UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended April 30, 1996 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from __________________
to __________________
Commission File Number: 0-15827
SHARPER IMAGE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 94-2493558
(State of Incorporation) (I.R.S. Employer
Identification No.)
650 Davis Street, San Francisco, California 94111
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 445-6000
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Common Stock, $0.01 par value, 8,260,480 shares as of June 13, 1996
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
SHARPER IMAGE CORPORATION
CONDENSED BALANCE SHEETS
(Unaudited)
<CAPTION>
April 30, January 31, April 30,
Dollars in thousands, except per share amount 1996 1996 1995
---------- ----------- ---------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and equivalent $ 858 $ 12,476 $12,610
Accounts receivable, net of allowance for doubtful
accounts of $331, $461 and $401 4,296 4,436 5,007
Merchandise inventories 32,516 24,313 27,108
Deferred catalog costs 4,501 4,135 5,823
Prepaid expenses and other 4,103 2,576 3,107
-------- -------- --------
Total Current Assets 46,274 47,936 53,655
Property and Equipment, Net 21,141 20,726 12,952
Deferred taxes and other assets 1,802 1,794 947
-------- -------- --------
Total Assets $ 69,217 $ 70,456 $ 67,554
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 26,677 $ 25,224 $ 27,718
Deferred revenue 4,861 4,893 4,173
Income taxes payable - 363 -
Current portion of notes payable 246 223 152
-------- -------- --------
Total Current Liabilities 31,784 30,703 32,043
Notes Payable 3,274 3,355 799
Other Liabilities 3,613 3,640 3,321
-------- -------- --------
Total Liabilities 38,671 37,698 36,163
-------- -------- --------
Stockholders' Equity:
Preferred stock, $0.01 par value:
Authorized 3,000,000 shares: Issued and outstanding, none - - -
Common stock, $0.01 par value:
Authorized 25,000,000 shares: Issued and outstanding,
8,255,480, 8,250,980 and 8,217,380 shares 83 82 83
Additional paid-in capital 9,563 9,555 9,564
Retained earnings 20,900 23,121 21,744
-------- -------- --------
Total Stockholders' Equity 30,546 32,758 31,391
-------- -------- --------
Total Liabilities and Stockholders' Equity $ 69,217 $ 70,456 $ 67,554
======== ======== ========
</TABLE>
2
<PAGE>
SHARPER IMAGE CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
Dollars in thousands, except per share amounts April 30,
---------
1996 1995
---- ----
REVENUES:
Sales $ 40,730 $ 42,639
Less: returns and allowances 5,104 5,695
--------- ---------
Net Sales 35,626 36,944
Other revenue 875 752
--------- ---------
36,501 37,696
--------- ---------
COST AND EXPENSES:
Cost of products 19,245 19,166
Buying and occupancy 5,601 4,903
Advertising and promotion 4,726 5,604
General, selling, and administrative 10,651 9,791
--------- ---------
40,223 39,464
--------- ---------
OPERATING LOSS (3,722) (1,768)
OTHER INCOME (EXPENSE):
Interest income-net 8 216
Other-net 13 (3)
--------- ---------
21 213
--------- ---------
Loss Before Income Tax Benefit (3,701) (1,555)
Income Tax Benefit (1,480) (622)
---------- ---------
Net Loss $ (2,221) $ (933)
========== =========
Weighted Average Number of Shares 8,252,124 8,250,157
Net Loss Per Share $ (0.27) $ (0.11)
========== =========
3
<PAGE>
SHARPER IMAGE CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited) Three Months Ended
April 30,
Dollars in thousands 1996 1995
---- ----
Cash was Provided by (Used for) Operating Activities:
Net loss $ (2,221) $ (933)
Adjustments to reconcile net loss to net cash
provided by (used for) operations:
Depreciation and amortization 978 823
Deferred rent expense 5 21
Deferred income taxes (1,481) (622)
Changes in:
Merchandise inventories (8,203) (3,553)
Accounts receivable 140 (1,773)
Deferred catalog costs, prepaid expenses and other (420) (2,895)
Accounts payable and accrued expenses 1,453 6,635
Deferred revenue and other liabilities (427) (1,701)
-------- --------
Cash Used for Operating Activities (10,176) (3,998)
-------- --------
Cash was Provided by (Used for) Investing Activities:
Property and equipment expenditures (1,418) (1,081)
Disposal of equipment 25 -
------- -------
Cash Used for Investing Activities (1,393) (1,081)
-------- --------
Cash was Provided by (Used for) Financing Activities:
Issuance of common stock for stock options 9 19
Repurchase of common stock - (487)
Principal payments on notes payable (58) (36)
--------- --------
Cash Used for Financing Activities (49) (504)
--------- --------
Net Decrease in Cash and Equivalents (11,618) (5,583)
--------- --------
Cash and Equivalents at Beginning of Period 12,476 18,193
-------- -------
Cash and Equivalents at End of Period $ 858 $12,610
======== =======
Supplemental Disclosure of Cash Paid for:
Interest $ 106 $ 34
Income Taxes $ 459 $ 1,845
4
<PAGE>
SHARPER IMAGE CORPORATION
NOTES TO FINANCIAL STATEMENTS
Three-month periods ended April 30, 1996 and 1995
(Unaudited)
NOTE A- Financial Statements
The balance sheets at April 30, 1996 and 1995, and the statements of operations
and cash flows for the three-month periods ended April 30, 1996 and 1995 have
been prepared by the Company, without audit. In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position, results of operations and cash flows at
April 30, 1996 and 1995, and for all periods presented, have been made. The
Company's business is seasonal in nature and the results of operations for the
interim periods presented are not necessarily indicative of the results for the
full fiscal year.
The balance sheet at January 31, 1996, presented herein, has been derived from
the audited balance sheet of the Company.
Certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with generally accepted accounting
principles have been omitted from these interim financial statements. It is
suggested that these financial statements be read in conjunction with the
financial statements and notes thereto included in the Company's 1995 Annual
Report.
NOTE B- Revolving Loan and Notes Payable
In September 1994, the Company entered into a five-year revolving secured credit
facility with The CIT Group/Business Credit, Inc. ("CIT"). The credit facility
allows the Company to borrow funds and issue letters of credit up to $20 million
based upon inventory levels. The credit facility is secured by the Company's
inventory, accounts receivable, general intangibles and certain other assets.
Borrowings under the credit facility bear interest at either prime plus 0.75%
per annum, or at LIBOR plus 2.75% per annum. The credit facility contains
certain financial covenants pertaining to fixed charge coverage ratio, leverage
ratio, working capital and net worth. The credit facility has limitations on
operating leases, other borrowings, dividend payments and stock repurchases.
In May 1996, an amendment to the secured credit facility was completed with CIT
to provide for term loans for capital expenditures ("CAPEX Term Loans") up to an
aggregate amount of $4.5 million. As a result of the amendment, the total
secured credit facility was increased to $24.5 million and the expiration has
been extended for an additional two years to September 2001. The CAPEX Term
Loans allow the Company to borrow amounts for the acquisition of capital
improvements. Amounts borrowed under the CAPEX Term Loans bear interest at
either prime plus 1% per annum, or at LIBOR plus 3% per annum.
5
<PAGE>
NOTE B - Revolving Loan and Notes Payable (continued)
Each CAPEX Term Loan is to be repaid in 36 equal monthly principal installments.
Certain financial covenants of the secured credit facility were revised in the
amendment. CIT received warrants for 25,000 shares of the Company's common stock
exercisable at any time within five years at an exercise price of $6.00 per
share.
At April 30, 1996, the Company had no amounts outstanding on its revolving loan
credit facility. Letters of credit commitments at April 30, 1996 were
$2,174,000.
Notes payable included two mortgage loans collateralized by certain property and
equipment. In connection with the expansion of the Company's distribution center
which was completed in October 1995, the Company refinanced the mortgage loan
collateralized by the distribution center and paid off the existing mortgage.
The new note in the amount of $3 million was funded in December 1995, bears
interest at a fixed rate of 8.40%, provides for monthly payments of principal
and interest in the amount of $29,367, and matures in January 2011. The other
note bears interest at a variable rate equal to the rate on 30-day commercial
paper plus 3.82%, provides for monthly payments of principal and interest in the
amount of $14,320, and matures in January 2000.
NOTE C- Commitments and Contingencies
The Company is party to various legal proceedings arising from normal business
activities. Management believes that the resolution of these matters will not
have a material effect on the Company's financial condition.
NOTE D- Reclassifications
Certain reclassifications have been made to prior periods financial statements
in order to conform with current period classifications.
REVIEW BY INDEPENDENT ACCOUNTANTS
The financial statements at April 30, 1996 and 1995 and for the three-month
periods then ended have been reviewed by the Company's independent accountants,
Deloitte & Touche LLP, whose report covering their review of the financial
statements is presented herein.
6
<PAGE>
Deloitte & Touche LLP
Independent Accountants' Report
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors
Sharper Image Corporation
San Francisco, California
We have reviewed the accompanying condensed balance sheets of Sharper Image
Corporation as of April 30, 1996 and 1995, and the related condensed statements
of operations and cash flows for the three-month periods then ended. These
financial statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying condensed financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet of Sharper Image Corporation as of January 31,
1996, and the related statements of operations, stockholders' equity and cash
flows for the year then ended (not presented herein); and in our report dated
March 22, 1996, we expressed an unqualified opinion on those financial
statements. In our opinion, the information set forth in the accompanying
condensed balance sheet as of January 31, 1996 is fairly stated, in all material
respects, in relation to the balance sheet from which it has been derived.
May 22, 1996
Deloitte & Touche LLP
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
The following table is derived from the Company's Statements of Operations and
shows the results of operations for the periods indicated as a percentage of
total revenues.
Percentage of Total Revenues
----------------------------
Three Months Ended
April 30,
1996 --------- 1995
---- ----
Revenues:
Net store sales 71.5% 70.8%
Net catalog sales 26.1 27.2
Other revenue 2.4 2.0
--------- ----------
Total Revenues 100.0% 100.0%
Costs and Expenses:
Cost of products 52.7 50.8
Buying and occupancy 15.3 13.0
Advertising and promotion 12.9 14.9
General, selling
and administrative 29.2 26.0
Other income 0.0 0.6
---------- ---------
Loss Before Income Tax Benefit (10.1) (4.1)
Income Tax Benefit (4.0) (1.6)
---------- ---------
Net Loss (6.1)% (2.5)%
========== ==========
8
<PAGE>
Revenues
Net sales for the three-month period ended April 30, 1996, decreased $1,318,000,
or 3.6% from the comparable period of the prior year. Returns and allowances for
the three-month period ended April 30, 1996, were 12.5% of sales, as compared
with 13.4% of sales for the comparable prior year period. For the three-month
period ended April 30, 1996, as compared with the same period last year, net
store sales decreased $590,000, or 2.2%, with comparable store sales decreasing
by 5.6%, partially offset by new store sales and net catalog sales decreased
$728,000, or 5.7%.
The decrease in net store sales for the three-month period ended April 30, 1996
as compared with the same prior year period reflects a decrease in average
revenue per transaction from $106 to $100, partially offset by a 4.0% increase
in total store transactions. The net catalog sales for the three-month period
ended April 30, 1996 reflects a decrease of 8.0% in total catalog orders as
compared to the same prior year period, partially offset by an increase in
average revenue per order from $126 to $127. The Company believes that the
decrease in net store sales, comparable store sales and net catalog sales for
the three-month period ended April 30, 1996 is primarily due to the decrease in
the number of catalogs mailed and pages circulated for The Sharper Image catalog
in the effort to partially offset high paper costs. The decrease in net catalog
sales was partially offset by the increase in sales from the test mailings of
The Sharper Image SPA catalog and The Sharper Image Home Collection catalog.
Cost of Products
Cost of products for the three-month period ended April 30, 1996 increased
slightly from the comparable prior year period. The gross margin rate for the
three-month period ended April 30, 1996 was 46.5%, or 2.0 percentage points
lower than the gross margin rate of 48.5% for the same period of the prior year.
The decrease in the gross margin rate is partially attributable to the changes
in the Company's merchandise mix, which reflects an increase in sales of lower
margin products, such as certain state-of-the-art electronic items and a
decrease in sales of certain higher margin products, such as the Company's
proprietary products and fitness equipment.
Store occupancy expense for the three-month period ended April 30, 1996
increased $643,000 or 13.7%, from the comparable prior year period. The increase
primarily reflected the occupancy costs associated with the ten new stores
opened during the prior fiscal year, which was partially offset by the
elimination of the occupancy costs of the two stores closed during fiscal 1995.
Advertising and Promotion Expenses
Advertising and promotion expenses for the three-month period ended April 30,
1996 decreased $878,000, or 15.7%, from the comparable prior year period. The
decrease in advertising and promotion expenses for the three-month period ended
April 30, 1996 reflects primarily the Company's planned program to reduce
advertising and promotion expenses by reducing the number of catalogs and
catalog pages mailed. This resulted in a 7% decrease in the catalog circulation
and a 37% decrease in the number of pages circulated of The Sharper Image
Catalog, as well as a 5% decrease in the catalog circulation and a 25% decrease
in the number of pages circulated of the Sharper Image SPA Catalog. The decrease
was partially offset by the rate increases in paper costs which have had a
significant adverse effect on the Company. The Company has implemented measures
in an effort to partially offset the impact of the rate increases in paper and
postage costs, which includes reducing the catalog dimensions, reducing the
number of pages per catalog, as well as using a lighter weight of paper. Also
contributing to the decrease in advertising and promotion expenses for the
three-month
9
<PAGE>
period ended April 30, 1996 was a reduction in the amount of in-flight and other
magazine and newspaper advertising.
The planned reduction in advertising and promotion expense, which was primarily
catalog costs, was made in the Company's efforts to partially offset escalating
paper prices. Paper prices were sharply higher during the first quarter of this
year as compared with last year's same period. Management also believed that the
reduced number of catalog and catalog pages would generate higher productivity
and that the planned decrease in advertising and promotion expenses would more
than offset the effect of the possible decrease in revenues caused by the
reduced advertising on a full fiscal year basis.
Based on actual sales and statistical data from the first quarter, management
now believes that the reduction in catalog circulation was excessive, and that
certain profitable sales were missed. The Company currently plans on adjusting
the circulation upward for the balance of the year in the continual effort to
maximize the productivity and effectiveness of its advertising program.
General, Selling and Administrative Expenses
General, selling and administrative expenses for the three-month period ended
April 30, 1996 increased $860,000, or 8.8%, from the comparable prior year
period. The increase was primarily attributable to the increase in store
expenses associated with the ten new stores opened during the prior fiscal year,
an increase in corporate personnel expenses to support the additional stores and
to support the new Sharper Image SPA catalog and The Sharper Image Home
Collection catalog concepts, and an increase in net delivery expense related to
mail-order shipments.
Liquidity and Capital Resources
The Company met its short-term liquidity needs and its capital requirements in
the three-month period ended April 30, 1996 with available cash and trade
credit. During the three-month period ended April 30, 1996, the Company's cash
decreased by $11,618,000 to $858,000 primarily due to the increases in
merchandise inventory, deferred catalog costs, property and equipment
expenditures and the net loss for the period.
In September 1994, the Company entered into a five-year revolving secured credit
facility with The CIT Group/Business Credit, Inc., ("CIT"). The credit facility
allows the Company to borrow funds and issue letters of credit up to $20 million
based upon inventory levels. The credit facility is secured by the Company's
inventory, accounts receivable, general intangibles and certain other assets.
Borrowings under the credit facility bear interest at either prime plus 0.75%
per annum, or LIBOR plus 2.75% per annum. The credit facility contains certain
financial covenants pertaining to fixed charge coverage ratio, leverage ratio,
working capital and net worth. The credit facility has limitations on operating
leases, other borrowings, dividend payments and stock repurchases.
In May 1996, an amendment to the secured credit facility was completed with CIT
to provide for term loans for capital expenditures ("CAPEX Term Loans") up to an
aggregate amount of $4.5 million. As a result of the amendment, the total
secured credit facility was increased to $24.5 million and the expiration has
been extended for an additional two years to September 2001. The CAPEX Term
Loans allow the Company to borrow amounts for the acquisition of capital
improvements. Amounts borrowed under the CAPEX Term Loans bear interest at
either prime plus 1% per annum, or at LIBOR plus 3% per annum. Each CAPEX Term
Loan is to be repaid in 36 equal monthly principal
10
<PAGE>
installments. Certain financial covenants of the secured credit facility were
revised in the amendment. CIT received warrants for 25,000 shares of the
Company's common stock exercisable at any time within five years at an exercise
price of $6.00 per share.
At April 30, 1996, there were no borrowings outstanding under the credit
facility. Letters of credit commitments at April 30, 1996 were $2,174,000.
Notes payable included two mortgage loans collateralized by certain property and
equipment. In connection with the expansion of the Company's distribution center
which was completed in October 1995, the Company refinanced the mortgage loan
collateralized by the distribution center and paid off the existing mortgage.
The new note in the amount of $3 million was funded in December 1995, bears
interest at a fixed rate of 8.40%, provides for monthly payments of principal
and interest in the amount of $29,367, and matures in January 2011. The other
note bears interest at a variable rate equal to the rate on 30-day commercial
paper plus 3.82%, provides for monthly payments of principal and interest in the
amount of $14,320, and matures in January 2000.
The Company's merchandise inventory at April 30, 1996 was approximately 20%
higher than that of April 30, 1995. The Company's inventory reflects incremental
amounts for the support of the ten new stores opened during fiscal year 1995,
the new Sharper Image SPA catalog concept and the expanding wholesale business.
The Company's goal is to lower the inventory level to a more moderate increase
as compared with the prior year's inventory.
During the three-month period ended April 30, 1996, the Company remodeled two
Sharper Image stores located in Redondo Beach, California and Chicago, Illinois.
The Company also closed a Sharper Image Design store located in Lahaina, Maui,
Hawaii. The Company is currently planning to open six to eight new stores during
fiscal 1996. Total capital expenditures estimated for the new and existing
stores, including the remodel and the relocation of a number of existing stores,
corporate headquarters, and the distribution center for fiscal 1996 are between
$6.0 million to 8.0 million.
The Company believes it can fund its cash needs for the remainder of the fiscal
year through internally generated cash, trade credit and the secured credit
facility.
General
The forward looking statements contained in this document are only our
predictions and objectives. Actual events or results may differ materially. We
refer you to the documents that the Company files with the SEC. These documents
identify important factors that could cause our actual results to differ from
our current expectations and the forward looking statements contained in this
document.
11
<PAGE>
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Amended and Restated Stock Option Plan. (Incorporated by reference to
Registration Statement on Form S-8 filed on January 19, 1996
(Registration No. 33-3327).)
10.2 1994 Non-Employee Director Stock Option Plan dated October 7, 1994.
(Incorporated by reference to Registration Statement on Form S-8 filed
on January 19, 1996 (Registration No. 33-3327).)
10.3 Cash or Deferred Profit Sharing Plan, as amended. (Incorporated by
reference to Exhibit10.2 to Registration Statement on Form S-1
(Registration No. 33-12755).)
10.4 Cash or Deferred Profit Sharing Plan Amendment No. 3. (Incorporated by
reference to Exhibit 10.15 to Form 10-K for fiscal year ended January
31, 1988.)
10.5 Cash or Deferred Profit Sharing Plan Amendment No. 4. (Incorporated by
reference to Exhibit 10.16 to Form 10-K for fiscal year ended January
31, 1988.)
10.6 Form of Stock Purchase Agreement dated July 26, 1985 relating to shares
of Common Stock purchased pursuant to exercise of employee stock
options. (Incorporated by reference to Exhibit 10.3 to Registration
Statement on Form S-1 (Registration No. 33- 12755).)
10.7 Form of Stock Purchase Agreement dated December 13, 1985 relating to
shares of Common Stock purchase pursuant to exercise of employee stock
options. (Incorporated by reference to Exhibit 10.4 to Registration
Statement on Form S-1 (Registration No. 33- 12755).)
10.8 Form of Stock Purchase Agreement dated November 10, 1986 relating to
shares of Common Stock purchased pursuant to exercise of employee stock
options. (Incorporated by reference to Exhibit 10.5 to Registration
Statement on Form S-1 (Registration No. 33- 12755).)
10.9 Form of Director Indemnification Agreement. (Incorporated by reference
to Exhibit 10.42 to Registration Statement on Form S-1 (Registration
No. 33-12755).)
10.10 Real Estate Installment Note and Mortgage dated October 4, 1993 among
the Company and Lee Thalheimer, Trustee for the Alan Thalheimer Trust.
(Incorporated by reference to Exhibit 10.20 to Form 10-K for fiscal
year ended January 31, 1994)
12
<PAGE>
10.11 Financing Agreement dated September 21, 1994 between the Company and
CIT Group/Business Credit Inc. (Incorporated by reference to Exhibit
10.12 to Form 10-Q for the quarter ended October 31, 1994)
10.12 The Sharper Image 401(K)Savings Plan (Incorporated by reference to
Exhibit 10.21 to Registration Statement of Form S-8 (Registration No.
33-80504) dated June 21, 1994))
10.15 Form of Chief Executive Officer Compensation Plan dated February 3,
1995. (Incorporated by reference to Exhibit 10.24 to the Form 10-K for
the fiscal year ended January 31, 1995.)
10.16 Form of Annual Report for the Sharper Image 401(K) Savings Plan
(incorporated by reference to Form 11-K (Registration No. 33-80504) for
the plan year ended December 31, 1995.)
10.17 Form of Split-Dollar Agreement between the Company and Mr. R.
Thalheimer, its Chief Executive Officer dated October 13, 1995,
effective as of May 17, 1995. (Incorporated by reference to Exhibit
10.17 to the Form 10-K for the fiscal year ended January 31, 1996.)
10.18 Form of Assignments of Life Insurance Policy as Collateral, both dated
October 13, 1995, effective May 17, 1995. (Incorporated by reference to
Exhibit 10.18 to the Form 10-K for the fiscal year ended January 31,
1996.)
10.19 Form of Amendment to the Financing Agreement dated May 15, 1996 between
the Company and The CIT Group/Business Credit Inc.
10.20 Form of Warrant to Purchase Common Stock Agreement dated May 15, 1996
between the Company and The CIT Group/Business Credit Inc.
11.1 Statement Re: Computation of Earnings per Share.
15.0 Letter Re: Unaudited Interim Financial Information.
27.0 Financial Data Schedule.
(b) Reports on Form 8-K
The Company has not filed any reports on Form 8-K for the three
months ended April 30, 1996.
13
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
SHARPER IMAGE CORPORATION
Date: June 14, 1996 by:/s/ Craig P. Womack
------------- -----------------------------
Craig P. Womack
President
Chief Operating Officer
by:/s/ Tracy Y. Wan
------------------------------
Tracy Y. Wan
Senior Vice President
Chief Financial Officer
14
Exhibit 11
Exhibit 11
SHARPER IMAGE CORPORATION
STATEMENTS RE: COMPUTATION OF EARNINGS PER SHARE
Three Months Ended
April 30,
Dollars in thousands, except per share amounts 1996 --------- 1995
---- ----
Net Loss $ (2,221) $ (933)
Average shares of common stock
outstanding during the period 8,252,124 8,250,157
Add:
Incremental shares from assumed
exercise of stock options (Primary) * *
8,252,124 8,250,157
============= ============
Primary loss per share $ (0.27) $ (0.11)
============= ============
Average shares of common stock
outstanding during the period 8,252,124 8,250,157
Add:
Incremental shares from assumed
exercise of stock options (Fully-diluted) * *
8,252,124 8,250,157
============= ============
Fully-diluted loss per share $ (0.27) $ (0.11)
============= ============
*Incremental shares from assumed exercise of stock options are antidilutive for
primary and fully diluted loss per share, and therefore not presented.
15
EXHIBIT 10.19
May 15, 1996
Sharper Image Corporation
650 Davis Street
San Francisco, CA 94111
Gentlemen:
Reference is made to the Financing Agreement between us dated September 21,
1994, as amended (the "Financing Agreement"). Capitalized terms used herein
shall have the same meanings as specified in the Financing Agreement unless
otherwise specifically defined herein.
Effective immediately, pursuant to mutual understanding, the Financing Agreement
shall be, and hereby is, amended as follows:
(A) Section 1 of the Financing Agreement shall be, and hereby is, amended by the
addition thereto of the following new definitions:
"Additional Availability Reserve shall mean, without duplication (x)
for the period from January 1 to March 1 of each year, an amount equal
to the outstanding and unpaid balance of all CAPEX Term Loans and (y)
upon the occurrence of a Default and/or Event of Default hereunder
(other than a Default or Event of Default which has been cured to
CITBC's reasonable satisfaction or waived in writing by CITBC) and at
all times thereafter, an amount equal to the outstanding and unpaid
balance of all CAPEX Term Loans hereunder, provided that the
establishment of such Additional Availability Reserve under clause
"(y)" hereof shall be in addition to all other rights and remedies of
CITBC arising as a result of such Default and/or Event of Default.
"CAPEX Term Loans shall mean the term loans made and to be made to the
Company by CITBC in the aggregate principal amount of up to $4,500,000
as more fully described in Section 3A of this Financing Agreement."
"CAPEX Term Loan Line of Credit shall mean the commitment of CITBC to
make CAPEX Term Loans to the Company pursuant to Section 3A of this
Financing Agreement in the aggregate amount of $4,500,000, provided
that such amount shall be automatically and without any further act by
CITBC or the Company reduced by an amount equal to the aggregate amount
of all drawdowns of CAPEX Term Loans made by CITBC to the Company
hereunder."
"CAPEX Term Loan Promissory Note shall mean the promissory notes each
in the form of Exhibit A attached hereto executed and delivered by the
Company to CITBC to evidence a CAPEX Term Loan extended pursuant to,
and repayable in accordance with, the provisions of Section 3A hereof."
"Capital Improvements shall mean operating Equipment and facilities
(including leasehold improvements thereto but excluding the purchase of
new Real Estate) acquired or installed for use in the Company's
business operations on or after February 1, 1996."
(B) Section 1 of the Financing Agreement shall be, and hereby is, further
amended by amending the definitions of "Early Termination Date", "Early
Termination Fee", "Line of Credit" and "Line of Credit Fee" in their entirety to
read as follows:
"Early Termination Date shall mean the date on which the Company
terminates this Financing Agreement or the Line of Credit which date is
prior to the fourth Anniversary Date."
"Early Termination Fee shall: i) mean the fee CITBC is entitled to
charge the Company in the event the Company terminates the Line of
Credit or this Financing Agreement on a date prior to the fourth
Anniversary Date (except as otherwise provided in Section 10 of this
Financing Agreement); and ii) be determined by calculating the sum of
(a) the average daily balance of the Revolving Loans for the period
from the date of this Financing Agreement to the Early Termination
Date, (b) the average daily undrawn face amount of the Letters of
Credit outstanding from the date of this Financing Agreement to the
Early Termination Date and (c) the average daily balance of CAPEX Term
Loans for the period from the effective date of the CAPEX Term Loan
Line of Credit to the Early Termination Date and multiplying that sum
by (i) one percent (1%) per annum if the Early Termination Date occurs
prior to the second Anniversary Date; (ii) three-quarters of one
percent (3/4 of 1%) per annum if the Early Termination Date occurs on
or after the second Anniversary Date but prior to the third Anniversary
Date; and (iii) one-half of one percent (1/2 of 1%) per annum if the
Early Termination Date occurs on or after the third Anniversary Date
but prior to the fourth Anniversary Date, in each case for the number
of days from the Early Termination Date to the fourth Anniversary
Date."
"Line of Credit shall mean the commitment of CITBC to make Revolving
Loans under Sections 3 hereof, make CAPEX Term Loans under Section 3A
hereof and issue Letter of Credit Guaranties under Section 4 hereof,
all pursuant to and in accordance with Sections 3, 3A and 4 of this
Financing Agreement, in the aggregate amount of $24,500,000, provided
that such amount shall be automatically and without any further act by
CITBC or the Company reduced by an amount equal to the aggregate amount
of all drawdowns of CAPEX Term Loans made by CITBC to the Company
hereunder."
"Line of Credit Fee shall: i) mean the fee due CITBC at the end of each
month for the Line of Credit, and ii) be determined by multiplying x)
the difference between the Line of Credit at the end of such month less
the sum of a) the average daily Revolving Loans outstanding during such
month, and b) the average daily undrawn face amount of all outstanding
Letters of Credit for said month by y) one-half of one percent (1/2 of
1%) per annum for the number of days in said month during which this
Financing Agreement was in effect."
(C) The definition of "Availability Reserve" shall be, and hereby is amended by
the addition thereto of a new clause "c)" at the end thereof immediately prior
to the period to read as follows: "and c) the Additional Availability Reserve,
if applicable".
(D) The following new Section 3A shall be, and hereby is, added to the Financing
Agreement between Sections 3 and 4 thereof:
"Section 3A. CAPEX Term Loans
1. Within the available and unused CAPEX Term Loan Line of Credit and
upon receipt of a CAPEX Term Loan Promissory Note in the form of
Exhibit A attached hereto from the Company in the amount of the CAPEX
Term Loan, so long as this Financing Agreement remains in effect, CITBC
will extend to the Company a CAPEX Term Loan, provided: a) no Default
or Event of Default has occurred or would occur after giving effect to
such CAPEX Term Loan, b) all of the conditions listed below are
fulfilled to the sole but reasonable satisfaction of CITBC.
2. CAPEX Term Loan proceeds: x) are to be used exclusively to pay for,
or reimburse the Company for, the acquisition by the Company of newly
acquired Capital Improvements which are not subject to Purchase Money
Liens; and y) will be disbursed upon completion of the delivery,
assembly and installation of such Capital Improvement.
3. The Company must give CITBC fifteen (15) days prior written notice
of its intention to enter into a CAPEX Term Loan.
4. The Company shall be entitled to six (6) CAPEX Term Loans per
calendar year but no more than two (2) CAPEX Term Loans in any Fiscal
Quarter.
5. No CAPEX Term Loan may exceed seventy-five percent (75%) of the
total acquisition costs of the Capital Improvements for which the CAPEX
Term Loan is sought.
6. Each CAPEX Term Loan must be in a minimum amount of $350,000.00 or
$10,000 increments thereof.
7. Each CAPEX Term Loan will be repaid to CITBC by the Company in
thirty-six (36) equal monthly installments of principal commencing on
the first Business Day of next month after initial funding thereof. To
the extent repaid, CAPEX Term Loans may not be reborrowed under this
Section 3A of this Financing Agreement.
8. In the event this Financing Agreement or the Line of Credit is
terminated by either CITBC or the Company for any reason whatsoever,
the CAPEX Term Loans shall become due and payable on the effective date
of such termination notwithstanding any provision to the contrary in
the CAPEX Term Loan Promissory Notes or this Financing Agreement.
9. The Company may prepay at any time, at its option, in whole or in
part, the CAPEX Term Loans without penalty or premium, provided that
(i) on each such prepayment, the Company shall pay accrued interest on
the principal so prepaid to the date of such prepayment and (ii)
notwithstanding the foregoing, upon any prepayment of the CAPEX Term
Loans in conjunction with the termination of the Financing Agreement,
the Company shall pay the Early Termination Fee, if applicable.
10. Each prepayment shall be applied to the then last maturing
installments of principal of the CAPEX Term Loans.
11. The Company hereby authorizes CITBC to charge its Revolving Loan
Account with the amount of all amounts due under this Section 3A as
such amounts become due. The Company confirms that any charges which
CITBC may so make to its account as herein provided will be made as an
accommodation to the Company and solely at CITBC's discretion."
(E) Section 6, Paragraphs 8, 10 and 11 of the Financing Agreement shall be, and
each hereby is, amended as follows:
(i) The Net Worth covenant set forth in Paragraph 8 of Section 6 shall
be, and hereby is, amended by amending the Net Worth amount for all
fiscal quarters ending on or after April 30, 1996 to be "$27,000,000";
(ii) The Working Capital Covenant set forth in Paragraph 10 of Section
6 shall be, and hereby is, amended in its entirety to read as follows:
"10. The Company shall have as at the end of each fiscal quarter during
the periods below a Working Capital of not less than the amount set
forth below for the applicable period:
Period Working Capital
For the fiscal quarter ending
April 30, 1996 $14,000,000
For the fiscal quarter ending
July 31, 1996 and each
fiscal quarter thereafter $11,500,000
(iii) The Fixed Charge Coverage Ratio set forth in Paragraph 11 of
Section 6 shall be, and hereby is, amended by amending the Ratio solely
for the four (4) consecutive quarters ending October 31, 1996 to be
".55 to 1", provided that such Ratio shall remain 1.0 to 1 for all
other periods computed for the four (4) consecutive quarters then
ending, all as more fully provided in said Paragraph 11 of Section 6.
(F) Section 7 of the Financing Agreement shall be, and hereby is, amended in its
entirety to read as follows:
(a) Interest on the Revolving Loans shall be payable monthly as of the
end of each month and shall be an amount equal to i) the sum of
three-quarters of one percent (.75%) plus the Chemical Bank Rate, on a
per annum basis, on the average of the net balances (other than Libor
Loans) owing by the Company to CITBC in the Company's Revolving Loan
Account at the close of each day during such month and ii) the sum of
two and three quarters percent (2 3/4%) plus the applicable Libor on
any then outstanding Revolving Loans which are Libor Loans, on a per
annum basis, on the average of the net balances owing by the Company to
CITBC in the Company's Revolving Loan Account at the close of each day
during such month. In the event of any change in said Chemical Bank
Rate, the rate hereunder shall change, as of the first of the month
following any change, so as to remain three-quarters of one percent
(.75%) above the Chemical Bank Rate. The rates hereunder shall be
calculated based on a 360-day year. CITBC shall be entitled to charge
the Company's Revolving Loan Account at the rate provided for herein
when due until all Obligations have been paid in full.
(b) Interest on the CAPEX Term Loans shall be payable monthly as of the
end of each month on the unpaid balance or on payment in full prior to
maturity in an amount equal to (x) one percent (1%) plus the Chemical
Bank Rate, on a per annum basis, on balances other than Libor Loans and
(y) three percent (3%) plus the applicable Libor on any then
outstanding CAPEX Term Loans which are Libor Loans, on a per annum
basis, on the average of the net balance of the CAPEX Term Loans owing
by the Company to CITBC at the close of each day during such month. In
the event of any change in said Chemical Bank Rate, the rate under
clause (x) of this sub-paragraph (b) shall change, as of the first of
the month following any change, so as to remain one percent (1%) above
the Chemical Bank Rate. The rates hereunder shall be calculated based
on a 360 day year. CITBC shall be entitled to charge the Company's
Revolving Loan Account at the rate provided for herein when due until
all Obligations have been paid in full.
(c) The Company may elect to use Libor as to any new or then
outstanding Revolving Loans or CAPEX Term Loans provided x) there is
then no Default or Event of Default, and y) the Company has so advised
CITBC of its election to use Libor and the Libor Period selected no
later than five (5) Business Days prior to (A) the proposed borrowing
or, (B) in the case of a Libor election with respect to a then
outstanding Revolving Loan or CAPEX Term Loans, the conversion date of
any then outstanding Revolving Loans to Libor Loans and z) the election
and Libor shall be effective, provided there is then no Default or
Event of Default, on the sixth Business Day following said notice.
There shall be no more than five (5) Libor Loans outstanding at any
time and each Libor election must be for a minimum amount of
$100,000.00 or whole multiples thereof. If such election is not timely
made or can not be made, or if the Libor rate can not be determined,
then CITBC shall use the Chemical Bank Rate to compute interest."
(G) Section 10 of the Financing Agreement shall be, and hereby is, amended as
follows:
(i) the reference to the "fifth or any subsequent Anniversary Date" as
contained in the first sentence thereof shall be, and hereby is amended
to read "seventh or any subsequent Anniversary Date"; and
(ii) the reference to "third Anniversary Date" as contained in the
proviso at the end of the fourth sentence thereof shall be, and hereby
is, amended to read "fourth Anniversary Date".
(H) In addition it is hereby agreed that:
(i) the term "Obligations" as used in the Financing Agreement shall
also include, without limitation, all indebtedness, obligations and
liabilities of the Company to CITBC pursuant to the CAPEX Term Loans
and/or arising under the CAPEX Term Loan Line of Credit (herein the
"CAPEX Term Loan Obligations"), provided that the term "Obligations" as
used in the definition of "Availability" shall (unless the Additional
Availability Reserve is applicable) exclude all CAPEX Term Loan
Obligations and Availability shall be determined by excluding such
CAPEX Term Loan Obligations from such determination; and
(ii) the form of CAPEX Term Loan Promissory Note attached hereto shall
be attached to the Financing Agreement as Exhibit A; and
(iii) all CAPEX Term Loan Obligations shall be, and hereby are, secured
by a lien upon, and security interest in, all Collateral. In
furtherance thereof, the Company shall deliver to CITBC in conjunction
with each notice of an election to draw down a CAPEX Term Loan
hereunder, a detailed description of the Capital Improvements to be
made (including, without limitation, any fixtures to be installed in
connection therewith and the location thereof) and shall (x) execute
and deliver all documents reasonably requested by CITBC to validly
perfect a first lien upon and security interest in such Capital
Improvements (including, without limitation, fixture filings under the
U.C.C.) and (y) take any and all other actions reasonably requested by
CITBC in connection therewith.
(I) The Effectiveness of all of the amendments set forth above and the extension
of the CAPEX Term Loans under the CAPEX Term Loan Line of Credit shall be, and
hereby is, subject to the fulfillment to CITBC's satisfaction of each of the
Conditions Precedent. The "Conditions Precedent" shall mean:
(i) the Company shall pay (x) all Out-of-Pocket Expenses incurred by
CITBC in connection with this agreement and all the documents and
transactions contemplated hereby and (y) an Additional Loan Facility
and Documentation Fee in the amount of $32,000 which shall be due and
payable in full on the date hereof. All such amounts may be charged to
your Revolving Loan Account on the respective due dates thereof.
(ii) CITBC's receipt of a secretary's certificate certifying Board of
Directors Resolutions authorizing the execution, delivery and
performance by the Company of this agreement and all documents and
transactions contemplated hereby.
(iii) the Company shall enter into a warrant agreement (in form and
substance satisfactory to CITBC) and take all other actions necessary
to grant to CITBC or its assigns a warrant to purchase up to 25,000
shares of its voting common stock for a price of $6.00 per share.
Except to the extent set forth herein, no other change in any of the terms,
provisions or conditions of the Financing Agreement is intended or implied. If
the foregoing is in accordance with your understanding of our agreement kindly
so indicate by signing and returning the enclosed copy of this letter.
Very truly yours,
THE CIT GROUP/BUSINESS
CREDIT, INC.
By: Bonnie Schain
Title: Assistant Vice President
Read and Agreed to:
SHARPER IMAGE CORPORATION
By: Craig P. Womack
Title: President
Chief Operating Officer
By: Tracy Y. Wan
Title: Sr. Vice President
Chief Financial Officer
<PAGE>
Exhibit A
CAPEX Term Loan Promissory Note
_________________, 199__
$
FOR VALUE RECEIVED, the undersigned, Sharper Image Corporation, a Delaware
corporation (the "Company"), promises to pay to the order of THE CIT
GROUP/BUSINESS CREDIT, INC. (herein "CITBC") at is office located at 300 South
Grand Avenue, Los Angeles, CA 90071, in lawful money of the United States of
America and in immediately available funds, the principal amount of _______
($_______ ) in thirty-six (36) equal consecutive monthly installments, whereof
the first such installment shall be due and payable on__________________________
____________________, 19___ and subsequent installments shall be due and payable
on the first Business Day of each month thereafter until this Note is paid in
full.
The Company further agrees to pay interest at said office, in like money, on the
unpaid principal amount owing hereunder from time to time from the date hereof
on the date and at the rate specified in Section 7, Paragraph 1(b) of the
Financing Agreement dated September 21, 1994, as amended between the Company and
CITBC (the "Financing Agreement"). Capitalized terms used herein and defined in
the Financing Agreement shall have the same meanings as set forth therein unless
otherwise specifically defined herein.
If any payment on this Note becomes due and payable on a day other than a
Business Day, the maturity thereof shall be extended to the next succeeding
Business Day, and with respect to payments of principal, interest thereon shall
be payable at the then applicable rate during such extension.
This Note is one of the CAPEX Term Loan Promissory Notes referred to in the
Financing Agreement, evidences a CAPEX Term Loan thereunder, and is subject to,
and entitled to, all provisions and benefits thereof and is subject to optional
and mandatory prepayment, in whole or in part, as provided therein.
Upon the occurrence of any one or more of the Events of Default specified in the
Financing Agreement or upon termination of the Financing Agreement, all amounts
then remaining unpaid on this Note may become, or be declared to be, at the sole
election of CITBC, immediately due and payable as provided in the Financing
Agreement.
SHARPER IMAGE CORPORATION
By:
Title:
By:
Title:
EXHIBIT 10.20
THIS WARRANT AND THE SHARES ISSUABLE UPON ITS EXERCISE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE
SECURITIES LAWS OF ANY STATE IN RELIANCE UPON EXEMPTIONS PROVIDED UNDER THE
SECURITIES ACT. ACCORDINGLY, THIS WARRANT MAY NOT BE SOLD, TRANSFERRED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY TO THE
EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED. IN ADDITION, THIS WARRANT MAY NOT
BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED EXCEPT AS PROVIDED HEREIN. THE
SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT ARE SUBJECT TO REPURCHASE BY THE
COMPANY ON THE TERMS AND SUBJECT TO THE CONDITIONS SET FORTH HEREIN.
SHARPER IMAGE CORPORATION
WARRANT TO PURCHASE COMMON STOCK
Dated May 15, 1996
SHARPER IMAGE CORPORATION (the "Company") certifies that, for
valuable consideration, receipt of which is hereby acknowledged, the Holder is
entitled to purchase from the Company a number of shares of the Company's Common
Stock set forth in Section 1(h) hereof (the "Shares") at the purchase price set
forth in Section 1(e) hereof.
This Warrant and the Common Stock issuable upon exercise
hereof are subject to the terms and conditions hereinafter set forth:
1. Definitions. As used in this Warrant, the following
terms shall have the following meanings:
(a) "Common Stock" - Common Stock, par value $.01 per
share, of the Company;
(b) "Company" - Sharper Image Corporation, a Delaware
corporation;
(c) "Effective Date" - May 15, 1996;
(d) "Holder" - The CIT Group/Business Credit, Inc. or
any transferee thereof;
1.
<PAGE>
(e) "Purchase Price" - $6.00 per share, subject to
adjustments pursuant to Section 3 hereof;
(f) "Subscription Form" - the form attached to this
Warrant as Exhibit "A";
(g) "Warrant" - this Warrant and any warrants
delivered in substitution or exchange therefor as
provided herein;
(h) "Shares" - up to 25,000 Shares, subject to
adjustments pursuant to Section 3 hereof; and
(i) "Expiration Date" - five (5) years from the
Effective Date.
2. Exercise.
(a) Time of Exercise. This Warrant may be exercised in
whole but not in part (and not as to a fractional share) at the office of the
Company, at any time, commencing on the Effective Date; provided, however, that
this Warrant shall expire and be null and void if not exercised in the manner
herein provided by 5:00 p.m., Pacific Standard Time, on the Expiration Date.
(b) Manner of Exercise. This Warrant is exercisable at
the Purchase Price, payable in cash or by certified check, payable to the order
of the Company, subject to adjustment as provided in Section 3 hereof. Upon
surrender of this Warrant with the annexed Subscription Form duly executed,
together with payment of the Purchase Price for the Shares purchased (and any
applicable transfer taxes) at the Company's principal executive offices, the
Holder shall be entitled to receive a certificate or certificates for the Shares
so purchased.
(c) Delivery of Stock Certificates. As soon as
practicable, but not exceeding 30 days, after exercise of this Warrant, the
Company, at its expense, shall cause to be issued in the name of the Holder (or
upon payment by the Holder of any applicable transfer taxes, the Holder's
assigns) a certificate or certificates for the number of fully paid and
non-assessable Shares to which the Holder shall be entitled upon such exercise,
together with such other stock or securities or property or combination thereof
to which the Holder shall be entitled upon such exercise, determined in
accordance with Section 3 hereof.
(d) Record Date of Transfer of Shares. Irrespective of
the date of issuance and delivery of certificates for any stock or securities
issuable upon the exercise of this Warrant, each person (including a corporation
or partnership) in whose name any such certificate is to be issued shall for all
purposes be deemed to have become the holder of record of the stock or other
securities represented thereby immediately prior to the close of business on the
date on which (i) a duly executed Subscription Form containing notice of
exercise of this Warrant, (ii) payment of the Purchase Price, and (iii) the
opinion or certificate required by Section 4(a)(ii) of this Warrant is received
by the Company.
2.
<PAGE>
3. Adjustments. Except as otherwise provided in this Section
3, after each adjustment of the Purchase Price pursuant to this Section 3, the
number of shares of Common Stock purchasable upon exercise of this Warrant shall
be the number derived by dividing such adjusted Purchase Price into the Purchase
Price in effect immediately prior to such adjustment. The Purchase Price shall
be subject to adjustment as follows:
(a) In the event, prior to the expiration of this
Warrant by exercise or by its terms, the Company shall issue any shares of its
Common Stock as a share dividend on its outstanding shares of Common Stock or
shall subdivide the number of outstanding shares of Common Stock into a greater
number of shares, then, in either of such events, the Purchase Price per share
of Common Stock purchasable pursuant to this Warrant in effect at the time of
such action shall be decreased proportionately and the number of shares
purchasable pursuant to this Warrant shall be increased proportionately.
Conversely, in the event the Company shall reduce the number of shares of its
outstanding Common Stock by combining such shares into a smaller number of
shares, then, in such event, the Purchase Price per share purchasable pursuant
to this Warrant in effect at the time of such action shall be increased
proportionately and the number of shares of Common Stock at that time
purchasable pursuant to this Warrant shall be decreased proportionately. Any
dividend paid or distributed on the Common Stock in shares of any other class of
capital stock of the Company or securities convertible into shares of Common
Stock shall be treated as a dividend paid in Common Stock to the extent that
shares of Common Stock are issuable on the conversion thereof.
(b) In the event, prior to the expiration of this
Warrant by exercise or by its terms, the Company merges or consolidates with or
into another person or entity in which the Company is not the surviving
corporation or entity or sells all or substantially all of its property, or
dissolves, liquidates or winds up its affairs, prompt, proportionate, equitable,
lawful and adequate provision shall be made as part of the terms of any such
merger, consolidation, sale, dissolution, liquidation or winding up such that
the Holder of this Warrant may thereafter receive, on exercise thereof, in lieu
of each share of Common Stock of the Company which the Holder would have been
entitled to receive, the same kind and amount of any shares, securities, or
assets as may be issuable, distributable or payable on any such merger,
consolidation, sale, dissolution, liquidation or winding up with respect to each
share of Common Stock of the Company; provided, however, that, in the event of
any such merger, consolidation, sale, dissolution, liquidation or winding up,
the right to exercise this Warrant shall terminate on a date fixed by the
Company, such date to be not earlier than 5:00 p.m., Pacific Standard Time, on
the 30th day next succeeding the date on which notice of such termination of the
right to exercise this Warrant has been given by mail to the Holder thereof at
such address as may appear on the books of the Company.
(c) Notwithstanding the provisions of this Section 3,
no adjustment of the Purchase Price shall be made whereby such Purchase Price is
adjusted in an amount less than $.001 or until the aggregate of such adjustments
shall equal or exceed $.001.
(d) In the event, prior to the expiration of this
Warrant by exercise or by its terms, the Company shall determine to take a
record of the Holders of its Common
3.
<PAGE>
Stock for the purpose of determining the shareholders entitled to receive any
share dividend or other right which will cause any change or adjustment in the
number, amount, price or nature of the shares of Common Stock or other
securities or assets deliverable on exercise of this Warrant pursuant to the
foregoing provisions, the Company shall give to the registered Holder of this
Warrant at the address as may appear on the books of the Company at least 15
days' prior written notice to the effect that the Company intends to take such a
record. Such notice shall specify (i) the date as of which such record is to be
taken, (ii) the purpose for which such record is to be taken, (iii) and the
number, amount, price and nature of the Shares or other shares, securities or
assets which will be deliverable on exercise of this Warrant after the action
for which such record will be taken has been completed. Without limiting the
obligation of the Company to provide notice to the registered Holder of this
Warrant of any corporate action hereunder, the failure of the Company to give
notice shall not invalidate such corporate action of the Company.
(e) Before taking any action which would cause an
adjustment reducing the Purchase Price below the then par value of the shares of
Common Stock issuable upon exercise of this Warrant, the Company will take any
corporate action which may, in the opinion of its counsel, be necessary in order
that the Company may validly and legally issue fully paid and nonassessable
shares of such Common Stock at such adjusted Purchase Price.
(f) Upon any adjustment of the Purchase Price required
to be made pursuant to this Section 3, the Company, within 30 days thereafter,
shall cause to be mailed to the registered Holder of this Warrant written notice
of such adjustment setting forth the Purchase Price in effect after such
adjustment and the number of Shares or other shares, securities or property
issuable upon exercise of this Warrant, and setting forth in reasonable detail
the method of calculation and the facts upon which such calculation is based.
4. Restriction on Transfer.
(a) The Holder, by its acceptance hereof, represents,
warrants, covenants and agrees that:
(i) the Holder has knowledge of the business and
affairs of the Company;
(ii) this Warrant and the Shares issuable upon the
exercise of this Warrant are being acquired for investment and not with a view
to the distribution thereof and that, absent an effective registration statement
under the Securities Act of 1933, as amended (the "Securities Act"), covering
the disposition of the Shares issued or issuable upon exercise of this Warrant,
such Shares will not be sold, transferred, assigned, hypothecated or otherwise
disposed of without first providing the Company with an opinion of counsel
(which may be counsel for the Company) or other evidence, reasonably acceptable
to the Company, to the effect that such sale, transfer, assignment,
hypothecation or other disposal will be exempt from the registration and
prospectus delivery requirements
4.
<PAGE>
of the Securities Act and the registration or qualification requirements of any
applicable state or foreign securities laws; and
(iii) the Holder consents to the making of a
notation in the Company's books or giving to any transfer agent of this Warrant
or the Shares an order to implement such restrictions on transferability
described in subparagraph (ii) above.
(b) This Warrant (and any successor or replacement
warrant) shall bear the certificate shown on the front page hereof and the
Shares issuable upon the exercise of this Warrant shall bear the following
legend or a legend of similar import; provided, however, that such legend shall
be removed or not placed upon this Warrant or the certificate or other
instrument representing the Shares, as the case may be, if such legend is no
longer necessary to ensure compliance with the Securities Act:
"THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY
STATE IN RELIANCE UPON THE EXEMPTION UNDER THE SECURITIES ACT AND
EXEMPTIONS FROM REGISTRATION AVAILABLE UNDER THE APPLICABLE SECURITIES
LAWS OF ANY STATE. ACCORDINGLY, SUCH SHARES MAY BE OFFERED AND SOLD
ONLY IF REGISTERED AND QUALIFIED PURSUANT TO RELEVANT PROVISIONS OF
FEDERAL AND STATE SECURITIES LAWS OR IF AN EXEMPTION FROM SUCH
REGISTRATION OR QUALIFICATION IS APPLICABLE."
(c) This Warrant (and any successor or replacement
Warrant) may not be sold, transferred, assigned or hypothecated except to a
wholly owned subsidiary of the Holder or to a parent corporation owning a
majority of the outstanding securities of the Holder or to any successor of the
Holder in connection with a merger, sale or consolidation of the Holder in which
the Holder is not the surviving entity.
5. Payment of Taxes. All Shares issued upon the exercise of
this Warrant shall be validly issued, fully paid and non-assessable and the
Company shall pay all taxes and other governmental charges (other than income
tax) that may be imposed in respect of the issue or delivery thereof. The
Company shall not be required, however, to pay any tax or other charge imposed
in connection with any transfer involved in the issue of any certificate for
Shares in any name other than that of the Holder surrendered in connection with
the purchase of such Shares, and in such case the Company shall not be required
to issue or deliver any stock certificate until such tax or other charge has
been paid or it has been established to the Company's satisfaction that no tax
or other charge is due.
6. Repurchase Right.
(a) Notwithstanding anything herein to the contrary, in
the event the Holder of this Warrant provides notice of the exercise of this
Warrant to the Company with respect to any of the Shares, then, in such event,
the Company shall have the right (the
5.
<PAGE>
"Repurchase Right"), at its election, by delivery to the Holder of this Warrant
of written notice of the exercise of the Repurchase Right within thirty (30)
days following the receipt by the Company of the Repurchase Notice (the
"Repurchase Notice"), to repurchase all (but not less than all) of the Shares
issued or to be issued in connection with the exercise of this Warrant from the
Holder or Holders thereof at a purchase price per share of Shares equal to the
Current Market Price (as defined below) per share of Common Stock (the
"Repurchase Price") determined as of the close of business on the date on which
such Shares are to be repurchased as specified by the Company in the Repurchase
Notice (which date shall be not less than five (5) nor more than ten (10) days
from the date of the Repurchase Notice (the "Repurchase Date"). The Repurchase
Price of the Shares to be repurchased by the Company hereunder shall be payable
by the Company to the holder or holders of such Shares in immediately available
funds on the Repurchase Date specified in the Repurchase Notice.
(b) The "Current Market Price" per share of Common
Stock shall be determined as follows:
(i) if there then exists an active public trading
market for the Company's Common Stock, the Current Market Price shall
be the average of the daily market prices of the Common Stock over a
period of 20 consecutive trading days prior to the day on which Current
Market Price is being determined. The market price for each such
trading day shall be the average of the closing prices on such day of
the Common Stock on all domestic exchanges on which the Common Stock is
then listed, or, if there shall have been no sales on any such exchange
on such day, the average of the highest bid and lowest asked prices on
all such exchanges at the end of the such day, or, if the Common Stock
shall not be so listed, the average of the representative bid and asked
prices at the end of such trading day as reported by NASDAQ.
(ii) if there then does not exist an active public
trading market or the Common Stock shall not be listed on any domestic
exchange or quoted on NASDAQ, the Current Market Price shall be the
Fair Market Value (as defined below) of the Common Stock based upon the
Fair Market Value of 100% of the Company if the Company were sold as a
going concern and without regard to any discount for lack of liquidity
or as to whether the Company is then a public or a private company, or
on the basis that the relevant shares of Common Stock do not constitute
a majority or controlling interest in the Company and assuming the
exercise or conversion of all or warrants, options, convertible
securities or other rights to subscribe for or purchase any shares of
Common Stock or convertible securities, all as determined by an
independent financial expert (the "Expert"), which such Expert shall be
mutually agreed upon by the parties. If the parties are unable to agree
on an Expert, then each party shall nominate a nationally recognized
independent investment firm, which such nominees shall mutually appoint
an Expert in their sole discretion. "Fair Market Value" shall mean the
value obtainable upon a sale in an arm's length transaction to an
unaffiliated third party under usual and normal circumstances, with
neither the buyer nor the seller under any compulsion to
6.
<PAGE>
act, with equity to both. The determination of the Fair Market Value by
the Expert shall be final, binding, and conclusive on the Company and
the Holder of this Warrant. All costs and expenses of the Expert shall
be borne by the Company.
7. Registration Rights.
(a) Right to Join in Registration. If, at any time
prior to two years after the Expiration Date, the Company proposes to file a
Registration Statement under the Securities Act (other than on Form S-4 or Form
S-8, or similar or replacement forms) seeking registration of any securities of
the Company for sale for cash to the public either for its own account or for
the account of any holder of securities of the Company, the Company shall
promptly notify, in writing, the Holder of its intention to file such
Registration Statement and in addition to, and independent of, the rights
afforded by subsection (b), will afford the Holder the opportunity to request
inclusion in such Registration Statement of all of the Shares issuable upon
exercise of this Warrant. If the Holder desires to join in such Registration
Statement, it shall, within twenty (20) days after the receipt of such notice by
the Company, notify the Company, in writing, of the number of Shares it desires
to include in any such Registration Statement. The Company shall cause to be
registered under the Securities Act all of the Shares that the Holder has
requested to be registered except as provided below.
If the Holder requests inclusion of any Shares in such
Registration Statement and if such public offering is to be underwritten, the
Company will request the underwriters of the offering to purchase and sell such
Shares. The right of the Holder to registration pursuant to this subsection
shall be conditioned upon the Holder's participation in such underwriting and
the inclusion of Shares in the underwriting unless otherwise agreed to by the
Company. If the managing underwriter determines that marketing factors require a
limitation or complete exclusion of the number of shares to be underwritten, the
Company shall so advise the Holder and the other persons distributing their
securities through such underwriting, and (i) Common Stock held (or issuable
upon conversion or exercise of securities held) by any person who does not have
contractual rights of registration shall first be excluded; and (ii) if such
exclusion is not sufficient, Common Stock held (or issuable upon exercise of
securities held) by any person other than the Holder and Shares held by the
Holder shall be excluded to the extent required to permit the number of Shares
held by the Holder and shares of Common Stock held by such other persons that
may be included in the registration and underwriting to be allocated among the
Holder and such other persons in proportion, as nearly as practicable, to the
number of Shares held by the Holder and shares of Common Stock held (or issuable
upon conversion or exercise of securities held) by such other persons at the
time of filing the Registration Statement.
(b) Form S-3 Registration. In case the Company shall
receive, at any time prior to two years after the Expiration Date, from the
Holder a written request that the Company effect a registration of Shares on a
Form S-3 Registration Statement and any related qualification or compliance with
respect to all or a part of the Shares, the Company will:
7.
<PAGE>
(i) as soon as practicable, effect such registration
and all such qualifications and compliances as may be so requested and as would
permit or facilitate the sale and distribution of all of such Holder's Shares as
are specified in such request; provided, however, that the Company shall not be
obligated to effect any such registration, qualification or compliance pursuant
to this Section: (i) if Form S-3 is not available for such offering by the
Holder; (ii) if the Company shall furnish to the Holder a certificate signed by
the President of the Company stating that, in the good faith judgment of the
Board of Directors of the Company, it would be detrimental to the Company and
its shareholders for such Form S-3 registration to be effective at such time, in
which event the Company shall have the right to defer the filing of the Form S-3
Registration Statement for a period of not more than 120 days after receipt of
the request of the Holder under this Section; provided, however, that the
Company shall not utilize this right more than once in any twelve month period;
or (iii) if the Company has, within the twelve (12) month period preceding the
date of such request, already effected one registration on a Form S-3
Registration Statement for the Holder pursuant to this Section.
(ii) Subject to the foregoing, the Company shall
file a Form S-3 Registration Statement covering the Shares and other securities
so requested to be registered as soon as practicable after receipt of the
request of the Holder.
(iii) If the Company is unable to effect a
registration pursuant to subsection (i) of this Section 7(b), the Company shall
be obligated, upon 120 days' prior written notice to the Company by the Holder
of this Warrant, to repurchase this Warrant (the "Put Option") at a purchase
price per share of Common Stock issuable upon exercise of the Warrant equal to
the then existing Current Market Price, as determined in accordance with Section
6(b)(i) and (ii) hereof. Notwithstanding the foregoing, the Holder of this
Warrant shall be entitled to a determination of the then existing Current Market
Price (the "Put Option Price") prior to an election to exercise its Put Option;
provided, however, that the Holder shall only be entitled to a determination of
the Put Option Price under this Section 7 once during the Term of this Warrant.
Nothing herein shall obligate the Holder of this Warrant to exercise its Put
Option.
(c) Indemnification. In the event any Shares are
included in a registration statement under this Section:
(i) To the extent permitted by law, the Company will
indemnify and hold harmless the Holder, any underwriter (as defined in the
Securities Act) for the Holder and each person, if any, who controls the Holder
or underwriter within the meaning of the Securities Act or the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), against any losses,
claims, damages, or liabilities (joint or several) to which they may become
subject under the Securities Act or the Exchange Act or other federal or state
law, insofar as such losses, claims, damages, or liabilities (or actions in
respect thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation"): (i) any untrue statement
or alleged untrue statement of a material fact contained in such registration
statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, (ii) the omission
8.
<PAGE>
or alleged omission to state therein a material fact required to be stated
therein, or necessary to make the statements therein not misleading, or (iii)
any violation or alleged violation by the Company of the Securities Act, the
Exchange Act, any state securities law or any rule or regulation promulgated
under the Securities Act or the Exchange Act or any state securities law; and
the Company will pay to the Holder, underwriter or controlling person any legal
or other expenses reasonably incurred by one law firm retained by them (or such
additional law firms retained by the Holder if such Holder reasonably believes
there exists a conflict of interest among them) in connection with investigating
or defending any such loss, claim, damage, liability, or action; provided,
however, that the indemnity agreement contained in this subsection shall not
apply to amounts paid in settlement of any such loss, claim, damage, liability,
or action if such settlement is effected without the consent of the Company
(which consent shall not be unreasonably withheld), nor shall the Company be
liable in any such case for any such loss, claim, damage, liability, or action
to the extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished expressly for
use in connection with such registration by any such Holder, underwriter or
controlling person.
(ii) To the extent permitted by law, the Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Securities Act, any underwriter,
any other investor selling securities in such registration statement and any
controlling person of any such underwriter or other investor, against any
losses, claims, damages, or liabilities (joint or several) to which any of the
foregoing persons may become subject under the Securities Act or the Exchange
Act or other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereto) arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by the Holder expressly for use in connection with such registration;
and the Holder will pay, as incurred, any legal or other expenses reasonably
incurred by any person intended to be indemnified pursuant to this subsection,
in connection with investigating or defending any such loss, claims, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this subsection shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is effected without
the consent of the Holder, which consent shall not be unreasonably withheld;
provided, further, however, that in no event shall any indemnity under this
subsection exceed the net proceeds from the offering received by the Holder.
(iii) Promptly after receipt by an indemnified party
under this Section of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party, provide a written notice of the
commencement thereof to the indemnifying party and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
the defense thereof with counsel mutually satisfactory to the parties; provided,
however, that any indemnified party (together with all other indemnified parties
which may be represented without conflict by one counsel) shall have the right
to
9.
<PAGE>
retain one separate counsel, with the fees and expenses to be paid by the
indemnifying party, if representation of such indemnified party would be
inappropriate due to actual or potential differing interests between such
indemnified party and any other party represented by such counsel in such
proceeding. The failure to deliver written notice to the indemnifying party
within a reasonable time of the commencement of any such action, if prejudicial
to its ability to defend such action, shall relieve such indemnifying party of
any liability to the indemnified party under this Section, but the omission so
to deliver written notice to the indemnifying party will not relieve it of any
liability that it may have to any indemnified party otherwise than under this
Section.
(iv) The obligations of the Company and the Holder
under this Section shall survive the completion of any offering of Shares in a
registration statement under this Section, and otherwise.
(d) Expenses. The Company shall bear all expenses
incurred in connection with all registrations of the Shares effected pursuant to
Section 7(a) hereof and in connection with one registration effected pursuant to
Section 7(b) hereof, in each case excluding any underwriting discounts or
commissions.
8. Reservation of Common Stock. The Company shall at all times
reserve and keep available out of its authorized but unissued shares of Common
Stock, solely for the purpose of issuance upon the exercise of this Warrant,
such number of shares of Common Stock as shall be issuable upon the exercise
hereof. The Company covenants and agrees that, upon exercise of this Warrant and
payment of the Purchase Price thereof pursuant to Section 2(b) hereof, all
Shares of Common Stock issuable upon such exercise shall be duly and validly
issued, fully paid and non-assessable.
9. Rights; Notices. Nothing contained in this Warrant shall be
construed as conferring upon the Holder hereof the right to vote or to consent
or to receive notice as a shareholder in respect of any meetings of shareholders
for the election of directors or any other matter or as having any right
whatsoever as a shareholder of the Company. All notices, requests, consents and
other communications hereunder shall be in writing and shall be deemed to have
been duly made when delivered or mailed by registered or certified mail, postage
prepaid, return receipt requested:
(a) if to the Holder, to the address of such Holder as
shown on the books of the Company; or
(b) if to the Company, to its principal executive
office.
10. Replacement of Warrant. Upon receipt of evidence
reasonably satisfactory to the Company of the ownership of and the loss, theft,
destruction or mutilation of this Warrant and (in case of loss, theft or
destruction) upon delivery of an indemnity agreement in an amount reasonably
satisfactory to the Company, or (in the case of mutilation) upon surrender and
cancellation of the mutilated Warrant, the Company will execute and deliver, in
lieu thereof, a new Warrant of like tenor.
10.
<PAGE>
11. Successors. All the covenants, agreements, representations
and warranties contained in this Warrant shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, executors,
administrators, distributees, successors and assigns.
12. Change; Waiver. Neither this Warrant nor any term hereof
may be changed, waived, discharged or terminated orally but only by an
instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought.
13. Headings. The section headings in this Warrant are
inserted for purposes of convenience only and shall have no substantive effect.
11.
<PAGE>
14. Law Governing. This Warrant shall for all purposes be
construed and enforced in accordance with, and governed by, the internal laws of
the State of California, without giving effect to principles of conflict of
laws.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
signed by its duly authorized officer and this Warrant to be dated as of the
date first above written.
SHARPER IMAGE CORPORATION
By: Craig P. Womack
-----------------------------
Name: Craig P. Womack
Title: President, Chief
Operating Officer
By: Tracy Y. Wan
-----------------------------
Name: Tracy Y. Wan
Title: Sr. Vice President
Chief Financial Officer
ACCEPTED AND AGREED:
CIT GROUP/BUSINESS CREDIT, INC.
Bonnie Schain
- -------------------------------------
Name: Bonnie Schain
Title: Assistant Vice President
12.
<PAGE>
EXHIBIT A
SUBSCRIPTION FORM
(To be Executed by the Registered Holder
if it Desires to Exercise this Warrant)
To Sharper Image Corporation:
The undersigned hereby irrevocably elects to exercise the
right to purchase ___________ of the Shares covered by this Warrant according to
the conditions hereof and herewith makes payment of the Purchase Price in full
in accordance with Section 2(b) of the Warrant.
The undersigned requests that certificates for such Shares be
issued in the name of:
PLEASE INSERT SOCIAL SECURITY
OR TAX IDENTIFICATION NUMBER:
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Dated: Signature:
------------------- -------------------------------------------
NOTICE: The above signature must correspond with the name as written
within the Warrant in every particular, without alteration or
enlargement or any change whatsoever, and if the certificate
representing the Shares is to be registered in a name other
than that in which the Warrant is registered, the signature of
the Holder hereof must be guaranteed.
Signature Guaranteed:
-----------------------------------------------------------
SIGNATURE MUST BE GUARANTEED BY A COMMERCIAL BANK OR MEMBER FIRM OF ONE OF THE
FOLLOWING STOCK EXCHANGES: NEW YORK STOCK EXCHANGE, PACIFIC COAST STOCK
EXCHANGE, AMERICAN STOCK EXCHANGE, OR MIDWEST STOCK EXCHANGE.
EXHIBIT 15
Board of Directors
Sharper Image Corporation
San Francisco, California
We have made a review, in accordance with standards established by the American
Institute of Certified Public Accountants, of the unaudited interim financial
information of Sharper Image Corporation for the periods ended April 30, 1996
and 1995, as indicated in our report dated May 22, 1996; because we did not
perform an audit, we expressed no opinion on that information.
We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-Q for the quarter ended April 30, 1996, is
incorporated by reference in Registration Statement No. 33-12755 and
Registration Statement No. 33-80504 on Forms S-8 of Sharper Image Corporation.
We also are aware that the aforementioned report, pursuant to Rule 436(c) under
the Securities Act of 1933, is not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of that Act.
May 22, 1996
Deloitte & Touche LLP
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<FISCAL-YEAR-END> JAN-31-1997
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0
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<OTHER-SE> 30463
<TOTAL-LIABILITY-AND-EQUITY> 69217
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