted to
the Shares at a price twenty-five percent (25%) below the closing bid price of
KCD Shares on March 31, 1997.
If this letter does not accurately reflect the terms of the agreement,
please contact me immediately. If the terms of the agreement are accurately set
forth herein, please execute this letter and return it to our offices at your
earliest convenience.
<PAGE> 3
[LETTERHEAD
MANNING
MARDER &
WOLFE]
Your cooperation and courtesy extended in this matter is appreciated.
Sincerely,
MANNING, MARDER & WOLFE
CHRISTOPHER A. WILSON
CAW
cc: Sequester Holdings, Inc.
Noteholders agree to convert their promissory notes dated May 1, 1996 to the
Shares pursuant to the terms set forth above.
---------------------------------
Bruce P. Needleman
Attorney for Noteholders
2
<PAGE> 1
EXHIBIT 6.29
CONSULTING SERVICES AGREEMENT, DATED MARCH 24, 1997,
BY AND BETWEEN THE COMPANY AND MIKE DITKA
<PAGE> 2
CONSULTING SERVICES AGREEMENT
THIS CONSULTING SERVICES AGREEMENT (this "Agreement") is entered
into as of March 24, 1997, between Sequester Holdings, Incorporated (formerly
known as KCD Holdings Incorporated) (the "Company") and Mike Ditka.
WHEREAS, the Company is engaged in marketing and distributing a
line of diet aid products, including (i) a dietary supplement called
"SeQuester(R) 1", (ii) an appetite suppressant called "SeQuester(R) 2", (iii) a
Chromium caplet which is a mineral necessary for proper carbohydrate metabolism
called "SeQuester(R) 3", and (iv) "PhytoQuest(TM)" which has the potential to
inhibit the gastrointestinal absorption of cholesterol (collectively, the
"Products"); and
WHEREAS, the Company desires to hire Mr. Ditka for ongoing
consulting and promotional services including radio and television commercials
endorsing the Products and Mr. Ditka desires to perform such services, in
accordance with the terms and conditions of this Agreement;
NOW, THEREFORE, in consideration of the premises and mutual
covenants and agreements contained in this Agreement, the parties, intending to
be legally bound, hereby agree as follows:
16. Services. Mr. Ditka agrees to render the following consulting and
promotional services to the Company for a period of one year from
the date of this Agreement:
16.1 On an ongoing basis, Mr. Ditka shall consult with and advise the
Company concerning effective methods of promoting the Products.
Such advice will include ideas and recommendations as to the
content of the Company's television and radio advertising and other
promotional services.
16.2 Mr. Ditka shall render services to the Company as a performer in
four television commercials (the "Commercials") for the promotion
of the Products to be produced by John Purdy, Inc. (or any other
production company hired by the Company) during the term of this
Agreement. The Commercials shall be thirty to 120 seconds in
length, and shall air on cable, network or independent stations, or
direct response television e.g., QVC, HSN, Value Vision, or a
combination thereof, or any other medium, at the discretion of the
Company. Mr. Ditka agrees to appear in Los
<PAGE> 3
Angeles, California (or such other location requested by the
Company) to tape the Commercials. The parties acknowledge that Mr.
Ditka has already performed in one of these Commercials.
16.3 Mr. Ditka agrees to make himself available for up to two hours each
week during the term of this Agreement at times convenient for Mr.
Ditka to promote the Products in radio and television interviews
(the "Interviews").
16.4 Mr. Ditka agrees to make up to six personal appearances during the
term of this Agreement at the Company's discretion at locations to
be mutually agreed by the parties (the "Personal Appearances").
16.5 Mr. Ditka agrees to permit access to a reasonable number of
individuals selected from time to time by the Company (i) to view
New Orleans Saints training camp sessions, upon appointments
previously scheduled by the Company, and (ii) to meet Mr. Ditka
after Saints games (only when the team has won).
17. Name, Likeness, Etc. Mr. Ditka hereby irrevocably grants in
perpetuity to the Company the right to use, and to permit others to
use, Mr. Ditka's name, likeness and voice in connection with the
Commercials, Interviews, and Personal Appearances.
18. Ownership. The Company shall own all right, title and interest in
and to the Commercials. The Company shall have the irrevocable
right to use the Commercials in all media whether now known or
hereafter devised in perpetuity throughout the universe.
19. Manner of Performing Services. Mr. Ditka agrees to perform the
services required by this Agreement in a professional manner,
including cooperating with the taping and production session
personnel hired by the Company.
20. Compensation. In consideration for the services to be rendered
hereunder, Mr. Ditka shall be paid as follows:
20.1 $75,000 in cash, which sum has already been paid to Mr. Ditka.
20.2 1,000,000 shares of the Company's common stock (the "Shares"). The
Shares shall be subject to the following restrictions:
2
<PAGE> 4
20.2.1. Mr. Ditka shall not sell, pledge, hypothecate or otherwise
transfer the Shares or any portion thereof for a period of
one year from the date of this Agreement without the
Company's prior written consent.
20.2.2. The Company shall have the right to redeem all or part of
the Shares at a price of $.0001 per Share if Mr. Ditka is
in material breach of the terms of this Agreement, which
breach remains uncured as determined by the Company in its
sole discretion for 15 days after delivery of written
notice thereof by the Company to Mr. Ditka. The Company's
foregoing right of redemption shall be in addition to any
other rights at law or in equity the Company may have to
otherwise enforce or seek damages under this Agreement.
20.2.3. The Shares shall include the following restrictive legends:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR UNDER THE APPLICABLE SECURITIES LAWS OF ANY
STATE AND MAY BE OFFERED AND SOLD ONLY IF REGISTERED
PURSUANT TO THE PROVISIONS OF SUCH ACT OR SUCH LAWS OR IF
AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO
THE TERMS AND CONDITIONS OF A CONSULTING SERVICES
AGREEMENT BETWEEN THE STOCKHOLDER AND THE CORPORATION.
PURSUANT TO SUCH AGREEMENT, THE SHARES CANNOT BE
TRANSFERRED FOR A PERIOD OF ONE YEAR AFTER ISSUANCE
WITHOUT THE CORPORATION'S WRITTEN CONSENT AND THE
CORPORATION HAS THE RIGHT TO REDEEM THE SHARES IF THE
STOCKHOLDER FAILS TO PERFORM CERTAIN OBLIGATIONS UNDER THE
AGREEMENT. COPIES OF THE AGREEMENT MAY BE OBTAINED UPON
WRITTEN REQUEST TO THE SECRETARY OF THE CORPORATION."
3
<PAGE> 5
20.3 The Company will also reimburse Mr. Ditka for reasonable and
necessary expenses incurred by Mr. Ditka in connection with his
rendering of services under this Agreement, including travel, meals
and lodging, to the extent pre-approved by the Company and Mr.
Ditka provides reasonable written evidence of such expenses.
21. Shares
21.1 Mr. Ditka represents and warrants that he is acquiring the Shares
for investment for his own account, not as a nominee or agent, and
not with the view to, or for resale in connection with, any
distribution thereof. Mr. Ditka further understands that the
issuance and sale of the Shares to be acquired by him hereunder
have not been, and will not be, the subject of a registration
statement filed under the Securities Act of 1933, as amended (the
"Securities Act"), or qualified under applicable state securities
laws by reason of a specific exemption from the registration
provisions of the Securities Act and the qualification provisions
of such laws. Mr. Ditka understands that the Shares may not be
resold by him unless such sale is registered under the Securities
Act and qualified under applicable state laws or an exemption from
such registration or qualification is available and that the
certificates evidencing the Shares will contain a legend to such
effect unless, in the opinion of the Company, such a legend is not
required under applicable law.
21.2 Mr. Ditka represents and warrants that he is an accredited investor
within the meaning of Rule 501(a) of Regulation D promulgated under
the Securities Act and has substantial experience in evaluating and
investing in securities and has made or contemplated investments of
securities other than those of the Company. Mr. Ditka further
acknowledges that by reason of his business or financial
experience, he has the ability to bear the economic risk of his
investment in the Shares and understands that the Shares represents
a speculative investment and that there is substantial risk of
complete loss of his investment.
22. Representations and Warranties. Mr. Ditka represents and warrants
to the Company that he has the legal right, authority and capacity
to enter into this Agreement and to render the services described
herein, and that the delivery and execution of the Agreement will
not violate the terms of any other agreement to which Mr. Ditka is
a party. Mr. Ditka acknowledges that the Company is not a signatory
to any agreement with the American Federation of Telephone and
Radio Artists ("AFTRA") or with the Screen Actors Guild ("SAG") and
that the Company shall not be liable to AFTRA or SAG for executing
or performing this Agreement.
4
<PAGE> 6
23. Arbitration. Any dispute arising out of this Agreement shall be
settled by arbitration by a single arbitrator in accordance with
the commercial arbitration rules of Judicial Arbitration and
Mediation Services, Inc. Arbitration shall be conducted in Los
Angeles, California. The parties agree that Los Angeles, California
is a reasonable and convenient place for any arbitration hereunder,
and agree to submit to the jurisdiction of the California courts
with respect to any judgment relating to this Agreement. Any
judgment upon the award rendered by the arbitrator may be entered
in any court having jurisdiction. The arbitrator shall not have any
authority to award punitive or any other non-compensatory damages.
The decision of the arbitrator shall be binding upon the parties
and shall be reviewable only in the event of gross error of law.
Any party may pursue the remedy of specific performance of this
Agreement, or seek an injunction in the event of a breach of this
Agreement or in aid of exercising any power granted hereunder, or
any combination thereof, in any court having jurisdiction without
resort to arbitration.
24. Entire Agreement. This Agreement supersedes any and all other
agreements, either oral or in writing, between the parties hereto
with respect to the subject matter hereof, including without
limitation any prior Television Commercial Agreement or Agreements
entered between the parties, and contains all of the covenants and
agreements between the parties with respect to such subject matter.
25. Assignment. Mr. Ditka shall not have the right to assign, transfer
or delegate this Agreement or any of his rights or obligations
hereunder without the prior written consent of the Company. The
Company may, without the approval of Mr. Ditka, transfer its rights
or obligations hereunder in connection with the sale of
substantially all of its business or the merger or consolidation of
the Company.
26. Notices. Any notice or other communication required or permitted to
be given hereunder will be in writing, and shall be deemed given
upon, (i) personal delivery, upon delivery, (ii) a nationally
recognized overnight courier service, the day after the deposit for
overnight delivery with such service, (iii) U.S. Mail, first class
postage-prepaid, three days after deposit or (iv) facsimile
transmission, upon electronic confirmation of receipt, addressed to
the parties as set forth below or to such other address as any
party may have furnished to the other in writing:
5
<PAGE> 7
If to Company: Sequester Holdings, Incorporated
2835 Townsgate Road
Suite 110
Westlake Village, CA 91361
(Fax: 805-494-4126)
If to Mr. Ditka: Mike Ditka
--------------------
--------------------
--------------------
--------------------
(Fax:____________)
27. Governing Law. The validity, interpretation, construction and
performance of this Agreement will be governed by and construed in
accordance with the substantive laws of the State of California,
without giving effect to the principles of choice of laws or
conflicts of law.
28. Severability. If any provision of this Agreement or the application
of any provision hereof to any person or circumstances is held
invalid, unenforceable or otherwise illegal, the remainder of this
Agreement and the application of such provision to any other person
or circumstances will not be affected, and the provision so held to
be invalid, unenforceable or otherwise illegal will be reformed to
the extent (and only to the extent) necessary to make it
enforceable, valid or legal.
29. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge
is agreed to in writing signed by Mr. Ditka and the Company. No
waiver by either party hereto at any time of any breach by the
other party hereto or compliance with any condition or
6
<PAGE> 8
provision of this Agreement to be performed by such other party
will be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. The
section headings used in this Agreement are designed for convenient
reference only and are not to be used for the purpose of
interpreting any provision of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first above written.
"COMPANY"
Sequester Holdings, Incorporated
By: __________________________
Its: _______________________
"MR. DITKA"
___________________________________
Mike Ditka
7
<PAGE> 1
EXHIBIT 6.30
CONSULTING SERVICES AGREEMENT, DATED APRIL 15, 1997,
BY AND BETWEEN THE COMPANY AND GERALD HATTO
<PAGE> 2
CONSULTING SERVICES AGREEMENT
THIS CONSULTING SERVICES AGREEMENT (this "Agreement") is entered
into as of April 15, 1997, between Sequester Holdings, Incorporated (formerly
known as KCD Holdings Incorporated) (the "Company") and Gerald E. Hatto.
WHEREAS, the Company is engaged in marketing and distributing a
line of diet aid products, including (i) a dietary supplement called
"SeQuester(R) 1", (ii) an appetite suppressant called "SeQuester(R) 2", (iii) a
Chromium caplet which is a mineral necessary for proper carbohydrate metabolism
called "SeQuester(R) 3", and (iv) "PhytoQuest(TM)" which has the potential to
inhibit the gastrointestinal absorption of cholesterol (collectively, the
"Products"); and
WHEREAS, the Company desires to hire Mr. Hatto for ongoing
consulting services regarding advertising, design and marketing and Mr. Hatto
desires to perform such services, in accordance with the terms and conditions of
this Agreement;
NOW, THEREFORE, in consideration of the premises and mutual
covenants and agreements contained in this Agreement, the parties, intending to
be legally bound, hereby agree as follows:
30. Services. While this Agreement is in effect, Mr. Hatto agrees to
render consulting services to the Company including, without
limitation, consultation and advice regarding package design,
consumer and trade advertising, database marketing, consumer and
trade promotions, merchandising (off-shelf displays, brochures,
etc.), development of sales materials, co-op programs and trade
shows, sales meetings, and development of introductory programs.
31. Manner of Performing Services. Mr. Hatto agrees to perform the
services required by this Agreement in a professional manner.
32. Compensation. In consideration for the services to be rendered
hereunder, Mr. Hatto shall be paid as follows:
32.1 Daily Rates. $600 per day and $350 per half day. It is understood
that services rendered for six hours or more during a day shall be
paid for at the "day rate," and services rendered for periods of
six hours or less shall be paid at the "half day" rate.
32.2 Expenses. The Company will also reimburse Mr. Hatto for all out of
pocket expenses for research, travel, shipping or delivery,
communication charges, and similar expenses. Such expenses will be
reimbursed at Mr. Hatto's cost and Mr.
<PAGE> 3
Hatto shall furnish supporting invoices for all amounts submitted
for reimbursement. All media purchases and all production expenses,
including design, copy, typography, engravings, lithography,
photography, illustrations, and the like, and any other
expenditures in excess of $1,000 will be estimated by Mr. Hatto in
advance and submitted to the Company for pre-approval before any
such work begins. Any applicable sales tax will be paid by the
Company. Mr. Hatto agrees not to charge the Company for local
travel time, local or long distance telephone calls,
non-extraordinary postage expenses or similar day-to-day expenses.
32.3 Options. While this Agreement is effective, Mr. Hatto shall be
eligible for grants of stock options and other awards under the
Company's 1997 Stock Plan, subject to the terms of the plan.
32.4 Invoices. Mr. Hatto will send invoices to the Company from time to
time for services rendered in arrears, which invoices will be due
within 21 calendar days of receipt. Any work not connected to a
specific project will be invoiced on a daily basis.
33. Termination. Either party may terminate this Agreement upon sixty
days' prior written notice to the other party.
34. Representations and Warranties. Each party represents and warrants
to the other that such party has the legal right, authority and
capacity to enter into this Agreement and to render the services
described herein, and that the delivery and execution of the
Agreement will not violate the terms of any other agreement to
which such party is subject.
35. Arbitration. Any dispute arising out of this Agreement shall be
settled by arbitration by a single arbitrator in accordance with
the commercial arbitration rules of Judicial Arbitration and
Mediation Services, Inc. Arbitration shall be conducted in Los
Angeles, California. The parties agree that Los Angeles, California
is a reasonable and convenient place for any arbitration hereunder,
and agree to submit to the jurisdiction of the California courts
with respect to any judgment relating to this Agreement. Any
judgment upon the award rendered by the arbitrator may be entered
in any court having jurisdiction. The arbitrator shall not have any
authority to award punitive or any other non-compensatory damages.
The decision of the arbitrator shall be binding upon the parties
and shall be
2
<PAGE> 4
reviewable only in the event of gross error of law. Any party may
pursue the remedy of specific performance of this Agreement, or
seek an injunction in the event of a breach of this Agreement or in
aid of exercising any power granted hereunder, or any combination
thereof, in any court having jurisdiction without resort to
arbitration.
36. Entire Agreement. This Agreement supersedes any and all other
agreements, either oral or in writing, between the parties hereto
with respect to the subject matter hereof, and contains all of the
covenants and agreements between the parties with respect to such
subject matter.
37. Assignment. Mr. Hatto shall not have the right to assign, transfer
or delegate this Agreement or any of his rights or obligations
hereunder without the prior written consent of the Company. The
Company may, without the approval of Mr. Hatto, transfer its rights
or obligations hereunder in connection with the sale of
substantially all of its business or the merger or consolidation of
the Company.
38. Notices. Any notice or other communication required or permitted to
be given hereunder will be in writing, and shall be deemed given
upon, (i) personal delivery, upon delivery, (ii) a nationally
recognized overnight courier service, the day after the deposit for
overnight delivery with such service, (iii) U.S. Mail, first class
postage-prepaid, three days after deposit or (iv) facsimile
transmission, upon electronic confirmation of receipt, addressed to
the parties as set forth below or to such other address as any
party may have furnished to the other in writing:
If to Company: Sequester Holdings, Incorporated
2835 Townsgate Road
Suite 110
Westlake Village, CA 91361
(Fax: 805-494-4126)
If to Mr. Hatto: Gerald E. Hatto
--------------------
--------------------
(Fax:____________)
3
<PAGE> 5
39. Governing Law. The validity, interpretation, construction and
performance of this Agreement will be governed by and construed in
accordance with the substantive laws of the State of California,
without giving effect to the principles of choice of laws or
conflicts of law.
40. Severability. If any provision of this Agreement or the application
of any provision hereof to any person or circumstances is held
invalid, unenforceable or otherwise illegal, the remainder of this
Agreement and the application of such provision to any other person
or circumstances will not be affected, and the provision so held to
be invalid, unenforceable or otherwise illegal will be reformed to
the extent (and only to the extent) necessary to make it
enforceable, valid or legal.
41. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge
is agreed to in writing signed by Mr. Hatto and the Company. No
waiver by either party hereto at any time of any breach by the
other party hereto or compliance with any condition or provision of
this Agreement to be performed by such other party will be deemed a
waiver of similar or dissimilar provisions or conditions at the
same or at any prior or subsequent time. The section headings used
in this Agreement are designed for convenient reference only and
are not to be used for the purpose of interpreting any provision of
this Agreement.
4
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first above written.
"COMPANY"
Sequester Holdings, Incorporated
By: _______________________________
Its: _______________________
"MR. HATTO"
___________________________________
Gerald E. Hatto
5
<PAGE> 1
EXHIBIT 6.31
TERMINATION AGREEMENT, DATED APRIL 15, 1997,
BY AND BETWEEN THE COMPANY AND GERALD HATTO
<PAGE> 2
TERMINATION AGREEMENT
THIS TERMINATION AGREEMENT (the "Agreement") is dated as of April
15, 1997, and is entered by and between Sequester Holdings, Incorporated
(formerly, KCD Holdings Incorporated), a Nevada corporation (the "Company"), and
Deerfield Corporation, a California corporation ("Deerfield").
WHEREAS, the Company and Deerfield have entered into that certain
Common Stock Purchase Agreement dated as of August 7, 1996 (the "Stock
Agreement"), which provides that Deerfield buy 250,000 shares of the Company's
common stock for $0.002 per share in three separate closings in August 1996,
August 1997 and August 1998, in blocks of 150,000, 50,000, and 50,000 shares,
respectively; and
WHEREAS, the Stock Agreement provides that the shares purchased by
Deerfield thereunder shall not vest for a period of two years from the date of
each closing and that the Company has the right to repurchase all or any portion
of the shares sold to Deerfield for $0.002 per share before they are vested; and
WHEREAS, pursuant to the Stock Agreement, the Company has sold the
first installment of 150,000 shares to Deerfield for $300.00, none of which
shares is currently vested (the "Shares"); and
WHEREAS, by letter agreement dated June 28, 1996, Deerfield has
been retained as a consultant to perform advertising, design and marketing
services for the Company at a rate of $600 per day plus expenses (the
"Consulting Agreement"); and
WHEREAS, subject to the terms hereof, Deerfield desires to sell the
Shares back to the Company for $300.00 and to terminate its remaining rights and
obligations under the Stock Agreement and Consulting Agreement, and Company is
willing to repurchase the Shares and terminate such agreements and desires to
enter a new consulting agreement directly with Gerald E. Hatto, the sole
shareholder of Deerfield;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and conditions contained herein, the parties agree as follows:
42. Repurchase of Shares. The Company agrees to repurchase the Shares from
Deerfield, and Deerfield agrees to sell the Shares to the Company, for an
aggregate purchase price of $300.00 ($0.002 per share). Deerfield shall deliver
any stock certificate or certificates evidencing the Shares to the Company for
cancellation.
<PAGE> 3
43. Termination of Stock Agreement. The parties agree that the Stock
Agreement is hereby terminated and that each party's rights and obligations
thereunder shall terminate as of the date hereof.
44. Termination of Consulting Agreement. The parties agree that the
Consulting Agreement is hereby terminated and that each party's rights and
obligations thereunder shall terminate as of the date hereof, except with
respect to any sums owing by Company to Deerfield under the Consulting Agreement
for services rendered prior to the date hereof.
45. Release of Deerfield. Deerfield hereby unconditionally and irrevocably
releases, discharges, waives and renounces any and all rights, benefits, claims,
actions and causes of action, counterclaims, third-party claims, offsets,
demands, affirmative defenses, debts, controversies, contracts, promises,
damages, costs, losses and expenses of every kind, character and description
whatsoever, liquidated or unliquidated, known or unknown, whether matured or
unmatured (collectively "Claims") arising under or relating to the Stock
Agreement or the Consulting Agreement, except with respect to any Claims arising
under the Consulting Agreement for services rendered prior to the date hereof.
In connection with the foregoing release, Deerfield waives and relinquishes all
rights and benefits conferred by California Civil Code Section 1542, which
provides that:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS THAT THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING
THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED
HIS SETTLEMENT WITH THE DEBTOR."
46. Release of Company. The Company hereby unconditionally and irrevocably
releases, discharges, waives and renounces any and all Claims arising under or
relating to the Stock Agreement or the Consulting Agreement. In connection with
the foregoing release, the Company waives and relinquishes all rights and
benefits conferred by California Civil Code Section 1542, which provides that:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS THAT THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING
THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED
HIS SETTLEMENT WITH THE DEBTOR."
2
<PAGE> 4
47. Integration. This Agreement supersedes any and all other agreements,
either oral or in writing, between the parties hereto with respect to the
subject matter hereof, and contains all of the covenants and agreements between
the parties with respect to such subject matter.
48. Governing Law. The validity, interpretation, construction and
performance of this Agreement will be governed by and construed in accordance
with the substantive laws of the State of California, without giving effect to
the principles of choice of laws or conflicts of law.
IN WITNESS WHEREOF, the parties hereto have executed this
Termination Agreement as of the date first above written.
"Company"
SEQUESTER HOLDINGS, INCORPORATED
By: ______________________________________
Title: ___________________________________
"Deerfield"
DEERFIELD CORPORATION"
By: ______________________________________
Gerald E. Hatto
President
3
<PAGE> 1
EXHIBIT 6.32
STOCK OPTION GRANT AGREEMENT, DATED MARCH 26, 1997,
BY AND BETWEEN THE COMPANY AND BONNIE RICHARDS
<PAGE> 2
SEQUESTER HOLDINGS, INCORPORATED
1997 STOCK PLAN
STOCK OPTION GRANT AGREEMENT
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER
THE APPLICABLE SECURITIES LAWS OF ANY STATE AND MAY BE OFFERED AND
SOLD ONLY IF REGISTERED PURSUANT TO THE PROVISIONS OF SUCH ACT OR
SUCH LAWS OR IF AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
Optionee: Bonnie L. Richards
Number of Option Shares: 1,000,000
Exercise Price Per Share: $0.53
Date of Grant: March 26, 1997
Expiration Date: March 26, 2007
Type of Stock Option (check one):
Incentive X Non-Qualified
--- ---
1. Grant of Option. Sequester Holdings, Incorporated, a Nevada
corporation (the "Company"), hereby grants to the optionee named above
("Optionee") an option ("Option") to purchase the total number of shares of
Common Stock of the Company set forth above (the "Shares") at the exercise price
per share set forth above (the "Exercise Price"), subject to all of the terms
and conditions of this Stock Option Grant Agreement ("Agreement") and the
Company's 1997 Stock Plan as it may be amended from time to time (the "Plan").
The Plan is incorporated herein by this reference. Terms defined in the Plan
have the same meaning in this Agreement. If designated as an Incentive Stock
Option above, this Option is intended to qualify as an "incentive stock option"
("ISO") within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code").
2. Exercise Period of Option. Subject to the terms and conditions
of the Plan and this grant, this Option shall become 100% exercisable as of the
date of this grant.
<PAGE> 3
3. Method of Exercise. The Option shall be exercised by the
Optionee (a) by giving written notice to the Secretary of the Company stating
the number of shares of Common Stock with respect to which the Option is being
exercised and (b) tendering payment of the option price for each share of Common
Stock to be purchased. The exercise price of any shares of Common Stock
exercised under this Option must be paid in full upon such exercise. Payment
shall be made in cash, previously owned shares of Common Stock (which have been
held at least six months by the Optionee), by promissory note or such other form
of consideration as the Committee may permit. If payment is made by promissory
note, such note shall be secured by the shares purchased, have a term of five
years, bear interest at an annual rate equal to the then applicable Federal
Reserve Rate, compounded annually, and all principal and interest shall be paid
in full at maturity or upon sale of any shares securing such note, whichever is
earlier. The Optionee's exercise notice provided for in this Section above shall
be accompanied by (i) this Agreement (for appropriate endorsement by the Company
to reflect such exercise), (ii) an investment letter pursuant to Section 9
below, if then required by the Committee, and (iii) such other agreements and
documents as may be reasonably requested by the Company.
4. Termination. In the event that the Optionee shall cease to be
employed or engaged by the Company or an Affiliate, the vesting hereof shall
immediately and automatically terminate on the Termination Date, the unvested
portion hereof shall terminate and, if the cessation of employment or engagement
is:
(a) due to any reason other than as set forth under (b)
through (e) below, such portion hereof as is vested on the
Termination Date shall remain exercisable for 30 days
after the Termination Date;
(b) due to retirement, such portion hereof as is vested on the
Termination Date shall remain exercisable for 3 months
after the Termination Date;
(c) due to a Disability, such portion hereof as is vested on
the Termination Date shall remain exercisable for 1 year
after the Termination Date;
(d) due to death while employed or engaged by the Company or
its Affiliate, or during the 3 month period following
retirement or during the one year period following
cessation of employment due to a Disability, such portion
hereof as is vested at the time of death shall remain
exercisable for 1 year after the date of the Optionee's
death; or
2
<PAGE> 4
(e) voluntary or involuntary and a result of, or in order to
pursue, any activity which constitutes competition with
the Company, or is inimical, contrary or harmful to the
interests of the Company, as determined by the Company,
the vested portion hereof shall cease to be exercisable on
the Termination Date.
5. Non-Transferability of Option. This Option may not be sold,
transferred, pledged, assigned or otherwise alienated or hypothecated otherwise
than by will or by the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined in the Code.
6. "At Will" Status Unchanged. If Optionee is an "at will" employee
at the time this Option is granted, that status shall remain unchanged after the
grant of this Option and the grant of this Option shall not create any
obligation on the part of the Company to continue Optionee's employment.
7. No Rights as Stockholder. Optionee shall have no rights as a
stockholder with respect to shares of the Company's Common Stock covered by this
Option until the date of the issuance of a stock certificate or stock
certificates.
8. Modification, Termination and Adjustment. The rights of the
Optionee are subject to modification, termination and adjustment in certain
events as provided in the Plan.
9. Investment Covenant. The Optionee represents and agrees that as
a condition to exercise of this Option, the shares of Common Stock of the
Company that the Optionee acquires under this Option will be acquired by the
Optionee for investment and not with a view to distribution or resale, unless
counsel for the Company is then of the opinion that such a representation is not
required under the Securities Act of 1933, as amended, or any other applicable
law, regulation or rule of any governmental agency. The Company may place
restrictive legends on any certificates evidencing shares issued upon exercise
of any options hereunder if deemed necessary by the Company to comply with
applicable securities laws.
10. Form S-8 Registration. The Company agrees to use its best
efforts to register this Option under a Form S-8 registration statement.
3
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement.
SEQUESTER HOLDINGS, INCORPORATED
By ___________________________________
Its ______________________________
ACCEPTANCE BY OPTIONEE:
The Optionee acknowledges receipt of a copy of the Plan, a copy of
which is annexed hereto, and represents that the Optionee is familiar with the
terms and provisions thereof. The Optionee hereby accepts this Option subject to
all the terms and provisions of the Plan and this Stock Option Grant Agreement.
The Optionee hereby agrees to accept as binding, conclusive, and final all
decisions and interpretations of the Board and where applicable, the Committee,
upon any questions arising under the Plan and this Stock Option Grant Agreement.
OPTIONEE:
______________________________________
Bonnie L. Richards
Optionee Address:
______________________________________
______________________________________
______________________________________
4
<PAGE> 1
EXHIBIT 6.33
STOCK OPTION GRANT AGREEMENT, DATED MARCH 26, 1997,
BY AND BETWEEN THE COMPANY AND WELLINGTON EWEN
<PAGE> 2
SEQUESTER HOLDINGS, INCORPORATED
1997 STOCK PLAN
STOCK OPTION GRANT AGREEMENT
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER
THE APPLICABLE SECURITIES LAWS OF ANY STATE AND MAY BE OFFERED AND
SOLD ONLY IF REGISTERED PURSUANT TO THE PROVISIONS OF SUCH ACT OR
SUCH LAWS OR IF AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
Optionee: Wellington A. Ewen
Number of Option Shares: 500,000
Exercise Price Per Share: $0.53
Date of Grant: March 26, 1997
Expiration Date: March 26, 2007
Type of Stock Option (check one):
Incentive X Non-Qualified
--- ---
1. Grant of Option. Sequester Holdings, Incorporated, a Nevada
corporation (the "Company"), hereby grants to the optionee named above
("Optionee") an option ("Option") to purchase the total number of shares of
Common Stock of the Company set forth above (the "Shares") at the exercise price
per share set forth above (the "Exercise Price"), subject to all of the terms
and conditions of this Stock Option Grant Agreement ("Agreement") and the
Company's 1997 Stock Plan as it may be amended from time to time (the "Plan").
The Plan is incorporated herein by this reference. Terms defined in the Plan
have the same meaning in this Agreement. If designated as an Incentive Stock
Option above, this Option is intended to qualify as an "incentive stock option"
("ISO") within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code").
2. Exercise Period of Option. Subject to the terms and conditions
of the Plan and this grant, this Option shall become 100% exercisable as of the
date of this grant.
<PAGE> 3
3. Method of Exercise. The Option shall be exercised by the
Optionee (a) by giving written notice to the Secretary of the Company stating
the number of shares of Common Stock with respect to which the Option is being
exercised and (b) tendering payment of the option price for each share of Common
Stock to be purchased. The exercise price of any shares of Common Stock
exercised under this Option must be paid in full upon such exercise. Payment
shall be made in cash, previously owned shares of Common Stock (which have been
held at least six months by the Optionee), by promissory note or such other form
of consideration as the Committee may permit. If payment is made by promissory
note, such note shall be secured by the shares purchased, have a term of five
years, bear interest at an annual rate equal to the then applicable Federal
Reserve Rate, compounded annually, and all principal and interest shall be paid
in full at maturity or upon sale of any shares securing such note, whichever is
earlier. The Optionee's exercise notice provided for in this Section above shall
be accompanied by (i) this Agreement (for appropriate endorsement by the Company
to reflect such exercise), (ii) an investment letter pursuant to Section 9
below, if then required by the Committee, and (iii) such other agreements and
documents as may be reasonably requested by the Company.
4. Termination. In the event that the Optionee shall cease to be
employed or engaged by the Company or an Affiliate, the vesting hereof shall
immediately and automatically terminate on the Termination Date, the unvested
portion hereof shall terminate and, if the cessation of employment or engagement
is:
(a) due to any reason other than as set forth under (b)
through (e) below, such portion hereof as is vested on the
Termination Date shall remain exercisable for 30 days
after the Termination Date;
(b) due to retirement, such portion hereof as is vested on the
Termination Date shall remain exercisable for 3 months
after the Termination Date;
(c) due to a Disability, such portion hereof as is vested on
the Termination Date shall remain exercisable for 1 year
after the Termination Date;
(d) due to death while employed or engaged by the Company or
its Affiliate, or during the 3 month period following
retirement or during the one year period following
cessation of employment due to a Disability, such portion
hereof as is vested at the time of death shall remain
exercisable for 1 year after the date of the Optionee's
death; or
2
<PAGE> 4
(e) voluntary or involuntary and a result of, or in order to
pursue, any activity which constitutes competition with
the Company, or is inimical, contrary or harmful to the
interests of the Company, as determined by the Company,
the vested portion hereof shall cease to be exercisable on
the Termination Date.
5. Non-Transferability of Option. This Option may not be sold,
transferred, pledged, assigned or otherwise alienated or hypothecated otherwise
than by will or by the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined in the Code.
6. "At Will" Status Unchanged. If Optionee is an "at will" employee
at the time this Option is granted, that status shall remain unchanged after the
grant of this Option and the grant of this Option shall not create any
obligation on the part of the Company to continue Optionee's employment.
7. No Rights as Stockholder. Optionee shall have no rights as a
stockholder with respect to shares of the Company's Common Stock covered by this
Option until the date of the issuance of a stock certificate or stock
certificates.
8. Modification, Termination and Adjustment. The rights of the
Optionee are subject to modification, termination and adjustment in certain
events as provided in the Plan.
9. Investment Covenant. The Optionee represents and agrees that as
a condition to exercise of this Option, the shares of Common Stock of the
Company that the Optionee acquires under this Option will be acquired by the
Optionee for investment and not with a view to distribution or resale, unless
counsel for the Company is then of the opinion that such a representation is not
required under the Securities Act of 1933, as amended, or any other applicable
law, regulation or rule of any governmental agency. The Company may place
restrictive legends on any certificates evidencing shares issued upon exercise
of any options hereunder if deemed necessary by the Company to comply with
applicable securities laws.
10. Form S-8 Registration. The Company agrees to use its best
efforts to register this Option under a Form S-8 registration statement.
3
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement.
SEQUESTER HOLDINGS, INCORPORATED
By ___________________________________
Its ______________________________
ACCEPTANCE BY OPTIONEE:
The Optionee acknowledges receipt of a copy of the Plan, a copy of
which is annexed hereto, and represents that the Optionee is familiar with the
terms and provisions thereof. The Optionee hereby accepts this Option subject to
all the terms and provisions of the Plan and this Stock Option Grant Agreement.
The Optionee hereby agrees to accept as binding, conclusive, and final all
decisions and interpretations of the Board and where applicable, the Committee,
upon any questions arising under the Plan and this Stock Option Grant Agreement.
OPTIONEE:
______________________________________
Wellington A. Ewen
Optionee Address:
______________________________________
______________________________________
______________________________________
4
<PAGE> 1
EXHIBIT 6.34
STOCK OPTION GRANT AGREEMENT, DATED MARCH 26, 1997,
BY AND BETWEEN THE COMPANY AND DENISE VAN DAALEN WETTERS
<PAGE> 2
SEQUESTER HOLDINGS, INCORPORATED
1997 STOCK PLAN
STOCK OPTION GRANT AGREEMENT
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER
THE APPLICABLE SECURITIES LAWS OF ANY STATE AND MAY BE OFFERED AND
SOLD ONLY IF REGISTERED PURSUANT TO THE PROVISIONS OF SUCH ACT OR
SUCH LAWS OR IF AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
Optionee: Denise van Daalen Wetters
Number of Option Shares: 250,000
Exercise Price Per Share: $0.53
Date of Grant: March 26, 1997
Expiration Date: March 26, 2007
Type of Stock Option (check one):
Incentive X Non-Qualified
--- ---
1. Grant of Option. Sequester Holdings, Incorporated, a Nevada
corporation (the "Company"), hereby grants to the optionee named above
("Optionee") an option ("Option") to purchase the total number of shares of
Common Stock of the Company set forth above (the "Shares") at the exercise price
per share set forth above (the "Exercise Price"), subject to all of the terms
and conditions of this Stock Option Grant Agreement ("Agreement") and the
Company's 1997 Stock Plan as it may be amended from time to time (the "Plan").
The Plan is incorporated herein by this reference. Terms defined in the Plan
have the same meaning in this Agreement. If designated as an Incentive Stock
Option above, this Option is intended to qualify as an "incentive stock option"
("ISO") within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code").
2. Exercise Period of Option. Subject to the terms and conditions
of the Plan and this grant, this Option shall become 100% exercisable as of the
date of this grant.
<PAGE> 3
3. Method of Exercise. The Option shall be exercised by the
Optionee (a) by giving written notice to the Secretary of the Company stating
the number of shares of Common Stock with respect to which the Option is being
exercised and (b) tendering payment of the option price for each share of Common
Stock to be purchased. The exercise price of any shares of Common Stock
exercised under this Option must be paid in full upon such exercise. Payment
shall be made in cash, previously owned shares of Common Stock (which have been
held at least six months by the Optionee), by promissory note or such other form
of consideration as the Committee may permit. If payment is made by promissory
note, such note shall be secured by the shares purchased, have a term of five
years, bear interest at an annual rate equal to the then applicable Federal
Reserve Rate, compounded annually, and all principal and interest shall be paid
in full at maturity or upon sale of any shares securing such note, whichever is
earlier. The Optionee's exercise notice provided for in this Section above shall
be accompanied by (i) this Agreement (for appropriate endorsement by the Company
to reflect such exercise), (ii) an investment letter pursuant to Section 9
below, if then required by the Committee, and (iii) such other agreements and
documents as may be reasonably requested by the Company.
4. Termination. In the event that the Optionee shall cease to be
employed or engaged by the Company or an Affiliate, the vesting hereof shall
immediately and automatically terminate on the Termination Date, the unvested
portion hereof shall terminate and, if the cessation of employment or engagement
is:
(a) due to any reason other than as set forth under (b)
through (e) below, such portion hereof as is vested on the
Termination Date shall remain exercisable for 30 days
after the Termination Date;
(b) due to retirement, such portion hereof as is vested on the
Termination Date shall remain exercisable for 3 months
after the Termination Date;
(c) due to a Disability, such portion hereof as is vested on
the Termination Date shall remain exercisable for 1 year
after the Termination Date;
(d) due to death while employed or engaged by the Company or
its Affiliate, or during the 3 month period following
retirement or during the one year period following
cessation of employment due to a Disability, such portion
hereof as is vested at the time of death shall remain
exercisable for 1 year after the date of the Optionee's
death; or
2
<PAGE> 4
(e) voluntary or involuntary and a result of, or in order to
pursue, any activity which constitutes competition with
the Company, or is inimical, contrary or harmful to the
interests of the Company, as determined by the Company,
the vested portion hereof shall cease to be exercisable on
the Termination Date.
5. Non-Transferability of Option. This Option may not be sold,
transferred, pledged, assigned or otherwise alienated or hypothecated otherwise
than by will or by the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined in the Code.
6. "At Will" Status Unchanged. If Optionee is an "at will" employee
at the time this Option is granted, that status shall remain unchanged after the
grant of this Option and the grant of this Option shall not create any
obligation on the part of the Company to continue Optionee's employment.
7. No Rights as Stockholder. Optionee shall have no rights as a
stockholder with respect to shares of the Company's Common Stock covered by this
Option until the date of the issuance of a stock certificate or stock
certificates.
8. Modification, Termination and Adjustment. The rights of the
Optionee are subject to modification, termination and adjustment in certain
events as provided in the Plan.
9. Investment Covenant. The Optionee represents and agrees that as
a condition to exercise of this Option, the shares of Common Stock of the
Company that the Optionee acquires under this Option will be acquired by the
Optionee for investment and not with a view to distribution or resale, unless
counsel for the Company is then of the opinion that such a representation is not
required under the Securities Act of 1933, as amended, or any other applicable
law, regulation or rule of any governmental agency. The Company may place
restrictive legends on any certificates evidencing shares issued upon exercise
of any options hereunder if deemed necessary by the Company to comply with
applicable securities laws.
10. Form S-8 Registration. The Company agrees to use its best
efforts to register this Option under a Form S-8 registration statement.
3
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement.
SEQUESTER HOLDINGS, INCORPORATED
By ___________________________________
Its ______________________________
ACCEPTANCE BY OPTIONEE:
The Optionee acknowledges receipt of a copy of the Plan, a copy of
which is annexed hereto, and represents that the Optionee is familiar with the
terms and provisions thereof. The Optionee hereby accepts this Option subject to
all the terms and provisions of the Plan and this Stock Option Grant Agreement.
The Optionee hereby agrees to accept as binding, conclusive, and final all
decisions and interpretations of the Board and where applicable, the Committee,
upon any questions arising under the Plan and this Stock Option Grant Agreement.
OPTIONEE:
_______________________________________
Denise van Daalen Wetters
Optionee Address:
_______________________________________
_______________________________________
_______________________________________
4
<PAGE> 1
EXHIBIT 6.35
STOCK OPTION GRANT AGREEMENT, DATED APRIL 15, 1997,
BY AND BETWEEN THE COMPANY AND GERALD HATTO
<PAGE> 2
SEQUESTER HOLDINGS, INCORPORATED
1997 STOCK PLAN
STOCK OPTION GRANT AGREEMENT
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER
THE APPLICABLE SECURITIES LAWS OF ANY STATE AND MAY BE OFFERED AND
SOLD ONLY IF REGISTERED PURSUANT TO THE PROVISIONS OF SUCH ACT OR
SUCH LAWS OR IF AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
Optionee: Gerald E. Hatto
Number of Option Shares: 250,000
Exercise Price Per Share: $0.34
Date of Grant: April 15, 1997
Expiration Date: April 15, 2007
Type of Stock Option (check one):
Incentive X Non-Qualified
--- ---
1. Grant of Option. Sequester Holdings, Incorporated, a Nevada
corporation (the "Company"), hereby grants to the optionee named above
("Optionee") an option ("Option") to purchase the total number of shares of
Common Stock of the Company set forth above (the "Shares") at the exercise price
per share set forth above (the "Exercise Price"), subject to all of the terms
and conditions of this Stock Option Grant Agreement ("Agreement") and the
Company's 1997 Stock Plan as it may be amended from time to time (the "Plan").
The Plan is incorporated herein by this reference. Terms defined in the Plan
have the same meaning in this Agreement. If designated as an Incentive Stock
Option above, this Option is intended to qualify as an "incentive stock option"
("ISO") within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code").
2. Exercise Period of Option. Subject to the terms and conditions
of the Plan and this grant, this Option shall become 100% exercisable as of the
date of this grant.
<PAGE> 3
3. Method of Exercise. The Option shall be exercised by the
Optionee (a) by giving written notice to the Secretary of the Company stating
the number of shares of Common Stock with respect to which the Option is being
exercised and (b) tendering payment of the option price for each share of Common
Stock to be purchased. The exercise price of any shares of Common Stock
exercised under this Option must be paid in full upon such exercise. Payment
shall be made in cash, previously owned shares of Common Stock (which have been
held at least six months by the Optionee), by promissory note or such other form
of consideration as the Committee may permit. If payment is made by promissory
note, such note shall be secured by the shares purchased, have a term of five
years, bear interest at an annual rate equal to the then applicable Federal
Reserve Rate, compounded annually, and all principal and interest shall be paid
in full at maturity or upon sale of any shares securing such note, whichever is
earlier. The Optionee's exercise notice provided for in this Section above shall
be accompanied by (i) this Agreement (for appropriate endorsement by the Company
to reflect such exercise), (ii) an investment letter pursuant to Sections 9-11
below, if then required by the Committee, and (iii) such other agreements and
documents as may be reasonably requested by the Company.
4. Termination. In the event that the Optionee shall cease to be
engaged by the Company or an Affiliate due to any reason, any Options which have
not been exercised shall remain exercisable for 30 days after the Termination
Date or until the Expiration Date (as set forth above), whichever is earlier.
5. Non-Transferability of Option. This Option may not be sold,
transferred, pledged, assigned or otherwise alienated or hypothecated otherwise
than by will or by the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined in the Code.
6. No Rights as Stockholder. Optionee shall have no rights as a
stockholder with respect to shares of the Company's Common Stock covered by this
Option until the date of the issuance of a stock certificate or stock
certificates.
7. Modification, Termination and Adjustment. The rights of the
Optionee are subject to modification, termination and adjustment in certain
events as provided in the Plan.
8. Investment Covenant - Underlying Shares. The Optionee represents
and agrees that as a condition to exercise of this Option, the shares of Common
Stock of the Company that the Optionee acquires under this Option will be
acquired by the Optionee for investment and not with a view to distribution or
resale, unless counsel for the Company is
2
<PAGE> 4
then of the opinion that such a representation is not required under the
Securities Act of 1933, as amended (the "Securities Act") or any other
applicable law, regulation or rule of any governmental agency. The Company may
place restrictive legends on any certificates evidencing shares issued upon
exercise of any options hereunder if deemed necessary by the Company to comply
with applicable securities laws.
9. Investment Covenant - Options. The Optionee represents and
warrants that Optionee is acquiring the Options for investment for his own
account, not as a nominee or agent, and not with the view to, or for resale in
connection with, any distribution thereof. The Optionee further understands that
the issuance and sale of the Options to be acquired by him hereunder have not
been the subject of a registration statement filed under the Securities Act, or
qualified under applicable state securities laws by reason of a specific
exemption from the registration provisions of the Securities Act and the
qualification provisions of such laws. Optionee understands that the Options may
not be resold by Optionee unless such sale is registered under the Securities
Act and qualified under applicable state laws or an exemption from such
registration or qualification is available.
10. Accredited Investor. The Optionee represents and warrants that
Optionee is an accredited investor within the meaning of Rule 501(a) of
Regulation D promulgated under the Securities Act and has substantial experience
in evaluating and investing in securities and has made or contemplated
investments of securities other than those of the Company. Optionee further
acknowledges that by reason of his business or financial experience, Optionee
has the ability to bear the economic risk of his investment in the Options and
understands that the Options represent a speculative investment and that there
is substantial risk of complete loss of such investment.
11. Form S-8 Registration. The Company agrees to use its best
efforts to register this Option under a Form S-8 registration statement, to the
extent that such Form is available to the Company and Optionee is eligible
thereunder.
12. Authority. Optionee represents and warrants to the Company that
Optionee has the legal right, authority and capacity to enter into this
Agreement and to render the services described herein, and that the delivery and
execution of the Agreement will not violate the terms of any other agreement to
which Optionee is a party.
3
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement.
SEQUESTER HOLDINGS, INCORPORATED
By ___________________________________
Its ______________________________
ACCEPTANCE BY OPTIONEE:
The Optionee acknowledges receipt of a copy of the Plan, a copy of
which is annexed hereto, and represents that the Optionee is familiar with the
terms and provisions thereof. The Optionee hereby accepts this Option subject to
all the terms and provisions of the Plan and this Stock Option Grant Agreement.
The Optionee hereby agrees to accept as binding, conclusive, and final all
decisions and interpretations of the Board and where applicable, the Committee,
upon any questions arising under the Plan and this Stock Option Grant Agreement.
OPTIONEE:
By ___________________________________
Gerald E. Hatto
Optionee Address:
______________________________________
______________________________________
______________________________________
4
<PAGE> 1
EXHIBIT 6.36
AMENDMENT TO STOCK OPTION GRANT AGREEMENT, DATED APRIL 15, 1997,
BY AND BETWEEN THE COMPANY AND BONNIE RICHARDS
<PAGE> 2
AMENDMENT TO
STOCK OPTION GRANT AGREEMENT
THIS AMENDMENT (the "Amendment") dated as of April 15, 1997, amends
that certain Stock Option Grant Agreement (the "Option Agreement") between
Sequester Holdings, Incorporated, a Nevada corporation ("Company"), and Bonnie
L. Richards ("Optionee"), dated as of March 26, 1997. Capitalized terms that are
not otherwise defined herein have the same meanings ascribed to them in the
Option Agreement.
WHEREAS, pursuant to the Option Agreement, Company granted Optionee
an Option to purchase 1,000,000 Shares at an exercise price of $0.53; and
WHEREAS, Optionee has requested that such Option be reduced to
500,000 Shares in the best interest of the Company and in Optionee's best
interest as a stockholder and senior officer thereof;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and conditions contained herein, the parties agree as follows:
1. Amendment of the Option Agreement. The number of Option Shares
shall be 500,000.
2. Release. Optionee hereby unconditionally and irrevocably releases,
discharges, waives and renounces any and all rights, benefits,
claims, actions and causes of action, counterclaims, third-party
claims, offsets, demands, affirmative defenses, debts,
controversies, contracts, promises, damages, costs, losses and
expenses of every kind, character and description whatsoever,
liquidated or unliquidated, known or unknown, whether matured or
unmatured (collectively "Claims") arising under or relating to the
number of Option Shares originally set forth in the Option
Agreement. In connection with the foregoing release, Optionee
waives and relinquishes all rights and benefits conferred by
California Civil Code Section 1542, which provides that:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS THAT THE
CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT
THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM
MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE
DEBTOR."
3. Effectiveness. This Amendment is effective as of April 15, 1997.
4. Integration. This Amendment shall supersede all other prior
agreements, arrangements and understandings, whether oral or
written, with respect to the subject matter hereof.
<PAGE> 3
5. Confirmation of Option Agreement. Except as expressly provided in
this Amendment, the Option Agreement shall remain in full force and
effect and is hereby ratified and confirmed.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
as of the effective date set forth above.
"Company"
SEQUESTER HOLDINGS, INCORPORATED
By ____________________________________
Title _________________________________
"Optionee"
_______________________________________
Bonnie L. Richards
2
<PAGE> 1
EXHIBIT 6.37
REGULATION S DISTRIBUTION AGREEMENT, DATED MARCH 29, 1996,
BY AND BETWEEN THE COMPANY AND BERKSHIRE INTERNATIONAL FINANCE
<PAGE> 2
REGULATION S DISTRIBUTION AGREEMENT
THIS AGREEMENT is made this 29th day of March 1996 by and between KCD
HOLDINGS INCORPORATED, a Nevada corporation, whose main offices are located at
2835 Townsgate Road, Suite 110, Westlake Village, CA 91361 (hereinafter referred
to as "KCD"); and BERKSHIRE INTERNATIONAL FINANCE, INC., a Delaware corporation
(hereinafter referred to as "BERKSHIRE"), with principal executive offices
located at 551 Fifth Avenue, Suite 605, New York, NY 10017.
W I T N E S S E T H
WHEREAS, KCD is a "reporting issuer" with the meaning of Rule 902(l) of
Regulation S, 17 CFR Section 240.901 et seq. promulgated under the Securities
Act of 1933 ("Regulation S") which files reports with the U.S. Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934 (the
"Exchange Act"), and whose stock is traded on the OTC Electronic Bulletin Board
under the symbol "KCDH".
WHEREAS, BERKSHIRE is acting as a "distributor" within the meaning of Rule
902(c) of Regulation S; and
WHEREAS, BERKSHIRE desires to assist KCD in obtaining equity capital
pursuant to an offering conducted in compliance with Regulation S upon the terms
and conditions set forth herein;
NOW THEREFORE, in consideration of the mutual promises herein contained, the
parties hereto agree as follows:
I. WARRANTIES AND COVENANTS.
1.01 BERKSHIRE shall use its "best efforts" to obtain subscriptions for up
to approximately $1,500,000 worth of KCD Common Stock, (the "Securities") in an
offering conducted pursuant to Rule 903 of Regulation S (the "Offering"). The
Offering will consist of a maximum of 1,000,000 shares of Common Stock offered
at a price per share equal to the lesser of (i) 40% below the closing bid price
of the Company's common stock on the day immediately prior to the execution of
the attached Offshore Securities Subscription Agreement by the Purchaser; or
(ii) $1.50 per share. Such subscriptions shall be in the form of a Subscription
Agreement (a copy of which is attached hereto) executed by a prospective
purchaser.
1.02 BERKSHIRE represents and warrants that all offers and sales of the
Securities shall be made only in accordance with the provisions of Rule 903 or
904 of Regulation S.
1.03 BERKSHIRE represents and warrants that all offers and sales of the
Securities will be made in an "offshore transaction," as defined in Rule 902(i)
of Regulation S.
1.04 BERKSHIRE represents and warrants that none of BERKSHIRE, any affiliate
of BERKSHIRE, or any person acting on behalf of any of them will engage in any
"directed selling efforts", as defined by Rule 902(b) of Regulation S, in the
United States with respect to the offer and sale of the Securities.
<PAGE> 3
1.05 BERKSHIRE represents and warrants that any offering materials or
documents (except press releases) used in connection with offers and sales of
Securities shall include statements to the effect that the Securities have not
been registered under the Securities Act of 1933 (the "Securities Act") and may
not be offered or sold in the United States or to U.S. persons (other than
distributors as that term is defined under Rule 902(c) of Regulation S) unless
the Securities are registered under the Securities Act, or an exemption from the
registration requirements of the Securities Act is available. Such statements
shall appear on all materials as provided under Rule 902(h)(2)(i), (ii), and
(iii) of Regulation S.
1.06 BERKSHIRE represents and warrants that no offer or sale will be made
to, or for the account or benefit of, a "U.S. person," as defined by Rule 902(o)
of Regulation S.
1.07 BERKSHIRE shall advise KCD of legends or restrictions required by
foreign countries, if any, pertaining to the Securities which KCD shall cause to
be placed on the certificates representing the Securities; and BERKSHIRE shall
take all steps necessary to ensure that any offers and sales made pursuant to
this Agreement comply with the laws and regulations of all foreign regulatory
and/or self-regulatory authorities.
1.08 KCD and BERKSHIRE agree that the certificates for any Securities sold
pursuant to this Agreement shall include the following restrictive legend:
"These shares have been issued pursuant to Regulation S as an exemption
to the registration provisions under the Securities Act of 1933, as
amended. These shares cannot be transferred, offered or sold in the U.S.
or to U.S. persons (as defined in Regulation S) until after
________________, 1996 (Forty-one days after issuance)."
1.09 KCD shall maintain its status as a corporation in good standing and as
reporting issuer under the Exchange Act, operating in all material respects in
accordance with its most recent reports filed under the Exchange Act and
provided to BERKSHIRE.
1.10 BERKSHIRE acknowledges that it is not authorized to and will not give
any information or make any representations in connection with the offer or sale
of the Securities other than those which are contained in disclosure materials
approved by KCD in advance. BERKSHIRE agrees that it is not an agent of KCD and
that it is not authorized to and will not incur any obligation or enter into any
agreement on behalf of KCD in any manner or respect.
1.11 KCD shall promptly issue certificates representing the Securities upon
notice by Escrow Agent that the Subscription Agreement has been executed by the
Purchaser and accepted by KCD.
-2-
<PAGE> 4
II. COMPENSATION.
2.01 KCD acknowledges that BERKSHIRE is being compensated directly by the
foreign purchaser.
2.02 All subscriptions funds received by BERKSHIRE will be directed to the
Attorney Trust Account of Levy & Levy, P.A., Attn; William N. Levy, Esq. as
Escrow Agent. Each time that KCD delivers a certificate for Securities sold in
accordance with Regulation S, pursuant to a Subscription Agreement accepted by
KCD, the sale proceeds will be immediately delivered to KCD in a certified check
or wire, less a one-half of one percent (0.005) escrow fee to Levy & Levy, P.A.
III. INDEMNIFICATION
3.01 BERKSHIRE and KCD agree to indemnify and hold harmless the escrow agent
from any and all claims, liabilities, losses, actions, suits, or proceedings, at
law or in equity, that may incur or with which it may be threatened by reason of
its acting as Escrow Agent as described herein (including but not limited to
expenses reasonably incurred in investigating, preparing or defending against
any litigation, commenced or threatened, or any claim whatsoever); provided,
however, that the provisions of this paragraph shall not apply in the event of
any claim, liability, loss, action , suit, or proceeding resulting from the
breach of by the Escrow Agent of any provision of this Agreement or from its
gross negligence or willful misconduct.
3.02 KCD agrees to indemnify and hold harmless BERKSHIRE, its directors and
each person, if any, who controls BERKSHIRE within the meaning of Section 15 of
the Securities Act as follows:
a. Against any loss, liability, claim, damage and expense arising
out of (including but not limited to expenses reasonably incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, or any claim whatsoever based upon) any untrue or alleged untrue
statement of a material fact contained in the offering materials (as amended and
supplemented) furnished to BERKSHIRE by KCD, or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to make
the statements therein not misleading unless such statement or omission was made
in reliance upon and in conformity with written information furnished to KCD by
BERKSHIRE expressly for use in the offering materials or any amendment or
supplement thereof; and
b. Against any loss, liability, claim, damage and expense to the
extent of the aggregate amount paid in settlement of any litigation commenced or
threatened, or of any claim based upon any untrue statement or omission or any
alleged untrue statement or omission (including but not limited to expenses
reasonably incurred in investigating, preparing or defending against any such
litigation or claim), if such settlement is effected with the written consent of
KCD.
-3-
<PAGE> 5
3.03 BERKSHIRE agrees to indemnify and hold harmless KCD, its directors,
officers, employees, attorneys, accountants, agents, and affiliates, and each
person, if any, who controls any of the foregoing persons within the meaning of
Section 15 of the Securities Act as follows:
a. Against any loss, liability, claim, damage or expense resulting
from or arising out of (including but not limited to expenses reasonably
incurred in investigating, preparing or defending against any litigation,
commenced or threatened, or any claim whatsoever based upon) (i) BERKSHIRE's
violation or alleged violation or alleged violation of Regulation S or any other
applicable law, (ii) any breach by BERKSHIRE of any of its representations,
warranties, covenants or agreements contained in this Agreement, or (iii) any
untrue or alleged untrue statement of a material fact contained in the offering
materials (as amended and supplemented) prepared by BERKSHIRE, or the omission
or alleged omission therefrom of a material fact required to be stated therein
or necessary to make the statements therein not misleading, except to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in the offering materials upon and in conformity with
written information furnished to BERKSHIRE by KCD specifically for use in the
preparation thereof; and
b. Against loss, liability, claim, damage or expense to the extent
of the aggregate amount paid in settlement of any litigation commenced or
threatened, or of any claim based upon any untrue statement or omission or any
alleged untrue statement or omission (including but not limited to expenses
reasonably incurred in investigating, preparing or defending against any such
litigation or claim), if such settlement is effected with the written consent of
BERKSHIRE.
IV. TERMINATION.
4.01 The Offering will terminate at 12:00 p.m. EST on the _____ day of
April, 1996, unless extended by KCD.
V. MISCELLANEOUS.
5.01 This Agreement is binding on all parties, as well as on their
successors, assignees and representatives, and constitutes the entire Agreement
between the parties. This Agreement may be modified or amended solely by a
written agreement executed by the parties hereto, and may be executed in
counterparts.
5.02 The parties shall resolve any dispute arising hereunder before an
arbitrator selected pursuant to the rules of the American Arbitration
Association and each party shall bear their own attorney's fees and costs of
such arbitration. Disputes under this Agreement as well as all of the terms and
conditions of this Agreement shall be governed in accordance with and by the
laws of the State of New York.
-4-
<PAGE> 6
VI. RESTRICTIVE CLAUSES.
6.01 KCD agrees that it will not participate or engage in any Regulation S
Private Placement Transactions with any other distributor or foreign purchaser
other than through BERKSHIRE for a period of 90 days subsequent to the Closing
of the last Regulation S transaction by or through BERKSHIRE. For a period of
six months from the last Reg S Closing, KCD agrees to grant BERKSHIRE the First
Right of Refusal on all Regulation S Transactions (BERKSHIRE wold have ten days
to match any bona fide offer and have 20 additional days to complete same).
6.02 In the event KCD engages in a non-Regulation S Private Placement (Reg.
D or 4(2) financing), for a period of three months after the last Reg S Closing,
KCD hereby agrees not to sell any stock to a non-U.S. resident or any one else
who might qualify for a Regulation S transaction.
6.03 KCD hereby agrees to use its best efforts to prevent its officers,
directors and more than 5% shareholders from selling any of their shares
pursuant to Rule 144(g) and (k) for a period of 90 days after the last closing.
VII. NOTICES.
7.01 All notices and communications regarding this Agreement shall be sent
to the following:
If to KCD: KCD Holdings Incorporated
2835 Townsgate Road, Suite 110
Westlake Village, CA 91361
If to BERKSHIRE : John Figliolini, President
Berkshire International Finance, Inc.
551 Fifth Avenue, Suite 605
New York, NY 10017
(SIGNATURES ON FOLLOWING PAGE)
-5-
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound, have
executed this Agreement.
BERKSHIRE INTERNATIONAL FINANCE, INC.
By: _______________________________
John Figliolini, President
KCD HOLDINGS INCORPORATED
By: _______________________________
Clark M. Holcomb, President
-6-
<PAGE> 1
EXHIBIT 6.38
COVENANT AGREEMENT, DATED MARCH 29, 1996, BY AND
BETWEEN THE COMPANY, CLARK HOLCOMB, AND BERKSHIRE INTERNATIONAL FINANCE
<PAGE> 2
AGREEMENT
THIS AGREEMENT is made this ___ day of March, 1996 by and between KCD
HOLDINGS INCORPORATED, a Nevada corporation (hereinafter referred to as "KCD");
CLARK M. HOLCOMB, an individual (hereinafter referred to as "Holcomb"); and
BERKSHIRE INTERNATIONAL FINANCE, INC., a Delaware corporation (hereinafter
referred to as "Berkshire").
W I T N E S S E T H
WHEREAS, KCD and Berkshire desire to enter into a Regulation S Distribution
Agreement (the "Distribution Agreement") for the placement of KCD's common stock
offshore in accordance with the terms and conditions of the Distribution
Agreement; and
WHEREAS, Berkshire has requested certain representations and warranties from
KCD and Holcomb as an inducement to enter into the Distribution Agreement.
NOW THEREFORE, in consideration of the mutual promises herein contained, the
parties hereto agree as follows:
I. WARRANTIES AND COVENANTS OF KCD AND HOLCOMB
1.01 Holcomb will resign as an officer and director of KCD.
1.02 Following Holcomb's resignation KCD's Board of Directors will consist
of five (5) members until the next annual meeting of shareholders as follows:
(1) Bonnie Richards; (2) Wellington Ewen (subject to Mr. Ewen's acceptance); and
(3) three individuals approved by Berkshire.
1.03 Holcomb will retire 4,100,000 shares of KCD's common stock currently
owned by Holcomb in satisfaction of KCD's outstanding loan to Holcomb, subject
to compliance with applicable law; and provided that, 2,500,000 shares currently
held in Escrow for the benefit of Dr.
Krizman and other parties are released.
1.04 Holcomb will remain in the employ of KCD as the director of sales and
marketing on the following terms: (1) an annual base salary of $100,000; (2) a
sales incentive equal to 2% of net sales over the prior base quarter; provided
that, KCD has net income during the subject quarter; and (3) an equity incentive
equal to the sales incentive, and subject to the same conditions, based on the
average bid price during the subject quarter.
1.05 KCD will not increase the salaries of any of its officers or directors
for a period of 12 months.
<PAGE> 3
1.06 KCD will not make any loan to any officer, director or shareholder of
KCD for a period of 12 months.
1.07 Upon completion of the placement set forth in the Distribution
Agreement, KCD shall issue to Berkshire 300,000 stock purchase warrants
exercisable at $2.50 per warrant to purchase one (1) share of KCD common stock.
The warrants will have a five (5) year life, will have no call provision, will
have continuous piggy-back registration rights and after twelve (12) months
shall be entitled to one (1) demand registration.
1.08 KCD currently has approximately 17,145,000 shares of common stock
outstanding and anticipates that approximately 795,200 of these shares will be
retired pursuant to pending or contemplated settlement agreements. Based on the
foregoing, upon retirement of the 4,100,000 shares specified in Section 1.03
hereinabove, KCD would have approximately 12,249,800 shares outstanding,
exclusive of the placement set forth in the Distribution Agreement. KCD would
also act to retire an additional 1,000,000 shares owned by Holcomb and pledged
as collateral to secure Holcomb's obligation to Susan Shell in the approximate
amount of $450,000; provided that, KCD or others were able to assume the
foregoing obligation.
II. MISCELLANEOUS
2.01 This Agreement is binding on all parties, as well as on their
successors, assignees and representatives, and constitutes the entire Agreement
between the parties. This Agreement may be modified or amended solely by a
written Agreement executed by the parties hereto, and may be executed in
counterparts.
2.02 The parties shall resolve any dispute arising hereunder before an
arbitrator selected pursuant to the rules of the American Arbitration
Association and each party shall bear their own attorneys' fees and costs of
such arbitration. Disputes under this Agreement as well as all of the terms and
conditions of this Agreement shall be governed in accordance with and by the
laws of the State of New York.
(SIGNATURES ON FOLLOWING PAGE)
-2-
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound, have
executed this Agreement.
BERKSHIRE INTERNATIONAL FINANCE, INC.
By: _____________________________________
John Figliolini, President
KCD HOLDINGS INCORPORATED
By: _____________________________________ _______________________________
Clark M. Holcomb, President Clark M. Holcomb, an individual
-3-
<PAGE> 1
EXHIBIT 6.39
AMENDMENT TO REGULATION S DISTRIBUTION AGREEMENT,
DATED APRIL 17, 1996, BY AND BETWEEN THE COMPANY AND
BERKSHIRE INTERNATIONAL FINANCE
<PAGE> 2
AMENDMENT TO REGULATION S DISTRIBUTION AGREEMENT
THIS AMENDMENT TO REGULATION S DISTRIBUTION AGREEMENT ("AMENDMENT") is made
this 17th day of April, 1996 by and between KCD HOLDINGS INCORPORATED, a Nevada
corporation, whose main offices are located at 2835 Townsgate Road, Suite 110,
Westlake Village, CA 91361 (hereinafter referred to as "KCD"); and BERKSHIRE
INTERNATIONAL FINANCE, INC., a Delaware corporation (hereinafter referred to as
"BERKSHIRE"), with principal executive offices located at 551 Fifth Avenue,
Suite 605, New York, NY 10017.
W I T N E S S E T H
WHEREAS, KCD and BERKSHIRE have previously executed a Regulation S
Distribution Agreement dated March 29, 1996 (the "Agreement"), and desire to
amend and restate the provisions of Section 1.01 of the Agreement only by means
of this Amendment.
NOW THEREFORE, in consideration of the mutual promises herein contained, the
parties hereto agree as follows:
1. Section 1.01 of the Agreement is hereby amended and restated as
Follows:
1.01 BERKSHIRE shall use its "best efforts" to obtain subscriptions for up
to approximately $1,800,000 worth of KCD Common Stock, (the "Securities") in an
offering conducted pursuant to Rule 903 of Regulation S (the "Offering"). The
Offering will consist of a maximum of 1,200,000 shares of Common Stock offered
at a price per share equal to the lesser of (i) 40% below the closing bid price
of the Company's common stock on the day immediately prior to the execution of
the attached Offshore Securities Subscription Agreement by the Purchaser; or
(ii) $1.50 per share. Such subscriptions shall be in the form of a Subscription
Agreement (a copy of which is attached hereto) executed by a prospective
purchaser.
2. All of the remaining terms and conditions of the Agreement shall
remain in full force and effect and shall not be affected by this Amendment.
(SIGNATURES ON FOLLOWING PAGE)
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound, have
executed this Amendment.
BERKSHIRE INTERNATIONAL FINANCE, INC.
By: _______________________________
John Figliolini, President
KCD HOLDINGS INCORPORATED
By: _______________________________
Bonnie Richards, President
-2-
<PAGE> 1
EXHIBIT 6.40
REGULATION S DISTRIBUTION AGREEMENT, DATED JUNE 26, 1996,
BY AND BETWEEN THE COMPANY AND BERKSHIRE INTERNATIONAL FINANCE
<PAGE> 2
REGULATION S DISTRIBUTION AGREEMENT
THIS AGREEMENT is made this 26th day of June 1996 by and between KCD
HOLDINGS INCORPORATED, a Nevada corporation, whose main offices are located at
2835 Townsgate Road, Suite 110, Westlake Village, CA 91361 (hereinafter referred
to as "KCD"); and BERKSHIRE INTERNATIONAL FINANCE, INC., a Delaware corporation
(hereinafter referred to as "BERKSHIRE"), with principal executive offices
located at 551 Fifth Avenue, Suite 605, New York, NY 10017.
W I T N E S S E T H
WHEREAS, KCD is a "reporting issuer" with the meaning of Rule 902(l) of
Regulation S, 17 CFR Section 240.901 et seq. promulgated under the Securities
Act of 1933 ("Regulation S") which files reports with the U.S. Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934 (the
"Exchange Act"), and whose stock is traded on the OTC Electronic Bulletin Board
under the symbol "KCDH".
WHEREAS, BERKSHIRE is acting as a "distributor" within the meaning of Rule
902(c) of Regulation S; and
WHEREAS, BERKSHIRE desires to assist KCD in obtaining equity capital
pursuant to an offering conducted in compliance with Regulation S upon the terms
and conditions set forth herein;
NOW THEREFORE, in consideration of the mutual promises herein contained, the
parties hereto agree as follows:
I. WARRANTIES AND COVENANTS.
1.01 BERKSHIRE shall use its "best efforts" to obtain subscriptions for up
to approximately $2,000,000 worth of KCD Common Stock, (the "Securities") in an
offering conducted pursuant to Rule 903 of Regulation S (the "Offering"). The
Offering will consist of a maximum of 1,000,000 shares of Common Stock offered
at a price per share equal to the lesser of (i) 50% below the closing bid price
of the Company's common stock on the day immediately prior to the execution of
the attached Offshore Securities Subscription Agreement by the Purchaser; or
(ii) $2.00 per share. Such subscriptions shall be in the form of a Subscription
Agreement (a copy of which is attached hereto) executed by a prospective
purchaser.
1.02 BERKSHIRE represents and warrants that all offers and sales of the
Securities shall be made only in accordance with the provisions of Rule 903 or
904 of Regulation S.
1.03 BERKSHIRE represents and warrants that all offers and sales of the
Securities will be made in an "offshore transaction," as defined in Rule 902(i)
of Regulation S.
1.04 BERKSHIRE represents and warrants that none of BERKSHIRE, any affiliate
of BERKSHIRE, or any person acting on behalf of any of them will engage in any
"directed selling efforts", as defined by Rule 902(b) of Regulation S, in the
United States with respect to the offer and sale of the Securities.
<PAGE> 3
1.05 BERKSHIRE represents and warrants that any offering materials or
documents (except press releases) used in connection with offers and sales of
Securities shall include statements to the effect that the Securities have not
been registered under the Securities Act of 1933 (the "Securities Act") and may
not be offered or sold in the United States or to U.S. persons (other than
distributors as that term is defined under Rule 902(c) of Regulation S) unless
the Securities are registered under the Securities Act, or an exemption from the
registration requirements of the Securities Act is available. Such statements
shall appear on all materials as provided under Rule 902(h)(2)(i), (ii), and
(iii) of Regulation S.
1.06 BERKSHIRE represents and warrants that no offer or sale will be made
to, or for the account or benefit of, a "U.S. person," as defined by Rule 902(o)
of Regulation S.
1.07 BERKSHIRE shall advise KCD of legends or restrictions required by
foreign countries, if any, pertaining to the Securities which KCD shall cause to
be placed on the certificates representing the Securities; and BERKSHIRE shall
take all steps necessary to ensure that any offers and sales made pursuant to
this Agreement comply with the laws and regulations of all foreign regulatory
and/or self-regulatory authorities.
1.08 KCD and BERKSHIRE agree that the certificates for any Securities sold
pursuant to this Agreement shall include the following restrictive legend:
"These shares have been issued pursuant to Regulation S as an exemption
to the registration provisions under the Securities Act of 1933, as
amended. These shares cannot be transferred, offered or sold in the
U.S. or to U.S. persons (as defined in Regulation S) until after
________________, 1996 (Forty-one days after issuance)."
1.09 KCD shall maintain its status as a corporation in good standing and as
reporting issuer under the Exchange Act, operating in all material respects in
accordance with its most recent reports filed under the Exchange Act and
provided to BERKSHIRE.
1.10 BERKSHIRE acknowledges that it is not authorized to and will not give
any information or make any representations in connection with the offer or sale
of the Securities other than those which are contained in disclosure materials
approved by KCD in advance. BERKSHIRE agrees that it is not an agent of KCD and
that it is not authorized to and will not incur any obligation or enter into any
agreement on behalf of KCD in any manner or respect.
1.11 KCD shall promptly issue certificates representing the Securities upon
notice by Escrow Agent that the Subscription Agreement has been executed by the
Purchaser and accepted by KCD.
II. COMPENSATION.
2.01 KCD acknowledges that BERKSHIRE is being compensated directly by the
foreign purchaser.
2
<PAGE> 4
2.02 All subscriptions funds received by BERKSHIRE will be directed to the
Attorney Trust Account of Levy & Levy, P.A., Attn; William N. Levy, Esq. as
Escrow Agent. Each time that KCD delivers a certificate for Securities sold in
accordance with Regulation S, pursuant to a Subscription Agreement accepted by
KCD, the sale proceeds will be immediately delivered to KCD in a certified check
or wire, less a one-half of one percent (0.005) escrow fee to Levy & Levy, P.A.
III. INDEMNIFICATION
3.01 BERKSHIRE and KCD agree to indemnify and hold harmless the escrow agent
from any and all claims, liabilities, losses, actions, suits, or proceedings, at
law or in equity, that may incur or with which it may be threatened by reason of
its acting as Escrow Agent as described herein (including but not limited to
expenses reasonably incurred in investigating, preparing or defending against
any litigation, commenced or threatened, or any claim whatsoever); provided,
however, that the provisions of this paragraph shall not apply in the event of
any claim, liability, loss, action , suit, or proceeding resulting from the
breach of by the Escrow Agent of any provision of this Agreement or from its
gross negligence or willful misconduct.
3.02 KCD agrees to indemnify and hold harmless BERKSHIRE, its directors and
each person, if any, who controls BERKSHIRE within the meaning of Section 15 of
the Securities Act as follows:
a. Against any loss, liability, claim, damage and expense arising out
of (including but not limited to expenses reasonably incurred in investigating,
preparing or defending against any litigation, commenced or threatened, or any
claim whatsoever based upon) any untrue or alleged untrue statement of a
material fact contained in the offering materials (as amended and supplemented)
furnished to BERKSHIRE by KCD, or the omission or alleged omission therefrom of
a material fact required to be stated therein or necessary to make the
statements therein not misleading unless such statement or omission was made in
reliance upon and in conformity with written information furnished to KCD by
BERKSHIRE expressly for use in the offering materials or any amendment or
supplement thereof; and
b. Against any loss, liability, claim, damage and expense to the extent
of the aggregate amount paid in settlement of any litigation commenced or
threatened, or of any claim based upon any untrue statement or omission or any
alleged untrue statement or omission (including but not limited to expenses
reasonably incurred in investigating, preparing or defending against any such
litigation or claim), if such settlement is effected with the written consent of
KCD.
3.03 BERKSHIRE agrees to indemnify and hold harmless KCD, its directors,
officers, employees, attorneys, accountants, agents, and affiliates, and each
person, if any, who controls any of the foregoing persons within the meaning of
Section 15 of the Securities Act as follows:
a. Against any loss, liability, claim, damage or expense resulting from
or arising out of (including but not limited to expenses reasonably incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, or any claim whatsoever based upon) (i) BERKSHIRE's violation or
alleged violation or alleged violation of Regulation S or any other applicable
law, (ii) any breach by BERKSHIRE of any of its representations, warranties,
covenants or agreements contained in this Agreement, or (iii) any untrue or
alleged untrue statement of a
3
<PAGE> 5
material fact contained in the offering materials (as amended and supplemented)
prepared by BERKSHIRE, or the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in the
offering materials upon and in conformity with written information furnished to
BERKSHIRE by KCD specifically for use in the preparation thereof; and
b. Against loss, liability, claim, damage or expense to the extent of
the aggregate amount paid in settlement of any litigation commenced or
threatened, or of any claim based upon any untrue statement or omission or any
alleged untrue statement or omission (including but not limited to expenses
reasonably incurred in investigating, preparing or defending against any such
litigation or claim), if such settlement is effected with the written consent of
BERKSHIRE.
IV. TERMINATION.
4.01 The Offering will terminate at 12:00 p.m. EST on the _____ day of
August, 1996, unless extended by KCD.
V. MISCELLANEOUS.
5.01 This Agreement is binding on all parties, as well as on their
successors, assignees and representatives, and constitutes the entire Agreement
between the parties. This Agreement may be modified or amended solely by a
written agreement executed by the parties hereto, and may be executed in
counterparts.
5.02 The parties shall resolve any dispute arising hereunder before an
arbitrator selected pursuant to the rules of the American Arbitration
Association and each party shall bear their own attorney's fees and costs of
such arbitration. Disputes under this Agreement as well as all of the terms and
conditions of this Agreement shall be governed in accordance with and by the
laws of the State of New York.
VI. RESTRICTIVE CLAUSES.
6.01 KCD agrees that it will not participate or engage in any Regulation S
Private Placement Transactions with any other distributor or foreign purchaser
other than through BERKSHIRE for a period of 90 days subsequent to the Closing
of the last Regulation S transaction by or through BERKSHIRE. For a period of
six months from the last Reg S Closing, KCD agrees to grant BERKSHIRE the First
Right of Refusal on all Regulation S Transactions (BERKSHIRE wold have ten days
to match any bona fide offer and have 20 additional days to complete same).
6.02 In the event KCD engages in a non-Regulation S Private Placement (Reg.
D or 4(2) financing), for a period of three months after the last Reg S Closing,
KCD hereby agrees not to sell any stock to a non-U.S. resident or any one else
who might qualify for a Regulation S transaction.
4
<PAGE> 6
6.03 KCD hereby agrees to use its best efforts to prevent its officers,
directors and more than 5% shareholders from selling any of their shares
pursuant to Rule 144(g) and (k) for a period of 90 days after the last closing.
VII. NOTICES.
7.01 All notices and communications regarding this Agreement shall be sent
to the following:
If to KCD: KCD Holdings Incorporated
2835 Townsgate Road, Suite 110
Westlake Village, CA 91361
If to BERKSHIRE : John Figliolini, President
Berkshire International Finance, Inc.
551 Fifth Avenue, Suite 605
New York, NY 10017
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound, have
executed this Agreement.
BERKSHIRE INTERNATIONAL FINANCE, INC.
By: _______________________________
John Figliolini, President
KCD HOLDINGS INCORPORATED
By: _______________________________
Wellington Ewen, President
5
<PAGE> 1
EXHIBIT 6.41
COVENANT AGREEMENT, DATED JUNE 26, 1996, BY AND BETWEEN THE COMPANY
AND BERKSHIRE INTERNATIONAL FINANCE
<PAGE> 2
AGREEMENT
THIS AGREEMENT is made this 26th day of June, 1996 by and between KCD
HOLDINGS INCORPORATED, a Nevada corporation (hereinafter referred to as "KCD");
and BERKSHIRE INTERNATIONAL FINANCE, INC., a Delaware corporation (hereinafter
referred to as "Berkshire").
W I T N E S S E T H
WHEREAS, KCD and Berkshire desire to enter into a Regulation S Distribution
Agreement (the "Distribution Agreement") for the placement of KCD's common stock
offshore in accordance with the terms and conditions of the Distribution
Agreement; and
WHEREAS, Berkshire has requested certain representations and warranties from
KCD as an inducement to enter into the Distribution Agreement.
NOW THEREFORE, in consideration of the mutual promises herein contained, the
parties hereto agree as follows:
1.01 Upon completion of the placement set forth in the Distribution
Agreement, KCD shall issue to Berkshire 300,000 stock purchase warrants to
purchase one (1) share of KCD common stock per warrant at the price per share
set forth in the Distribution Agreement (the "Berkshire Warrants"). The
Berkshire Warrants will have a five (5) year life, will have no call provision,
will have continuous piggy-back registration rights and after twelve (12) months
shall be entitled to one (1) demand registration.
1.02 KCD agrees to enter into an investment relationship agreement (the "FRA
Agreement") with Fifth Avenue Research & Advisory Group, Inc. ("FRA"), upon
completion of the placement set forth in the Distribution Agreement, for a
twelve (12) month period. The FRA Agreement shall provide for the payment by KCD
of $3,000 per month, payable on the first day of each quarter thereunder, and
the issuance of 150,000 stock purchase warrants to purchase one (1) share of KCD
common stock per warrant (the "FRA Warrants") at the closing bid price on the
day the Distribution Agreement is executed. The FRA Warrants shall have
identical terms and conditions as the Berkshire Warrants, with the exception of
the exercise price.
1.03 KCD agrees to enter into an investment relationship agreement (the "WPH
Agreement") with WPH Consultants ("WPH"), upon completion of the placement set
forth in the Distribution Agreement, for a twelve (12) month period. The WPH
Agreement shall provide for the payment by KCD of $1,000 per month, payable on
the first day of each quarter thereunder, and the issuance of 50,000 stock
purchase warrants to purchase one (1) share of KCD common stock per warrant (the
"WPH" Warrants"). The WPH Warrants shall have identical terms and conditions as
the FRA Warrants.
<PAGE> 3
II. MISCELLANEOUS
2.01 This Agreement is binding on all parties, as well as on their
successors, assignees and representatives, and constitutes the entire Agreement
between the parties. This Agreement may be modified or amended solely by a
written Agreement executed by the parties hereto, and may be executed in
counterparts.
2.02 The parties shall resolve any dispute arising hereunder before an
arbitrator selected pursuant to the rules of the American Arbitration
Association and each party shall bear their own attorneys' fees and costs of
such arbitration. Disputes under this Agreement as well as all of the terms and
conditions of this Agreement shall be governed in accordance with and by the
laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound, have
executed this Agreement.
BERKSHIRE INTERNATIONAL FINANCE, INC.
By: _________________________________
John Figliolini, President
KCD HOLDINGS INCORPORATED
By: _________________________________
Wellington Ewen, President
2
<PAGE> 1
EXHIBIT 6.42
OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT
<PAGE> 2
OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT
THIS OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT is executed in reliance upon
the transaction exemption afforded by Regulation S ("Regulation S") as
promulgated by the Securities and Exchange Commission ("SEC"), under the
Securities Act of 1933, as amended ("1933 Act").
THIS AGREEMENT has been executed by the undersigned in connection with the
private placement of shares of Common Stock (hereinafter referred to as the
"Shares") of KCD HOLDINGS INCORPORATED (hereinafter referred to as "KCD")
located at 2835 Townsgate Road, Suite 110, Westlake Village, California 91361,
United States of America; a corporation organized under the laws of Nevada,
United States of America (hereinafter referred to as "Seller" or "Company"). The
undersigned, _____________________________________, a corporation organized
under the laws of _______________________________________ jurisdiction
(hereinafter referred to as "Purchaser"), hereby represents and warrants to, and
agrees with Seller as follows:
1. AGREEMENT TO SUBSCRIBE; PURCHASE PRICE.
a. The undersigned hereby subscribes for _____________ Shares of the Common
Stock of KCD for an aggregate amount of $_____________(US).
b. Form of Payment. Purchaser shall pay the purchase price by delivering
immediately available funds in United States Dollars to Levy & Levy, P.A., Attn:
William N. Levy, Esq., Plaza 1000, Suite 309, Voorhees, New Jersey 08043 as
Escrow Agent, by delivery of securities versus payment.
2. ACCEPTANCE OF SUBSCRIPTION.
a. This subscription may be accepted or rejected by the Company at its sole
discretion.
b. This subscription shall be deemed accepted only when this Agreement is
signed by the Company in the space provided on the signature page hereof.
c. If the Company receives subscriptions from multiple subscribers, it has
no obligation to accept subscriptions in the order received.
3. PURCHASER REPRESENTATIONS AND WARRANTIES.
a. Offshore Transaction. Purchaser hereby represents and warrants to Seller
as of the date hereof and as of the Closing Date as follows:
(i) If the Purchaser is a corporation, it is duly organized,
validly existing and in good standing under the laws of the
jurisdiction of its incorporation, and if the Purchaser is a
partnership or other organization, it is duly organized,
validly existing and in good standing under the laws of its
jurisdiction of organization.
<PAGE> 3
(ii) (a) If the Purchaser is a corporation, the execution, delivery
and performance of this Agreement have been duly authorized by
all necessary corporate action, (b) if the Purchaser is a
partnership or other organization, the other governing
documents to enter into this Agreement and to consummate the
transactions contemplated hereby and all necessary consents
and approvals required by the partnership agreement or other
governing documents have been obtained, and (c) this Agreement
constitutes a legal, valid and binding obligation of the
Purchaser, enforceable against the Purchaser in accordance
with its terms, except to the extent that enforceability may
be limited by applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting
creditors' rights generally.
(iii) The Purchaser did not receive any offer to purchase the Shares
in the United States. This Agreement has not been executed by
the Purchaser in the United States.
(iv) The Purchaser is not a "U.S. person," as defined by Rule
902(o) of Regulation S (a "U.S. Person"), promulgated under
the Securities Act of 1933, as amended (the "1933 Act") and as
set forth in Schedule A attached hereto, and is not acquiring
the Shares, directly or indirectly, for the account or benefit
of any U.S. Person.
(v) The Purchaser (a) has received a copy of the Disclosure
Documents (as hereinafter defined) and has carefully reviewed
and understands the Disclosure Documents and this Agreement
and (b) understands that, except as set forth in the
Disclosure Documents and in this Agreement, no representations
or warranties have been made to the Purchaser by the Company
or by any distributor, or by any of their officers, directors,
employees, agents or affiliates, and (c) agrees that, in
connection with the purchase of the Shares, it is not relying
upon any information concerning the Company, other than (i)
that contained in the Disclosure Documents and in this
Agreement and (ii) on the results of its own independent
investigations. The term "Disclosure Documents" shall mean (a)
the Company's latest Annual Report to Shareholders on Form
10-K (without exhibits), (b) the Company's Quarterly Reports
on Form 10-Q and Form 8-K thereafter, and (c) copies of the
Company's significant press releases issued after said Annual
Report.
(vi) The Purchaser understands that (a) no governmental authority
has passed upon the accuracy or completeness of the Disclosure
Documents or has made any finding or determination concerning
the appropriateness or suitability of an investment in the
Shares and (b) no governmental authority has recommended or
endorsed, or will recommend or endorse, the investment in the
Shares.
(vii) The Purchaser is not purchasing the Shares with a view to the
distribution thereof within the meaning of the 1933 Act.
(viii) The Purchaser will not engage in any transaction or series of
transactions that, although in technical compliance with
Regulation S, is part of a plan or scheme to evade the
registration requirements of the 1933 Act with respect to the
Shares.
2
<PAGE> 4
(ix) All subsequent offers and sales of the Shares by Purchaser
shall be made in compliance with Regulation S under the
Securities Act, pursuant to registration under the
Securities Act or pursuant to an exemption from such
registration. In any case, the Shares shall not be resold
to U.S. persons or within the United States during the
period of forty (40) days commencing on the date of
Closing of the purchase of the Shares;
(x) Purchaser understands that the Shares are being offered
and sold to it in reliance on specific exemptions from the
registration requirements of Federal and State securities
laws and that the Seller is relying upon the truth and
accuracy of the representations, warranties, agreements
acknowledgments and understandings of Purchaser set forth
herein in order to determine the applicability of such
exemptions and the suitability of Purchaser to acquire the
Shares.
(xi) Purchaser agrees to indemnify and hold the Company, the
Distributor, their respective officers, directors and
shareholders or any other person who may be deemed to
control the Company or the Distributor harmless from any
loss, liability, claim, damage or expense, arising out of
the inaccuracy of any of Purchaser's representations,
warranties or statements or the breach of any of the
agreements contained herein.
4. LIMITATIONS ON TRANSFER AND CERTAIN COVENANTS.
a. The Purchaser acknowledges that (i) the Shares have not been registered
under the 1933 Act in reliance on provisions of Rule 903 or Rule 904 of
Regulation S, nor have the Shares been registered or qualified for sale under
the laws of any other jurisdiction (either within or outside of the United
States) and (ii) the Company has no obligations hereunder or any current
intention to effect any such registration or qualification.
b. The Purchaser covenants and agrees that it will not sell the Shares to a
U.S. Person, or for the account or benefit of a U.S. Person, prior to the
expiration of a period of 40 days following the Closing Date ("Restricted
Period").
c. The Purchaser acknowledges that the certificates evidencing the Shares
will bear the following legend:
"These shares have been issued pursuant to Regulation S as an exemption
to the registration provisions under the Securities Act of 1933, as
amended. These shares cannot be transferred, offered or sold in the
U.S. or to U.S. persons (as defined in Regulation S) until after
__________, 1996 (Forty-one days after issuance)."
The Company covenants and agrees that following the expiration of the
Restricted Period it will advise the transfer agent for the Common Stock, upon
the request of a recordholder of the Shares, that the foregoing legend can be
removed from the certificate for the Shares.
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<PAGE> 5
d. The Purchaser represents and warrants to the Company that, as of the date
hereof and as of the Closing Date, neither it nor any of its affiliates has, and
covenants that during the Restricted Period neither it nor any of its affiliates
will establish or maintain, any short position (including any short call
position or any long put position) with respect to the Common Stock of the
Company, and that no such person or entity is a party to, nor shall it enter
into during the Restricted Period, any contract or arrangement having the effect
of eliminating or substantially diminishing the risk of ownership of the Shares.
5. REPRESENTATIONS AND WARRANTIES OF THE SELLER.
The Seller represents and warrants to the Purchaser, as of the date hereof
and as of the Closing Date, that:
a. The Company is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation.
b. The execution, delivery and performance of this Agreement has been duly
authorized by all necessary corporate action and this Agreement constitutes
a valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, except to the extent that
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting creditor's rights
generally.
c. The execution, delivery and performance of this Agreemnt does and will
not (i) violate any provision of the Company's Certificate of Incorporation
or By-laws, (ii) violate or breach any material contract or agreement to
which the Company is a party, (iii) result in the creation of any lien,
security interest, charge or encumbrance on any property or assets of the
Company, or (iv) require the authorization, consent or approval of any court
or any administrative or governmental body pursuant to any law, statute,
rule or regulation to which the Company is subject to any order, judgment or
decree by which the Company is bound.
d. When issued in accordance with the terms of this Agreement, the Shares:
(i) except for the Regulation S legend provided in this Agreement, will
be free and clear of any restrictions, liens, claims or other
encumbrances by the Company (other than those that may arise by reason
of any action or inaction of the Purchaser);
(ii) will be duly authorized, validly issued, fully paid and
nonassessable;
(iii) will not have been issued or sold in violation of any preemptive
or other similar rights of the holders of any securities of the Company;
and
(iv) will not subject the holders thereof to personal liability to the
Company solely by reason of their ownership of such Shares.
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<PAGE> 6
e. The Company is a "Reporting Issuer" as defined by Rule 902(l) of
Regulation S. The Company is in full compliance, to the extent applicable,
with all reporting obligations under either Section 12(b), 12(g) or 15(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The
Common Stock is quoted on the OTC Electronic Bulletin Board and its trading
symbol is "KCDH".
f. Seller has not offered the securities which are the subject of this
transaction to any person in the United States, any identifiable groups of
U.S. citizens abroad, or to any U.S. person as that term is defined in
Regulation S.
g. At the time the buy order was originated, Seller and/or its agents
reasonably believed Purchaser was outside of the United States and was not a
U.S. person.
h. Seller and/or its agents reasonably believe that the transaction has not
been prearranged with a buyer in the United States.
i. In regard to this transaction, Seller has not conducted any "directed
selling efforts" as that term is defined in Rule 902 of Regulation S nor has
Seller conducted any general solicitation relating to the offer and sale of
the securities which are the subject of this transaction to persons resident
within the United States or elsewhere.
Each of the foregoing representations and warranties shall survive the
Closing.
6. REMEDIES.
In the event of a breach by the Purchaser of any of the representations,
warranties or covenants contained in this Agreement, and without limitation of
any other remedy available to the Company at law or in equity, the Company shall
have the right and the option to rescind the sale of the Shares to the
Purchaser. In such case, the amount payable to the Purchaser upon rescission
will be the aggregate Purchase Price, less all expenses, costs and damages
incurred by the Company, and whereupon the Company shall have no further
liability or obligation to the Purchaser under this Agreement or otherwise.
7. ASSIGNABILITY.
Neither this Agreement, nor the rights or obligations of either party
hereunder, may be transferred or assigned without the prior written consent of
the other party (which may be withheld for any reason in the sole discretion of
the party required to provide such consent) and any purported transfer or
assignment not so consented to shall be void. This Agreement shall be binding on
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns.
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<PAGE> 7
8. ENTIRE AGREEMENT.
This Agreement constitutes the entire agreement between the parties hereto
with respect to the subject matter hereof, and there are no representations,
warranties, covenants or other agreements of either party except as stated
herein.
9. AMENDMENTS.
No provision of this Agreement shall be waived, discharged or amended,
except by an instrument in writing signed by the party against whom any such
waiver, modification, discharge or amendment is sought.
10. WAIVERS.
No waiver by either party of any default with respect to any provision,
condition or requirements of this Agreement shall be deemed to be a waiver of
any future default with respect to the same provision, condition or requirement,
or a waiver of any other provision, condition or requirement hereof. No delay or
omission of either party to exercise any right hereunder shall in any manner
impair the exercise of such right at any future time.
11. APPLICABLE LAW.
This Agreement shall be construed in accordance with and governed by the
laws of the State of California without regard to the conflicts of laws
principles thereof.
12. SEVERABILITY.
Each provision of this Agreement shall be considered severable and if for
any reason any provision which is not essential to the effectuation of the basic
purposes of this Agreement is determined by a court of competent jurisdiction to
be invalid or unenforceable, or contrary to existing or future applicable law,
such invalidity shall not impair the operation of or affect those provisions of
this Agreement which are valid. In such case, this Agreement shall be construed
so as to limit any term or provision so as to make it enforceable or valid
within the requirements of any applicable law, and in the event such term or
provision cannot be so limited, this Agreement shall be construed to omit such
invalid or unenforceable provision.
13. FAX SIGNATURES AND COUNTERPARTS.
This Agreement may be executed in any number of counterparts, including
counterparts transmitted by telecopier or FAX, any one of which shall constitute
an original of this Agreement. When counterparts of facsimile copies have been
executed by all parties, they shall have the same effect as if the signature to
each counterpart or copy were upon the same document and copies of such
documents shall be deemed valid as originals. The parties agree that all such
signatures may be transferred to a single document upon the request of any
party.
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<PAGE> 8
14. NOTICES.
Any notice or other communication required or permitted to be given
hereunder shall be in writing and shall be effective (a) upon hand delivery by
telecopy or facsimile at the address or number designated below (if delivery on
a business day during normal business hours where such notice is to be
received), or the first business day following such delivery (if delivered other
than on a business day during normal business hours where such notice is to be
received) or (b) on the second business day following the date of mailing by
express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:
If to the Company: KCD Holdings Incorporated
2835 Townsgate Road, Suite 110
Westlake Village, CA 91361
United States of America
If to the Purchaser, as set forth on the signature page hereof.
Either party hereto may from time to time change its address for notices
under this Section 14 by giving at least 10 days written notice of such changed
address to the other party hereto.
15. HEADINGS.
The headings herein are for convenience of reference only, do not constitute
a part of this Agreement and shall not be deemed to limit or affect the
interpretation of any of the provisions hereof.
16. NO THIRD PARTY BENEFICIARIES.
This Agreement is intended for the benefit of the parties hereto and their
respective successors and permitted assigns, and is not for the benefit of, nor
may any provision hereof be enforced by, any other person.
17. FEES AND EXPENSES.
Each party shall pay for the fees and expenses of its own advisers, counsel,
accountants and other experts, if any, and all other expenses incurred by such
party incident to the negotiation, preparation, execution and delivery and
performance of this Agreement.
18. CONSENT TO JURISDICTION.
Each of the Company and the Purchaser (i) hereby irrevocably submits to the
nonexclusive jurisdiction of the United States District Court for the Southern
District of New York of any New York State Court sitting in New York for the
purposes of any suit, action or proceeding arising out of or relating to this
Agreement and (ii) hereby waives, and agrees not to assert in any such suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of such court, that the suit,
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<PAGE> 9
action or proceeding is brought in an inconvenient forum or that the venue of
the suit, action or proceeding is improper. Each of the Company and the
Purchaser consents to process being served in any such suit, action or
proceeding by mailing a copy thereof to such party at the address in effect for
notices to it under this Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof. Nothing in this
paragraph shall affect or limit any right to serve process in any other manner
permitted by law.
IN WITNESS WHEREOF, the undersigned has caused this Offshore Securities
Subscription Agreement to be executed by a duly authorized officer.
- -------------------------- ---------------------------------------
No. of Shares Name of Purchaser
- -------------------------- By: ---------------------------------
Aggregate Purchase Price NAME:
TITLE:
Date: --------------------
---------------------------------------
Business Address
----------------- --------------------
Telephone Number Facsimile Number
ACCEPTED:
KCD HOLDINGS INCORPORATED
By: -----------------------------
NAME:
TITLE:
8
<PAGE> 10
SCHEDULE A
CATEGORIES OF U.S. PERSONS
1) Any natural person resident in the United States;
2) Any partnership or corporation organized or incorporated under the laws of
the United States;
3) Any estate of which any executor or administrator is a U.S. person;
4) Any trust of which any trustee is a U.S. person;
5) Any agency or branch of a foreign entity located in the U.S.;
6) Any non-discretionary account or similar account (other than estate or
trust) held by a dealer or other fiduciary for the benefit or account of a
U.S. person;
7) Any partnership or corporation if: (A) organized or incorporated under the
laws of any foreign jurisdiction; and (B) formed by a U.S. person
principally for the purpose of investment in securities not registered under
the Act, unless it is organized or incorporated, and owned, by accredited
investors (as defined in Rule 501 [a]) who are not natural persons, estates
or trusts.
8) Any employee benefit plan established and administered in accordance with
the law of a country other than the United States and customary practices
and documentation of such country shall not be deemed a U.S. person.
9) Any agency or branch of a U.S. person located outside the United States
shall not be deemed a "U.S. person" if:
the agency or branch operates for valid business reasons; and the
agency or branch is engaged in the business of insurance or banking
and is subject to substantive insurance or banking regulation,
respectively, in the jurisdiction where located.
10) The International Monetary Fund, the International Bank for Reconstruction
and Development, the Inter-American Development Bank, the Asian Development
Bank, the African Development Bank, the United States, and their agencies,
affiliates and pension plans, and any other similar international
organizations, their agencies, affiliates and pension plans shall not be
deemed "U.S. person".
<PAGE> 1
EXHIBIT 6.43
WARRANT AGREEMENT, DATED APRIL 15, 1997, BY AND BETWEEN
THE COMPANY AND BERKSHIRE INTERNATIONAL FINANCE
<PAGE> 2
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE TRANSFERRED, SOLD,
ASSIGNED, PLEDGED, HYPOTHECATED, OFFERED OR OTHERWISE DISPOSED OF UNLESS THEY
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAW OR UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
No. WA - 300,000
Certificate for KCD Holdings Incorporated Common Stock
Purchase Warrants EXERCISABLE COMMENCING ON
THE DATE OF ISSUANCE
HEREOF AND ENDING
5:00 P.M., PACIFIC STANDARD TIME, ON THE EXPIRATION DATE
WARRANT CERTIFICATE
THIS CERTIFIES that Berkshire International Finance, Inc., a Delaware
corporation is the registered holder (the "Warrantholder") of 300,000 Common
Stock Purchase Warrants (the "Warrants") as set forth above, each which
represents the right to purchase one fully paid and non-assessable share of
common stock, par value U.S. $0.002 per share (the "Shares") of KCD Holdings
Incorporated, a Nevada corporation (the "Company"), at the exercise price of
U.S. $2.50 per share (the "Exercise Price"), at any time prior to the Expiration
Date hereinafter referred to, by surrendering this Warrant Certificate, with the
form of Election to Purchase set forth hereon duly executed, at the Company's
office located at 2835 Townsgate Road, Suite 110, Westlake Village, California
91361 (the "Office"), and by paying in full the Exercise Price, plus transfer
taxes, if any, in United States currency by certified check, bank cashier's
check or money order payable to the order of the Company.
Section 1. Duration and Exercise of Warrants.
(a) The Warrants represented by this Warrant Certificate shall be
immediately exercisable and shall expire at 5:00 p.m. Pacific Standard time, on
April 15, 2001 (the "Expiration Date"). Any Warrant Certificate not surrendered
to the Company for exercise or redemption prior to the close of business of the
Expiration Date shall be void and invalid.
(b) Subject to the provisions of this Warrant Certificate, after the date of
this Warrant Certificate and prior to the close of business on the Expiration
Date, the Warrantholder shall have the right to purchase from the Company the
number of Shares specified above at the Exercise Price. In order to exercise
such right, the Warrantholder shall surrender the Warrant Certificate evidencing
such Warrants to the Company at the Office with the form of Election to Purchase
set forth hereon duly completed and signed, and shall tender payment in full to
the Company for the Company's account together with such taxes as are specified
in Section 4 hereof, for each Share with respect to which such Warrants are
being exercised. Such Exercise Price and taxes shall be paid in full by
certified check, bank cashier's check or money order, payable in United States
<PAGE> 3
currency to the order of the Company. In addition, if the Shares deliverable
upon exercise have not been registered pursuant to the Securities Act, the
Warrantholder shall deliver a duly executed certificate substantially in the
form of Exhibit "A" hereto.
(c) The Warrants evidenced by this Warrant Certificate shall be exercisable in
multiples of one (1) Warrant. If less than all of the Warrants evidenced by this
Warrant Certificate are exercised at any time prior to the close of business on
the Expiration Date, a new Warrant Certificate shall be issued to the
Warrantholder by the Company for the remaining number of Warrants evidenced by
the Warrant Certificate so surrendered.
(d) The Warrants evidenced by this Warrant Certificate may not be exercised or
redeemed if such exercise or redemption would constitute a violation of any
applicable United States Federal or state statute or regulation or if any
required approval of a governmental authority having jurisdiction shall not have
been secured. The Company shall be entitled to require as a condition to
exercise or redemption that the Warrantholder make such representations as are
necessary to demonstrate compliance with applicable United States Federal and
state securities laws.
Section 2. Issuance of Share Certificate. Upon surrender of this Warrant
Certificate and payment of the Exercise Price, and, if the Shares deliverable on
exercise have not been registered under the Securities Act, upon delivery of a
certificate in the form of Exhibit "A" hereto, the Company shall issue
certificates representing the Shares ("Share Certificates") for the number of
full Shares to which the holder of such Warrants is entitled, registered in
accordance with the instructions set forth in the Election to Purchase. If such
Shares have not been registered under the Securities Act, the Share Certificates
shall bear a legend substantially similar to the legend on this Warrant
Certificate.
Section 3. Reorganization. In case of any reorganization of the Company, or
in the case of the consolidation or merger of the Company with or into any other
legal entity (other than a merger or consolidation in which the Company is a
continuing legal entity) or of the sale of the properties and assets of the
Company as, or an entity to any other legal entity (collectively,
"Reorganizations"), each Warrant shall after such Reorganization be exercisable,
upon the terms and conditions specified in this Warrant Certificate, for the
stock or other securities or property (including cash) to which a holder of the
number of Shares purchasable (at the time of such Reorganization) upon exercise
of such Warrant would have been entitled upon such Reorganization if such
Warrant had been exercised in full immediately prior to such Reorganization; and
in any case, if necessary, the provisions set forth in this Section 3 with
respect to the rights and interests thereafter of the holders of the Warrants
shall be appropriately adjusted so as to be applicable, as nearly as may
reasonably be, to any such stock or other securities or property thereafter
deliverable upon exercise of the Warrants. The Company shall not effect any such
Reorganization unless simultaneously with the consummation thereof, the
successor (if other than the Company) resulting from such Reorganization or the
legal entity purchasing such assets shall assume, by written instrument executed
and delivered to the holder of each Warrant, the obligation to deliver to the
holder of each Warrant such stock, securities or assets as, in accordance with
the foregoing provisions, such holders may be entitled to purchase, and the
other obligations under this Warrant Certificate.
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<PAGE> 4
Section 4. Payment of Taxes. The Company will pay all registration and
transfer taxes and charges that may be imposed by the United States of America
or any state or territory thereof ("Taxes") attributable to the initial issuance
of Shares upon the exercise of Warrants prior to the close of business on the
Expiration date; provided, however that the Company shall not be required to pay
any taxes which may be payable in respect of transfer involved in the issuance
of any Warrant Certificates or any Share Certificate(s) in the name of other
than that of the Warrantholder of record surrendered upon the exercise of a
Warrant, and the Company shall not be required to issue or deliver such Share
Certificate(s) unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such Taxes or shall have
established to the satisfaction of the Company that such Taxes have been paid.
Section 5. Registration of Warrant Certificate.
(a) The Warrant Certificate shall be registered in the name of the record
holder to whom it is distributed.
(b) The Company may deem and treat the Warrantholder of record as the
absolute owner of this Warrant Certificate (notwithstanding any notation of
ownership or other writing thereon made by anyone) for the purpose of any
exercise thereof and any distribution to the holder thereof and for all other
purposes, and the Company shall not be affected by any notice to the Contrary.
Section 6. Registration Rights
6.1. Demand Registration. If at any time after April 15, 1997 and prior to
the Expiration Date, Warrantholder shall request Company in writing to register
under the Securities Act the Shares then owned by Warrantholder (which request
shall (i) specify the number of shares to be offered and sold, (ii) express
Warrantholder's present intent to offer such shares for distribution, (iii)
describe in general terms the nature or method of the proposed offer and sale
thereof and (iv) contain the undertaking of Warrantholder to provide all such
information and materials and take all such action as may be required in order
to permit Company to comply with all applicable requirements of the SEC and to
obtain acceleration of the effective date of such registration statement),
Company shall, subject to the provisions of Section 6.4 below, use all
reasonable efforts to cause the offering of the shares so specified in such
request to be registered with the SEC so as to permit the sale or other
distribution by Warrantholder of the Shares specified in its request, and in
connection therewith, prepare and file on an appropriate form, as Company and
Warrantholder shall together reasonably determine, a registration statement
under the Securities Act to effect such registration. Company shall not be
required to effect more than one registration pursuant to this Section 6.1;
provided, however, that if an offering is not completed for any cause other than
a cause attributable to Warrantholder, the registration effected in connection
with such offering shall not be counted for the purposes of this sentence.
6.2. Piggyback Registration. If Company shall propose the registration under
the Securities Act of an offering of its Common Stock, Company shall give
written notice as promptly as possible of such proposed registration to
Warrantholder and will use all reasonable efforts to cause the offering of the
Shares then owned by Warrantholder, if Warrantholder shall so request within 15
3
<PAGE> 5
days after the giving of such notice, to be included, upon the same terms
(including the method of distribution) in any such offering; provided, however,
that (a) Company shall not be required to give notice or include such shares in
any such registration if the proposed registration is primarily (i) a
registration of a stock option or compensation plan or of securities issued or
issuable pursuant to any such plan, or (ii) a registration of securities
proposed to be issued in exchange for securities or assets of, or in connection
with a merger or consolidation, with another corporation; (b) Company shall not
be required to include such shares in any such registration if Company is
advised in writing by its investment banking firm that the inclusion of such
shares would in its opinion have a material adverse effect on such proposed
offering of Common Stock; and (c) Company may, without the consent of
Warrantholder, withdraw such registration statement and abandon the proposed
offering in which Warrantholder had requested to participate.
6.3. Certain Conditions to Registration Rights. The obligation of Company to
use all reasonable efforts to cause Shares to be registered under the Securities
Act are subject to each of the following limitations, conditions and
qualifications;
(a) Company shall be entitled to postpone for a reasonable period of time
(not to exceed 120 days from the date of request to register pursuant to Section
6.1 above) the filing of a registration statement otherwise required to be
prepared and filed by it pursuant to Section 6.1 if Company is, at the time it
receives a request for registration pursuant to Section 6.1, conducting or
about to conduct within the next 60 days an offering or a private placement of
its securities and Company is advised in writing by its investment banking firm
that such offering or placement would in its opinion be materially and adversely
affected by the registration so demanded.
(b) In case of any offering or distribution by Warrantholder pursuant to an
underwritten or similar offering, the managing underwriter shall be an
investment banking firm or other party approved by Company, such approval not to
be unreasonably withheld.
6.4. Additional Covenants. In connection with any registration undertaken by
Company under Sections 6.1 or 6.2 of Shares,
(a) Company shall:
(i) furnish to Warrantholder or its underwriter such number of
copies of any prospectus (including any preliminary prospectus) as
Warrantholder may reasonably request in order to effect the offering and
sale of the shares to be offered and sold by Warrantholder;
(ii) use its best efforts to qualify the offering under applicable
Blue Sky laws or such other securities laws of jurisdictions within the
U.S. as may be necessary to enable Warrantholder to offer and sell the
shares; provided, however, that Company shall not be obligated to
qualify as a foreign corporation to do business under the laws of any
jurisdiction in which it is not then qualified or to file any general
consent to service of process;
(iii) except as provided in Sections 6.4(b)(i) below, pay all SEC
and blue sky registration and filing fees, printing and engraving
expenses, fees and disbursements of counsel
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<PAGE> 6
for Company, transfer agents' and registrars' fees, fees and
disbursements of accountants used by Company in connection with such
registration and expenses incidental to any post-effective amendment to
any registration;
(iv) furnish Warrantholder with unlegended certificates representing
ownership of the shares sold pursuant to the registration in such
numbers and denomination as Warrantholder shall reasonably request,
meeting the requirements of such national securities exchange in the
U.S.A. or NASDAQ, if any, upon which such securities are listed or
quoted or are proposed to be listed or quoted; and
(b) Warrantholder shall:
(i) with respect to a registration (including any post-effective
amendments) pursuant to Section 6.1 or 6.2 above, pay all underwriting
discounts and commissions attributable to the Shares owned by
Warrantholder included in such offering and registration and expenses
directly incurred by Warrantholder (including, without limitation, fees
and disbursements of its counsel and accountants), in connection with
the offering and the registration thereof (whether or not a registration
statement is filed or becomes effective).
6.5 Indemnification Relating to Registrations. (a) In the case of each
registration effected by Company pursuant to this Article 6, Company agrees to
indemnify and hold harmless Warrantholder (or any party which shall have
succeeded to Warrantholder's registration rights), its officers and directors,
each underwriter of the shares so registered and each person who controls any
such underwriter within the meaning of Section 15 of the Securities Act, against
any and all losses, claims, damages or liabilities to which they or any of them
may become subject under the Securities Act or any other statute or common law
of the U.S. or any jurisdiction therein, including any amount paid in settlement
of any litigation, commenced or threatened, if such settlement is effected with
the written consent of Company, and to reimburse them for any legal or other
expenses incurred by them in connection with investigating any claims and
defending any actions insofar as any such losses, claims, damages, liabilities
or actions arise out of or are based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in the registration statement
relating to the sale of such shares, or any post-effective amendment thereof, or
the omission or alleged omission to state therein a material fact necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, (ii) any untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus, if used prior to the
effective date of such registration statement, or contained in the prospectus
(as amended or supplement if Company shall have filed with the SEC any amendment
thereof or supplement thereto) if used within the period during which Company is
required to keep the registration statement to which such prospectus relates
current, or the omission or alleged omission to state therein (if so used) a
material fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that the indemnification agreement contained in this Section 6.5 shall not (x)
apply to such losses, claims, damages, expenses, liabilities or actions arising
out of, or based upon, any such untrue statement or alleged untrue statement, or
any such omission or alleged omission, if such statement or omission was made in
reliance upon and in conformity with information furnished in writing to
5
<PAGE> 7
Company by Warrantholder or such underwriter for use in connection with
preparation of the registration statement or any preliminary prospectus or
prospectus contained in the registration statement or any such amendment thereof
or supplement thereto or (y) inure to the benefit of any underwriter from whom
the person asserting any such losses, claims, damages, expenses, liabilities or
actions purchased the securities which are the subject thereof (or to the
benefit of any person controlling such underwriter) if such underwriter failed
to send or give a copy of the prospectus to such person at or prior to the
written confirmation of the sale of such securities to such person.
(b) In the case of each registration effected by Warrantholder or Company
pursuant to this Article 6, Warrantholder (or any party which shall have
succeeded to Warrantholder's registration rights) ad each underwriter of the
shares to be registered (each such party and such underwriters being referred to
severally in this Section 6.5 as the "Indemnifying Party") shall agree, in the
same manner and to the same extent as set forth in Section 6.5(a) above, to
indemnify and hold harmless Company and each person, if any, who controls
Company within the meaning of Section 15 of the Securities Act, its directors
and officers (each an "Indemnified Party"), with respect to any statement in or
omission from such registration statement or any post-effective amendment
thereof or any preliminary prospectus or prospectus (as amended or as
supplemented, if amended or supplemented as aforesaid) contained in such
registration statement if such statement or omission was made in reliance upon
and in conformity with information furnished in writing to Company by an
Indemnifying Party for use in connection with the preparation of such
registration statement or any preliminary prospectus or prospectus contained in
such registration statement or any such amendment thereof or supplement thereto.
(c) Each Indemnified Party will, promptly after the receipt of notice of the
commencement of any action against such Indemnified Party in respect of which
indemnity may be sought from an Indemnifying Party on account of an indemnity
agreement provided for in this Section 6, notify the Indemnifying Party in
writing of the commencement thereof. The omission of any Indemnified Party so to
notify an Indemnifying Party of any such action shall relieve the Indemnifying
Party from any liability in respect of such action which it may have to such
Indemnified Party on account of the indemnity agreement provided for in this
Section 6 but shall not relieve the Indemnifying Party from any other liability
which it may have to such Indemnified Party. In case any such action shall be
brought against any Indemnified Party and it shall notify an Indemnifying Party
of the commencement thereof, the Indemnifying Party will be entitled to
participate therein and, to the extent it may wish, jointly with any other
Indemnifying Party similarly notified, assume the defense thereof with counsel
satisfactory to such Indemnified Party, and after notice from the Indemnifying
Party to such Indemnified Party of its election so to assume the defense
thereof, the Indemnifying Party will not be liable to such Indemnified Party
under this Section 6 for any legal or other expenses subsequently incurred by
such Indemnified Party in connection with the defense thereof other than
reasonable costs of preparing for and answering investigations and monitoring
claims or actions.
Section 7. Nontransferable. This Warrant Certificate and the Warrants
represented hereby shall be neither transferable nor assignable, either
voluntarily or involuntarily, other than by will or by the laws of descent and
distribution and may be exercised during Warrantholder's lifetime, only by
Warrantholder.
6
<PAGE> 8
Section 8. Mutilated or Missing Warrant Certificates. In case this Warrant
Certificate shall be mutilated, lost, stolen or destroyed, the Company shall
issue and deliver, in exchange and substitution for and upon cancellation of the
mutilated Warrant Certificate, or in lieu of and substitution for any Warrant
Certificate lost, stolen or destroyed, a new Warrant Certificate of like tenor
and representing an equivalent number of Warrants, but only upon receipt of
evidence satisfactory to the Company of such loss, theft or destruction of such
Warrant Certificate and indemnity or bond, if requested, also satisfactory to
the Company. Applications for such substitute Warrant Certificate shall also
comply with such other reasonable conditions and charges as the Company may
prescribe.
Section 9. Notices.
(a) Any notice or demand authorized by this Warrant Certificate to be given
or made by the Warrantholder to or on the Company shall be in writing and shall
be sufficiently given or made if delivered personally against receipt thereof or
by overnight courier addressed (until another address is given in writing by the
Company) to the Office. All such notices and demand shall be deemed to have been
given on the date of receipt.
(b) Any notice or demand pursuant to this Warrant Certificate to be given by
the Company to the Warrantholder shall be sufficiently given or made if
delivered personally against receipt thereof or by overnight courier addressed
(until another address is filed in writing by the Warrantholder with the
Company) to the address specified in the Warrant register maintained by the
Company. All such notices and demands shall be deemed to have been given on the
date of receipt.
Section 10. Rights of Warrantholders; Voting. Nothing contained in this
Warrant Certificate shall be construed as conferring upon the Warrantholder any
of the rights of a shareholder of the Company, including without limitation to
the right to vote, to receive dividends and other distributions, to receive any
notice of, or attend to, meetings of shareholders or any proceedings of the
Company.
Section 11. Supplements and Amendments. The Company may from time to time
supplement or amend this Warrant Certificate without the consent or concurrence
of a Warrantholder in order to cure any ambiguity, manifest error or other
mistake in this Warrant Certificate, or to make provision in regard to any
matters or questions arising hereunder which the Company may deem necessary or
desirable and which shall not adversely affect, alter or change the interests of
the Warrantholder, without the written consent of the Company.
Section 12. Warrant Agent. The Company may appoint an agent, which agent may
be changed from time to time without notice to the Warrantholder, for the
purpose of issuing the Shares on the exercise of the Warrants, exchanging
Warrants, replacing Warrants or any of the foregoing, and thereafter any such
issuance, exchange or replacement shall be made at such office by such agent.
7
<PAGE> 9
Section 13. Successors. All the representations, warranties, covenants and
provisions of this Warrant Certificate by or for the benefit of the Company or
the Warrantholder shall bind and insure to the benefit of their respective
successors and assigns hereunder.
Section 14. Governing Law. This Warrant Certificate shall be deemed to be a
contract made under the laws of the state of California and for all purposes
shall be governed in accordance with the laws of said State, regardless of the
laws that might be applied under applicable principles of conflicts of laws,
with jurisdiction and venue deemed proper in Los Angeles County.
Section 15. Benefits of This Warrant Certificate. Nothing in this Warrant
Certificate shall be construed to give any person or entity other than the
Company and the Warrantholder any legal or equitable right, remedy or claim
under this Warrant Certificate, and this Warrant Certificate shall be for the
sole benefit of the Company and the Warrantholder.
Section 16. Interpretation. The headings contained in this Warrant
Certificate are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Warrant Certificate.
Section 17. Invalidity of Provisions. If any provision of the Warrant
Certificate is or becomes invalid, illegal or unenforceable in any respect, such
provision shall be amended to the extent necessary to cause it to express the
intent of the parties and be valid, legal and enforceable. The amendment of such
provision shall not affect the validity, legality or enforceability of any other
provision hereof.
Section 18. Anti-Dilution. In the event that the Company shall at any time
hereafter: (i) pay a dividend in common stock; (ii) subdivide or split its
outstanding common shares; (iii) combine or reclassify its outstanding common
shares into a smaller or greater number of hares; or (iv) issue additional
common shares without consideration in a transaction substantially similar to or
having an affect of the transactions described in clauses (i), (ii) and (iii)
above, then the number of Shares to be issued upon exercise of the Warrants
immediately after the occurrence of any such event shall be adjusted so that the
Warrantholder thereafter may receive the number of Shares it would have owned
immediately following such action if it had exercised the Warrants immediately
prior to such action and the Exercise Price shall be adjusted to reflect such
proportionate increases or decreases in the number of Shares as a result of such
event.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate
to be duly executed on this 15th day of April, 1996.
KCD HOLDINGS INCORPORATED
A Nevada corporation
By:
---------------------------------------
Name:
-------------------------------------
Title: Vice-President and Director
8
<PAGE> 10
ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to ______ exercise of the Warrants
represented by this Warrant Certificate and to purchase the Shares issuable upon
the exercise of said Warrants, and requests that Certificates for such Shares be
issued and delivered as follows:
ISSUE TO:
-----------------------------------------------------------
(Name)
-----------------------------------------------------------
(Address, including ZIP Code)
-----------------------------------------------------------
(Social Security or Tax Identification Number)
DELIVER TO:
-----------------------------------------------------------
(Name)
-----------------------------------------------------------
(Address, Including ZIP Code)
If the number of Warrants hereby exercised is less than all the Warrants
represented by this Warrant Certificate, the Undersigned request that a new
Warrant Certificate representing the number of full Warrants not exercised be
issued and delivered as set forth above or otherwise as the undersigned shall
direct in writing.
If full payment of the purchase price with respect to the Warrants exercised
and transfer taxes, if any, the undersigned hereby tenders payment of U.S.
$______ by certified check, bank cashier's check or money order payable in
United States currency to the order of the Company.
Dated:
-------------- -------------------------------------
Signature
(Signature must conform in all respects to
the name holder specified on the face of the
Warrant Certificate)
PLEASE INSERT SOCIAL SECURITY OR TAX
IDENTIFICATION NUMBER OF HOLDER
-----------------------
9
<PAGE> 11
EXHIBIT A
FORM OF WARRANTHOLDERS CERTIFICATE
The undersigned (the "Purchaser") is exercising the Warrants (the "Warrants")
tendered with this certificate, and in connection with such exercise, hereby
certifies to KCD Holdings Incorporated (the "Company") that the purchaser
understands and agrees that:
1. The shares of common stock of the Company (the "Shares") deliverable upon
exercises of the Warrants are not registered pursuant to the Securities Act of
1933, as amended (the "Securities Act"), and the offering and the sale of the
Shares is intended to be exempt from registration under the Securities Act.
2. The Shares to be acquired by the Purchaser pursuant to exercise of the
Warrants are being acquired for Purchaser's own account and without a view to
distribution of such Shares or any interest therein; provided that (i) this
representation shall not prejudice the Purchaser's right at all times to sell or
otherwise dispose of all or any part of the Shares so acquired by the Purchaser
pursuant to a registration under the Securities Act or an exemption from such
registration available under the Securities Act.
3. The Purchaser has such knowledge and experience in financial and business
matters so as to be capable of evaluating the merits and risks of its investment
and is able to bear a complete loss of its investment in the Shares.
4. The Purchaser represents and warrants that the Company has made available
to the Purchaser or its agents all documents and information with respect to the
Company and an investment in the Shares considered necessary by the Purchaser in
deciding whether to exercise the Warrants.
5. The Purchaser is an "accredited investor" as such term is defined in
Regulation D under the Securities Act.
6. All Shares issued on delivery of this certificate shall bear a legend
substantially in the form as set forth on page 1 of the Warrant Certificate.
IN WITNESS WHEREOF, the Purchaser has caused this Certificate to be duly
executed on this ___ day of _________________, ____.
PURCHASER
Company:
By:
----------------------------------
Name:
----------------------------------
Title:
----------------------------------
10
<PAGE> 1
EXHIBIT 6.44
FINDERS AGREEMENT, DATED MARCH 29, 1996,
BY AND BETWEEN THE COMPANY AND BRG, INC.
<PAGE> 2
KCD HOLDINGS INCORPORATED
2835 TOWNSGATE ROAD, SUITE 110
WESTLAKE VILLAGE, CALIFORNIA 91361
March 29, 1996
BRG, Inc.
3741 N.E. 163rd Avenue
Suite 228
N. Miami Beach, FL 33160
RE: KCD HOLDINGS INCORPORATED
Gentlemen:
Confirming our conversation, this letter shall set forth the understanding
between yourself ("BRG") and KCD Holdings Incorporated ("KCD"), with respect to
a potential financing source to be introduced to KCD by BRG. You have indicated
that you are familiar with an "accredited investor" (as that term is defined in
Regulation D as promulgated under the Securities Act of 1933, as amended) who
has expressed an interest to you in purchasing a substantial block of KCD's
common stock in a private transaction (hereinafter referred to herein as the
"Financing Source").
You have indicated to KCD that your role in any potential transaction
between KCD and the Financing Source would be solely limited to the introduction
of said Financing Source to KCD, and that you would not be involved in any
negotiations for the placement of the common stock or make any recommendations
to said Financing Source concerning same.
Based on the foregoing, in the event KCD shall complete a transaction with
the Financing Source presented to KCD by BRG within six (6) months from the date
of introduction, on terms and conditions that are within the sole and absolute
discretion of KCD, then KCD agrees to pay BRG as follows:
1. A cash payment equal to seven percent (7%) of the total amount paid by
the Financing Source to KCD for the purchase of common stock in the transaction.
2. Three percent (3%) of the total amount paid by the Financing Source to
KCD for the purchase of common stock in the transaction will be applied to the
purchase of KCD common stock by BRG, at the same price paid by the Financing
Source in the transaction.
3. The foregoing payments will be made to BRG upon completion of the final
closing of the transaction with the Financing Source.
<PAGE> 3
March 29, 1996
Page 2
It is understood and agreed that KCD has the right, without any liability to
BRG, to terminate discussions with the Financing Source presented to KCD by BRG
for any reason whatsoever at any time. It is agreed that no compensation will be
due BRG unless a transaction BRG, Inc. is consummated with the Financing Source
and payment received by KCD in accordance with the terms of the transaction.
This agreement sets forth the entire understanding of the parties relating
to the subject matter hereof, and supersedes and cancels any prior
communications, understandings and agreements between the parties with respect
to the subject matter hereof. This agreement cannot be modified or changed, nor
can any of its provisions be waived, except by a writing signed by all parties.
This agreement shall be governed by the laws of the State of California.
If the foregoing meets with your understanding, kindly acknowledge your
acceptance at the place indicated on this letter and on the enclosed copy of
this letter. Please return one of the executed letters to me and keep one for
your files.
Very truly yours,
KCD HOLDINGS INCORPORATED
Bonnie Richards, Secretary
and Director
ACCEPTED AND AGREED TO THIS ____ DAY OF MARCH, 1996:
By:
-----------------------------
Its:
-----------------------------
2
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-KSB
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-01-1996
<PERIOD-END> JAN-31-1997
<CASH> 409,117
<SECURITIES> 0
<RECEIVABLES> 262,097
<ALLOWANCES> 47,820
<INVENTORY> 2,148,390
<CURRENT-ASSETS> 2,771,784
<PP&E> 214,900
<DEPRECIATION> 113,644
<TOTAL-ASSETS> 2,873,040
<CURRENT-LIABILITIES> 2,131,995
<BONDS> 0
0
375,000
<COMMON> 29,247
<OTHER-SE> 343,760
<TOTAL-LIABILITY-AND-EQUITY> 2,880,002
<SALES> 2,845,590
<TOTAL-REVENUES> 2,845,590
<CGS> 1,104,520
<TOTAL-COSTS> 1,104,520
<OTHER-EXPENSES> 3,513,441
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 78,394
<INCOME-PRETAX> (1,850,765)
<INCOME-TAX> 1600
<INCOME-CONTINUING> (1,852,365)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,852,365)
<EPS-PRIMARY> (.13)
<EPS-DILUTED> (.13)
</TABLE>
