SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark One)
[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE
SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [Fee Required]
For the Fiscal Year Ended December 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from ______________ to _______________.
Commission File No. 0-25108
IWI HOLDING LIMITED
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(Exact Name of Registrant as Specified in Its Charter)
British Virgin Islands
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(Jurisdiction of Incorporation or Organization)
P.O. Box 3340, Dawson Building, Road Town, Tortola, British Virgin Islands
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Address of Principal Executive Offices
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
--------------------- ------------------------------------------
None None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, no par value
--------------------------
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act:
None
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(Title of Class)
As of June 15, 1997, the Registrant had outstanding 2,554,700 shares of
Common Stock and 3,644,880 shares of Preferred Stock.
Indicate by check mark 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
twelve (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 ninety (90) days. Yes X No
--- ---
Indicate by check mark which financial statement item the registrant has
elected to follow. Item 17 Item 18 X
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<PAGE>
TABLE OF CONTENTS
Page
PART I ------
ITEM 1. DESCRIPTION OF BUSINESS............................. 3
ITEM 2. DESCRIPTION OF PROPERTY............................. 5
ITEM 3. LEGAL PROCEEDINGS................................... 6
ITEM 4. CONTROL OF REGISTRANT............................... 6
ITEM 5. NATURE OF TRADING MARKET............................ 6
ITEM 6. EXCHANGE CONTROLS AND OTHER
LIMITATIONS AFFECTING SECURITY HOLDERS.............. 7
ITEM 7. TAXATION............................................ 7
ITEM 8. SELECTED CONSOLIDATED FINANCIAL DATA................ 8
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.... 8
ITEM 10. DIRECTORS AND OFFICERS OF REGISTRANT................ 10
ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS.............. 13
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM
REGISTRANT OR SUBSIDIARIES.......................... 14
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN
TRANSACTIONS........................................ 14
PART II
ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED.......... 15
PART III
ITEM 15. DEFAULTS UPON SENIOR SECURITIES..................... 15
ITEM 16. CHANGES IN SECURITIES AND CHANGES IN
SECURITY FOR REGISTERED SECURITIES.................. 15
PART IV
ITEM 17. FINANCIAL STATEMENTS................................ 15
ITEM 18. FINANCIAL STATEMENTS................................ 15
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS................... 15
SIGNATURES.......................................... 17
2
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
This report contains forward looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended and Section 21E of the
Securities Exchange Act of 1934 Actual results could differ materially from
those projected in the forward looking statements as a result of the risks which
the Company cannot foresee. Such risks include, but are not limited to an
economic turndown, changes in government policies, financial difficulty with a
major customer or interruption in supplies..
General
The Company, through its wholly-owned subsidiary, Imperial World, Inc.
("Imperial") is engaged in the design, assembly, merchandising and wholesale
distribution of jewelry. The Company provides a broad range of fashionable
jewelry targeted at consumers who seek fine jewelry at moderate prices. These
customers are likely to purchase jewelry at frequent intervals as fashions and
styles change. The majority of the Company's U.S. sales are made under the trade
name of "World Pacific Jewelry". Customers of the Company are principally large
retail establishments with jewelry departments and mass media marketers. Despite
the downturn in its U.S. sales, the Company believes that as a result of its
cost cutting, it is competitively positioned in the jewelry industry.
In connection with management's plan to increase liquidity, the Company
sold its Canadian subsidiary, DACO Manufacturing Ltd., effective as of August
31, 1998.
Products and Pricing
The Company's principal products are rings, pendants, earrings, bracelets,
necklaces, pins and brooches made of diamonds, other precious or semi-precious
stones, pearls, silver and gold in addition to the more moderately priced gold,
silver and costume jewelry. The Company's products are currently sold in over
7,000 retail outlets. The average wholesale price for the majority of products
is approximately $65 with prices ranging from approximately $20 to $500.
Purchasing
The Company imports the majority of its jewelry from the People' Republic
of China ("PRC"), Hong Kong, India and Thailand. Cultured pearls are imported
from Japan, the PRC and Hong Kong and freshwater pearls are imported from the
PRC. The imported pearls are assembled by the Company into various pearl jewelry
products. The Company purchases jewelry from a number of suppliers based on
quality, pricing and available quantities.
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Although purchases of material are made from a relatively small number of
suppliers, the Company believes there are numerous alternative sources for all
materials, and that the failure of any principal supplier would not have a
material adverse effect on operations or the Company's financial condition. The
Company believes it has good relations with its suppliers, most of whom have
supplied the Company for many years. The Company has not experienced any
difficulty in securing product.
Manufacturing and Assembly
Since The Company imports most of its jewelry in assembled state from
suppliers in the PRC, Hong Kong, India, and Thailand, manufacturing and assembly
operations conducted by the Company are limited to designing jewelry and
assembly of pearl products. Upon completing a design, the Company provides such
design to its suppliers, who purchase the raw materials, such as diamonds, other
precious stones, gold and silver, and manufacture the product or subcontract for
its manufacture. The use of third party manufacturers enables the Company to
shift the risk and capital cost of manufacturing.
The Company maintains a light manufacturing and assembly operation in the
United States for the stringing of pearls. This enables the Company to assemble
pearls specifically to customer order and to provide shipment within two days of
the order date.
Marketing
The primary marketing efforts are product design and customer support
services. The products are sold through both independent sales representatives
on a commission basis and by in house sales personnel. Although independent
representatives may also sell other products, they do not sell products which
compete with those of the Company. The Company supports the independent
representatives with internal account executives who have selling and account
management responsibilities.
Customers
The Company's customers consist of jewelry retail stores, mass
merchandisers, such as Wal-Mart Stores, Inc., department stores, such as J.C.
Penney Company, Inc., catalog showrooms and various specialty marketers
including The Home Shopping Network, Inc. J.C. Penney Company, Inc. accounted
for approximately 33% of net sales in 1998. The Company has no long-term
contracts with any customers, however, each of its large volume purchasers have
been customers for at least five years. The following table sets forth the
approximate percentage of net sales for the major market segments for the
periods indicated.
4
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Year Ended
December 31,
1996 1997 1998
Jewelry retail stores 15.2% 22.6% 17.8 %
Specialty markets 13.6 7.1 4.6
Mass merchandisers 25.7 6.2 21.3
Department stores 35.9 64.6 55.1
Catalog showrooms 9.6 (0.5) 1.2
----- ----- -----
Total 100.0% 100.0% 100.0%
===== ===== =====
Competition
The jewelry industry in the United States is highly fragmented, with little
significant brand name recognition or consumer loyalty. Selection is generally a
function of design appeal, perceived high value and quality in relation to
price.
Jewelry stores alone account for an estimated $21 billion in annual sales
in the United States. Retail jewelry sales have historically increased at a rate
in excess of the inflation rate. This increase is principally attributable to
the growth in the number of dual working households which in turn has increased
the amount of disposable income for women, the largest group of jewelry
purchasers. The rise in number of women in the workforce has increased the
demand for women's business attire, including jewelry.
While many competitors may have a wider selection of products or greater
financial resources, the Company believes its competitive position is enhanced
by its information system, performance and its close relationship with its
customers and vendors. Therefore, although the competition is intense, the
Company believes it is well positioned in the jewelry industry.
Employees
As of June 15, 1999, the Company had 44 employees, including 3 executive
officers, 3 persons in sales and merchandising, 29 persons in operations, and 9
persons in administrative and support functions. None of the employees is
governed by a collective bargaining agreement and the Company considers its
relations with its employees to be satisfactory.
ITEM 2. DESCRIPTION OF PROPERTY
The Company maintains its registered offices in the BVI; The Company leases
approximately 13,000 square feet of space for operations and pearl assembly in
Westmont, Illinois. Under the 10 year lease which commenced in November, 1993,
and modified in November 1998, future minimum annual lease payments with respect
to the Company's Westmont, Illinois facilities range from approximately $122,000
to $133,000. At the expiration of the lease, the Company has the option to renew
for an additional five years.
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ITEM 3. LEGAL PROCEEDINGS
In September 1996, Robert J. Rosan filed a class action lawsuit in the
Supreme Court in the State of New York alleging claims of fraudulent
misrepresentations by IWI Holding Limited and some company's officers,
accountants and lawyers in connection with the Company's initial public offering
on December 16, 1994, and in connection with the dissemination of financial data
thereafter. The Plaintiff claims damages on behalf of the class in excess of
$11,000,000 which allegedly resulted from a decline of the market value of the
Company's common stock after the initial public offering.
The Company has denied all allegations and through counsel is vigorously
defending all claims. A third party action has also been filed against the
underwriter which is pending in this matter. Since this cause of action was
filed, discovery has been conducted by the parties to the suit and the matter is
currently waiting further action the state courts of New York. The Company
believes that it has valid defenses against this claim and that such are without
merit.
ITEM 4. CONTROL OF REGISTRANT
The following table is furnished as of June 15, 1999, to indicate
beneficial ownership of shares of the Company's Common Stock and Preferred Stock
by (1) each shareholder of the Company who is known by the Company to be a
beneficial owner of more than 10% of the Company's Common Stock or Preferred
Stock and (2) all officers and directors of the Company as a group. The
information in the following table was provided by such persons.
<TABLE>
Name and Address Amount and Nature of Title of Percent of Percent of
of Beneficial Owner Beneficial Ownership Class Class Voting Power
- ------------------- ---------------------- ------- ------- -------------
<S> <C> <C> <C> <C>
Bamberg Company Limited 918,750 Common 35.96% 20.99%
Bamberg Company Limited 3,644,880 Preferred 100% 41.64%
Joseph K. Lau 15,000 Common .59% .34%
Richard J. Mick 27,500 Common 1.08% .63%
Norman S.W. Chui 0 - -
Connie S. Yui 0 - -
Joseph A. Benjamin 0 - -
Samuel Lau 0 - -
-------- ------- --------
All Officers and Directors
as a group (2) persons 42,500 Common 1.67% .97%
</TABLE>
ITEM 5. NATURE OF TRADING MARKET
There is no non-U.S. trading market for the Common Stock of the Company.
Within the United States, the Company's Common Stock is traded. The Company's
Common Stock is quoted on the OTCBB under the symbol "JEWLF".
The following table sets forth the high and low bid price per share for the
Company's Common Stock for each quarterly period for the prior two years.
1998 1997
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High Low High Low
------ ----- ------ -----
First Quarter $.2500 $ .0625 $1.046 $.812
Second Quarter .3125 .1094 .781 .437
Third Quarter .1250 .1250 .500 .250
Fourth Quarter .1250 .0100 .437 .094
The quotations reflect inter-dealer prices without mark-up, mark-down or
commission and may not represent actual transactions.
At June 29, 1999, the bid price of the Common Stock was $0.5.
As of June 15, 1999, there were approximately 1,456 beneficial holders of
the Common Stock of the Company, nearly all of which are believed to be in the
United States.
ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY-HOLDERS
The Company is not subject to any governmental laws, decrees or regulations
in the BVI which restrict the export or import of capital, including any foreign
exchange controls, or which affect the remittance of dividends, interest or
other payments to non-resident holders of the Company's Common Stock.
Additionally, neither the laws of the BVI nor the Company's Charter impose
any limitations on the right of non-resident foreign owners to hold or vote the
Common Stock of the Company.
ITEM 7. TAXATION
The BVI imposes no withholding taxes and holders of Common Stock who are
not resident in the BVI will not be subject to BVI tax on any dividends received
from the Company or on gains realized from a sale or other disposition of the
Common Stock. The United States does not have a tax treaty with the BVI.
On September 5, 1997, the Commissioner of Internal Revenue issued a
deficiency notice for calendar year 1993 against the Company for $9,659,799 plus
interest and penalties. On December 10, 1997, the Company filed a petition with
the United States Tax Court challenging this assessment. On March 12, 1999, the
United States Tax Court entered its decision that there were no additional
income taxes due, nor were any interest or penalty payable. Accordingly, all of
the issues relative to 1993 have now been resolved.
6
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ITEM. 8 SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands, except share data)
<TABLE>
Year Ended December 31,
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1994 1995 1996 1997 1998
------ ----- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Net Sales $41,902 $41,710 $30,840 $25,523 $16,337
Cost of sales 37,725 34,024 25,809 24,018 12,650
Gross profit 9,177 7,686 5,031 1,505 3,687
Operating expenses 5,831 8,798 10,221 10,821 6,033
Income (loss) from operations 3,346 (1,112) (5,190) (9,316) (2,346)
Other income (expense) - net (267) (901) (1,053) (832) (430)
Income (loss) before income taxes 3,079 (2,013) (6,243) (10,148) (2,776)
Income taxes (benefit) 788 (629) (307) ( 14) ( 67)
Net income (loss) $ 2,291 $(1,384) $ (5,936) $(10,134) $(2,709)
Net income (loss) per common share (1) $ 2.34 $ (.53) $ (2.25) $ (3.96) $ (1.06)
Cash distributions per common share (1) $ - $ - $ - $ - $ -
Weighted average number of common
shares outstanding (1) 980,394 2,625,873 2,625,873 2,558,217 2,554,700
Year Ended December 31,
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1994 1995 1996 1997 1998
----- ------ ------ ------ ------
Balance Sheet Data:
Working capital $16,064 $ 16,682 $ 12,038 $ 2,926 $ 470
Total assets 31,695 44,137 29,768 11,155 6,569
Long-term debt 0 556 204 0 0
Shareholders' equity 20,035 20,288 14,287 4,124 1,415
</TABLE>
(1) Per share amounts reflect retroactively for the periods indicated, the
March 21, 1994 reorganization involving an exchange of 1,225,000 newly
issued Common Shares for the previously issued share of $1U.S. Common and
the return and retirement of 306,250 of such shares on October 27, 1994.
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
The following table sets forth, for the periods indicated, certain
information derived from the Consolidated Statements of Income of the Company.
All dollar and share amounts are set forth in thousands, except per share data.
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<TABLE>
1996 1997 1998
----------------------- ---------------------- ---------------------
Amount% Sales% Change Amount% Sales% Change Amount% Sales% Change
------- ------ ------ ------- ------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $30,840 100.0 -26.1 $25,523 100.0 -17.2 $16,337 100.0 -36.0
Gross Profit 5,031 16.3 -34.2 1,505 5.9 -70.1 3,687 22.6 144.0
Operating
expenses 10,221 33.1 +16.2 10,821 42.4 5.9 6,033 37.0 -44.2
Income (loss) from
operations (5,190) (16.8) -366.7 (9,316) (36.5) -79.5 (2,346) (31.1) 74.8
Income (loss) before
income taxes (6,243) (20.2) -10.1 (10,148) (39.8) -62.6 (2,776) (34.3) 72.6
Income taxes
(benefit) (307) (1.0) -51.2 (14) - -95.4 (67) 0.3 378.6
Net income (loss) (5,936) (19.2) -328.9 (10,134) (39.7) -70.7 (2,709) (34.6) 73.3
Net income (loss)
per common
share $(2.25) $(3.96) $(1.06)
====== ====== ======
Weighted
average number
of shares
outstanding 2,626 2,558 2,555
===== ===== =====
</TABLE>
The Company's sales are generated through the wholesaling of jewelry
products to the following distinct groups:
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
Jewelry retail stores 17.5% 16.1% 15.2% 22.6% 17.8%
Specialty markets 13.0 10.0 13.6 7.1 4.6
Mass merchandisers 37.9 36.4 25.7 6.2 21.3
Department stores 25.5 28.1 35.9 64.6 55.1
Catalog showrooms 6.1 9.4 9.6 (0.5) 1.2
------ ------ ------ ------ ------
Total 100.0% 100.0% 100.0% 100.0% 100.0%
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Net Sales. Net sales decreased by $9.2 million, or 36% to $16.3 million in
1998, this decrease was caused by lower sales in the domestic market ($3.6
million) and the Company's sale of the Company's Canadian subsidiary, DACO
Manufacturing Ltd., ($5.6 million). The sale this subsidiary was completed on
August 31, 1998. The domestic sales decline of $3.6 million was primarily
attributable to lower sales to the retail jewelry stores and department stores
target market.
Gross Profit. Gross profit increased by $2.2 million to $3.7 million in
1998. The domestic or ongoing operations gross profit increased by $3.5 million
which was partially offset by the decreased gross profit level from the Canadian
Subsidiary of $1.3 million, primarily resulting from its divestiture.
Loss from Operations. The loss from operations decreased by $7.0 million to
a loss of $2.7 million in 1998. This reduction in operating loss was reflected
both domestically and in the Canadian operation, $5.2 million and $1.8 million
respectively. The domestic operating loss included a gain on the sale of DACO
Manufacturing LTD of $110,000. Total operating costs decreased $2.4 million of
which $1.6 million was from ongoing or domestic operations, reflecting
additional efficiencies and cost reductions implemented in 1998, and $.8 million
from Canadian operations.
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Net Loss. The net loss for 1998 of $2.7 million compared to $10.1 million
in 1997 reflects an improvement of $7.4 million. This decrease in the 1998 net
loss was primarily attributable to the increase in gross profit levels and
decrease in operating costs as described above. In addition, interest expense
decreased $.4 million, of which $.3 million is from ongoing operations
reflecting reduced financing requirements.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Net Sales. Net sales decreased by $5.3 million, or 17.2% to $25.5 million
in 1997. Of this decrease, all but $.1 million represents lower sales levels in
the domestic market. This decrease of $5.2 million relates to a general decrease
in sales at all targeted markets with the exception of jewelry retail stores
which increased slightly during 1997.
Gross Profit. Gross profit decreased by $3.5 million to $1.5 million in
1997. The 1997 level reflects a combination of lower sales volume and
approximately $3.6 million in losses from the inventory reduction plan. Gross
profit attributable to DACO increased in 1997 $.3 million.
Loss from Operations. The loss from operations increased by $2.8 million to
a loss of $9.3 million in 1997. This amount includes $0.9 million from the
provision for bad debts (principally Montgomery Ward and Company) and the
recording of a loss on assets held for disposal of $2.3 million against the
assets of it's Canadian operations. (See Note 4 of the Consolidated Financial
Statements) Total operating costs, excluding the loss of assets held for
disposal, decreased $1.7 million as management implemented cuts to more closely
match the Company's current operating level.
Net Loss. The net loss for 1997 was $10.1 million compared to $5.9 million
in 1996. The increase in the 1997 net loss was primarily attributable to the
decrease in gross profit levels and increased loss from operations as described
above. The interest expense for 1997 decreased $.4 million to $.8 million
reflecting reduced financing requirements. This however, was offset by a
reduction in tax benefit from $.3 million in 1996 to $14 Thousand in 1997.
Analysis of Financial Position, Liquidity and Capital Resources
The Company's primary liquidity needs are to fund accounts receivable and
inventories. The Company has historically financed its working capital
requirements through a combination of internally generated cash, short-term
borrowings under bank lines of credit, loans from affiliates and in 1994 and
1995, the proceeds from an IPO. The Company's working capital at December 31,
1998 was $.5 million as compared to $2.9 million at December 31, 1997.
On May 19, 1999, the Company executed a financing agreement effective as of
May 24, 1999, with Business Alliance Capital Corp., an asset based lender. Under
the terms of this agreement, the Company is authorized to borrow a maximum of
$2,500,000 against certain assets, including eligible inventory and receivables.
The Company used certain of these loan proceeds to pay off the bank so that
Business Alliance Capital Corp. is now the Company's sole lender. The Company
believes that this line of credit will be sufficient for at least the next
twelve months.
9
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The following table summarizes cash provided by (used in) the Company's
business activities for the past three years:
1996 1997 1998
----------- ------------ ------------
(Dollars in thousands)
Operating activities $6,773 $4,137 $ 928
Investing activities - (605) 494
Financing activities (6,763) (3,700) (1,378)
Increase (decrease) in cash 10 (168) 48
Operating Activities. The net cash generated in 1998 was principally due to
the decrease in accounts receivable of $1.4 million and inventories of $2.3
million, of which approximately $2.1 million funded the net loss for the year.
Investing Activities. Cash generated in 1998 primarily reflects primarily
the cash proceeds from the sale of DACO Manufacturing Limited of $610,000..
Financing Activities. During 1998, the Company reduced amounts outstanding
under its lines of credit by $1.5 million to $1.2 million at December 31, 1998.
Notes payable to employees increased $125,000.
Seasonality
The jewelry business is highly seasonal, with the fourth calendar quarter,
which includes the Christmas shopping season, historically contributing the
highest sales of any quarter during the year. Net sales in the third quarter of
1998 include the results from DACO through August 31, 1998. The fourth quarter
1998 does not reflect any results from DACO. Seasonality cannot be predicted or
counted upon, and the results of any interim period are not necessarily
indicative of the results that might be expected during a full fiscal year.
The following table sets forth the Company's unaudited net sales for the
periods indicated (dollar amounts are in thousands):
Year Ended December 31,
------------------------------------------------------------
1996 1997 1998
------- -------- ---------
Amount % Amount % Amount %
------ ----- ------ ----- ------ -----
First Quarter $ 8,415 27.3 $ 6,051 23.7 $ 4,687 28.7
Second Quarter 7,286 23.6 5,329 20.9 5,242 32.1
Third Quarter 4,085 13.3 5,955 23.3 3,234 19.8
Fourth Quarter 11,054 35.8 8,188 32.1 3,174 19.4
------ ----- ------ ----- ------ -----
Total $30,840 100.0 $25,523 100.0 $16,337 100.0
====== ===== ====== ===== ====== =====
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Inflation
Inflation has historically not had a material effect on the Company's
operations. When the price of gold or precious stones has increased, these costs
historically have been passed on to the customer. Furthermore, because the
Company does not have either long-term supply contracts or long-term contracts
with customers, prices are quoted based on the prevailing prices for
semi-precious gemstones or metals. Accordingly, the Company does not believe
inflation will have a material effect on its future operations.
ITEM 10. DIRECTORS AND OFFICERS OF REGISTRANT
Directors and Executive Officers
The following table sets forth certain information as of the date hereof
with respect to the directors and executive officers of the Company.
Name Age Position
Joseph K. Lau 51 Chairman of the Board of Directors; President of
IWI Holding Limited, Principal Financial Officer
Richard J. Mick 57 Vice President - Sales and Director
Norman S.W. Chui 27 Senior Manager/Secretary and Director
Connie S. Yui 48 Inventory Manager and Director
Joseph A. Benjamin 56 Director
Samuel Lou 45 Director
Each director is serving a one-year term that expires after the next annual
meeting of the Company's shareholders, or until their successors are elected and
qualified. Executive officers of the Company are elected by, and serve at the
discretion of the Board of Directors.
Joseph K. Lau and Connie Yui are brother and sister. Norman S. W. Chui is
the nephew of Joseph K. Lau.
Joseph K. Lau joined the Company in November, 1982 and was elected Senior
Vice President, Chief Operating Officer, Secretary and Director in February,
1986 and Chairman of the Board, President and Chief Executive Officer in August,
1998. For the 11 years prior to joining the Company, he held a management
position in the restaurant industry and owned a trading company in Hong Kong.
Richard J. Mick joined the Company in February, 1996 as Vice President -
Sales and Director. For 6 years prior to joining the Company he was President of
a sales and marketing firm selling jewelry and related products. Prior thereto,
Mr. Mick was employed by J.C. Penney Company, Inc. for 26 years.
Norman S.W. Chui joined the Company in December 1997 as Senior
Manager/Secretary and Director. Prior to joining the Company, Mr. Chui was a
consultant with Eclipse Information Systems of Darien, IL and prior thereto was
a consultant for Arthur Andersen & Co. which he joined following graduation from
the University of Illinois in 1994.
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<PAGE>
Connie S. Yui joined the Company in March 1985 and has served as the
Product Development Manager and is responsible for inventory control and pearl
assembly.
Joseph A. Benjamin has served as a Director of the Company since December,
1997. Mr. Benjamin is a CPA with his own accounting firm in Chicago, Illinois.
Samuel Lou was elected to the Board of Directors in December 1997. Mr. Lou
is a business consultant with his own firm in Chicago, Illinois.
Employment Contracts
Joseph K. Lau is employed by The Company pursuant to a contract expiring
July 31, 2001. The contract provides for a base salary of $200,000 per year, and
bonuses as determined by the Compensation Committee of the Board of Directors.
ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS
The aggregate cash compensation paid by the Company to all directors and
officers as a group during 1998 was approximately $615,000.
Certain officers of the Company will be entitled to bonuses from the
Company based on performance criteria to be established by the Compensation
Committee of the Board of Directors of the Company.
In December, 1993, the Company adopted a Stock Option Plan (the "Option
Plan") to assist the Company and its subsidiaries in retaining the service of
current employees, motivating selected key management personnel, and attracting
new management by providing the opportunity for such personnel to acquire a
proprietary interest in the Company and thereby share in its growth and success.
Participation in the Option Plan and the granting of options under the Option
Plan are made by the Compensation Committee of the Board of Directors, subject
to ratification by the Board. Pursuant to the Option Plan, a total of 150,000
shares of Common Stock are reserved for issuance. The Option Plan requires that
the exercise price of the option be the fair market value of the Company's stock
on the date of the grant of the option but not less than $8.50 per share. The
fair market value for purposes of the Option Plan is for so long as Common Stock
is quoted on the NASDAQ Stock Exchange, the final closing sales price per share
on the date of the grant. The exercise price with respect to any option must be
paid in cash. As of the date hereof, options to purchase 20,000 shares of Common
Stock had been granted under the Option Plan.
During 1995, the Company adopted a Non-Qualified Stock Option Plan (the
"Non-Qualified Plan"). A total of 600,000 shares are reserved for issuance under
the Non-Qualified Plan. The Non-Qualified Stock Option Plan provides for the
granting of options and stock appreciation rights to non-employee directors, key
management employees and consultants and is administered by the Compensation
Committee. The terms of any options and/or stock appreciation rights granted
under the Non-Qualified Plan shall be determined by the Compensation Committee
provided that options may not be exercisable for a term longer than ten years
and may not be exercisable at a price less than the stated value of the Common
Stock. No options or stock appreciation rights had been granted under the
Non-Qualified Stock Option Plan as of December 31, 1998.
12
<PAGE>
In addition, the Company maintains a defined contribution plan which has
both a profit sharing feature and a 401(k) savings feature (the "Plan"). Under
the profit sharing portion of the Plan, contributions are an amount determined
by the Company's Board of Directors. Subject to certain limitations required by
law, the Company's contribution is allocated to each participant who is employed
by the Company at the end of the Plan year in the proportion that the total
compensation paid by the Company to each participant bears to the aggregate
compensation paid by the Company to all participants during such Plan year.
Under the 401(k) savings feature, eligible employees may elect, subject to
certain limitations required by law, to defer payment of up to 15% of their
compensation. The Plan provides that if an employee defers payment, the Company
will contribute 50% of the first 2% of compensation deferred, by making a cash
payment to the Plan on behalf of such participant. As of July 1, 1998, the
matching portion was increased to 50% of the first 6% of compensation that a
particpant contributes. The matching is discretionary, and is decided annually
by the Board of Directors. Contributions by the Company to the profit sharing
feature of the plan, and earnings thereon, vest based on the participant's years
of service with the Company, vesting 20% per year after one year of service and
being fully vested after six years of service. Employee contributions are always
100% vested. Contributions by the Company to the 401(k) savings feature vest on
the employees first day of employment. All contributions vest, regardless of
years of service, upon termination of employment by reason of death of
disability, attainment of age 62 or the termination of the Plan. After
termination of employment, an employee is entitled to receive the distribution
of his or her entire vested interest in the Plan in a lump sum, in installments
for a specific period of time, or an annuity for life. The amounts held under
the Plan are invested according to the instructions of the participant in
investment funds designated by the plan administrator. The Company made
contributions to the Plan during 1998 and 1997 of $31,000 and $15,000,
respectively.
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES
The Company presently has outstanding incentive stock options to purchase
20,000 shares of the Company's Common Stock, at $8.50 per share. Theses options
expire in January of 2000. No options are held by any officers or directors of
the Company.
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
All transactions between the Company, its officers, directors, principal
shareholder or affiliates, whether presently existing are, or in the future will
be, in the belief of management, on terms no less favorable to the Company than
may be obtained from unaffiliated third parties.
Rhine Jewellery Limited (Rhine), located in Hong Kong and the Company's
principal supplier for 1997 and 1996, is a subsidiary of Rhine Holding Limited,
a former major stockholder of the company. For the years ended December 31,
1998, 1997 and 1996, the Company's purchases from Rhine were approximately
$900,000, $4,200,000 and $4,600,000, respectively. During 1998, Rhine Holdings
Limited filed for bankruptcy in Hong Kong and purchases from Rhine ceased.
13
<PAGE>
During 1998, some of the Company's products were purchased from a
manufacturer in Hong Kong, which is managed by a relative of an officer of the
Company. For the year ended December 31, 1998, the Company's purchases from this
manufacturer were approxiately $700,000.
PART II
ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED
Not applicable.
PART III
ITEM 15. DEFAULTS UPON SENIOR SECURITIES
None reportable.
ITEM 16. CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED SECURITIES
None reportable.
PART IV
ITEM 17. FINANCIAL STATEMENTS
Not applicable.
ITEM 18. FINANCIAL STATEMENTS
Reference is made to the index to Consolidated Financial Statements of the
Company, and notes thereto, appearing under Item 19 below, together with the
report of Blackman Kallick Bartelstein, LLP thereon.
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements Page
-------------------- ----
Report of Independent Auditors.................................. F-1
Consolidated Balance Sheets as of December 31, 1998 and 1997... F-2
Consolidated Statements of Operations For Each of the Years
in the Three-Year Period Ended December 31, 1998............ F-3
Consolidated Statements of Shareholders' Equity for Each of the
Years in the Three-Year Period Ended December 31, 1998...... F-4
Consolidated Statements of Cash Flows for Each of the Years in
the Three-Year Period Ended December 31, 1998............... F-5
14
<PAGE>
Notes to Consolidated Financial Statements...................... F-7
Financial Statement Schedules (1)..................
I - Condensed Financial Information of Registrant........... F-25
II - Valuation and Qualifying Accounts...................... F-28
(1) All other schedules are omitted since the required information is not
present or is not present in amounts sufficient to require submission of
the schedule.
(b) Exhibits
Exhibit
Number Description
- ------- -------------
2.1 * Bill of Sale dated February 4, 1995 re: acquisition of assets of
Ullenberg Corporation (1)
2.2 * Stock Purchase Agreement relating to DACO Manufacturing Ltd. (3)
3.1 * Amended and Restated Memorandum of Association and Articles of
Association of IWI Holding
Limited (2)
4.1 * Specimen Form of Common Stock certificate (2)
10.1 * Lease Agreement between Imperial World, Inc. and American National Bank
and Trust Company of Chicago dated October 15, 1993 for the site in
Westmont, Illinois (2)
10.2 * Stock Option Plan (2)
10.3 * Amended and Restated Credit Agreement dated June, 1996 between Rhode
Island Hospital Trust National Bank and Imperial World, Inc. (2)
10.4 * Indemnity Agreement (2)
10.5 * Profit Sharing Plan (2)
10.6 * Territorial Agreement (2)
10.8 * IWI Holding Limited 1995 Non-Qualified Stock Option Plan (4)
10.9 * Lease Agreement relating to facilities of DACO Manufacturing (4)
10.10 Employment Contract with Joseph K. Lau
10.11 Financing Agreement with Business Alliance Capital Corp.
10.12 Settlement Agreement with Richard W. Sigman
10.13 Settlement Agreement with Bruce W. Anderson
10.14 Amended Lease Agreement
10.15 DACO Sales Agreement
27.1 Financial Data Schedule
* Previously filed
(1) Incorporated by reference to the Company's Report on Form 6-K for the month
of February, 1995.
(2) Incorporated by reference to the Company's Registration Statement on Form
F-1 (File No. 33-78904) declared effective December 13, 1994).
(3) Incorporated by reference to the Company's Report on Form 6-K for the month
of August, 1995.
(4) Incorporated by reference to the Company's Form 20-F for the year-ended
December 31, 1995.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused this annual report to be signed on its
behalf by the undersigned, thereunto duly authorized.
IWI HOLDING LIMITED
By: /s/ Joseph K. Lau
-----------------------------
Joseph K. Lau
Chairman, Chief Executive Officer
and Principal Accounting Officer
Dated: July 1, 1999
16
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
IWI Holding Limited
Westmont, Illinois
We have audited the accompanying consolidated balance sheet of IWI HOLDING
LIMITED as of December 31, 1998, and the related consolidated statements of
operations, stockholders' equity and cash flows for the year then ended. Our
audit also included the financial statement schedules listed in the index at
item 19(a). These financial statements and schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit. The financial statements of the Company
for the years ended December 31, 1997 and 1996, were audited by other auditors
whose report, dated February 20, 1998, except for Note 4 and paragraph 1 of Note
6 as to which the date was June 26, 1998, expressed an unqualified opinion,
assuming the Company continued as a going concern.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of IWI HOLDING
LIMITED as of December 31, 1998, and the consolidated results of its operations
and its cash flows for the year then ended, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming IWI HOLDING
LIMITED will continue as a going concern. As more fully described in Note 2, the
Company has incurred operating losses in 1998, 1997 and 1996. These losses raise
substantial doubt about the Company's ability to continue as a going concern.
The financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets and the
amounts and classification of liabilities that may result from the outcome of
this uncertainty.
/s/Blackman Kallick Bartelstein, LLP
Chicago, Illinois
February 12, 1999
Except for the first and third paragraphs of Note 5, as to which the date is May
24, 1999
F-1
<PAGE>
IWI HOLDING LIMITED
Consolidated Balance Sheets
(In Thousands, Except Share Data)
December 31, 1998 and 1997
ASSETS
1998 1997
Current Assets
Cash $ 82 $ 38
Accounts receivable, less allowance for doubtful
accounts of $280 in 1998 and $642 in 1997 1,749 3,358
Inventories 3,686 6,053
Prepaid expenses 107 145
Assets held for disposal - 363
------ ------
Total Current Assets 5,624 9,957
------ ------
Property and Equipment 2,623 2,637
Less accumulated depreciation (1,678) (1,439)
------ ------
Property and Equipment, Net 945 1,198
------ ------
$ 6,569 $ 11,155
====== ======
The accompanying notes are an integral part of the consolidated
financial statements.
F-2
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
1998 1997
Current Liabilities
Lines of credit $ 1,217 $ 2,720
Notes payable 125 -
Accounts payable - Trade 1,655 2,167
Accounts payable to affiliated companies 1,423 1,236
Accrued liabilities 734 908
------ ------
Total Current Liabilities 5,154 7,031
------ ------
Stockholders' Equity (Deficit)
Preferred stock - $1 par value; authorized - 5,000,000
shares; issued and outstanding - 3,644,880 shares 3,645 3,645
Common stock - No par value; authorized - 10,000,000
shares; issued and outstanding - 2,554,700 shares - -
Additional paid-in capital 12,446 12,446
Accumulated deficit (14,676) (11,967)
------ ------
Total Stockholders' Equity 1,415 4,124
------ ------
$ 6,569 $ 11,155
====== =====
F-3
<PAGE>
EXHIBIT B
IWI HOLDING LIMITED
Consolidated Statements of Operations
(In Thousands, Except Share Data)
Years Ended December 31, 1998, 1997 and 1996
1998 1997 1996
------ ------ ------
Net Sales $ 16,337 $ 25,523 $ 30,840
Cost of Sales 12,650 24,018 25,809
------- ------- -------
Gross Profit 3,687 1,505 5,031
Selling, General and Administrative Expenses 6,143 8,521 10,221
(Gain) Loss on Assets Held for Disposal (110) 2,300 -
------- ------- -------
Loss from Operations (2,346) (9,316) (5,190)
------- ------- -------
Other (Expense) Income
Interest expense (430) (832) (1,225)
Equity in joint venture - - 172
------- ------- -------
Total Other Expense, Net (430) (832) (1,053)
------- ------- -------
Loss Before Income Taxes (2,776) (10,148) (6,243)
Income Tax Benefit (67) (14) (307)
------- ------- -------
Net Loss $ (2,709) $ (10,134) $(5,936)
======= ======= =======
Net Loss Per Common Share $ (1.06) $ (3.96) $ (2.25)
======= ======= =======
Weighted-Average Number of Common
Shares Outstanding $ 2,554,700 $2,558,217 $2,635,830
========= ========= =========
The accompanying notes are an integral part of the consolidated
financial statements.
F-4
<PAGE>
IWI HOLDING LIMITED
Consolidated Statements of Stockholders' Equity
(In Thousands, Except Share Data)
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
Preferred Stock Common Stock
------------------------ ------------------------
Number of Number of
Shares Amount Shares Amount
---------- -------- ----------- --------
<S> <C> <C> <C> <C>
Balance, January 1, 1996 3,644,880 $ 3,645 2,643,750 $ -
Repurchase of Common Stock - - (60,850) -
Net Loss - - - -
--------- -------- ---------- ------
Balance, December 31, 1996 3,644,880 3,645 2,582,900 -
Repurchase of Common Stock - - (28,200) -
Net Loss - - - -
--------- -------- ---------- ------
Balance, December 31, 1997 3,644,880 3,645 2,554,700 -
Net Loss - - - -
--------- -------- ---------- ------
Balance, December 31, 1998 3,644,880 $ 3,645 2,554,700 $ -
========= ======== ========== ======
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-5
<PAGE>
EXHIBIT C
Additional
Paid-in Accumulated
Capital Deficit Total
$ 12,540 $ 4,103 $ 20,288
(65) - (65)
- (5,936) (5,936)
-------- -------- --------
12,475 (1,833) 14,287
(29) - (29)
- (10,134) (10,134)
-------- -------- --------
12,446 (11,967) 4,124
- (2,709) (2,709)
-------- -------- --------
$ 12,446 $ (14,676) $ 1,415
======== ======== ========
F-6
<PAGE>
EXHIBIT D
(Page 1)
IWI HOLDING LIMITED
Consolidated Statements of Cash Flows
(In Thousands)
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net loss $ (2,709) $ (10,134) $ (5,936)
Adjustments to reconcile net loss to
net cash provided by operating activities
Depreciation and amortization 252 955 479
Loss on sale of assets 7 - -
Equity in joint venture - - (172)
Provision for doubtful accounts 177 865 736
Deferred income taxes - 46 404
(Gain) loss on assets held for disposal (110) 2,300 -
(Increase) decrease in
Accounts receivable 1,432 3,335 8,071
Accounts receivable from affiliated company - - 899
Inventories 2,340 4,837 3,938
Refundable income taxes - 432 41
Prepaid expenses 38 (58) (17)
Increase (decrease) in
Straight acceptances payable - - (216)
Accounts payable - Trade (512) (100) (580)
Accounts payable to affiliated company 187 760 (408)
Accrued liabilities (174) (101) (243)
Income taxes payable - - (223)
-------- ------- --------
Net Cash Provided by
Operating Activities 928 4,137 6,773
-------- ------- --------
Cash Flows from Investing Activities
Purchases of property and equipment (11) (605) (212)
Proceeds from sale of equipment 5 - 212
Proceeds from sale of assets held for disposal 500 - -
-------- -------- --------
Net Cash Provided by (Used in)
Investing Activities 494 (605) -
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-7
<PAGE>
EXHIBIT D
(Page 2)
IWI HOLDING LIMITED
Consolidated Statements of Cash Flows
(In Thousands)
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Cash Flows from Financing Activities
Borrowings from notes payable to employees $ 125 $ - $ -
Payments on lines of credit, net (1,503) (2,964) (6,156)
Payments on notes payable to stockholders and
payable to affiliate - (707) (542)
Repurchase of common stock - (29) (65)
------- ------- -------
Net Cash Used in Financing Activities (1,378) (3,700) (6,763)
Net Increase (Decrease) in Cash 44 (168) 10
Cash, Beginning of Year 38 206 196
------- ------- -------
Cash, End of Year $ 82 $ 38 $ 206
======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-8
<PAGE>
IWI HOLDING LIMITED
Notes to Consolidated Financial Statements
Years Ended December 31, 1998, 1997 and 1996
NOTE 1 - DESCRIPTION OF BUSINESS AND ACQUISITIONS
IWI Holding Limited (Holding) was incorporated in the British Virgin Islands on
February 22, 1993. Holding and its wholly owned subsidiaries (together, the
Company) import, manufacture, and wholesale fine jewelry. The Company also
imports pearls for assembly and resale through its wholly owned subsidiary,
Imperial World, Inc. (Imperial). Substantially all of the Company's sales are
made in the United States.
NOTE 2 - GOING CONCERN
The accompanying consolidated financial statements are prepared in accordance
with generally accepted accounting principles on a going-concern basis which
contemplates that the Company will be able to realize its assets and discharge
its liabilities in the normal course of business for the foreseeable future.
The Company has incurred significant operating losses since 1995 and, in the
opinion of management, has inventory in excess of desired levels as of December
31, 1998.
The Company has reduced monthly operating expenses and continues an aggressive
inventory reduction plan to maintain liquidity and reduce inventory to desired
levels (Note 3). Management expects that these efforts will result in
maintaining the liquidity necessary for the foreseeable future. However, no
assurances can be given that the Company will be successful in accomplishing
these objectives. Further, there can be no assurance that the Company will
achieve profitability. The Company's continuation as a going concern is
dependent upon attaining future profitable operations and upon its ability to
maintain adequate financing or capital. The financial statements do not include
any adjustments to reflect the possible future effects on the recoverability and
classification of assets and the amounts and classifications of liabilities that
may result from the outcome of this uncertainty.
F-9
<PAGE>
IWI HOLDING LIMITED
Notes to Consolidated Financial Statements
Years Ended December 31, 1998, 1997 and 1996
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
All significant intercompany transactions have been eliminated.
Inventories
Inventories, primarily consisting of finished goods, are stated at the lower of
first-in, first-out (FIFO) cost or market.
As of December 31, 1997, management determined that the Company's inventory was
in excess of its requirements measured by its existing and anticipated level of
sales. Accordingly, based on the existing market conditions, inventory valuation
reserves of $1,800,000, were recorded as of December 31, 1997, for the
anticipated losses from the completion of the plans initiated to maintain
liquidity and reduce inventory to desired levels. These inventory reduction
plans were substantially completed as anticipated.
Net sales during 1998 continued at a level much lower than anticipated, and
management initiated another inventory reduction plan. An inventory valuation
reserve of $1,778,000 was recorded as of December 31, 1998, for the anticipated
losses from the completion of the plan during 1999, which management believes
will be sufficient to provide for such losses. However, it is possible that the
inventory reduction plan will not be successful or that losses in excess of
those recorded in the financial statements will be incurred. Approximately
$673,000 of losses were recorded during 1998 for the future reduction of
inventory under these plans.
Depreciation
Property and equipment are stated at historical cost and depreciated primarily
on a straight-line basis over their estimated useful lives. Useful lives range
from five to ten years for machinery and equipment and ten years for leasehold
improvements.
Income Taxes
Deferred tax assets and liabilities are determined based on the difference
between the financial reporting and tax bases of assets and liabilities using
the enacted tax rates in effect for the year in which the differences are
expected to reverse.
F-10
<PAGE>
IWI HOLDING LIMITED
Notes to Consolidated Financial Statements
Years Ended December 31, 1998, 1997 and 1996
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Fair Value of Financial Instruments
The Company's financial instruments include accounts receivable, accounts
payable, accrued liabilities, and notes payable. The fair values of all
financial instruments were not materially different than their carrying values.
Accounting Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires Company management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Stock-Based Compensation
The Company has granted stock options for a fixed number of shares to employees
with an exercise price equal to the fair value of the shares at the date of
grant. The Company accounts for stock option grants in accordance with APB
Opinion No. 25, "Accounting for Stock Issued to Employees" and, accordingly,
recognizes no compensation expense for the stock option grants.
Advertising Costs
The Company expenses all advertising costs as incurred. Advertising costs were
approximately $436,000, $658,000 and $814,000 in 1998, 1997 and 1996,
respectively.
Foreign Currency
The functional currency of the Company is the U.S. dollar. Transactions arising
in foreign currencies have been translated at rates in effect at the dates of
the transactions. Gains or losses during the year have been included in net
income (loss).
F-11
<PAGE>
IWI HOLDING LIMITED
Notes to Consolidated Financial Statements
Years Ended December 31, 1998, 1997 and 1996
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loss Per Common Share
Effective in 1997, the Company adopted the provisions of FASB No. 128, "Earnings
Per Share." Loss per common share is computed by dividing net loss by the
weighted-average number of common shares outstanding during the period. When
dilutive, stock options and warrants are included as share equivalents using the
treasury stock method in the calculation of diluted earnings per share. Basic
and diluted net loss per common share are the same for all years presented as
the common stock equivalents of the Company would be antidilutive.
Segment Information
In the fourth quarter of 1998, the Company adopted Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information." This statement supercedes Statement of Financial
Accounting Standards No. 14, "Financial Reporting for Segments of a Business
Enterprise," replacing the "industry segment" approach with the "management"
approach. The management approach designates the internal organization that is
used by management for making operating decisions and assessing performance as
the source of the Company's reportable segments. This statement requires
disclosure of certain information by reportable segment, geographic area and
major customer.
The Company imports, manufactures and wholesales fine jewelry. Substantially all
the Company's sales are within the United States. The Company operates this
product line as one operating segment, which is deemed one reportable segment
for purposes of this disclosure.
NOTE 4 - LOSS ON ASSETS HELD FOR DISPOSAL
In connection with management's plan to increase liquidity (Note 2), the Company
completed the sale of its Daco subsidiary in August 1998. As of December 31,
1997, the carrying value of the net assets of Daco were reduced to fair value
(approximately $363,000) based on an estimate of the selling value less costs to
sell. The selling value had been determined based on a written offer received
and accepted in principle by the Company on June 26, 1998.
F-12
<PAGE>
IWI HOLDING LIMITED
Notes to Consolidated Financial Statements
Years Ended December 31, 1998, 1997 and 1996
NOTE 4 - LOSS ON ASSETS HELD FOR DISPOSAL (Continued)
The following details the net assets of Daco as of December 31, 1997 (in
thousands):
Accounts receivable $ 2,678
Inventory 3,232
Prepaid expenses 39
Property and equipment 1,111
Deferred charges 82
Notes payable (186)
Line of credit (2,365)
Accounts payable - Trade (1,174)
Accrued liabilities (708)
Deferred income taxes (46)
2,663
Loss on assets held for disposal (2,300)
Assets Held for Disposal $ 363
A gain of $110,000 was recognized during 1998 based upon the final selling value
less costs to sell. Daco had net sales of approximately $4.8 million, $10.4
million, and $8.9 million in 1998, 1997 and 1996, respectively, and a net loss
of $299,000, $26,000 and $607,000 in 1998, 1997 and 1996, respectively.
NOTE 5 - CREDIT ARRANGEMENTS
Imperial has an agreement with a bank through various credit facilities, whereby
Imperial can borrow up to $10 million, payable on demand. The agreement can be
terminated without cause by the Company or the bank with 90 days' written
notice. The total credit facility is governed by a formula, as defined in the
agreement, based principally on accounts receivable and inventory levels. The
agreement provides, among other things, that the credit facilities are
collateralized by substantially all assets of Imperial. The agreement contains
certain reporting and financial covenants which the Company is required to
maintain. Under current covenants, Imperial may not declare or pay dividends, or
make loans or advances to Holding. As of May 24, 1999, the
F-13
<PAGE>
IWI HOLDING LIMITED
Notes to Consolidated Financial Statements
Years Ended December 31, 1998, 1997 and 1996
NOTE 5 - CREDIT ARRANGEMENTS (Continued)
Company is not in compliance with certain reporting covenants of this agreement
and has been operating under a forbearance agreement with the bank which expired
December 31, 1998, and limited borrowings to $1.3 million. As of December 31,
1998 and 1997, the amount of restricted net assets of Imperial was approximately
$1.7 and $5.7 million, respectively.
Under the demand facility, interest is calculated at 5.00% over the bank's
reference rate. The line of credit bore interest at 12.75% and 11.25% as of
December 31, 1998 and 1997, respectively, and borrowings as of December 31, 1998
were $1,217,124.
On May 24, 1999, the Company entered into an agreement with a new financial
institution, whereby Imperial can borrow up to $2.5 million payable on demand.
As with the prior lender the total credit facility is governed by a formula, as
defined in the agreement, based principally on accounts receivable and inventory
levels. This agreement provides, among other things, that the credit facilities
are collateralized by substantially all assets of Imperial. Under this new
demand facility, interest is calculated at 3% over prime. The agreement contains
certain reporting and financial covenants which the Company is required to
maintain. The agreement can be terminated by the Company with 30 days' written
notice, or by the lender upon certain events as specified in the loan agreement.
NOTE 6 - STOCKHOLDERS' EQUITY
The 3,644,880 issued preferred shares are redeemable at the Company's option
after March 21, 1997, at an amount not to exceed 50% of net income in excess of
$15 million for the preceding year. If not redeemed, the preferred shares will
begin to accrue a 4% noncumulative dividend at that date. The preferred shares
have voting rights equivalent to one-half vote per share, and a $1 per share
liquidation preference.
On December 16, 1994, the Company issued 1,500,000 shares of its common stock at
$8.50 per share in an initial public offering (IPO). The proceeds received, net
of commissions and other related expenses, were approximately $9.9 million.
F-14
<PAGE>
IWI HOLDING LIMITED
Notes to Consolidated Financial Statements
Years Ended December 31, 1998, 1997 and 1996
NOTE 6 - STOCKHOLDERS' EQUITY (Continued)
The Company granted an option to purchase 225,000 shares of common stock at an
exercise price of $8.50 to the underwriters. This option was exercised on
January 30, 1995, with the Company receiving net proceeds of approximately $1.6
million. In conjunction with the IPO, warrants to purchase an aggregate of
150,000 shares of common stock at an exercise price of $14.025 were issued to
the representative of the underwriters of the IPO. The warrants are exercisable
for a period of four years beginning December 16, 1995.
In February 1996, the Company's Board of Directors authorized the repurchase of
up to 350,000 shares of its common stock. As of December 31, 1998, 89,050 common
shares had been repurchased and retired.
NOTE 7 - STOCK OPTION PLANS
The Company has 150,000 shares of common stock reserved for options which may be
granted to directors, officers, and key employees under a stock option plan
adopted in 1994. The exercise price of the options shall not be less than the
greater of $8.50 per share or the fair market value of the stock on the date the
option is granted. The only options outstanding as of December 31, 1998 and 1997
were 20,000 and 80,000 shares, respectively, at an exercise price of $8.50 per
share granted in 1995. During 1998, 60,000 shares were canceled.
During 1995, the Company adopted a nonqualified stock option plan under which
600,000 shares of common stock have been reserved for options which may be
granted to key employees and third-party consultants at an option price to be
determined by the Compensation Committee of the Board of Directors. No options
have been granted under this plan.
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25), and related interpretations
in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under Financial Accounting
Standards Board Statement No. 123, "Accounting for Stock-Based Compensation"
(FASB 123), requires use of option valuation models that were not developed for
use in valuing employee stock options.
F-15
<PAGE>
IWI HOLDING LIMITED
Notes to Consolidated Financial Statements
Years Ended December 31, 1998, 1997 and 1996
NOTE 7 - STOCK OPTION PLANS (Continued)
Under APB 25, since the exercise price of the Company's employee stock option
grants has equaled the estimated fair value of the underlying stock on the date
of grant, no compensation expense is recognized. Pro forma information regarding
net income and earnings per share is required under FASB 123 and has been
determined as if the Company had accounted for its stock options granted
subsequent to December 31, 1994, under the fair value method of that Statement.
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions: risk-free interest rate of 7.8%; a dividend yield of zero percent;
and a weighted-average expected life of the options of five to seven years. The
volatility factor of the expected market price of the Company's common stock is
1.2.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective input assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the vesting period of the respective option. The
Company's pro forma net loss and pro forma net loss per share, respectively, for
the years ended December 31, 1998, 1997 and 1996 would be $2,752,000 and $1.07;
$8,985,000 and $3.42; and $6,028,000 and $2.29, respectively. Because FASB 123
is applicable only to options granted subsequent to December 31, 1994, its pro
forma impact will not be fully reflected until 1999.
The weighted-average exercise price of options outstanding as of December 31,
1998 and 1997 is $8.50. The weighted-average remaining contractual life of
options outstanding as of December 31, 1998 is one year.
F-16
<PAGE>
IWI HOLDING LIMITED
Notes to Consolidated Financial Statements
Years Ended December 31, 1998, 1997 and 1996
NOTE 8 - RELATED PARTY TRANSACTIONS
Rhine Jewellery Limited (Rhine), located in Hong Kong and the Company's
principal supplier for 1997 and 1996, is a subsidiary of Rhine Holding Limited,
a former major stockholder of the company. For the years ended December 31,
1998, 1997 and 1996, the Company's purchases from Rhine were approximately
$900,000, $4,200,000 and $4,600,000, respectively.
During 1998, some of the Company's products were purchased from a manufacturer
in Hong Kong, which is managed by a relative of an officer of the Company. For
the year ended December 31, 1998, the Company's purchases from this manufacturer
were approximately $700,000.
NOTE 9 - INCOME TAXES
The following table summarizes income taxes (benefits):
Year Ended December 31
1998 1997 1996
(In Thousands)
Current
U.S. federal $ - $ - $ (48)
U.S. state - (90) -
Other (67) 30 (259)
------ ------ ------
(67) (60) (307)
Deferred ------ ------ ------
U.S. federal - - -
U.S. state - - -
Other - 46 -
------ ------ ------
- 46 -
------ ------ ------
Income Taxes $ (67) $ (14) $ (307)
Loss before income taxes ====== ====== ======
United States (2,410) $ (7,898) $(5,818)
Other (366) (2,250) (425)
------ ------ ------
$ (2,776) $(10,148) $(6,243)
====== ======= ======
F-17
<PAGE>
IWI HOLDING LIMITED
Notes to Consolidated Financial Statements
Years Ended December 31, 1998, 1997 and 1996
NOTE 9 - INCOME TAXES (Continued)
The differences between the U.S. federal statutory tax rate and the Company's
effective tax rate are as follows:
Year Ended December 31
-----------------------------
1998 1997 1996
------ -------- -------
U.S. federal statutory tax rate (34.0)% (34.0)% (34.0)%
Excess foreign income taxes (benefit) (2.1) 1.0 (1.8)
State income taxes (net of U.S. federal income
tax benefit) - - (1.0)
Change in valuation allowance 34.6 31.0 30.0
Other (.9) 2.0 1.9
Consolidated Effective Tax Rate (2.4)% -% (4.9)%
The components of deferred income taxes are as follows as of December 31:
1998 1997
------ ------
(In Thousands)
Deferred Tax Assets (Liabilities)
Loss carryforwards $ 5,390 $ 4,385
Accounts receivable 109 251
Inventories 743 672
Property and equipment (72) (128)
Other 12 (5)
6,182 5,175
Less: Valuation allowance (6,182) (5,221)
Net Deferred Tax Liability $ - $ (46)
The valuation allowance increased in 1998 primarily due to the increase in the
net operating loss carryforward. For income tax purposes, the Company has a net
operating loss carryforward of approximately $12.6 million, which expires
through 2013, and a capital loss carryforward of approximately $2.3 million,
which expires in 2003. Utilization of the net operating loss carryforward to
offset future taxable income may be limited in any given year and the
carryforwards may expire prior to utilization, due to a significant change in
ownership during 1998.
F-18
<PAGE>
IWI HOLDING LIMITED
Notes to Consolidated Financial Statements
Years Ended December 31, 1998, 1997 and 1996
NOTE 10 - SUPPLEMENTAL CASH FLOW INFORMATION
Year Ended December 31
1998 1997 1996
(In Thousands)
Cash paid for income taxes $ - $ 11 $ -
Cash paid for interest 477 867 1,302
Noncash investing and financing activities
Receivable from affiliate for sale of investment
in joint venture - - 1,402
NOTE 11 - EMPLOYEE BENEFIT PLAN
Imperial sponsors a defined-contribution, profit-sharing plan (Plan) covering
substantially all full-time employees who have completed one year of service.
Company contributions to the Plan are discretionary, determined by the Board of
Directors, and fully vest to employees upon completion of six years of service.
The Plan has a voluntary 401(k) savings feature. Participants may contribute up
to 15% of their compensation to the Plan. Imperial matches 50% of the first 2%
of compensation that a participant contributes. As of July 1, 1998, the matching
portion was increased to 50% of the first 6% of compensation that a participant
contributes. The matching is discretionary, and is decided annually by the board
of directors. Participant and employer-matched contributions to the Plan are
100% vested. Company contributions were approximately $31,000, $15,000 and
$10,000 in 1998, 1997 and 1996, respectively.
NOTE 12 - SIGNIFICANT CUSTOMERS
The Company derived 33%, 21% and 19% of its net sales from one customer during
1998, 1997 and 1996, respectively.
F-19
<PAGE>
IWI HOLDING LIMITED
Notes to Consolidated Financial Statements
Years Ended December 31, 1998, 1997 and 1996
NOTE 13 - COMMITMENTS AND CONTINGENCY
Litigation
The Company is a codefendant in a lawsuit brought by a stockholder who alleges
the Company misrepresented its financial position in interim financial
statements. The stockholder has filed for class action status and is seeking
damages of $11 million. The Company believes the allegation is without merit and
intends to vigorously defend the claim.
Operating Leases
Imperial is obligated under a lease on its operating facility for minimum
rentals as well as real estate taxes and other operating expenses through
October 2003, with an option for an additional five years.
The future minimum lease payments required under these leases as of December 31,
1998, approximated the following (in thousands):
Year Ending December 31:
1999 $ 122
2000 125
2001 129
2002 133
Later years 125
-------
Total Minimum Lease Payments $ 634
=======
Rent expense included in the accompanying statements of operations amounted to
$414,340, $463,000 and $470,000 for 1998, 1997 and 1996, respectively.
Employment Agreements
The Company has an employment agreement with an officer expiring on July 31,
2001. The agreement includes provisions for severance payments for the longer of
one additional year or any period for which the employee is required not to
compete.
F-20
<PAGE>
IWI HOLDING LIMITED
Notes to Consolidated Financial Statements
Years Ended December 31, 1998, 1997 and 1996
NOTE 13 - COMMITMENTS AND CONTINGENCY
Employment Agreements (Continued)
The future minimum annual compensation payments as required under the agreement
as of December 31, 1998, approximated the following (in thousands):
1999 $ 210
2000 235
2001 146
------
$ 591
======
F-21
<PAGE>
IWI HOLDING LIMITED
Notes to Consolidated Financial Statements
Years Ended December 31, 1998, 1997 and 1996
NOTE 14 - GEOGRAPHIC SEGMENT INFORMATION
Financial information as of and for the years ended December 31, 1998, 1997 and
1996, summarized by geographic area, is as follows:
<TABLE>
United
States
--------------------
Canada Eliminations Consolidated
----------------------------------
<S> <C> <C> <C> <C>
1998
Total Revenues - Unaffiliated
customers $ 11,507 $ 4,830 $ - $ 16,337
======= ====== ====== =======
Loss from operations $ (2,170) $ (176) $ - $ (2,346)
======= ====== ====== =======
Assets - Identifiable assets $ 6,569 $ - $ - $ 6,569
======= ====== ====== =======
1997
Total Revenues - Unaffiliated
customers $ 15,540 $ 10,395 $ (412) $ 25,523
======= ====== ====== =======
Loss from operations $ (7,314) $ (2,002) $ - $ (9,316)
======= ====== ====== =======
Assets - Identifiable assets $ 13,550 $ 7,572 $(9,967) $ 11,155
======= ====== ====== =======
1996
Total Revenues - Unaffiliated
customers $ 21,945 $ 8,895 $ - $ 30,840
======= ====== ====== =======
Loss from operations $ (4,828) $ (488) $ 126 $ (5,190)
======= ====== ====== =======
Assets - Identifiable assets $ 24,376 $ 8,360 $(2,968) $ 29,768
======= ====== ====== =======
</TABLE>
F-22
<PAGE>
IWI HOLDING LIMITED
Notes to Consolidated Financial Statements
Years Ended December 31, 1998, 1997 and 1996
NOTE 15 - YEAR 2000 ISSUE (Unaudited)
The year 2000 (Y2K) issue is the result of computer programs using a two-digit
format, as opposed to four digits to indicate the year. Such computer systems
will be unable to interpret dates beyond 1999, which could cause a system
failure or application errors, leading to disruptions in operations.
The Company is in the process of updating its software, hardware and production
equipment to remedy all major areas of exposure to Y2K issues and intends to
have all noncompliant equipment upgraded by September 1999.
The Company has done an external review of vendors and customers to determine
the major areas of exposure to Y2K issues. No disruption to operations is
expected due to Y2K. The Company has been working with all major customers to
comply with Y2K standards since 1998 and it is the expectation of the Company's
management that all major upgrades will be completed by the end of the third
quarter 1999.
F-23
<PAGE>
IWI HOLDING LIMITED
Schedule I - Condensed Financial Information of Registrant
Balance Sheets
December 31, 1998 and 1997
ASSETS
--------
1998 1997
------ ------
Cash $ 1,000 $ 1,000
Due from Affiliate 500,000 500,000
Investments in Wholly Owned Subsidiaries 914,000 3,623,000
--------- ---------
Total Assets $ 1,415,000 $ 4,124,000
========= =========
STOCKHOLDERS' EQUITY
Preferred Stock - $1 par value; authorized -
5,000,000 shares; issued and outstanding -
3,644,880 shares $ 3,644,880 $ 3,644,880
Common Stock - No par value; authorized - 10,000,000
shares; issued and outstanding - 2,554,700 shares - -
Additional Paid-in Capital 12,446,222 12,446,222
Accumulated Deficit (14,676,102) (11,967,102)
---------- ----------
Total Stockholders' Equity $ 1,415,000 $ 4,124,000
========== ==========
See note to condensed financial statements.
F-24
<PAGE>
IWI HOLDING LIMITED
Schedule I - Condensed Financial Information of Registrant
Statements of Loss and Accumulated Deficit
Years Ended December 31, 1998 and 1997
1998 1997
-------- -------
Equity in net loss of subsidiaries $ (2,709,000) $ (10,134,000)
Accumulated deficit, beginning of year (11,967,102) (1,833,102)
------------ ------------
Accumulated deficit, end of year $ (14,676,102) $ (11,967,102)
============ ============
See note to condensed financial statements.
<PAGE>
IWI HOLDING LIMITED
Schedule I - Condensed Financial Information of Registrant
Note to Condensed Financial Statements
Years Ended December 31, 1998 and 1997
NOTE 1 - BASIS OF PRESENTATION
The Company's share of net income (loss) of its unconsolidated subsidiaries, all
of which are wholly owned, is included in net income (loss) using the equity
method. Parent-company-only financial statements should be read in conjunction
with the Company's consolidated financial statements.
F-25
<PAGE>
IWI HOLDING LIMITED
Schedule II - Valuation and Qualifying Accounts
Years Ended December 31, 1998 and 1997
<TABLE>
Additions Additions
Balance at Charged to Charged to Balance
Beginning Costs and Other at End
Description of Period Expenses Accounts Deductions of Period
- ----------- ------------ ------------ ------------ ------------- -----------
<S> <C> <C> <C> <C> <C>
Year Ended
December 31, 1996
Allowance for
Doubtful Accounts $ 454,000 $ 736,000 $ - $ 496,000(1) $ 694,000
Inventory Valuation
Allowance 1,500,000 2,953,000 - 2,853,000(2) 1,600,000
Deferred Income
Tax Valuation
Allowance 495,000 2,239,000 - - 2,734,000
Year Ended
December 31, 1997
Allowance for
Doubtful Accounts $ 694,000 $ 865,000 $ - $ 917,000(1) $ 642,000
Inventory Valuation
Allowance 1,600,000 3,642,000 - 3,442,000(2) 1,800,000
Deferred Income
Tax Valuation
Allowance 2,734,000 2,487,000 - - 5,221,000
</TABLE>
F-26
<PAGE>
IWI HOLDING LIMITED
Schedule II - Valuation and Qualifying Accounts
Years Ended December 31, 1998 and 1997
<TABLE>
Additions Additions
Balance at Charged to Charged to Balance
Beginning Costs and Other at End
Description of Period Expenses Accounts Deductions of Period
- ------------ ----------- ------------ ------------ ------------ ---------
<S> <C> <C> <C> <C> <C>
Year Ended
December 31, 1998
Allowance for
Doubtful Accounts $ 642,000 $ 177,000 $ - $ 539,000(1) $ 280,000
Inventory Valuation
Allowance 1,800,000 673,000 - 695,000(2) 1,778,000
Deferred Income
Tax Valuation
Allowance 5,221,000 961,000 - - 6,182,000
(1) Writeoff of uncollectible accounts
(2) Inventory losses realized
</TABLE>
F-27
EMPLOYMENT AGREEMENT
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH
MAY BE ENFORCED BY THE PARTIES.
AGREEMENT, dated this 27th day of July, 1998, but effective as of August 1,
1998, by and between IMPERIAL WORLD, INC., an Illinois corporation ("Company"),
and JOSEPH K. LAU ("Employee").
Recitals
WHEREAS, the Company and its affiliates are engaged in the design,
assembly, merchandising and wholesale distribution of jewelry.
WHEREAS, the Company desires to retain the ongoing services of the
Employee, and the Employee desires to serve, as the President and Chief
Executive Officer of the Company and in such capacities as the Company's Board
of Directors shall from time to time determine.
WHEREAS, the Employee is, and will be, employed by the Company in a
confidential relationship wherein Employee, in the course of his employment with
the Company, has, and will, become familiar with and aware of information as to
the specific manner of doing business and the customers of the Company and its
affiliates and future plans with respect thereto, all of which has been
established and maintained, and will be established and maintained, at great
expense to the Company.
WHEREAS, Employee recognizes that the Company's business is dependent upon
a number of trade secrets, the protection of which is of critical importance to
the Company.
WHEREAS, the Company will sustain great loss and economic damage if during
the term of this Agreement or Employee's employment with the Company, or for a
period of one (1) year immediately following the termination of the Agreement or
Employee's employment, for any reason, Employee should violate the provisions of
Paragraphs 3 or 4 of this Agreement.
WHEREAS, monetary damages for such losses would be extremely difficult to
measure.
WHEREAS, the Company and Employee desire to formally evidence their
relationship and the terms of employment.
NOW, THEREFORE, in consideration of the mutual promises, terms, covenants
and conditions set forth herein and the performance of each, it is hereby agreed
as follows:
1
<PAGE>
ARTICLE I
Employment and Duties
1.01 Employment. The Company hereby employs Employee as its President and
Chief Executive Officer ("CEO"). Additional duties or titles may be assigned to
or assumed by Employee at the discretion of the Board of Directors ("Board") of
the Company. However, if the duties and title of the Employee do not include
"President and Chief Executive Officer", this agreement is immediately
terminable at the discretion of Employee and Employee is entitled to the
compensation for the remaining term of this agreement from the date of
termination payable in a lump sum within 10 days from the date Employee notifies
the Company of his termination. Employee hereby accepts this employment upon the
terms and conditions herein contained and agrees to devote his time to promote
and further the business and services of the company. Employee shall faithfully
adhere to, execute and fulfill all policies established by the Company. The
company shall also nominate Employee for the company's Board of Directors.
1.02 Duties. Employee shall perform such duties, assume such
responsibilities and devote such time, attention and energy to the business of
the Company as the Board shall from time to time require and shall not, during
the term of his employment hereunder, be engaged in any other business activity
pursued for gain, profit or other pecuniary advantage if such activity
interferes with Employee's duties and responsibilities hereunder. However, the
foregoing limitations shall not be construed as prohibiting Employee from making
personal investments in such form or manner as will neither require his services
in the operation or affairs of the companies or enterprises in which such
investments are made nor violate the terms of Paragraphs 3 or 4 hereof.
1.03 Custody of Company Funds. All funds received by Employee on behalf of
the Company, if any, shall be held in trust for the Company and shall be
delivered to the Company as soon as practicable.
ARTICLE II
Compensation
2.01 Base Salary. From and after the execution of this Agreement, the
Company shall pay a base salary to Employee in the amount of $200,000 per year
from August 1, 1998 to July 31, 1999, $225,000 per year from August 1, 1999 to
July 31, 2000 and $250,000 per year from August 1, 12000 to July 31, 2001,
payable in equal installments on a bi-weekly basis. The base salary shall be
adjusted automatically on each anniversary during the term of this Agreement to
reflect the change unless the Board notifies the Employee at least 2 weeks ahead
of the change and determines not to honor the increase with reason and support
for Employee's non-performance. In such event, the then current base salary will
carry on for that term year.
2.02 Expense Reimbursement. The Company shall reimburse Employee for all
reasonable travel, entertainment and other expenses related to his employment
by, or promotion of, the Company. Employee shall provide a written accounting
and explanation of all expenses for which reimbursement is sought on a monthly
basis and the Company shall reimburse all such expenses within ten (10) days
following receipt of each written accounting.
2
<PAGE>
2.03 Bonuses. The Employee shall be entitled to receive a bonus equal to 5%
of the Company's pre-tax profits determined from the audited financial statement
in accordance with generally accepted accounting principles, before the
deduction of any bonus, payable within 60 days after completion of audit, at the
end of each fiscal year, commencing from the first fiscal year ending December
31, 1999.
2.04 Plan Participation. The Employee shall be entitled to participate in
any and all stock option, stock bonus, pension, profit sharing, retirement or
other similar plans adopted by the Company.
2.05 Fringe Benefits. The Employee shall be entitled to such fringe
benefits as the Company shall establish for its employees generally which shall
include with respect to the Employee three weeks paid vacation annually, group
life insurance, disability pay and such other benefits as the Company shall
adopt, subject to the discretion of the Company to add or delete such standard
benefits as the Board deems appropriate, from time to time.
ARTICLE III
Non-Competition Agreement
3.01 Non-Competition Agreement.Employee will not, during either the period
of this Agreement or of his employment by or with the Company, whichever period
is longer, and for a period of one (1) year immediately following the
termination of this Agreement, or his employment, whichever is longer, for any
reason whatsoever, directly or indirectly, for himself or on behalf of or in
conjunction with any other person, persons, company, partnership, corporation or
business of whatever nature (i) call upon any customer of the Company
(including, but not limited to, any customer obtained for the Company by
Employee) for the purpose of soliciting or selling any products or services in
competition with those of the Company or its affiliates; (ii) call upon any
employee of the Company or any of its affiliates for the purpose or with the
intent of enticing them away from or out of the employ of the Company or any
reason whatever; (iii) establish, enter it, be employed by or, advise, consult
with or become a part of, any company, partnership, corporation or other
business entity or venture, or in any way engage in business for himself or for
others, within the city limits of Chicago, Illinois or within 30 miles of such
city limits, in competition with the Company or its affiliates; or (iv) during
or after the term of his employment with the Company, disclose the Company's
customers or any other trade secrets of the Company whether in existence or
proposed, to any person, firm, partnership, corporation or business for any
reason or purpose whatsoever.
3.02 Equitable Relief. Because of the difficulty of measuring economic
losses to the Company and its affiliates as a result of the Employee's breach of
the foregoing covenant, and because of the immediate and irreparable damage that
would be caused to the Company and its affiliates for which it would have no
other adequate remedy, Employee agrees that the covenant specified in Paragraph
3.01 may be enforced by the Company and its affiliates in the event of breach by
him by injunctions, restraining orders or similar equitable relief.
3
<PAGE>
3.03 Reasonableness of the Covenant Not to Compete. It is agreed by the
parties that the covenants in Paragraph 3.01 are necessary to protect the
goodwill and business interests of the Company and its affiliates and impose a
reasonable restraint on Employee in light of the activities and business of the
Company and its affiliates on the date of the execution of this Agreement and
the future plans of the Company; but it is also the intent of the Company and
Employee that such covenants be construed and enforced in accordance with the
activities and business of the Company and its affiliates on the date of the
termination of the employment of Employee.
3.04 Severability of the Covenant Not to Compete. The covenants in
Paragraph 3.01 shall be construed as an agreement independent of any other
provision in this Agreement and the existence of any claim or cause of action of
Employee against the Company or its affiliates, whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by the
Company of such covenants. It is specifically agreed that the period of one (1)
year stated at the beginning of this Paragraph 3, during which the agreements
and covenants of Employee made in Paragraph 3.01 shall be effective, shall be
computed by excluding from such computation any time during which Employee is in
violation of any provision of this Paragraph 3 and any time during which there
is pending in any court of competent jurisdiction any action (including any
appeal from any final judgment) brought by any person, whether or not a party to
this Agreement, in which action the Company or its affiliates seeks to enforce
the agreements and covenants of Employee or in which any person contents the
validity of such agreements and covenants or their unenforceability or seeks to
avoid their performance or enforcement.
ARTICLE IV
Non-Disclosure Agreement and Proprietary Information
4.01 Proprietary-Information. The Employee recognizes and acknowledges that
the information, techniques, processes, developments, work in progress,
business, list of the Company's customers and any other trade secret or other
secret or confidential information relating to Company's business as they may
exist from time to time, are valuable, special and unique assets of Company's
business. In addition, Employee recognizes that Company is continually engaged
in research, design and development of new products and innovations and
improvements to the information, techniques, processes, developments, trade
secrets, and other secrets and confidential matters relating to Company's
business. Therefore, Employee agrees as follows:
A. That Employee will hold in strictest confidence and not disclose,
reproduce, publish or use in any manner, whether during or subsequent
to his employment, without the express authorization of the Board of
Directors of the Company, any information, design, manufacturing
technique, process, business customer lists, trade secrets or any
other secrets or confidential matter relating to any aspect of the
Company's business as designated from time to time by the Board of
Directors of Company, except as such disclosure or use may be required
in connection with Employee's work for the Company.
4
<PAGE>
B. That upon request or at the time of leaving the employ of the Company
the Employee will deliver to the Company, and not keep or deliver to
anyone else, any and all notes, memoranda, documents and, in general,
any and all material relating to the Company's business.
C. That the Board of Directors of the Company may from time to time
designate other subject matters requiring confidentiality and secrecy
which shall be deemed to be covered by the terms of this Agreement.
However, any such matters must be mutually agreed upon by both the
Board and Employee.
4.02 Breach. In the event of a breach or threatened breach by the Employee
of the provisions of this Paragraph 4, the Company shall be entitled to an
injunction:
A. Restraining the Employee from disclosing, in whole or in part, any
information described in Paragraph 4.01 or from rendering any services
to any person, firm, corporation association or other entity to whom
such information, in whole or in part, has been disclosed or is
threatened to be disclosed; and/or
B. Requiring that Employee deliver to Company all information, documents,
notes, memoranda and any and all discoveries or other material as
described above upon Employee's leave of the employ of the Company.
Nothing herein shall be construed as prohibiting the Company from
pursuing other remedies available to the Company for such breach or
threatened breach, including the recovery of damages from the
Employee.
ARTICLE V
Term; Terminations
5.01 Term. The term os this Agreement shall begin on the effective date of
this Agreement and continue for a term of three (3) years, unless terminated as
herein provided.
5.02 Termination. This Agreement and Employee's employment may be
terminated in any one of the following ways:
A. The death of Employee shall terminate the Agreement.
B. The Company may terminate the Agreement after thirty (30) days written
notice to Employee for good cause, including, but without limitation
(i) Employee's material breach of this Agreement, (ii) the material
default of the Company or its affiliates in performing their
obligations under contracts with other persons or business entities if
directly caused by Employee; (iii) if, because of illness or physical
or mental disability or other incapacity which continues for a period
in excess of six (6) months, Employee is unable to perform his duties
under this agreement; (iv) Employee's fraud with respect to the
business affairs of the Company or its affiliates or if Employee is
convicted of a felony; or (v) alcohol or drug abuse by Employee.
5
<PAGE>
C. This Agreement will terminate upon (i) the sale by the Company of all
or substantially all of its assets to a bona fide third party
purchaser(s); (ii) the sale, exchange or disposition in one
transaction of fifty percent (50%) or more of the outstanding voting
securities of the Company to a bona fide third party purchaser; (iii)
a bona fide decision by the Company to terminate its business and
liquidate its assets; or (iv) the merger or consolidation of the
Company in a transaction wherein the shareholders of the Company hold
less than fifty percent (50%) of the post-transaction shares of the
surviving entity.
5.03 Rights of Termination; Severance Payments. Upon termination of this
Agreement and Employee's employment, Employee shall be entitled to receive one
half (1/2) of the compensation earned under this Agreement for the remaining
term of this Agreement from the date of termination, or severance pay in an
amount equal to one year's base salary, whichever is greater, in one lump sum
within 10 day of termination.
In the event of termination of this Agreement for any reason provided in
this Article 5, other than Paragraph 5.02C or if Employee resigns prior to
expiration of the term of this Agreement, except as provided above, all rights
and obligations under Paragraph 3.01 and 4.01 herein shall survive such
termination and thereafter Employee shall have no right to receive any
compensation hereunder except as set forth in this Paragraph, or to the extent
employee is prohibited from competing under 3.01, compensation shall continue
for the non-compete period.
ARTICLE VI
Representations of Employee
6.01 Representations of Employee. Employee has represented and hereby
represents and warrants to the Company that he is not subject to any restriction
or non-competition covenant in favor of a former employer or any other person or
entity and that the execution of this Agreement by Employee and his employment
by the Company or its affiliates and the performance of his duties hereunder
will not violate or be a breach of any agreement with a former employer or any
other person or entity. Further, Employee agrees to indemnity the Company and
its affiliates for any claim, including, but not limited to, attorney's fees and
expenses of investigation, by any such third party that such third party may now
have or may hereafter come to have against the Company or its affiliates based
upon or arising out of any non-competition agreement or invention and secrecy
agreement between Employee and such third party.
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ARTICLE VII
Miscellaneous
7.01 Complete Agreement. This Agreement is not a promise of future
employment. There are no oral representations, understandings or agreements with
the Company or any of its officers, directors or representatives covering the
same subject matter at this Agreement. This written Agreement is the final,
complete and exclusive statement and expressions of the agreement between the
Company and Employee and of all the terms of this Agreement and it cannot be
varied, contradicted or supplemented by evidence of any prior or contemporaneous
oral or written agreement may not be later modified except by a further writing
signed by the Company and Employee, and no term of this Agreement may be waived
except by writing signed by the party waiving the benefit of such terms.
7.02 No Waiver. No waiver by the parties hereto of any default or breach of
any term, condition or covenant of this Agreement shall be deemed to be a waiver
of any subsequent default or breach of the same or any other term, condition or
covenant contained herein.
7.03 Assignment; Binding Effect. Employee understands that he has been
selected for employment by the Company on the basis of his personal
qualifications, experience and skills. Employee agrees, therefore, that this
Agreement and the rights to his services may be assigned by the Company to
another member of the Company's affiliated group at any time without notice to
him, but that he cannot assign all or any portion of this Agreement. Subject to
the Preceding two sentences, this Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs, successors and
assigns. It is further understood and agreed that the Company may be merged or
consolidated with another entity and that any such entity shall automatically
succeed to the rights, powers and duties of the Company hereunder.
7.04 Notice. Whenever any notice is required hereunder, it shall be given
in writing addressed as follows:
To the Company: IMPERIAL WORLD, INC.
Oakmont Centre
1010 Executive Court
` Suite 300
Westmont, Illinois 60559
To Employee: JOSEPH K. LAU
9100 Devon Ridge Drive
Burr Ridge, Illinois 60521
Notice shall be deemed given and effective three (3) days after the deposit
in the United States mail of a writing addressed as above and sent first class
mail, certified, return receipt requested, or when actually received. Either
party may change the address for notice by notifying the other party of such
change in accordance with this Section 7.04.
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7.05 Severability; Headings. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. The
paragraph headings herein are for reference purposes only and are not intended
in any way to describe, interpret, define or limit the extent or intent of this
Agreement or of any part hereof.
7.06 Arbitration. Any controversy or claim arising out of or relating to
this Agreement or the breach thereof shall be settled by arbitration in the City
of Chicago, Illinois in accordance with the rules then existing of the American
Arbitration and judgment upon the award may be entered in any Court having
jurisdiction thereof.
7.07 Governing Law. This Agreement shall in all respects be construed
according to the laws of the State of Illinois.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and date herein first set forth.
ATTEST: IMPERIAL WORLD, INC.
By:
- ------------------- ---------------------------
Title:
-----------------------
For and on behalf of the Board of
Directors
EMPLOYEE:
------------------------------
Joseph K. Lau
FINANCING AGREEMENT
THIS FINANCING AGREEMENT ("Agreement"), dated as of May 19, 1999, is by and
between IMPERIAL WORLD, INC. an Illinois corporation ("Imperial"), and ULLENBERG
CORP., an Illinois corporation ("Ullenberg", and together with Imperial,
collectively referred to as "Borrowers") with their principal place of business
at 1010 Executive Court, Suite 300, Westmont, Illinois 60559, BUSINESS ALLIANCE
CAPITAL CORP., a Delaware corporation ("Lender"), with its main office at 710 E.
Ogden, Suite 540, Naperville, IL 60563-8613.
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
Section 1.1 Defined Terms. As used in this Agreement the following terms
shall have the following respective meanings:
"Accounts", "Equipment", "General Intangibles", "Goods", "Instruments", and
"Inventory", shall have the meanings as given to them in the Uniform Commercial
Code as currently adopted in the State of Illinois.
"Affiliate" shall mean, when used with reference to any Person, (a) each
Person that, directly or indirectly, controls, is controlled by or is under
common control with, the Person referred to, (b) each Person which beneficially
owns or holds, directly or indirectly, five percent or more of any class of
voting stock of the Person referred to (or if the Person referred to is not a
corporation, five percent or more of the equity interest), (c) each Person, five
percent or more of the voting stock (or if such Person is not a corporation,
five percent or more of the equity interest) of which is beneficially owned or
held, directly or indirectly, by the Person referred to, and (d) each of such
Person's officers, directors, joint ventures and partners, the term control
(including the terms "controlled by" and "under common control with") means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of the Person in question.
"Annual Fee" shall be as defined in Section 2.8.
"Borrowing Base Certificate" shall be as defined in Section 2.2.
"Business Day" shall mean any day other than a Saturday, Sunday or legal
banking holiday in the State where Lender is located.
"Change in Control" shall mean the failure of IWI Holding Limited to own,
directly or indirectly, 100% of the equity securities of Imperial entitled to
vote in the election of directors of the failure of Imperial to own, directly or
indirectly, one hundred percent (100%) of the equity securities of Ullenberg
entitled to vote in the election of directors.
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"Closing Date" shall mean the date of this Agreement; provided, that all
the conditions precedent to the making of the initial loans or advances, as set
forth in Article VI, have been, or, on such Closing Date, will be, satisfied.
"Eligible Accounts" shall mean Accounts owned by either Borrower which
Lender, in its sole and absolute discretion, deems eligible for advances, but
which, at a minimum, are subject to a first priority perfected security interest
in favor of Lender and not subject to any assignment, claim or Lien other than
the Lien in favor of Lender and other Liens consented to by Lender in writing,
but specifically excluding: (a) Accounts which are not earned by performance;
(b) Accounts owed by an account debtor where 20% or more of the Accounts due
from such account debtor are otherwise ineligible; (d) Accounts representing
progress billings, or retainages, or for work covered by any payment or
performance bond; (e) Accounts owed by any of either Borrower's Affiliates; (f)
Accounts owed by account debtors not located in the United States, unless
supported by a letter of credit has been delivered and assigned to Lender and is
in form and substance satisfactory to Lender; (g) Accounts as to which any
warranty or representation contained in any security agreement or other
agreement of a Borrower with or given to Lender with respect to any such Account
is untrue in any material respect; (h) Accounts as to which the account debtor
has disputed liability, or made any claim with respect to any other Account due
from such account debtor to the Borrower to who such account is owed; (i)
Accounts subject to setoff or counterclaim; (j) Accounts owed by any
governmental or governmental agency; (k) Accounts evidenced by a promissory note
or other instrument; and (l) Accounts which are not due and payable within one
hundred twenty (120) days of the date of the original invoice therefore: (m)
Accounts as to which Lender believes, for any reason, that collection is
doubtful including, without limitation, because of the account debtor's
insolvency or financial inability to pay.
"Eligible Inventory" shall mean Inventory of either Borrower which Lender,
in its sole and absolute discretion, deems eligible for advances, but which
meets the following minimum requirements: (a) it is owned by a Borrower, is
subject to a first priority perfected security interest in favor of Lender, and
is not subject to any assignment, claim or Lien other than (i) a Lien in favor
of Lender and (ii) Liens consented to by Lender in writing; (b) it consists of
raw materials or finished product (not including work in process and supplies);
(c) if held for sale or lease or furnishing under contracts of service, it is
(except as Lender may otherwise consent in writing) new and unused; (d) except
as Lender may otherwise consent, it is not stored with a bailee, warehousemen or
similar party; if so stored with Lender's consent, such bailee, warehousemen of
similar party has issued and delivered to Lender's consent such bailee,
warehousemen or similar party; if so stored with Lender's consent, such bailee,
warehousemen or similar party; if so stored with Lender's consent, such bailee,
warehousemen or similar party has issued and delivered to Lender, in form and
substance acceptable to Lender, such documents and agreements as Lender may
require including, without limitation, warehouse receipts therefor in Lender's
name; (e) Lender has determined, in its sole and absolute discretion, that it is
not unacceptable due to age, type, category, quality and/or quantity; (f) it is
not held by either Borrower on consignment and is not subject to any other
repurchase or return agreement; (g) it is not held by a customer of either
Borrower or any other Person on consignment; (h) it complies with all standards
imposed by any governmental agency having regulatory authority over such goods
and/or their use, manufacture or sale; and (i) the warranties, representations
and covenants contained in the Security Agreement or any other security
agreement or other agreement of Borrowers with or given to Lender relating
directly or indirectly to Borrowers' Inventory are applicable to it without
exception and are not being breached or violated.
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<PAGE>
"Event of Default" shall have the meaning set forth in the Security
Agreement.
"GAAP" shall mean generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession, which are applicable to the circumstances as of any date of
determination.
"Guarantor" shall mean Joseph K. Lau.
"Guaranty" shall mean that certain Guaranty of even date herewith executed
by Guarantor in favor of Lender, unconditionally guarantying the payment and
performance of Borrower's Obligations.
"Loan Documents" shall mean all agreements, instruments and documents
including, without limitation, guaranties, mortgages, trust deeds, pledges,
powers of attorney, consents, assignments, contracts, notices, security
agreements, leases, financing statements and all other writings heretofore, now
or from time to time hereafter executed by or on behalf of either Borrower or
any other Person and delivered to Lender or to any parent, affiliate or
subsidiary of Lender in connection with the Obligations or the transactions
contemplated hereby.
"Lien" shall mean, with respect to any Person, any security interest,
mortgage, pledge, lien, charge, encumbrance, title retention agreement or
analogous instrument or device (including the interest of each lessor under any
capitalized lease), in, of or on any assets or properties of such Person, now
owned or hereafter acquired, whether arising by agreement or operation of law.
"Maximum Facility" shall be as defined in Section 2.1(a).
"Obligations" shall have the meaning as set forth in the Security Agreement
and shall include, without limitation, all Revolving Loans to Borrowers.
"Person" shall mean any natural person, corporation, partnership, limited
partnership, joint venture, firm, association, trust, unincorporated
organization, government or governmental agency or political subdivision or any
other entity, whether acting in an individual, fiduciary or other capacity.
"Reference Rate" shall mean the rate of interest announced or pubished from
time to time by First Union National Bank, Philadelphia, PA, as its prime or
equivalent rate of interest ("Reference Rate"), which is not necessarily the
lowest rate of interest charged by First Union National Bank to its commercial
borrowers. For purposes of determining any interest rate hereunder which is
based on the Reference Rate, such interest rate shall change as and when the
Reference Rate changes.
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<PAGE>
"Revolving Loans" shall be as defined in Section 2.1(a).
"Security Agreement" shall mean that Security Agreement of even date
herewith executed by Borrowers in favor of Lender.
Section 1.2 Accounting Terms and Calculations. Except as may be expressly
provided to the contrary herein, all accounting terms used herein shall be
interpreted and all accounting determinations hereunder shall be made in
accordance with GAAP.
Section 1.3 Other Definitional Terms, Terms of Construction. Terms not
otherwise defined herein shall have the meanings as ascribed to them in the
Security Agreement, which is expressly adopted hereby and incorporated herein.
All other incorporations by reference of covenants, terms, definitions or other
provisions from other agreements are incorporated into this Agreement as if such
provisions were fully set forth herein and include all necessary definitions and
related provisions from such other agreements. References, to Sections,
Exhibits, Schedules and the like are references to this Agreement unless
otherwise expressly provided.
ARTICLE II
TERMS OF LENDING
Section 2.1 Loans and Advances. On the terms and subject to the conditions
hereof, at Imperial's request, Lender, in its absolute and sole discretion and
without any commitment to do so, may make the following loans and advances
available to Imperial on behalf of Borrowers:
(a) Revolving Loans and Advances. Lender, in its sole discretion, may
make loans and advances to Borrowers of up to sixty-five percent (65%) of
the net amount of Eligible Accounts which are listed in Borrower's most
current Borrowing Base Certificate delivered to Lender and which are deemed
eligible for advances by Lender, or such greater or lesser percentage at
Lender's sole and absolute discretion, not to exceed a maximum amount of
$2,500,000 outstanding at any time, and up to thirty percent (30%) of the
lower of cost or market value of Eligible Inventory which is listed in
Borrower's most current Borrowing Base Certificate and which is deemed
eligible for advances by Lender, or such greater or lessor percentage at
Lender's sole and absolute discretion, not to exceed a maximum amount of
$750,000 outstanding at any time, provided however, such limit shall be
increased, at Borrowers' election, to $900,000 outstanding at any time for
a period of not more than sixty (60) consecutive days during each calendar
year ("Seasonal Increase"), but in any case, subject to such reserves as
Lender elects to establish from time to time in its sole discretion of
effectuate the terms and conditions set forth herein (and collectively, the
"Revolving Loans"). In no event shall the maximum amount of Revolving Loans
outstanding at any time exceed $2,500,000 ("Maximum Facility"). Section 2.2
Procedure for Advances, Wire Transfer Fees. Any request by Borrowers for an
advance shall be in writing and must be given so as to be received by
Lender not later than 10:30 a.m. Chicago time on the requested advance
date, or such later time as may be acceptable to Lender in its sole
discretion. Each request for a Revolving Loan shall be irrevocable and
shall be deemed a representation by Borrowers that on the requested advance
date and after giving effect to such advance the applicable conditions
specified in Article III have been and will continue to be satisfied and
the representations and warranties set forth in Article IV will continue to
be true. Each request for an advance shall specify the request for an
advance shall be accompanied by a Borrowing Base Certificate signed by a
duly authorized officer of each Borrower in form and substance satisfactory
to Lender ("Borrowing Base Certificate"). If Lender determines, in its
absolute and sole discretion, to make the requested advance, Lender will
wire transfer to a bank account designated by Borrowers on the requested
advance date the amount of the requested advance. Borrowers will pay to
Lender a wire transfer fee of $20.00 per wire transfer of any advance to
Borrower's account. If Lender elects to make an advance based upon a
request by Borrowers after 10:30 a.m. Chicago time, Borrowers will pay an
additional wire transfer fee as specified by Lender from time to time.
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<PAGE>
Section 2.3 Interest Rates and Interest Payments. Interest shall accrue on
the unpaid balance of the Obligations at a floating rate per annum equal to the
sum of the Reference Rate plus three percent (3%) (the "Applicable Rate") and
shall be due and payable monthly in arrears on the last day of each calendar
month; provided, however, that upon the occurrence and during the continuance of
any Event of Default, the unpaid balance of the loans and advances shall
thereafter bear interest at a floating rate equal to the sum of (a) the
Applicable Rate, plus (b) 2% and shall be due and payable on demand; and
provided further that the minimum amount of interest due and payable in any
month shall not be less than the sum of $1,000,000 multiplied by the Applicable
Rate during such period.
Section 2.4 Repayment and Prepayment.
ALL LOANS AND ADVANCES SHALL BE DUE AND PAYABLE ON DEMAND. NOTHING SET
FORTH IN THIS AGREEMENT, THE SECURITY AGREEMENT OR ANY OTHER LOAN DOCUMENTS
BETWEEN BORROWERS AND LENDER SHALL IN ANY WAY LIMIT LENDER'S RIGHT TO DEMAND
PAYMENT OF THE OBLIGATIONS IN WHOLE OR IN PART.
Section 2.5 Computation. Interest on the Obligations shall be computed on
the basis of actual days elapsed and a year of 360 days.
Section 2.6 Closing Fee. Borrowers shall pay to Lender a closing fee in an
amount equal to one percent (1%) of the Maximum Facility payable in advance on
the Closing Date.
Section 2.7 Monitoring Fee. Borrowers shall pay Lender a monitoring fee,
monthly, in arrears, commencing on the first day of the first full month
following the Closing Date and on the first day of each month thereafter, and on
the date of demand for payment of the Obligations, equal to one-quarter of one
percent (.25%) of the average outstanding amount of the Revolving Loans during
the immediately preceding month.
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<PAGE>
Section 2.8 Annual Fee. Borrowers shall pay to Lender and annual fee in an
amount equal to one percent (1%) of the Maximum Facility per year ("Annual
Fee"), payable on the first anniversary of the Closing Date and on each
anniversary of the Closing Date thereafter.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Borrowers represent and warrant to Lender that:
Section 3.1 Organization, Standing, Etc. Each Borrower is a corporation
duly incorporated and validly existing and in good standing under the laws of
the jurisdiction of its incorporation and has all requisite corporate power and
authority to carry on its business as now conducted, to enter into this
Agreement and to perform its obligations hereunder and thereunder. This
Agreement has been duly authorized by all necessary corporate action and when
executed and delivered will be the legal and binding obligation of each
borrower. The execution and delivery of this Agreement or other Loan Documents
will not violate either Borrower's Articles of Incorporation or Bylaws or any
law or agreement applicable to either Borrower. No governmental consent or
exemption is required in connection with either Borrower's execution and
delivery of this Agreement.
Section 3.2 Financial Statements and No Material Adverse Change. IWI
Holding Limited's ("Holding") consolidated financial statements as at December
31, 1998 and its financial statement as at March 31, 1999, as heretofore
furnished to Lender, have been prepared in accordance with GAAP. Holding and
Borrowes have no material obligation or liability not disclosed in such
financial statements and there has been no material adverse change in the
condition of either Borrower or Holding since the dates of such financial
statements.
Section 3.3 Litigation. Except as set forth in Schedule 3.3 hereof, there
are no actions, suits or proceedings pending or, to the knowledge of Borrowers,
threatened against or affecting Holding or either Borrower which, if determined
adversely to Holding or such Borrower, would have, a material adverse effect on
the financial condition, business or operations of Borrowers or their ability to
repay the Obligations. Borrowers are not in violation of any law or regulation
(including environmental laws and regulations and laws relating to employee
benefit plans) where such violation could reasonably be expected to impose a
material liability on either Borrower.
Section 3.4 Taxes. Holding and Borrower have filed all federal, state and
local tax returns required to be filed and has paid or made provision for the
payment of all taxes due and payable pursuant to such returns and pursuant to
any assessments made against it or any of its property (other than taxes, fees
or charges the amount or validity of which is currently being contested in good
faith by appropriate proceedings and with respect to which reserves in
accordance with GAAP have been provided on the books of Holding or Borrowers).
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<PAGE>
Section 3.5 Subsidiaries. Except for Ullenberg, which is a subsidiary of
Imperial, neither Borrower has any subsidiaries.
ARTICLE IV
AFFIRMATIVE COVENANTS
Until this Agreement shall have expired or been terminated and all of
Borrowers' Obligations to Lender shall have been paid in full, unless Lender
shall otherwise consent in writing:
Section 4.1 Financial Statements and Reports. Borrowers will furnish to
Lender:
(a) As soon as available and in any event within ninety (90) days
after the end of each fiscal year of Holding, audited consolidated
financial statements of Holding consisting of at least statements of
income, cash flow and changes in stockholders' equity, and a balance sheet
as at the end of such year, setting forth in each case in comparative form
corresponding figures from the previous fiscal year of Holding, together
with a report and opinion of Blackman, Kallick & Bartelstein, or such other
independent certified public accountants selected by Borrowers and
acceptable to Lender.
(b) As soon as available and in any event within fifteen (15) days
after the end of fiscal month, unaudited consolidated financial statements
of Holding for such month and for the period from the beginning of such
fiscal year to the end of such month, substantially similar to the annual
audited statements.
(c) Concurrently with each request for a loan or advance, and in any
event not less than weekly, a Borrowing Base Certificate.
(d) As soon as practicable and in any event within fifteen (15) days
after the end of each month, (i) a listing of all Accounts, together with
an aging of all Accounts and a reconciliation of such Accounts against the
listing submitted pursuant hereto for the immediately preceding month, (ii)
a list of all Inventory, setting forth the fair market value and cost of
such Inventory and all sales, returns and allowances and miscellaneous
charges, and (iii) a listing of all accounts payable, together with an
aging of all accounts payable all in form and substance satisfactory to
Lender.
(e) As soon as filed, copies of all state and federal tax returns
filed by Holding, Borrowers and Guarantor, together with an updated
personal financial statements of Guarantor in form and substance
satisfactory to Lender as required by the Guaranty.
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<PAGE>
(f) Within five (5) days after the due date, proof of payment or
deposit, when due, of all withholding and F.I.C.A. taxes owing by Holding
or Borrowers from time to time, in form and substance satisfactory to
Lender by a payroll service satisfactory to Lender and whose services
Holding and Borrowers shall at all times retain.
(g) From time to time, such other information regarding the business,
operation and financial condition of Holding or Borrowers as Lender may
reasonably request.
Section 4.2 Corporate Existence. Borrowers will maintain their corporate
existence in good standing under the laws of their jurisdiction of incorporation
and their qualification to transact business in each jurisdiction where failure
so to qualify would preclude Borrowers from enforcing their rights with respect
to any material asset or would expose Borrowers to any material liability.
Section 4.3 Insurance. Borrowers will maintain with financially sound and
reputable insurance companies such insurance as may be required by law and such
other insurance in such amounts and against such hazards as is customary in the
case of reputable corporations engaged in the same or similar business and
similarly situated including, without limitation, such insurance as may be
required under the Security Agreement.
Section 4.4 Payment of Taxes and Claims. Borrowers will file and will cause
Holding to file all tax returns and reports which are required by law to be
filed by them or Holding and will pay before they become delinquent, all taxes,
assessments and governmental charges and levies imposed upon them or Holding or
Borrowers' or Holdings' property and all claims or demands of any kind
(including those of suppliers, mechanics, carriers, warehousemen, landlords and
other like Persons) which, if unpaid, might result in the creation of a Lien
upon its property.
Section 4.5 Inspection. Borrowers will permit any Person designated by
Lender to visit and inspect any of the properties, books and financial records
of Borrowers, to examine and to make copies of the books of accounts and other
financial records of Borrowers, and to discuss the affairs, finances and
accounts of Borrowers with their officers at such reasonable times and intervals
as Lender may designate. Borrowers shall also allow Lender and its agents to
conduct periodic collateral audits of Borrowers' assets at such intervals as
Lender may choose, and Borrowers shall pay to Lender a fee in the amount of
$650.00 per day, per auditor, plus out-of-pocket costs and expenses incurred in
connection with such collateral audits, (provided, that so long as no Event of
Default has occurred and is continuing, Borrowers shall not be required to pay
for more than four (4) collateral audits in any calendar year).
Section 4.6 Maintenance of Properties. Borrowers will maintain its
properties in good condition, repair and working order, and supplied with all
necessary equipment, and make all necessary repairs, renewals, replacements,
betterments and improvements thereto, all as may be necessary so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times.
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Section 4.7 Books and Records. Borrowers will keep adequate and proper
records and books of account in which full and correct entries will be made of
their dealings, business and affairs.
Section 4.8 Compliance. Borrowers will comply in all material respects with
all laws, rules and regulations to which they may be subject.
Section 4.9 Notice of Litigation. Borrowers will give prompt written notice
to Lender of the commencement of any action, suit or proceeding affecting
Borrowers.
Section 4.10 Plans. Borrowers will maintain any employee benefit plans in
compliance with all material requirements of applicable laws and regulations.
Section 4.11 Reaffirmation of Guaranties. When so requested by Lender from
time to time, Borrowers will promptly cause Guarantor or any other Persons who
have guaranteed the obligations of Borrowers hereunder or any part thereof to
execute and deliver to Lender reaffirmations of their respective guaranties in
such form as Lender may require.
Section 4.12 Special Agreements Regarding Accounts.
(a) Collection of Accounts and all other amounts due to Borrowers
shall be subject to the provisions of paragraphs 3 and 4 of the Security
Agreement concerning the Lockbox and Collateral Account (as those terms are
defined in the Security Agreement). Borrowers shall provide to Lender a
daily collection report of all Accounts collected. All collections received
in the Collateral Account and reported to Lender before 2:00 p.m. Chicago
time on any Business Day shall be applied to the payment of loans and
advances (in such order of application as Lender may determine) on the day
so received, or otherwise on the next Business Day; provided however, that
for purposes of determining the interest due and payable on the unpaid
balance of the loans and advances under Section 2.3, all collections
received in the Collateral Account shall be applied to the unpaid balance
of the loans and advances when such collections become finally collected
funds after allowing not less than three (3) Business Days for collection.
At Lender's request, Borrowers will deliver all customer billing statements
to Lender for examination and for mailing in Borrower's stamped and
addressed envelopes.
(b) All ledger sheets or cards, invoices, shipping records,
correspondence and other writings relating to accounts shall, until
delivered to Lender or removed by Lender from Borrower's premises, be kept
on Borrower's premises without cost to Lender in appropriate containers in
safe places.
(c) Upon Lender's demand for payment of the Obligations, Lender may
remove from Borrower's premises all books and records, correspondence,
documents and files relating to accounts; and Lender may without cost or
expense to Lender use such of Borrower's personnel, supplies, space and
equipment at Borrower's place of business as Lender may desire for the
handling of collections. Borrowers will pay and all out-of-pocket expenses
and cost of collection (including reasonable attorney fees) incurred by
Lender in Lender's handling of or effort to enforce collections.
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4.13 Subordinate Debt. Borrowers shall cause any shareholders to which
Borrowers are indebted to subordinate the repayment of such indebtedness to the
repayment of the Obligations by written agreement in form and substance
acceptable to Lender.
ARTICLE V
NEGATIVE COVENANTS
Until this Agreement shall have expired or been terminated and all of
Borrowers' Obligations to Lender shall have been paid in full, unless Lender
shall otherwise consent in writing:
Section 5.1 Merger. Borrower will not merge or consolidate or enter into
any analogous reorganization or transaction with any Person or liquidate, wind
up or dissolve itself (or suffer any liquidation or dissolution).
Section 5.2 Sale of Assets. Borrower will not sell, transfer, lease or
otherwise convey all or any substantial part of their assets except for sales of
Inventory in the ordinary course of business.
Section 5.3 Dividends. Borrower will not pay any dividends or otherwise
make any distributions on, or redemptions of, any of their outstanding stock;
provided, however, that if Borrower shall be eligible and shall have elected "S"
Corporation status in accordance with Sections 1361 et seg. of the Internal
Revenue Code of 1986, as amended, for any fiscal year, Borrowers may pay
dividends on its capital stock to enable its shareholders to pay income taxes on
income of Borrowers for such fiscal year that it is taxable to the shareholder.
Section 5.4 Investment. Borrowers will not make any loans, advances or
extensions to credit to any other Person (except for trade and customer accounts
receivable for Inventory sold or services rendered in the ordinary course of
business and payable in accordance with customary trade terms) or purchase or
acquire any stock or other debt or equity securities of or any interest in any
other Person or any integral part of any business or the assets comprising such
business or part thereof, except for (a) investments in readily marketable
direct obligations issued or unconditionally guaranteed by the United States
government or any agency thereof and supported by the full faith and credit of
the United States or (b) certificates of deposit or bankers' acceptances issued
by any commercial bank organized under the laws of the United States or any
State thereof which has (i) combined capital and surplus of at least
$100,000,000 and (ii) a credit rating with respect to its unsecured indebtedness
from a nationally recognized rating service that is satisfactory to Lender.
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Section 5.5 Indebtedness. Borrowers will not borrow any money or issue any
bonds, debentures or other debt securities or otherwise become obligated on any
interest bearing indebtedness except for the loans and advances under this
Agreement, subordinated debt provided for in Section 4.13 and existing
indebtedness as disclosed on the most recent financial statement of Holding
referred to in Section 4.1.
Section 5.6 Liens. Borrowers will not create, incur, assume or suffer to
exist any Lien, or enter into any arrangement for the acquisition of any
property through conditional sale, lease-purchase or other title retention
agreements except for (a) Liens granted to Lender, (b) Liens existing on the
date of this Agreement and disclosed in those UCC or other Lien searches
referred to in Section 6.1 (a) (iv) which are consented to by Lender, (c)
deposits or pledges to secure payment of workers' compensation, unemployment
insurance, old age pensions or other social security obligations arising in the
ordinary course of business of Borrowers, (d) Liens for taxes, fees, assessments
and governmental charges not delinquent, (e) Liens of carriers, warehousemen,
mechanics and material men, and other like Liens arising in the ordinary course
of business, for sums not due, (f) Liens incurred or deposits or pledges made or
given in connection with, or to secure payment of, indemnity, performance or
other similar bonds, or (g) encumbrances in the nature of zoning restrictions,
easements and rights or restrictions of record on the use of real property.
Section 5.7 Contingent Obligations. Borrowers will not guaranty or
otherwise become liable on the indebtedness of any other Person.
Section 5.8 Change in Control. Borrowers will not allow a Change in Control
to occur.
Section 5.9 Advance Ratio. Borrowers shall not permit the ratio of the
outstanding principal amount of the Obligations representing Revolving Loans
against Eligible Inventory to the outstanding principal amount of the
Obligations representing Revolving Loans against Eligible Accounts to exceed (i)
.9 to .10 at any time when the Seasonal Increase is not in effect, and (ii) 1.5
to 1.0 at any time when the Seasonal Increase is in effect.
ARTICLE VI
CONDITIONS PRECEDENT
Section 6.1 Conditions Precedent.
(a) The obligation of Lender to fund the Revolving Loans is subject to
the satisfaction or waiver on or before the Closing Date of the following
conditions precedent:
(i) Lender shall have received executed originals of each of the
Loan Documents, agreement, opinions, reports, approvals, consents,
certificates and other documents set forth on the closing document
list attached hereto as Schedule 6.1(a) in form and substance
acceptable to it in its sole discretion;
(ii) Since December 31, 1998, no event shall have occurred which
has had or could reasonably be expected to have a material adverse
effect on Holding or Borrowers' financial condition, operations or
ability to pay and perform the Obligations ("Material Adverse
Effect"), as determined by Lender in its sole discretion;
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(iii) Lender shall have received all fees and other amounts due
and payable by Borrowers on or prior to the Closing Date, including
the reasonable fees and expenses of counsel to Lender payable pursuant
to Section 8.2;
(iv) The Security Agreement and/or any and all financing
statements with respect thereto shall have been appropriately filed to
the satisfaction of Lender; Lender shall have received UCC searches
and/or other Lien searches satisfactory to Lender; and the priority
and perfection of the Liens created by the Security Agreement in favor
of Lender shall have been established to the satisfaction of Lender;
and
(v) Borrowers shall have available borrowing capacity under the
advance formulas set forth in Section 2.1(a) of not less than $250,000
after application of loan proceeds required to repay in full all
outstanding indebtedness secured by a Lien senior to the Lien of
Lender and to retain all outstanding vendor obligations in excess of
their required payment terms.
(b) After the Closing Date, the obligation of Lender to make any
requested Revolving Loans is subject to the satisfaction of the conditions
precedent set forth below. Each such request shall constitute a
representation and warranty that such conditions are satisfied:
(i) All representations and warranties contained in this
Agreement and the Loan Documents shall be true and correct on and as
of the date of such request, as if then made, other than
representations and warranties that relate solely to an earlier date;
(ii) No Event of Default shall then exist or would exist as a
result of the making of the requested loan or advance; and
(iii) Since December 31, 1998, no event has occurred which has
had or could reasonably be expected to have a Material Adverse Effect.
ARTICLE VII
TERMINATION BY BORROWERS
This agreement shall continue in effect until terminated upon the earliest
of (i) occurrence of an Event of Default, (ii) not less than thirty (30) days
prior written notice delivered by Borrowers to Lender by certified mail, (iii)
Lender's demand for payment of the Obligations, or (iv) payment by Borrowers of
any accrued obligations due to Borrowers' Affiliate, Rhine Jewelry Limited.
Termination shall not impair or affect Lender's rights existing as of the time
notice of Termination is given. Borrowers' obligations with respect to payment
of any termination fee shall be fixed and owing as of date such notice is given
and not when such notice becomes effective.
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In the event that Borrowers give notice to Lender of the termination of this
Agreement under this Section VII at any time prior to the second anniversary of
the date of this Agreement, Borrowers will pay to Lender a payment charge, as
additional compensation for Lender's costs of entering into this Agreement, in
the amount of (i) five percent (5%) of the Maximum Facility, if notice of
termination occurs prior to the first anniversary of the date of this Agreement;
and (ii) two percent (2%) of the Maximum Facility, if notice of termination
occurs on or after the first anniversary, but prior to the second anniversary of
the date of this Agreement.
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Modifications. Notwithstanding any provisions to the contrary
herein, any term of this Agreement may be amended with the written consent of
Borrowers; provided that no amendment, modification or waiver of any provision
of this Agreement or consent to any departure by Borrowers therefrom shall in
any event be effective unless the same shall be in writing and signed by Lender,
and then such amendment, modification, waiver or consent shall be effective only
in the specific instance and for the purpose for which given.
Section 8.2 Costs and Expenses. Whether or not the transactions
contemplated hereby are consummated, Borrowers agree to reimburse Lender upon
demand for all reasonable out-of-pocket expenses paid or incurred by Lender
(including filing and recording costs and fees and the fees and expenses of
Jenner & Block, counsel to Lender) in connection with the negotiation,
preparation, approval, review, execution, delivery, amendment, modification,
interpretation, collection and enforcement of this Agreement, including all fees
due Lender incurred pursuant to this Agreement. The obligations of Borrowers
under this Section shall survive any termination of this Agreement. In the event
such costs, fees or expenses are not promptly paid by Borrowers on demand,
Lender may set off the amount of any such costs, fees or expenses from funds
avaiable to Borrowers. If Lender elects, Lender may treat the amount of any such
costs, fees or expenses as a loan or advance hereunder.
Section 8.3 Waivers, etc. No failure on the part of Lender to exercise and
no delay in exercising any power or right hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any power or right preclude
any other or further exercise thereof or the exercise of any other power or
right. The right and remedies of Lender hereunder are cumulative and not
exclusive of any right or remedy Lender otherwise has.
Section 8.4 Notices. Except when telephonic or other notice is expressly
authorized by this Agreement, any notice or other communication to any party in
connection with this Agreement shall be in writing and shall be sent by manual
delivery, telegram, telex, facsimile transmission, overnight courier or United
States mail (postage prepaid) addressed to such party at the address specified
on the first page hereof, or at such other address as such party shall have
specified to the other party hereto in writing. All periods of notice shall be
measured from the date of delivery thereof if manually delivered, from the date
of sending thereof if sent by telegram, telex or facsimile transmission, from
the first Business Day after the date of sending if sent by overnight courier,
or from four (4) days after the date of mailing if mailed; provided however,
that any notice to Lender under Article VII hereof shall be deemed to have been
given only when received by Lender.
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Section 8.5 Successors and Assigns: Disposition of Loans. This Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, except that Borrowers may not assign their
rights or delegate its obligations hereunder without the prior written consent
of Lender. Lender may at any time sell, assign, transfer, grant participations
in, or otherwise dispose of any portion of the loans or advances to banks or
other financial institutions. Lender may disclose any information regarding
Borrowers in Lender's possession to any prospective buyer or participant;
provided, however, such parties agree to maintain any non-public information
confidential.
Section 8.6 Offset. Borrowers hereby irrevocably authorize Lender to set
off all sums owing by Borrowers to Lender against all deposits and credits of
Borrowers with, and any and all claims of Borrowers against, Lender. Borrowers
further agree that any bank participating with Lender in loans or advances
hereunder may exercise any and all rights of setoff with respect to such
participation as fully as if such participant had lent directly to Borrowers the
amount of such participation.
Section 8.7 Governing Law and Constitution. THE VALIDITY, CONSTRUCTION AND
ENFORCEABILITY OF THIS AGREEMENT SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE
STATE OF ILLINOIS, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES THEREOF.
Section 8.8 Consent to Jurisdiction. AT THE OPTION OF LENDER, THIS
AGREEMENT MAY BE ENFORCED IN ANY FEDERAL COURT OR ILLINOIS STATE COURT SITTING
IN COOK COUNTY ILLINOIS; AND BORROWERS CONSENT TO THE JURISDICTION AND VENUE OF
ANY SUCH COURT AND WAIVES ANY AGRUMENT THAT VENUE IN SUCH FORUMS IS NOT
CONVENIENT. IN THE EVENT BORROWERS COMMENCE ANY ACTION IN ANOTHER JURISDICTION
OR VENUE UNDER ANY TORT OR CONTRACT THEORY ARISING DIRECTLY OR INDIRECTLY FROM
THE RELATIONSHIP CREATED BY THIS AGREEMENT, LENDER AT ITS OPTION SHALL BE
ENTITLED TO HAVE THE CASE TRANSFERRED TO ONE OF THE JURISDICTIONS AND VENUES
ABOVE-DESCRIBED, OR IF SUCH TRANSFER CANNOT BE ACCOMPLISHED UNDER APPLICABLE
LAW, TO HAVE SUCH CASE DISMISSED WITHOUTH PREJUDICE.
Section 8.9 Waiver of Jury Trial. EACH OF BORROWERS AND LENDER IRREVOCABLY
WAIVES AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OUR
RELATING TO THIS AGREEMENT, THE LOANS AND ADVANCES AND ANY OTHER LOAN DOCUMENTS
OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
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Section 8.10 Indemnification. Borrowers hereby agree to defend, protect,
indemnify and hold harmless Lender and its affiliates and the directors,
officers, employees, attorneys and agents of Lender and its affiliates (each of
the foregoing being an "Indemnitee" and all of the foregoing being collectively
the "Indemnitees") from and against any and all claims, actions, damages,
liabilities, judgements, costs and expenses (including all reasonable fees and
disbursements of counsel which may be incurred in the investigation or defense
of any matter) imposed upon, incurred by or asserted against any Indemnitee,
whether direct, indirect or consequential and whether based on any federal,
state, local or foreign laws or regulations (including securities laws,
environmental laws, commercial laws and regulations), under common law or on
equitable cause, or on contract or otherwise: (a) by reason of, relating to or
in connection with the execution , delivery, performance or enforcement of any
Loan Documents; or (b) by reason of, relating thereto, in connection with any
credit extended or used under the Loan Documents or any act done or omitted by
any Person, or the exercise of any rights or remedies thereunder, including the
acquisition of any collateral by Lender by way of foreclosure of the Lien
thereon, deed or bill of sale in lieu of such foreclosure or otherwise;
provided, however, that Borrowers shall not be liable to any Indemnitee for any
portion of such claims, damages, liabilities and expenses resulting from such
Indemnitee's gross negligence or willful misconduct. In the event this indemnity
is unenforceable as a matter of law as to a particular matter or consequence
referred to herein, it shall be enforceable to the full extent permitted by law.
Section 8.11 Captions. The captions or headings herein and any table of
contents hereto are for convenience only and in no way define, limit or describe
the scope or intent of any provisio of this Agreement.
Section 8.12 Entire Agreement. This Agreement and the other Loan Documents
embody the entire agreement and understanding between Borrowers and Lender with
respect to teh subject matter hereof and thereof. This Agreement supercedes all
prior agreements and understandings relating to the subject matter hereof.
Section 8.13 Counterparts. This Agreement may be executed in any number of
counteparts, all of which taken together shall constitute one and the same
instrument, and either of the parties hereto may execute this Agreement by
signing any such counterpart.
[remainder of page intentionally left blank]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
IMPERIAL WORLD, INC.
By: /s/
----------------------
Title:President & CEO
---------------------
ULLENBERG CORP.
By: /s/
----------------------
Title:President
---------------------
BUSINESS ALLIANCE CAPITAL CORP.
By: /s/
-----------------------
Title:Senior Vice President
----------------------
SETTLEMENT AGREEMENT
SETTLEMENT AGREEMENT ("AGREEMENT") dated as of January 14, 1998, between
RICHARD W. SIGMAN ("SIGMAN") and IMPERIAL WORLD, INC. ("IMPERIAL WORLD"), IWI
HOLDING LIMITED ("IWI"), RHINE HOLDINGS LIMITED ("RHINE HOLDINGS") and RHINE
JEWELLERY LIMITED ("RHINE JEWELLERY") (collectively "the COMPANIES").
WHEREAS, SIGMAN has been employed by IMPERIAL WORLD a wholly-owned
subsidiary of IWI , since January 1, 1995, under the terms of an employment
contract which is effective until December 31, 1998; and
WHEREAS, SIGMAN has simultaneously been employed by RHINE HOLDINGS LIMITED
since January 1, 1995, under the terms of an employment contract which is
effective until December 31, 1998; and
WHEREAS, SIGMAN desires to resign from his offices, including that of chief
financial officer, and full-time employment with the COMPANIES;
WHEREAS, the COMPANIES agree to accept and thereafter honor SIGMAN's
resignation; and
WHEREAS, SIGMAN and the COMPANIES desire to effectuate a final settlement
and compromise of all matters that are or could be in controversy, and which
directly or indirectly relate to or arise out of SIGMAN's employment
relationship with the COMPANIES;
NOW, THEREFORE, in consideration of the mutual covenants and promises
herein contained, SIGMAN and the COMPANIES agree as follows:
<PAGE>
1. Resignation. Immediately upon the COMPANIES' execution of this Agreement
and tender of the funds required by paragraph 3.a., below, SIGMAN shall
tender his resignation from office in a form acceptable to the COMPANIES
and attached hereto as Exhibit A. SIGMAN's resignation from employment
shall be effective at 5:00 p.m. Central Standard Time, February 27, 1998,
unless terminated sooner by mutual agreement of the parties.
2. Duties. During the remainder of January and in February 1998, SIGMAN agrees
to assist in the closing of the books for IWI, IMPERIAL WORLD and their
subsidiaries, for the fiscal year 1997 and to provide such advice and
counsel as may be reasonably requested by Bruce Anderson or such other
person as he may designate.
3. Compensation. As consideration for his resignation from office and
agreement to continue in the employ of IWI and IMPERIAL WORLD, SIGMAN shall
receive the following:
a. Coincident with the execution of this Agreement, the COMPANIES shall
pay to SIGMAN as salary for the period of January 10, 1998 through
January 31, 1998, inclusive the sum of ELEVEN THOUSAND ONE HUNDRED
TWENTY-FOUR and NO/100 DOLLARS ($11,124.00), less only applicable
withholding and payroll taxes. Said payment shall be by cashier's
check or certified funds. Simultaneously, SIGMAN shall receive the sum
of TWENTY-FIVE THOUSAND and NO/100 DOLLARS ($25,000.00), less only
applicable withholding and payroll taxes, from the funds currently
deposited with the Law Firm of Paul M. Bauch pursuant to the terms of
the Escrow Agreement (the "Escrow Agreement"), a copy of which is
attached as Exhibit B.
b. On January 30, 1998, the COMPANIES shall pay SIGMAN the sum of
FOURTEEN THOUSAND EIGHT HUNDRED THIRTY-ONE and 08/100 DOLLARS
($14,831.08), less only applicable withholding and payroll taxes, as
salary for the month of February 1998. Said payment shall be made by
cashier's check or certified funds.
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c. On February 27, 1998, SIGMAN shall receive a final payment of ONE
HUNDRED THOUSAND and NO/100 ($100,000), less only applicable
withholding and payroll taxes, from the funds currently deposited with
the Law Firm of Paul M. Bauch pursuant to the Escrow Agreement.
d. In addition to the above, SIGMAN shall continue to receive his
automobile allowance of SIX HUNDRED and NO/100 ($600.00) per month
during the months of January and February 1998.
The COMPANIES agree and acknowledge that termination of SIGMAN's employment
hereunder, other than for a material breach as determined by James Pierpont and
Joseph Benjamin, prior to the end of business February 27, 1998, will in no way
affect SIGMAN's right to the above described compensation payments.
4. Indemnification. The COMPANIES shall indemnify SIGMAN and hold him harmless
against any and all damages, expenses and attorney's fees relating to any
Claim (as hereinafter defined). As used herein, "Claim" means any
threatened, pending or completed action, suit, proceeding, alternative
dispute resolution mechanism, inquiry, hearing or investigation by or
concerning the COMPANIES, any of their subsidiaries or affiliates, or any
other officer, director, employee or agent, including SIGMAN. SIGMAN agrees
to cooperate and testify, if required, in litigation involving the
COMPANIES, as he may be reasonably requested, and IWI will pay SIGMAN a per
diem rate equal to the greater of $250 or 20% of his then current weekly
salary for each day, or part thereof, he spends in connection with such
litigation. In addition, IWI will reimburse SIGMAN for his reasonable
out-of-pocket and travel expenses, including economy class air fare and
lodging. SIGMAN acknowledges that the per diem rate will not apply to those
days he may be required to appear at trial if he remains an individual
named defendant in the presently pending litigation.
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5. Health Insurance. IWI shall provide SIGMAN with continued health and dental
insurance for family coverage at no cost to SIGMAN through August 31, 1998,
or until such time as SIGMAN shall be covered by another such policy,
whichever is first to occur. In addition, IWI shall make continued health
and dental insurance available to SIGMAN under COBRA after August 31, 1998,
should SIGMAN not be covered by another policy at that time.
6. Waiver of Claims. SIGMAN and the COMPANIES agree that they each have
certain know monetary claims against each other. The parties agree that as
a result of this Agreement, all such claims are hereby waived and released,
including claims by SIGMAN for accrued vacation pay due him at the
execution of this Agreement.
7. Companies To Provide References And Refrain From Disparaging Remarks.The
COMPANIES agree that they will provide SIGMAN with favorable references
should they be asked to do so and they further agree the neither they nor
any of their directors, officers, employees or agents will disparage SIGMAN
or any of his services to the COMPANIES at any time or in any manner
whatsoever. SIGMAN agrees that he will not disparage the COMPANIES or their
employees. Should any party to this Agreement or any of their directors,
officers, employees or agents breach this obligation, the non-breaching
party may commence appropriate litigations to recover damages, actual and
punitive, caused by any and all such remarks or comments, in the Circuit
Court of Cook County, Illinois or the United States District Court for the
Northern District of Illinois, which ever is appropriate, and the parties
agree that they will not contest such court's jurisdiction and by execution
of this Agreement do consent to said jurisdiction.
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<PAGE>
8. Release of Companies. SIGMAN, individually, and on behalf of his heirs,
assignees and legal representatives, hereby releases and forever discharges
the COMPANIES and their directors, officers, employees, and agents, past,
present and future, and their respective successors and assignees
(hereinafter collectively referred to as the "Releases"), from any and all
known or unknown actions, causes of action, claims, damages, suits,
obligations, agreements, attorney's fees or any other liabilities of any
kind whatsoever which have or could be asserted against the Releases
arising out of or related to his employment with and/or separation from
employment with the COMPANIES and/or any of the other Releases and/or any
other occurrence up to and including the date of this Agreement, including
all claims of discrimination of any kind under state, federal or local law,
including but not limited to claims of age discrimination under the AGE
DISCRIMINATION IN EMPLOYMENT ACT of 1967, as amended, but excluding any
claims which by law SIGMAN cannot waive.
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<PAGE>
9. Release of SIGMAN. The COMPANIES hereby irrevocably waive, release and
discharge SIGMAN from any and all actions, causes of action, claims,
damages, suits, obligations, agreements, attorney's fees or other
liabilities, known or unknown, pending or threatened, which the COMPANIES
now have, own, or hold, or claim to have, own, or hold, or which the
COMPANIES at any time heretofore had, owned, or held, or claimed to have
had, owned, or held, as of the date of this Agreement.
10. Right To Consult Attorney.SIGMAN acknowledges that he has been give
twenty-two (22) days to consider this Agreement thoroughly, that he has
been encouraged to consult with his personal attorneys before signing the
Agreement, and that he did so consult with his personal attorney before he
signed the Agreement.
11. Right of Revocation. SIGMAN understands that he may revoke this Agreement
within seven (7) days after its signing, that any revocation must be made
in writing and submitted within such seven-day period to the President of
IMPERIAL WORLD, INC., and that if he does so revoke this Agreement, he will
be required to reimburse the COMPANIES the funds advanced to him under the
provisions of paragraph 2 above.
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12. Acknowledgment Of Release.SIGMAN AND THE COMPANIES AGREE AND UNDERSTAND
THAT THIS AGREEMENT INCLUDES A RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS.
13. Severability. The parties hereto acknowledge and agree that if any
provision of this Agreement is found, held or deemed by a court of
competent jurisdiction to be void, unlawful or unenforceable under any
applicable statute or controlling law, the remainder of this Agreement
shall remain in full force and effect.
14. Governing Law. This Agreement shall be governed by the law of the State of
Illinois.
15. Notices. All notices or communications hereunder shall be in writing,
addressed as follows:
To the COMPANIES:
IWI Holding Limited
1010 Executive Court
Westmont, Illinois 60559
with a copy to:
Andrew J. Boling, Esq.
Baker & McKenzie
One Prudential Plaza
130 East Randolph Drive
Chicago, Illinois 60601
To SIGMAN:
Mr. Richard W. Sigman
15050 Normandy Woods Lane
Winfield, Illinois 60190
with a copy to:
Alan L. Fulkerson, Esq.
Riordan & Larson
208 S. LaSalle St., Suite 650
Chicago, Illinois 60604
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16. Entire Agreement. This Agreement represents the complete and entire
agreement between SIGMAN and the COMPANIES, and there are no conflicting,
additional, or supplementary oral terms or conditions between the parties
with respect thereto. Further, this Agreement supersedes all prior
agreements, oral or written, including, but not limited to SIGMAN's
employment agreements with Imperial World and Rhine Holdings. This
Agreement may be amended at any time by mutual written agreement signed by
the parties.
17. 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.
IN WITNESS WHEREOF SIGMAN, the COMPANIES have caused this Agreement to be
executed as of the day and year first above written.
/s/ Richard W. Sigman
------------------------------
RICHARD W. SIGMAN
IMPERIAL WORLD, INC.
By:/s/ Bruce Anderson
------------------------
Its President & CEO
------------------------
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IWI HOLDING LIMITED
By: /s/ Bruce Anderson
-------------------------
Its President & CEO
-------------------------
RHINE HOLDINGS LIMITED
By: /s/
-------------------------
Its
-------------------------
RHINE JEWELLERY LIMITED
By: /s/
------------------------
Its
------------------------
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SETTLEMENT AGREEMENT
SETTLEMENT AGREEMENT ("AGREEMENT") dated as of July 17, 1998, between BRUCE
W. ANDERSON ("ANDERSON") and IMPERIAL WORLD, INC. ("IMPERIAL WORLD") and IWI
HOLDING LIMITED ("IWI") (collectively "the COMPANIES").
WHEREAS, ANDERSON has been employed by IMPERIAL WORLD a wholly-owned
subsidiary of IWI, since July 1, 1996, under the terms of an employment contract
which is effective until June 30, 2001 (the "EMPLOYMENT CONTRACT"); and
WHEREAS, the COMPANIES and ANDERSON wish to terminate the EMPLOYMENT
CONTRACT effective July 17, 1998; and
WHEREAS, the COMPANIES and ANDERSON desire to effectuate a final settlement
and compromise of all matters that are or could be in controversy, and which
directly or indirectly relate to or arise out of ANDERSON'S employment
relationship with the COMPANIES;
NOW THEREFORE, in consideration of the mutual covenants and promises herein
contained, ANDERSON and the COMPANIES agree as follows:
1. Termination. The parties hereby terminate the EMPLOYMENT CONTRACT effective
at 3:00 p.m. Central Standard Time, July 17, 1998.
2. Fees And Compensation. Coincident with the execution of this AGREEMENT and
in consideration for the termination of the EMPLOYMENT CONTRACT, ANDERSON
will receive the following:
1
<PAGE>
Salary through July 17, 1998 less applicable withholding and payroll taxes.
Severance in the amount of NINETY-FIVE THOUSAND DOLLARS and NO/100 DOLLARS
($95,000) and consulting fees in the amount of ONE HUNDRED and FIFTY
THOUSAND and NO/100 DOLLARS ($150,000) in return for rendered services as
needed between July 20, 1998 and December 31, 1998 to be paid as outlined
in Exhibit A. If any payment is not received by ANDERSON in accordance with
Exhibit A, the entire balance will be immediately due in full.
July's car allowance in the amount of ONE THOUSAND and NO/100 DOLLARS
($1000).
ONE THOUSAND NINE HUNDRED and EIGHTY SIX and 21/100 DOLLARS ($1,986.21) in
expenses submitted and not reimbursed.
Any expenses incurred on behalf of the COMPANIES through July 17, 1998 that
must be submitted by August 31, 1998.
Matching contributions to ANDERSON's 401K account based on elected
contributions made by ANDERSON from the severance as stated in paragraph 2.
The details is shown in Exhibit A.
Title to the DELL Latitude LM laptop computer in ANDERSON'S possession,
which the parties agree has a fair market value of ONE THOUSAND FIVE
HUNDRED and NO/100 DOLLARS ($1,500.00).
3. Consulting Agreement. ANDERSON hereby agrees to provide consulting services
for up to 40 hours as requested by the COMPANIES from July 20, 1998 to
December 31, 1998. ANDERSON will be available by telephone and able to
attend meetings as necessary. The COMPANIES recognize that ANDERSON may be
involved in other activities that might limit participation at certain
times. Fees as specified in paragraph 2 and Exhibit A will be due
regardless of the time spent or scope of the consulting service provided.
The COMPANIES will reimburse ANDERSON his reasonable out-of-pocket AND
TRAVEL EXPENSES.
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4. Indemnification. The COMPANIES shall indemnify ANDERSON and hold him
harmless against any and all damages, expenses and attorney's fees relating
to any Claim (as hereinafter defined). As used herein, "Claim" means any
threatened, pending or completed action, suit, proceeding, alternative
dispute resolution mechanism, inquiry, hearing or investigation by or
concerning the COMPANIES, any of their subsidiaries or affiliates, or any
other officer, director, employee or agent, including ANDERSON. ANDERSON
agrees to cooperate and testify, if required, in litigation involving the
COMPANIES, as he may be reasonably requested, and the COMPANIES will pay
ANDERSON a per diem rate equal to the greater of $500 or 25% of his then
current weekly salary for each day, or part thereof, he spends in
connection with such litigation. In addition, the COMPANIES will reimburse
ANDERSON for his reasonable out-of-pocket and travel expenses.
5. Health Insurance. IWI shall provide ANDERSON with continued health and
dental insurance for family coverage at no cost to ANDERSON through July
31, 1999 or until ANDERSON is covered by another such policy, whichever
occurs first. IWI shall make continued health and dental insurance
available under COBRA after July 31, 1999, if ANDERSON is not covered by
another policy at that time.
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6. COMPANIES To Provide References And Refrain From Disparaging. Remarks. The
COMPANIES agree that they will provide ANDERSON with favorable references
should they be asked to do so and they further agree that neither they nor
any of their directors, officers, employees or agents will disparage
ANDERSON or any of his services to the COMPANIES at any time or in any
manner whatsoever. ANDERSON agrees that he will not disparage the COMPANIES
or any of their directors, officers, employees or agents.
7. Waiver of Non-compete. The COMPANIES hereby waive and release ANDERSON from
all non-compete restrictions as outlined in the EMPLOYMENT CONTRACT between
ANDERSON and the COMPANIES.
8. Non-Disclosure Agreement. ANDERSON acknowledges that the information,
techniques, processes, developments, work in progress, and any other trade
secret or other secret or confidential information relating to the
COMPANIES' are valuable, special and unique assets of the COMPANIES'
business. Therefore, ANDERSON agrees to hold in strictest confidence and
not disclose, reproduce, publish or use in any manner, without the
expressed authorization of the Board of Directors of the COMPANIES, any
information, design, manufacturing technique, process, trade secrets or any
other secrets or confidential matter related to any aspect of the
COMPANIES' business.
9. Security Agreement. In order to secure payments, the COMPANIES agree to
sign a security agreement which ANDERSON understands would be subject to
the approval of any lending institution and subordinated to any debt due to
a lending institution and any other previously filed security agreements.
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10. Sale of the COMPANIES or Assets. If the stock or principal assets of the
COMPANIES are sold before the final payment being made as specified in this
AGREEMENT, the COMPANIES agree to immediately pay the entire outstanding
balance of this AGREEMENT at closing.
11. Release Of COMPANIES. Subject to the terms and conditions of this
AGREEMENT, ANDERSON, individually, and on behalf of his heirs, assignees
and legal representatives, hereby releases and forever discharges the
COMPANIES and their directors, officers, employees, and agents, past,
present and future, and their representative successors and assignees
(hereinafter collectively referred to as the Releases"), from any and all
known and unknown actions, causes of action, claims, damages, suits,
obligations, agreements, attorneys' fees or any other liabilities of any
kind whatsoever which have or could be asserted the Releases arising out of
or related to his employment with and/or separation from employment with
the COMPANIES and/or any of the other Releases and/or any other occurrence
up to and including the date of this AGREEMENT, including all claims of
discrimination of any kind under state, federal, or local law.
12. Release Of ANDERSON. Subject to the terms and conditions of this AGREEMENT,
the COMPANIES hereby irrevocably waive, release and discharge ANDERSON from
any and all actions, causes of action, claims, damages, suits, obligations,
agreements, attorneys' fees or other liabilities, known or unknown, pending
or threatened, which the COMPANIES now have, own or hold, or claim to have,
own or hold, or which the COMPANIES at any time heretofore had, owned, or
held, or claimed to have had, owned, or held, as of the date of this
AGREEMENT.
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13. Right To Consult Attorney. ANDERSON acknowledges that he has been given
twenty-two (22) days to consider this AGREEMENT thoroughly, that he has
been encouraged to consult with his personal attorneys before signing the
AGREEMENT, and that he did so consult with his personal attorney before he
signed the AGREEMENT.
14. Right Of Revocation. ANDERSON understands that he may revoke his agreement
within seven (7) days after its signing, that any revocation must be made
in writing and submitted within such seven-day period to Joseph K. Lau of
IMPERIAL WORLD, INC., and if he does so revoke this AGREEMENT, he will be
required to reimburse the COMPANIES the funds advanced to him under the
provisions of paragraph 2 above.
15. Acknowledgment Of Release. SUBJECT TO THE TERMS AND CONDITIONS OF THIS
AGREEMENT, ANDERSON AND THE COMPANIES AGREE AND UNDERSTAND THAT THIS
AGREEMENT INCLUDES A RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS.
16. Severability. The parties hereto acknowledge and agree that if any
provision of this AGREEMENT is found, held or deemed by a court of
competent jurisdiction to be void, unlawful or unenforceable under any
applicable statute or controlling law, the remainder of this AGREEMENT
shall remain in full force and effect.
17. Governing Law. This AGREEMENT shall be governed by the internal laws of the
State of Illinois.
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18. Notices. All notices or communications hereunder shall be in writing,
addressed as follows:
To the COMPANIES:
IWI Holding Limited
1010 Executive Court, Suite 300
Westmont, Illinois 60559
To ANDERSON: with a copy to:
Bruce W. Anderson Mr. Thomas R. Palmer Esq.
85 Ventura Court Meltzer, Purtill, & Stelle
Naperville, Illinois 60540 Schaumburg Corp. Center, Suite 250
1515 East Woodfield Road
Schaumburg, Illinois 60173
19. Entire Agreement. This AGREEMENT represents the complete and entire
AGREEMENT between ANDERSON and the COMPANIES, and there are no conflicting,
additional, or supplementary oral terms or conditions between the parties
with respect hereto. Further, this AGREEMENT supersedes all prior
agreements, oral or written, including, but not limited to ANDERSON'S
EMPLOYMENT CONTRACT with IMPERIAL WORLD, INC. This AGREEMENT may be amended
at any time by the mutual written agreement signed by the parties.
20. 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. IN WITNESS WHEREOF ANDERSON, the
COMPANIES have caused this AGREEMENT to be executed as of July 17, 1998.
/s/ Bruce W. Anderson
- ----------------------
BRUCE W. ANDERSON
By: /s/ Joseph K. Lau
-------------------
JOSEPH K. LAU
Senior Vice-President/COO
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FIRST AMENDMENT TO LEASE
This FIRST AMENDMENT TO LEASE ("Amendment") is made as of the 5th day of
November, 1998 by and between 1010 Executive Court LLC, a Delaware limited
liability company ("Landlord") and World Pacific Jewelry, a division of Imperial
World, Inc. ("Tenant").
RECITALS
A. American National Bank and Trust of Chicago, as Trustee under Trust Number
106595-06 ("Original Landlord"), and Tenant entered into that certain
Office Lease dated October 15, 1993 (as amended from time to time, the
"Lease"). The Lease was modified by Letter Agreement dated July 5, 1994.
The Lease demises premises in the building commonly known as 1010 Executive
Court, Westmont, Illinois ("Building"). Landlord purchased the Building and
has succeeded to the interest formally held by Original Landlord under the
Lease. All initially capitalized terms used and not otherwise defined
herein shall have the meanings respectively ascribed to them in the Lease.
B. Landlord and Tenant desire to amend the Lease to diminish the Premises by
12,245 rentable square feet (the "TSS Premises"). The TSS Premises are
depicted on Exhibit A attached hereto and made a part hereof. The TSS
Premises are to be leased to Technology Service Solutions pursuant to a
lease to be executed simultaneously herewith the (the "TSS Lease"). To
induce Landlord to execute this Amendment, Tenant has agreed to pay all
costs and expenses associated with the TSS Lease.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein and other good and valuable consideration, the sufficiency and
receipt of which are hereby acknowledge, Landlord and Tenant hereby agree as
follows:
1. The foregoing Recitals are incorporated herein by reference.
2. (a) Subject to paragraph 9 below, the Month Base Rent provided for in
Paragraph 1G of the Lease shall be amended and restated as follows
from and after the Effective Date (defined below):
Months Monthly Base Rent
December 1998 - October 1999 $10,091.66
November 1999 - October 2000 $10,394.40
November 2000 - October 2001 $10,706.24
November 2001 - October 2002 $11,027.42
November 2002 - November 2003 $11,358.25
To the extent the Effective Date occurs after November 30, 1998, until the
Effective Date Monthly Base Rent shall continue as in effect prior to the
execution hereof.
<PAGE>
3. As of the Effective Date, the TSS Premises are hereby deleted from the
Premises. The Rentable Area of the Premises specified in Paragraph 1K
of the Lease is hereby modified from 25,573 square feet to 13,327
square feet.
4. Tenant's Pro Rata Share as set forth in Paragraph 1M of the Lease is
hereby diminished from 40.24% to 20.97% as of Effective Date;
provided, however, that with respect to Taxes and Operating Expenses
pertaining to the period prior to the Effective Date, Tenant's Pro
Rata Share shall continue to be 40.24%.
5. The payee of rent specified in Paragraph 1H is modified to Heartland
Commercial, Inc. or such other payee as Landlord shall from time to
time inform Tenant in writing.
6. The address for payment of rent specified in Paragraph 1I is modified
to c/o Heartland Commercial, Inc. 1111 Pasquinelli Dr., Westmont,
Illinois 60559 or such other address as Landlord shall from time to
time inform Tenant in writing.
7. Landlord and Tenant confirm that as and after the Effective Date the
"entire Premises" will no longer be occupied by Tenant in accordance
with the requirements of Section 57 of the Lease. Therefore, the Right
of First Offer contained in said section shall be of no further force
or effect.
8. Tenant shall construct a demising wall demising the Premises from the
TSS Premises, construct a second entrance to the TSS Premises and
shall modify utilities (except that electricity and HVAC need not be
demised), mechanical restrooms and ADA in accordance with the
specifications contained in Exhibit B attached hereto and made a part
hereof and the construction drawings described in Exhibit C attached
hereto and made a part hereof. The contractor for such work and, the
general contract shall be subject to Landlord's prior written consent,
such consent not be unreasonably withheld. Tenant shall pay all costs
and expenses associated therewith and shall promptly discharge any
mechanic's liens arising out of such work. Upon completion of such
work, Tenant shall notify Landlord and shall provide Landlord with a
sworn statement and final paid lien waivers. Landlord shall promptly
upon such completion and receipt of such sworn statement and lien
waivers inspect such work and upon Landlord's approval thereof (not to
be unreasonably withheld or delayed) Landlord shall send notice to
Tenant and Technology Service Solutions. If Tenant causes all of the
foregoing to occur on or before December 20, 1998, the "Effective
Date" shall be deemed to have occurred on November 30, 1998. If all of
the foregoing do not occur on or before December 20, 1998, this
Amendment shall terminate and all of Tenant's obligations under the
Lease shall be reinstated in full.
9. Tenant had previously agreed to pay to Landlord the following expenses
associated with Landlord's entry into the TSS Lease: (I) $61,230,
being the tenant allowance payable by Landlord un the TSS Lease, (ii)
$4,000, being the estimated legal costs of the TSS Lease, legal costs
of preparation of this Amendment and supervision and oversight of the
demising work and (iii) $46,225 (the "Brokerage Payment") being the
brokerage commissions payable to CB Commercial Real Estate Services,
GVA Williams and Heartland Commercial, Inc. (collectively, the
"Brokers") in connection with the execution of the TSS Lease. In lieu
of such payment up front by Tenant and as an essential part of the
consideration for Landlord's execution of this Amendment, Tenant
agrees to pay to Landlord $9848.17 per month on the first day of each
calendar month of 1999, (for a total of twelve payments equal to the
foregoing expenses plus interest thereon at thirteen percent (13%) per
annum). Said amount shall be considered an increase in the rental
payable hereunder and in the event of default by Tenant with respect
to payment thereof shall be subject to acceleration by Landlord. Any
portion of the principal of said sum which is not paid when due
(whether on the stated monthly dated or upon acceleration) shall bear
interest at the rate of eighteen percent (18%) per annum.
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10. Landlord agrees to apply the Brokerage Payment to the commissions owed
to the Brokers when due. Tenant represents and warrants to Landlord
that Tenant has dealt with no other Broker in connection with entry
into this Amendment or discussions previously carried out on behalf of
Tenant as a potential sublandlord of the TSS Premises. Tenant agrees
to indemnify Landlord against any claim, action, loss, liability, cost
or expense (including reasonable attorneys' fees and expenses) in
connection with any claim or action by any broker or finder other than
the Brokers alleging to have dealt with Tenant (or any agent of Tenant
or party acting on behalf of Tenant) in connection with the entry into
this Amendment or the leasing of the TSS Premises.
11. After the Effective Date, Tenant and TSS shall each pay their pro rata
share of electricity and HVAC bills when due in proportion to the
square footage of their respective spaces. Tenant's proportionate
share of such bills shall be 52%. Notwithstanding the foregoing, if
use by TSS and Tenant is disproportionate to their respective square
footages, at the written request of Tenant or TSS Landlord shall
equitably adjust such percentages. Landlord's good faith determination
shall be binding and conclusive.
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EXECUTED as of the date first above written.
LANDLORD:
1010 Executive Court LLC
By: Allegis Realty Investors LLC, Manager
By:
-------------------------------------
Its:
------------------------------------
COUNTERPART SIGNATURE PAGE TO
FIRST AMENDMENT TO LEASE
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TENANT:
World Pacific Jewelry, a division of Imperial World, Inc.
By:
-----------------------------------
Its:
----------------------------------
COUNTERPART SIGNATURE PAGE TO
FIRST AMENDMENT TO LEASE
SHARE AND CLAIM PURCHASE AGREEMENT
THIS SHARE AND CLAIM PURCHASE AGREEMENT (hereinafter referred to as this
"Agreement") is entered into as of this day of August 1998, by and between DACO
(USA), INC., a Nevada corporation (hereinafter referred to as "DACO-USA"), and
IWI HOLDING LIMITED and its wholly owned subsidiary IMPERIAL WORLD, INC.
(collectively referred to as "IMPERIAL" and individually referred to as
"LIMITED" and the "SHAREHOLDER," respectively) upon the following premises:
Premises
----------
WHEREAS, DACO-USA is a privately held corporation organized under the laws
of the State of Nevada, recently incorporated for the purpose of accomplishing
this purchase;
WHEREAS, DACO MANUFACTURING LIMITED ("DACO-CANADA") is a privately held
corporation organized under the laws of the province of Ontario, Canada and is
engaged in the manufacturing and distributing of moderately priced gold, silver
and costume jewelry in Canada;
WHEREAS, the SHAREHOLDER, a corporation organized under the laws of
Illinois, is the sole shareholder of DACO-CANADA;
WHEREAS, IMPERIAL and its affiliates have made certain advances and sold
inventory to DACO-CANADA, and have not received payment in full for such
advances and inventory (defined below as the "Intercompany Claim"); and
WHEREAS, pursuant to negotiations amongst management of the constituent
corporations, DACO-USA, and the SHAREHOLDER desire to transfer shares
representing one hundred (100%) percent (100.00%) of the issued and outstanding
stock of DACO-CANADA in exchange for one thousand dollars ($1,000) and a royalty
payment as detailed herein;
WHEREAS, DACO-USA desires to purchase and IMPERIAL wishes to sell the
Claims for the purchase price of four hundred ninety-nine thousand dollars
($499,000), and in accordance with the terms set forth herein;
Agreement
-----------
NOW THEREFORE, for and in consideration of the mutual covenants and
agreements hereinafter set forth and the mutual benefits to the parties to be
derived herefrom, it is hereby agreed as follows:
<PAGE>
ARTICLE I
REPRESENTATIONS, COVENANTS, AND WARRANTIES
OF IMPERIAL
As an inducement to, and to obtain the reliance of DACO-USA, except as set
forth on the DACO-CANADA Schedules (as hereinafter defined), IMPERIAL represents
and warrants as follows:
Section 1.01 Organization. DACO-CANADA is a corporation duly organized,
validly existing, and in good standing under the laws of Canada and has the
corporate power and is duly authorized, qualified, franchised, and licensed
under all applicable laws, regulations, ordinances, and orders of public
authorities to own all of its properties and assets and to carry on its business
in all material respects as it is now being conducted, including qualification
to do business as a foreign corporation in the states or countries in which the
character and location of the assets owned by it or the nature of the business
transacted by it requires qualification, except where failure to be so qualified
would not have a material adverse effect on its business. Included in the
DACO-CANADA Schedules are complete and correct copies of the organizational
documents of DACO-CANADA and each of its subsidiaries, if any, as in effect on
the date hereof.
Section 1.02 Capitalization and Ownership. The authorized capitalization of
DACO-CANADA consists of an unlimited number of common stock, of which one share
is currently issued and outstanding. All issued and outstanding shares are
legally issued, fully paid, and non-assessable and not issued in violation of
the preemptive or other rights of any person. The Shareholder hereby represents
and warrants that it is the legal and beneficial owner of the only outstanding
share of DACO-CANADA common stock, which constitutes 100% of all of
DACO-CANADA'S outstanding shares, free and clear of any claims, charges,
equities, liens, security interests, and encumbrances whatsoever, including but
not limited to any marital or community property interest, and that it has full
right, power, and authority to transfer, assign, convey, and deliver its
DACO-CANADA shares; and delivery of such shares at the Closing will convey to
DACO-USA good and marketable title to such shares and clear of any claims,
charges, equities, liens, security interests and encumbrances whatsoever.
Section 1.03 Subsidiaries and Predecessor Corporations. DACO-CANADA does
not have any predecessor corporation(s) or subsidiaries, and does not own,
beneficially or of record, any shares of any other corporation, except as
disclosed in the DACO-CANADA Schedules. For purposes hereinafter, the term
"DACO-CANADA" also includes those subsidiaries, if any, set forth on the
DACO-CANADA Schedules.
Section 1.04 Financial Statements.
(a) Included in the DACO-CANADA Schedules are the audited balance
sheets of DACO-CANADA as of December 31, 1997 and December 31, 1996, and
the related audited statements of operations, stockholders' equity and cash
flows for the two fiscal years ended December 31, 1997 and December 31,
1996, together with the notes to such statements and the opinion of Ernst &
Young, LLP, independent certified public accountants, with respect thereto.
Also included in the DACO-CANADA schedules are the unaudited balance sheets
of DACO-CANADA as of June 30, 1998, and the related statements of
operations, and cash flows for the quarter ended June 30, 1998.
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<PAGE>
(b) All such financial statements have been prepared in accordance
with generally accepted accounting principles. The DACO-CANADA balance
sheets present a true and fair view as of the dates of such balance sheets
of the financial condition of DACO-CANADA. DACO-CANADA did not have, as of
the dates of such balance sheets, except as and to the extent reflected or
reserved against therein, any liabilities or obligations (absolute or
contingent) which should be reflected in the balance sheets or the notes
thereto, prepared in accordance with generally accepted accounting
principles, and all assets reflected therein are properly reported and
present fairly the financial condition of the assets of DACO-CANADA in
accordance with generally accepted accounting principles.
(c) DACO-CANADA has no liabilities with respect to the payment of any
federal, state, county, local or other taxes (including any deficiencies,
interest or penalties), except for taxes accrued but not yet due and
payable.
(d) DACO-CANADA has filed all state, federal or local income and/or
franchise tax returns required to be filed by it from inception to the date
hereof. Each of such income tax returns reflects the taxes due for the
period covered thereby, except for amounts which, in the aggregate, are
immaterial.
(e) The books and records, financial and otherwise, of DACO-CANADA are
in all material respects complete and correct and have been maintained in
accordance with good business and accounting practices.
(f) All of DACO-CANADA's assets are reflected on its financial
statements, and, except as set forth in the DACO-CANADA Schedules or the
financial statements of DACO-CANADA or the notes thereto, DACO-CANADA has
no material liabilities, direct or indirect, matured or unmatured,
contingent or otherwise.
Section 1.05 Information. The information concerning DACO-CANADA set forth
in this Agreement and in the DACO-CANADA Schedules is complete and accurate in
all material respects and does not contain any untrue statement of a material
fact or omit to state a material fact required to make the statements made, in
light of the circumstances under which they were made, not misleading. In
addition, DACO-CANADA has fully disclosed in writing to DACO-USA (through this
Agreement or the DACO-CANADA Schedules) all information relating to matters
involving DACO-CANADA or its assets or its present or past operations or
activities which (i) indicated or may indicate, in the aggregate, the existence
of a greater than $5,000 liability or diminution in value, (ii) have led or may
lead to a competitive disadvantage on the part of DACO-CANADA or (iii) either
alone or in aggregation with other information covered by this Section,
otherwise have led or may lead to a material adverse effect on the transactions
contemplated herein or on DACO-CANADA, its assets, or its operations or
activities as presently conducted or as contemplated to be conducted after the
Closing Date, including, but not limited to, information relating to
governmental, employee, environmental, litigation and securities matters and
transactions with affiliates.
3
<PAGE>
Section 1.06 Options or Warrants. Except as set forth in the DACO-CANADA
Schedules, there are no existing options, warrants, calls, or commitments of any
character relating to the authorized and unissued DACO-CANADA common stock,
except options, warrants, calls or commitments, if any, to which DACO-CANADA is
not a party and by which it is not bound.
Section 1.07 Absence of Certain Changes or Events. Except as set forth in
this Agreement or the DACO-CANADA Schedules, since December 31, 1997:
(a) there has not been (i) any material adverse change in the
business, operations, properties, assets, or condition of DACO-CANADA or
(ii) any damage, destruction, or loss to DACO-CANADA (whether or not
covered by insurance) materially and adversely affecting the business,
operations, properties, assets, or condition of DACO-CANADA;
(b) DACO-CANADA has not (i) amended its Articles of Incorporation or
By-Laws or applicable incorporation documents; (ii) declared or made, or
agreed to declare or make, any payment of dividends or distributions of any
assets of any kind whatsoever to stockholders or purchased or redeemed, or
agreed to purchase or redeem, any of its capital stock; (iii) waived any
rights of value which in the aggregate are outside of the ordinary course
of business or material considering the business of DACO-CANADA; (iv) made
any material change in its method of management, operation or accounting;
(v) entered into any other material transaction other than sales in the
ordinary course of its business; (vi) made any accrual or arrangement for
payment of bonuses or special compensation of any kind or any severance or
termination pay to any present or former officer or employee; (vii)
increased the rate of compensation payable or to become payable by it to
any of its officers or directors or any of its salaried employees whose
monthly compensation exceeds $1,000; or (viii) made any increase in any
profit sharing, bonus, deferred compensation, insurance, pension,
retirement, or other employee benefit plan, payment, or arrangement made
to, for, or with its officers, directors, or employees;
(c) DACO-CANADA has not (i) borrowed or agreed to borrow any funds or
incurred, or become subject to, any material obligation or liability
(absolute or contingent) except as disclosed herein and except liabilities
incurred in the ordinary course of business; (ii) paid or agreed to pay any
material obligations or liability (absolute or contingent) other than
current liabilities reflected in or shown on the most recent DACO-CANADA
balance sheet, and current liabilities incurred since that date in the
ordinary course of business and professional and other fees and expenses in
connection with the preparation of this Agreement and the consummation of
the transactions contemplated hereby; (iii) other than within the ordinary
course of business, sold or transferred, or agreed to sell or transfer, any
of its assets, properties, or rights (except assets, properties, or rights
not used or useful in its business which, in the aggregate have a value of
less than $1,000), or canceled, or agreed to cancel, any debts or claims
(except debts or claims which in the aggregate are of a value of less than
$1,000); (iv) other than in the ordinary course of business, made or
permitted any amendment or termination of any contract, agreement, or
license to which it is a party if such amendment or termination is
material, considering the business of DACO-CANADA; or (v) issued,
delivered, or agreed to issue or deliver any stock, bonds or other
corporate securities including debentures (whether authorized and unissued
or held as treasury stock); and (d) to the best knowledge of IMPERIAL,
DACO-CANADA has not become subject to any law or regulation which
materially and adversely affects, or in the future may adversely affect the
business, operations, properties, assets, or condition of DACO-CANADA.
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Section 1.08 Title and Related Matters. DACO-CANADA has good and marketable
title to all of its properties, inventory, interests in properties, and assets,
real and personal, which are reflected in the most recent DACO-CANADA balance
sheet or acquired after that date (except properties, inventory, interests in
properties, and assets sold or otherwise disposed of since such date in the
ordinary course of business) free and clear of all liens, pledges, charges, or
encumbrances except (a) statutory liens or claims not yet delinquent; (b) such
imperfections of title and easements as do not and will not materially detract
from or interfere with the present or proposed use of the properties subject
thereto or affected thereby or otherwise materially impair present business
operations on such properties; and (c) as described in the DACO-CANADA
Schedules. Except as set forth in the DACO-CANADA Schedules, DACO-CANADA owns,
free and clear of any liens, claims, encumbrances, royalty interests, or other
restrictions or limitations of any nature whatsoever, any and all products it is
currently manufacturing, including the underlying technology and data, and all
procedures, techniques, marketing plans, business plans, methods of management,
or other information utilized in connection with DACO-CANADA's business. Except
as set forth in the DACO-CANADA Schedules, no third party has any right to, and
DACO-CANADA has not received any notice of infringement of or conflict with
asserted rights of others with respect to any product, technology, data, trade
secrets, know-how, propriety techniques, trademarks, service marks, trade names,
or copyrights which, individually or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would have a materially adverse effect
on the business, operations, financial condition, income, or business prospects
of DACO-CANADA or any material portion of its properties, assets, or rights.
Section 1.09 Litigation and Proceedings. Except as set forth in the
DACO-CANADA Schedules, there are no actions, suits, proceedings, or
investigations pending or, to the knowledge of DACO-CANADA after reasonable
investigation, threatened by or against DACO-CANADA or affecting DACO-CANADA or
its properties, at law or in equity, before any court or other governmental
agency or instrumentality, domestic or foreign, or before any arbitrator of any
kind. IMPERIAL does not have any knowledge of any material default on its part
with respect to any judgment, order, injunction, decree, award, rule, or
regulation of any court, arbitrator, or governmental agency or instrumentality
or of any circumstances which, after reasonable investigation, would result in
the discovery of such a default.
Section 1.10 Contracts.
(a) Except as included or described in the DACO-CANADA Schedules,
there are no "material" contracts, agreements, franchises, license
agreements, debt instruments or other commitments to which DACO-CANADA is a
party or by which it or any of its assets, products, technology, or
properties are bound other than those incurred in the ordinary course of
business (as used in this Agreement, a "material" contract, agreement,
franchise, license agreement, debt instrument or commitment is one which
(i) will remain in effect for more than six (6) months after the date of
this Agreement or (ii) involves aggregate obligations of at least ten
thousand dollars ($10,000));
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(b) All contracts, agreements, franchises, license agreements, and
other commitments to which DACO-CANADA is a party or by which its
properties are bound and which are material to the operations of
DACO-CANADA taken as a whole are valid and enforceable by DACO-CANADA in
all respects, except as limited by bankruptcy and insolvency laws and by
other laws affecting the rights of creditors generally;
(c) DACO-CANADA is not a party to or bound by, and the properties of
DACO-CANADA are not subject to any contract, agreement, other commitment or
instrument, any charter or other corporate restriction, or any judgment,
order, writ, injunction, decree, or award which materially and adversely
affects, the business operations, properties, assets, or condition of
DACO-CANADA; and
(d) Except as included or described in the DACO-CANADA Schedules or
reflected in the most recent DACO-CANADA balance sheet, DACO-CANADA is not
a party to any oral or written (i) contract for the employment of any
officer or employee which is not terminable on 30 days, or less notice;
(ii) profit sharing, bonus, deferred compensation, stock option, severance
pay, pension benefit or retirement plan, (iii) agreement, contract, or
indenture relating to the borrowing of money, (iv) guaranty of any
obligation, other than one on which DACO-CANADA is a primary obligor, for
the borrowing of money or otherwise, excluding endorsements made for
collection and other guaranties of obligations which, in the aggregate do
not exceed more than one year or providing for payments in excess of
$10,000 in the aggregate; (v) collective bargaining agreement; or (vi)
agreement with any present or former officer or director of DACO-CANADA.
Section 1.11 Material Contract Defaults. Except as provided in the
DACO-CANADA Schedules, DACO-CANADA is not in default in any material respect
under the terms of any outstanding contract, agreement, lease, or other
commitment which is material to the business, operations, properties, assets or
condition of DACO-CANADA and there is no event of default in any material
respect under any such contract, agreement, lease, or other commitment in
respect of which DACO-CANADA has not taken adequate steps to prevent such a
default from occurring.
Section 1.12 No Conflict With Other Instruments. The execution of this
Agreement and the consummation of the transactions contemplated by this
Agreement will not result in the breach of any term or provision of, constitute
an event of default under, or terminate, accelerate or modify the terms of any
material indenture, mortgage, deed of trust, or other material contract,
agreement, or instrument to which DACO-CANADA is a party or to which any of its
properties or operations are subject.
Section 1.13 Governmental Authorizations. Except as set forth in the
DACO-CANADA Schedules, DACO-CANADA has all licenses, franchises, permits, and
other governmental authorizations that are legally required to enable it to
conduct its business in all material respects as conducted on the date hereof.
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Section 1.14 Compliance With Laws and Regulations. Except as set forth in
the DACO-CANADA Schedules, to the best of its knowledge DACO-CANADA has complied
with all applicable statutes and regulations of any federal, state, or other
governmental entity or agency thereof, except to the extent that noncompliance
would not materially and adversely affect the business, operations, properties,
assets, or condition of DACO-CANADA or except to the extent that noncompliance
would not result in the occurrence of any material liability for DACO-CANADA.
Section 1.15 Insurance. DACO-CANADA will maintain all of its current
policies of insurance (liability and casualty) during the term of this
Agreement.
Section 1.16 Approval of Agreement. The SHAREHOLDER has approved this
Agreement as evidenced by its signatures hereto; and the board of directors of
LIMITED has approved this Agreement, as evidenced by the corporate resolution
set forth in Schedule 1.16.
Section 1.17 Material Transactions or Affiliations. Set forth in the
DACO-CANADA Schedules is a description of every contract, agreement, or
arrangement between DACO-CANADA and any predecessor and any person who was at
the time of such contract, agreement, or arrangement an officer, director, or
person owning of record, or known by DACO-CANADA to own beneficially, 5% or more
of the issued and outstanding common stock of DACO-CANADA and which is to be
performed in whole or in part after the date hereof or which was entered into
not more than three years prior to the date hereof. Except as disclosed in the
DACO-CANADA Schedules or otherwise disclosed herein, no officer, director, or 5%
shareholder of DACO-CANADA has, or has had since inception of DACO-CANADA, any
known interest, direct or indirect, in any transaction with DACO-CANADA which
was material to the business of DACO-CANADA. There are no commitments by
DACO-CANADA, whether written or oral, to lend any funds, or to borrow any money
from, or enter into any other transaction with, any such affiliated person.
Section 1.18 Labor Relations. DACO-CANADA has not had work stoppage
resulting from labor problems. To the knowledge of IMPERIAL, no union or other
collective bargaining organization is organizing or attempting to organize any
employee of DACO-CANADA.
Section 1.19 Related Party Transactions. DACO-CANADA has purchased
inventory from IMPERIAL or an IMPERIAL subsidiary or affiliate (collectively
"Related Party"). All receivables due and owing as a result of these purchases
at June 30, 1998, and supplemented up to the date of Closing (the "Inventory
Receivables") are shown in Schedule 1.19, along with a description of all
inventory on hand, and on consignment, sold pursuant to the Inventory
Receivables (the "Returnable Inventory"). Additionally, Related Party has made
certain advances to DACO-CANADA relating to Imperial's purchase of DACO-CANADA
from the original shareholders. All advances due and owing at June 30, 1998, and
supplemented up to the date of Closing ("Advances") are shown in Schedule 1.19.
The Inventory Receivables and Advances amount to $980,376.69 and are
collectively referred to as the "Intercompany Claim". No other amounts are due
or owed to any Related Party from DACO-CANADA.
Section 1.20 Bank Accounts; Power of Attorney. Set forth in Schedule 1.20
is a true and complete list of (a) all accounts with banks, money market mutual
funds or securities or other financial institutions maintained by DACO-CANADA
within the past twelve (12) months, the account numbers thereof, and all persons
authorized to sign or act on behalf of DACO-CANADA, (b) all safe deposit boxes
and other similar custodial arrangements maintained by DACO-CANADA within the
past twelve (12) months, and (c) the names of all persons holding powers of
attorney from DACO-CANADA or who are otherwise authorized to act on behalf of
DACO-CANADA with respect to any matter, other than its officers and directors,
and a summary of the terms of such powers or authorizations.
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Section 1.21 DACO-CANADA Schedules. IMPERIAL has delivered to DACO-USA the
following schedules, which are collectively referred to as the "DACO-CANADA
Schedules" and which consist of separate schedules dated as of the date of
execution of this Agreement, all certified by the chief executive officer of
DACO-CANADA as complete, true, and correct as of the date of this Agreement in
all material respects:
(a) Schedule 1.01 through Schedule 1.20 setting forth any exceptions,
information and copies of documents required to be disclosed in the
DACO-CANADA Schedules by Sections 1.01 through 1.20.
(b) a Schedule 1.21(b) containing a list indicating the name and
address of each shareholder of DACO-CANADA together with the number of
shares owned by him, her or it;
(c) a Schedule 1.21(c) containing a description of all real property
owned by DACO-CANADA, together with a description of every mortgage, deed
of trust, pledge, lien, agreement, encumbrance, claim, or equity interest
of any nature whatsoever in such real property;
(d) a Schedule 1.21(d) including copies of all licenses, permits, and
other governmental authorizations (or requests or applications therefor)
pursuant to which DACO-CANADA carries on or proposes to carry on its
business (except those which, in the aggregate, are immaterial to the
present or proposed business of DACO-CANADA);
(e) a Schedule 1.21(e) listing the accounts receivable and notes and
other obligations receivable of DACO-CANADA as of June 30, 1998, or
thereafter other than in the ordinary course of business of DACO-CANADA,
indicating the debtor and amount, and classifying the accounts to show in
reasonable detail the length of time, if any, overdue, and stating the
nature and amount of any refunds, set offs, reimbursements, discounts, or
other adjustments, which are in the aggregate material and due to or
claimed by such debtor; and
(f) a Schedule 1.21(f) listing the accounts payable and notes and
other obligations payable of DACO-CANADA as of June 30, 1998, or that arose
thereafter other than in the ordinary course of the business of
DACO-CANADA, indicating the creditor and amount, classifying the accounts
to show in reasonable detail the length of time, if any, overdue, and
stating the nature and amount of any refunds, set offs, reimbursements,
discounts, or other adjustments, which in the aggregate are material and
due to or claimed by DACO-CANADA respecting such obligations.
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IMPERIAL shall cause the DACO-CANADA Schedules and the instruments and data
delivered to DACO-USA hereunder to be promptly updated after the date hereof up
to and including the Closing Date.
It is understood and agreed that not all of the schedules referred to above
have been completed or are available to be furnished by IMPERIAL. IMPERIAL shall
have until twelve hours prior to Closing to provide such schedules. If IMPERIAL
cannot or fails to do so, or if DACO-USA acting reasonably finds any such
schedules or updates provided after the date hereof to be unacceptable, DACO-USA
may terminate this Agreement prior to Closing, by giving written notice to
DACO-CANADA after the schedules or updates were due to be produced or were
provided.
Section 1.22 Valid Obligation. This Agreement and all agreements and other
documents executed by LIMITED and the SHAREHOLDER in connection herewith
constitute the valid and binding obligation of LIMITED and the SHAREHOLDER,
enforceable in accordance with its or their terms, except as may be limited by
bankruptcy, insolvency, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and subject to the qualification that
the availability of equitable remedies is subject to the discretion of the court
before which any proceeding therefor may be brought.
ARTICLE II
REPRESENTATIONS, COVENANTS, AND WARRANTIES OF DACO-USA
As an inducement to, and to obtain the reliance of the IMPERIAL, except as
set forth in the DACO-USA Schedules (as hereinafter defined), DACO-USA
represents and warrants as follows:
Section 2.01 Organization. DACO-USA is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Nevada and
has the corporate power and is duly authorized, qualified, franchised, and
licensed under all applicable laws, regulations, ordinances, and orders of
public authorities to own all of its properties and assets, to carry on its
business in all material respects as it is now being conducted, and except where
failure to be so qualified would not have a material adverse effect on its
business, there is no jurisdiction in which it is not qualified in which the
character and location of the assets owned by it or the nature of the business
transacted by it requires qualification. Included in the DACO-USA Schedules are
complete and correct copies of the Articles of Incorporation and By-Laws of
DACO-USA as in effect on the date hereof. The execution and delivery of this
Agreement does not, and the consummation of the transactions contemplated hereby
will not, violate any provision of DACO-USA's Articles of Incorporation or
By-Laws. DACO-USA has taken all action required by law, its Articles of
Incorporation, By-Laws, or otherwise to authorize the execution and delivery of
this Agreement, and DACO-USA has full power, authority, and legal right and has
taken all action required by law, its Articles of Incorporation, By-Laws, or
otherwise to consummate the transactions herein contemplated.
Section 2.02 Capitalization. DACO-USA's authorized capitalization consists
of 50,000,000 shares of common stock, par value $.001 of which 100 shares are
issued and outstanding and 1,000,000 shares of Preferred Stock, par value $.001,
none of which are issued and outstanding. All issued and outstanding shares are
or will be legally issued, fully paid, and non-assessable and not issued in
violation of the preemptive or other rights of any person.
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Section 2.03 No Conflict With Other Instruments. The execution of this
Agreement and the consummation of the transactions contemplated by this
Agreement will not result in the breach of any term or provision of, constitute
a default under, or terminate, accelerate or modify the terms of, any indenture,
mortgage, deed of trust, or other material agreement or instrument to which
DACO-USA is a party or to which any of its assets or operations are subject.
Section 2.04 Governmental Authorizations. No authorization, approval,
consent or order of, of registration, declaration or filing with, any court or
other governmental body is required in connection with the execution and
delivery by DACO-USA of this Agreement and the consummation by DACO-USA of the
transactions contemplated hereby.
Section 2.05 Approval of Agreement. The board of directors of DACO-USA has
authorized the execution and delivery of this Agreement by DACO-USA and has
approved this Agreement and the transactions contemplated hereby.
Section 2.06 Valid Obligation. This Agreement and all agreements and other
documents executed by DACO-USA in connection herewith constitute the valid and
binding obligation of DACO-USA, enforceable in accordance with its or their
terms, except as may be limited by bankruptcy, insolvency, moratorium or other
similar laws affecting the enforcement of creditors' rights generally and
subject to the qualification that the availability of equitable remedies is
subject to the discretion of the court before which any proceeding therefor may
be brought.
ARTICLE III
PURCHASE AND SALE
Section 3.01 Purchase and Sale of Stock. On the terms and subject to the
conditions set forth in this Agreement, on the Closing Date (as defined in this
Article), the SHAREHOLDER shall assign, transfer and deliver to DACO-USA, free
of all liens, pledges, encumbrances, charges, restrictions or known claims of
any kind, nature, or description, the only outstanding share of DACO-CANADA
common stock (the "Purchased Shares") which shall constitute 100 percent (100%)
of the issued and outstanding shares of common stock of DACO-CANADA as of the
Closing. In exchange for the transfer of the Purchased Shares by the
SHAREHOLDER, DACO-USA shall pay the SHAREHOLDER a royalty as described below,
and shall pay the sum of one thousand dollars ($1,000), which has previously
been delivered to IMPERIAL, the adequacy and receipt of which is ackowledged by
IMPERIAL.
Section 3.02 Royalty. In addition to the consideration specified in Section
3.01, DACO-USA agrees to pay the SHAREHOLDER a royalty on the following terms
and subject to the following conditions:
a. for the year ended December 31, 1999 up to $50,000 (but limited to 25%
of DACO-CANADA'S net income) payable in a lump sum within 60 days after the
issuance of the audited financial statements of DACO-CANADA.
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b. for the year ended December 31, 2000, up to $25,000 (but limited to 25%
of DACO-CANADA'S net income) payable in a lump sum within 60 days after the
issuance of the audited financial statements of DACO-CANADA.
Section 3.03 Purchase and Sale of Intercompany Claim. On the terms and
subject to the conditions set forth in this Agreement, on the Closing Date (as
defined in this Article), the IMPERIAL shall assign, transfer and deliver to
DACO-USA, free of all liens, pledges, encumbrances, charges, restrictions or
known claims of any kind, nature, or description, an assignment of the
Intercompany Claim representing an assignment of the Inventory Receivables and
the Advances, in substantially the same form as that attached hereto as Exhibit
A, incorporated herein, in consideration for the purchase price of four hundred
ninety-nine thousand dollars ($499,000) as follows: $499,000 previously
delivered to IMPERIAL, the adequacy and receipt of which is acknowledged by the
IMPERIAL.
Section 3.04 Cash Payment of Balance of Inventory Receivables. In addition
to the consideration specified in Section 3.04, DACO-USA agrees to pay to
IMPERIAL the Cash Payment defined in section 4.03 below.
Section 3.05 Non-competition Agreements. As further consideration for the
purchase and sale of the Purchased Shares and Intercompany Claim, IMPERIAL and
its affiliates agree to maintain all of DACOCANADA'S proprietary information in
confidence and to neither directly or indirectly compete with DACO-CANADA, or
solicit DACO-CANADA's customers, employees or agents, for a period of five years
following the Closing date, and shall execute a Confidentiality Agreement and
Covenant Not to Compete in substantially the same form as that attached hereto
as Exhibit B and incorporated herein.
Section 3.06 Closing. The closing ("Closing") of the transactions
contemplated by this Agreement shall be on a date and at such time as the
parties may agree ("Closing Date") but not later than September 1, 1998. Such
Closing shall take place at a mutually agreeable time and place.
Section 3.07 Closing Events. At the Closing, DACO-USA and IMPERIAL shall
execute, acknowledge, and deliver (or shall ensure to be executed, acknowledged,
and delivered) any and all certificates, opinions, financial statements,
schedules, agreements, resolutions, rulings or other instruments required by
this Agreement to be so delivered at or prior to the Closing, together with such
other items as may be reasonably requested by the parties hereto and their
respective legal counsel in order to effectuate or evidence the transactions
contemplated hereby.
Section 3.08 Termination.
(a) This Agreement may be terminated by the board of directors of
DACO-USA or by IMPERIAL at any time prior to the Closing Date if:
(i) there shall be any actual or threatened action or proceeding
before any court or any governmental body which shall seek to
restrain, prohibit, or invalidate the transactions contemplated by
this Agreement and which, in the judgement of such board of directors,
made in good faith and based upon the advice of its legal counsel,
makes it inadvisable to proceed with the purchase and sale
contemplated hereby; or
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(ii) any of the transactions contemplated hereby are disapproved
by any regulatory authority whose approval is required to consummate
such transactions or in the judgement of such board of directors, made
in good faith, and upon advice of counsel, there is substantial
likelihood that any such approval will not be obtained or will be
obtained only on a condition or conditions which would be unduly
burdensome, making it inadvisable to proceed with the purchase and
sale.
(b) This Agreement may be terminated by the board of directors of
DACO-USA at any time prior to the Closing Date if:
(i) there shall have been any change after the date of the latest
balance sheet of DACO-CANADA in the assets, properties, business, or
financial condition of DACO-CANADA, which could have a materially
adverse effect on the financial statements of DACO-CANADA listed in
Section 1.04(a) taken as a whole, except any changes disclosed in the
DACO-CANADA Schedules;
(ii) the board of directors of DACO-USA determines in good faith
that one or more of DACO-USA's conditions to Closing has not occurred,
through no fault of DACO-USA.
(iii) DACO-USA takes the termination action specified in Section
1.21 as a result of DACO-CANADA Schedules or updates thereto which
DACO-USA finds unacceptable;
(c) This Agreement may be terminated by IMPERIAL at any time prior to
the Closing Date if:
(i) IMPERIAL determines in good faith that one or more of the
IMPERIAL's conditions to Closing has not occurred, through no fault of
the IMPERIAL;
In the event of termination pursuant to paragraphs (a), (b) or (c) of Section
3.08, or Section 1.21, no obligation, right or liability shall arise hereunder,
and each party shall bear all of the expenses incurred by it in connection with
the negotiation, drafting, and execution of this Agreement and the transactions
herein.
(d) This Agreement may be terminated by the board of directors of DACO-USA
at any time prior to the Closing Date if:
(i) IMPERIAL shall fail to comply in any material respect with any of
its covenants or agreements contained in this Agreement or if any of
the representations or warranties of IMPERIAL herein shall be
inaccurate in any material respect. If this Agreement is terminated
pursuant to this paragraph (d), this Agreement shall be of no further
force or effect, and no obligation, right or liability shall arise
hereunder, except that IMPERIAL shall bear its own costs as well as
the reasonable costs of DACO-USA in connection with the negotiation,
preparation, and execution of this Agreement.
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(e) This Agreement may be terminated by IMPERIAL at any time prior to
the Closing Date if:
(i) DACO-USA shall fail to comply in any material respect with
any of its covenants or agreements contained in this Agreement or if
any of the representations or warranties of DACO-USA contained herein
shall be inaccurate in any material respect.
If this Agreement is terminated pursuant to this paragraph (e) of Section 3.08,
this Agreement shall be of no further force or effect, and no obligation, right
or liability shall arise hereunder, except that DACO-USA shall bear its own
costs as well as the reasonable costs of IMPERIAL incurred in connection with
the negotiation, preparation and execution of this Agreement.
ARTICLE IV
SPECIAL COVENANTS
Section 4.01 Access to Properties and Records. The SHAREHOLDER will afford
the officers and authorized representatives of DACO-USA full access to the
properties, books and records of DACO-CANADA in order that it may have a full
opportunity to make such reasonable investigation as it shall desire into the
affairs of DACO-CANADA, and the SHAREHOLDER will furnish DACO-USA such
additional financial and operating data and other information as to the business
and properties of DACO-CANADA, as DACO-USA may reasonably request. Without
limiting the foregoing, as soon as practicable after the end of each fiscal
quarter (and in any event through the last fiscal quarter prior to the Closing
Date), the SHAREHOLDER shall provide DACO-USA with quarterly internally prepared
and unaudited financial statements.
Section 4.02 Delivery of Books and Records. At the Closing, the SHAREHOLDER
shall deliver to DACO-USA the originals of the corporate minute books, books of
account, contracts, records, and all other books or documents of DACO-CANADA now
in the possession of DACO-CANADA or its representatives.
Section 4.03 Return of Inventory. For a period of 30 days following
Closing, DACO-USA shall return to IMPERIAL, all Returnable Inventory in
DACO-CANADA'S possession. In the event that not all of the Returnable Inventory
can be returned within 30 days of the date of Closing, DACO-USA shall pay
IMPERIAL for that portion of the Returnable Inventory which was not returned in
cash within 45 days of Closing (the "Cash Payment").
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Section 4.04 Exclusive Dealing Rights. Until 5:00 P.M. USA Central Time on
September 1, 1998, in recognition of the substantial time and effort which
DACO-USA has spent and will continue to spend in investigating DACO-CANADA and
its business and in addressing the matters related to the transactions
contemplated herein, each of which may preempt or delay other management
activities, neither the SHAREHOLDER, nor any of its representatives or agents
will directly or indirectly solicit or initiate any discussions or negotiations
with, or, except where required by fiduciary obligations under applicable law as
advised by counsel, participate in any negotiations with or provide any
information to or otherwise cooperate in any other way with, or facilitate or
encourage any effort or attempt by, any corporation, partnership, person or
other entity or group (other than DACO-USA and its directors, officers,
employees, representatives and agents) concerning any merger, sale of
substantial assets, sale of shares of capital stock, (including without
limitation, any public or private offering of the common stock of DACO-CANADA)
or similar transactions involving DACO-CANADA (all such transactions being
referred to as "DACO-CANADA Acquisition Transactions"). If DACO-CANADA receives
any proposal with respect to a DACO-CANADA Acquisition Transaction, the
SHAREHOLDER will immediately communicate to DACO-USA the fact that it has
received such proposal and the principal terms thereof.
Section 4.05 Actions Prior to Closing.
(a) From and after the date of this Agreement until the Closing Date
and except as set forth in the DACO-CANADA Schedules or as permitted or
contemplated by this Agreement, IMPERIAL will cause DACO-CANADA to:
(i) carry on its business in substantially the same manner as it
has heretofore;
(ii) maintain and keep its properties in states of good repair
and condition as at present, except for depreciation due to ordinary
wear and tear and damage due to casualty;
(iii) maintain in full force and effect insurance comparable in
amount and in scope of coverage to that now maintained by it;
(iv) perform in all material respects all of its obligations
under material contracts, leases, and instruments relating to or
affecting its assets, properties, and business;
(v) use its best efforts to maintain and preserve its business
organization intact, to retain its key employees, and to maintain its
relationship with its material suppliers and customers; and
(vi) fully comply with and perform in all material respects all
obligations and duties imposed on it by all federal and state laws and
all rules, regulations, and orders imposed by federal or state
governmental authorities.
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(b) From and after the date of this Agreement until the Closing Date,
IMPERIAL will not allow DACO-CANADA to:
(i) make any changes in its articles or certificate of
incorporation or bylaws;
(ii) take any action described in Section 1.07 except as
permitted therein or as disclosed in the DACO-CANADA schedules);
(iii) enter into or amend any contract, agreement, or other
instrument of any of the types described in the DACO-CANADA schedules,
except that it may enter into or amend any contract, agreement, or
other instrument in the ordinary course of business involving the sale
of goods or services; or
(iv) sell any assets or discontinue any operations, sell any
shares of capital stock (other than the sale of securities involving
DACO-USA) or conduct any similar transactions other than in the
ordinary course of business (other than transactions contemplated
herein or in the DACO-CANADA Schedules).
Section 4.06 Indemnification.
(a) IMPERIAL hereby agrees to indemnify DACO-USA and each of the
officers, agents and directors of DACO-USA as of the date of execution of
this Agreement against any loss, liability, claim, damage, or expense
(including, but not limited to, any and all expense whatsoever reasonably
incurred in investigating, preparing, or defending against any litigation,
commenced or threatened, or any claim whatsoever), to which it or they may
become subject arising out of or based on any substantial or material
inaccuracy appearing in or misrepresentations made under Article I of this
Agreement. The indemnification provided for in this paragraph shall survive
the Closing and consummation of the transactions contemplated hereby and
termination of this Agreement.
(b) DACO-USA hereby agrees to indemnify IMPERIAL and each of its
officers, agents, and directors as of the date of execution of this
Agreement against any loss, liability, claim, damage, or expense
(including, but not limited to, any and all expense whatsoever reasonably
incurred in investigating, preparing, or defending against any litigation,
commenced or threatened, or any claim whatsoever), to which it or they may
become subject arising out of or based on any inaccuracy appearing in or
misrepresentation made under Article II of this Agreement. The
indemnification provided for in this paragraph shall survive the Closing
and consummation of the transactions contemplated hereby and termination of
this Agreement.
(c) No indemnity obligation shall arise under this Section 4.06 in
relation to any matters to which disclosure was made, if such disclosure
gave the other party sufficient information and warning to investigate in
greater detail, the matter so disclosed.
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4.07 Attorney Disclosures. Hank Vanderkam, has previously acted as legal
counsel for DACO-CANADA and the Related Parties. IMPERIAL represents that it
approached and encouraged Mr. Vanderkam to purchase DACO-CANADA, and authorized
Mr. Vanderkam to use confidential information provided by Imperial and the
Related Parties to evaluate the purchase. Vanderkam has advised Imperial and the
Related Parties that he does not and cannot represent them with respect to the
purchase of DACO-CANADA, and strongly advised Imperial and the Related Parties
to seek the advice of independent counsel prior to executing this Agreement.
IMPERIAL waives any claim of breach of confidentiality or fiduciary duty against
Vanderkam relating to his purchase of DACO-CANADA. IMPERIAL agrees that
Vanderkam may continue to act as legal counsel for the Related Parties regarding
matters not related to the DACO-CANADA purchase, if they so desire from time to
time, and waives any conflict of interest arising therefrom.
4.08 Stock Legend. It is hereby acknowledged and agreed that the Purchased
Shares shall be "restricted stock" as that term is defined under Rule 144 of the
Securities Act of 1993. DACO-USA represents and agrees that the Purchased Shares
are being acquired for investment purposes without intent to resell such shares
and that the subsequent sale or transfer of such shares may only be made in
accordance with registration or a valid exemption from registration pursuant to
U.S. securities laws, to the extent such laws govern any such sale or transfer.
Further, it is understood and agreed that all certificates evidencing the
Purchased Shares shall bear the following legend and shall be subject to
stop-transfer orders with the respective transfer agents for such shares:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE
ABSENCE OF EITHER AN EFFECTIVE REGISTRATION STATEMENT FOR THESE SHARES
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR AN OPINION OF COUNSEL THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT.
ARTICLE V
CONDITIONS PRECEDENT TO OBLIGATIONS OF DACO-USA
The obligations of DACO-USA under this Agreement are subject to the
satisfaction, at or before the Closing Date, of the following conditions:
Section 5.01 Accuracy of Representations and Performance of Covenants. The
representations and warranties made by IMPERIAL in this Agreement were true when
made and shall be true at the Closing Date with the same force and effect as if
such representations and warranties were made at and as of the Closing Date
(except for changes therein permitted by this Agreement). Additionally, IMPERIAL
shall have performed and complied with all covenants and conditions required by
this Agreement to be performed or complied with by IMPERIAL. DACO-USA shall have
been furnished with certificates, signed by duly authorized executive officers
of DACO-CANADA and IMPERIAL and dated the Closing Date, to the foregoing effect.
Section 5.02 Officer's Certificate. DACO-USA shall have been furnished with
a certificate dated the Closing Date and signed by a duly authorized officer of
IMPERIAL and DACO-CANADA to the effect that no litigation, proceeding,
investigation, or inquiry is pending, or to the best knowledge of DACO-CANADA
threatened, which might result in an action to enjoin or prevent the
consummation of the transactions contemplated by this Agreement, or, to the
extent not disclosed in the DACO-CANADA Schedules, by or against DACO-CANADA,
which might result in any material adverse change in any of the assets,
properties, business, or operations of DACO-CANADA.
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Section 5.03 No Material Adverse Change. Prior to the Closing Date, there
shall not have occurred any change in the financial condition, business, or
operations of DACO-CANADA nor shall any event have occurred which, with the
lapse of time or the giving of notice, is determined to be unacceptable in
accordance with Section 1.21.
Section 5.04 Good Standing. DACO-USA shall have received a certificate of
good standing from the appropriate governmental authority, dated as of a date
within ten days prior to the Closing Date certifying that DACO-CANADA is in good
standing as a corporation in its state of incorporation.
Section 5.05 No Governmental Prohibition. No order, statute, rule,
regulation, executive order, injunction, stay, decree, judgment or restraining
order shall have been enacted, entered, promulgated or enforced by any court or
governmental or regulatory authority or instrumentality which prohibits the
consummation of the transactions contemplated hereby.
Section 5.06 Consents. All consents, approvals, waivers or amendments
pursuant to all contracts, licenses, permits, trademarks and other intangibles
in connection with the transactions contemplated herein, or for the continued
operation of DACO-CANADA after the Closing Date on the basis as presently
operated shall have been obtained.
Section 5.07 Tax matters. IMPERIAL and Related Parties shall furnish all
clearance certificates and/or give appropriate warranties and indemnities,
including costs, interest and penalties to DACO-USA related to all tax related
matters for which DACO-USA could be liable as a result of the purchases made the
basis of this Agreement.
Section 5.08 Release of Security Interest. IMPERIAL and Related Parties
shall furnish documents evidencing the Bank of Boston's release of its security
interest and/or lien in the Intercompany Claim and Purchased Shares, and all
other collateral related to the Intercompany Claim and Purchased Shares,
including without limitation, (i) all dividends (cash or otherwise), (ii) voting
rights and rights to receive securities, and (iii) proceeds of any and all of
the Purchased Shares and/or Intercompany Claim. Such documents shall be in the
form of a general release, UCC-3 and Canadian equivalent, and instructions to
the escrow/collateral agent, and as DACO-USA may reasonably request.
Section 5.09 Other Items. DACO-USA shall have received such further
opinions, documents, certificates or instruments relating to the transactions
contemplated hereby as DACO-USA may reasonably request.
17
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ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SHAREHOLDER
The obligations of IMPERIAL under this Agreement are subject to the
satisfaction, at or before the Closing Date, of the following conditions:
Section 6.01 Accuracy of Representations and Performance of Covenants. The
representations and warranties made by DACO-USA in this Agreement were true when
made and shall be true as of the Closing Date (except for changes therein
permitted by this Agreement) with the same force and effect as if such
representations and warranties were made at and as of the Closing Date.
Additionally, DACO-USA shall have performed and complied with all covenants and
conditions required by this Agreement to be performed or complied with by
DACO-USA prior to or at the Closing. IMPERIAL shall have been furnished with
certificates, signed by duly authorized executive officers of DACO-USA and dated
the Closing Date, to the foregoing effect.
Section 6.02 Officer's Certificate. IMPERIAL shall have been furnished with
certificates dated the Closing Date and signed by duly authorized executive
officers of DACO-USA, to the effect that no litigation, proceeding,
investigation or inquiry is pending, or to the best knowledge of DACO-USA
threatened, which might result in an action to enjoin or prevent the
consummation of the transactions contemplated by this Agreement or, to the
extent not disclosed in the DACO-USA Schedules, by or against DACO-USA, which
might result in any material adverse change in any of the assets, properties or
operations of DACO-USA.
Section 6.03 Other Items. IMPERIAL shall have received further opinions,
documents, certificates, or instruments relating to the transactions
contemplated hereby as it may reasonably request.
ARTICLE VII
MISCELLANEOUS
Section 7.01 Brokers. DACO-USA and IMPERIAL agree that there were no
finders or brokers involved in bringing the parties together or who were
instrumental in the negotiation, execution or consummation of this Agreement.
DACO-USA and IMPERIAL agree to indemnify the other against any claim by any
third person for any commission, brokerage, or finder's fee arising from the
transactions contemplated hereby based on any alleged agreement or understanding
between the indemnifying party and such third person, whether express or implied
from the actions of the indemnifying party.
Section 7.02 Governing Law. This Agreement shall be governed by, enforced,
and construed under and in accordance with the laws of the United States of
America and, with respect to the matters of state law, with the laws of the
State of Texas, without giving effect to principles of conflicts of law
thereunder, and venue shall be proper in Harris County, Texas.
18
<PAGE>
Section 7.03 Notices. Any notice or other communications required or
permitted hereunder shall be in writing and shall be sufficiently given if
personally delivered to it or sent by telecopy, overnight courier or registered
mail or certified mail, postage prepaid, addressed as follows:
If to DACO-USA, to: DACO-USA
440 Louisiana, Suite 475
Houston, Texas 77002
Attn: Hank Vanderkam
If to IMPERIAL: Imperial World, Inc. and IWI Holding Limited
Oakmont Centre
1010 Executive Court, Suite 300
Westmont, Illinois 60559
Attn: Joseph Lau
or such other addresses as shall be furnished in writing by any party in the
manner for giving notices hereunder, and any such notice or communication shall
be deemed to have been given (i) upon receipt, if personally delivered, (ii) on
the day after dispatch, if sent by overnight courier, (iii) upon dispatch, if
transmitted by telecopy and receipt is confirmed by telephone and (iv) three (3)
days after mailing, if sent by registered or certified mail.
Section 7.04 Attorney's Fees. In the event that either party institutes any
action or suit to enforce this Agreement or to secure relief from any default
hereunder or breach hereof, the prevailing party shall be reimbursed by the
losing party for all costs, including reasonable attorney's fees, incurred in
connection therewith and in enforcing or collecting any judgement rendered
therein.
Section 7.05 Confidentiality. Each party hereto agrees with the other that,
unless and until the transactions contemplated by this Agreement have been
consummated, it and its representatives will hold in strict confidence all data
and information obtained with respect to another party or any subsidiary thereof
from any representative, officer, director or employee, or from any books or
records or from personal inspection, of such other party, and shall not use such
data or information or disclose the same to others, except (i) to the extent
such data or information is published, is a matter of public knowledge, or is
required by law to be published; or (ii) to the extent that such data or
information must be used or disclosed in order to consummate the transactions
contemplated by this Agreement. In the event of the termination of this
Agreement, each party shall return to the other party all documents and other
materials obtained by it or on its behalf and shall destroy all copies, digests,
work papers, abstracts or other materials relating thereto, and each party will
continue to comply with the confidentiality provisions set forth herein.
Section 7.06 Schedules; Knowledge. Each party is presumed to have full
knowledge of all information set forth in the other party's schedules delivered
pursuant to this Agreement.
Section 7.07 Expenses. Except as otherwise specified herein and regardless
of whether or not the purchase and sale is consummated, each of DACO-USA and
IMPERIAL will bear their own respective expenses, including legal, accounting
and professional fees, incurred in connection with the purchase and sale or any
of the other transactions contemplated hereby.
19
<PAGE>
Section 7.08 Entire Agreement. This Agreement represents the entire
agreement between the parties relating to the subject matter thereof and
supersedes all prior agreements, understandings and negotiations, written or
oral, with respect to such subject matter.
Section 7.09 Survival; Termination. The representations, warranties, and
covenants of the respective parties shall survive the Closing Date and the
consummation of the transactions herein contemplated for a period of two years.
Section 7.10 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of which taken
together shall be but a single instrument.
Section 7.11 Amendment or Waiver. Every right and remedy provided herein
shall be cumulative with every other right and remedy, whether conferred herein,
at law, or in equity, and may be enforced concurrently herewith, and no waiver
by any party of the performance of any obligation by the other shall be
construed as a waiver of the same or any other default then, theretofore, or
thereafter occurring or existing. At any time prior to the Closing Date, this
Agreement may by amended by a writing signed by all parties hereto, with respect
to any of the terms contained herein, and any term or condition of this
Agreement may be waived or the time for performance may be extended by a writing
signed by the party or parties for whose benefit the provision is intended.
Section 7.12 Legal Representation. Each party hereto, including LIMITED,
and the SHAREHOLDER of DACO-CANADA who are signing this Agreement, hereby
acknowledges that he or it has been provided an opportunity to consult with
independent legal counsel of his or its choice to seek counsel with respect to
the transactions contemplated herein and that each such party has secured such
advice as he or it deems necessary to understand the terms of this Agreement.
Section 7.13 Best Efforts. Subject to the terms and conditions herein
provided, each party shall use its best efforts to perform or fulfill all
conditions and obligations to be performed or fulfilled by it under this
Agreement so that the transactions contemplated hereby shall be consummated as
soon as practicable. Each party also agrees that it shall use its best efforts
to take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective this Agreement and the transactions contemplated
herein.
20
<PAGE>
IN WITNESS WHEREOF, the corporate parties hereto have caused this Agreement
to be executed by their respective officers, hereunto duly authorized, as of the
date first-above written.
ATTEST: DACO (USA), INC.
Secretary or By:
Assistant Secretary Title:
ATTEST: SHAREHOLDER
Imperial World, Inc.
Secretary or
Assistant Secretary
By:
Title:
ATTEST: LIMITED
IWI Holding Limited
Secretary or
Assistant Secretary
By:
Title:
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
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0
3,645
<COMMON> 0
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