<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
June 18, 1996
__________________________________________________
(Date of Report - Date of earliest event reported)
THE L.L. KNICKERBOCKER CO., INC.
______________________________________________________
(Exact name of registrant as specified in its charter)
California 0-25488 33-0230641
_______________________ ________________________ _______________________
(State or other (Commission File Number) (I.R.S. Employer
jurisdiction of Identification Number)
incorporation )
30055 Comercio, Rancho Santa Margarita, California 92688
___________________________________________________ __________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (714) 858-3661
Page 1 of 153 pages
The Exhibit Index Appears on Page 5
<PAGE>
ITEM 2. ACQUISITION OF ASSETS
---------------------
On June 18, 1996, the registrant acquired the business, assets and properties of
the Krasner Group, Inc., a Delaware corporation ("TKG"), a manufacturer and
wholesaler of costume jewelry and women's fashion accessories. TKG was acquired
pursuant to an Agreement of Purchase and Sale dated June 18, 1996 (the
"Agreement") by and among TKG, TKG's stockholders: Martin P. Krasner and Ina
Ostrow, as Trustees U/I DTD 2/5/85 FBO Martin P. Krasner, Martin and Stephanie
Krasner, as Trustees U/I DTD June 15, 1970, Joan Glaser, as Executor of the
Estate of Murray Glaser, F. William Graham, Consumer Venture Partners I, L.P.,
Donald F. Swanson, as Trustee, Donald F. Swanson Revocable Trust U/A Dated
December 22, 1988, and the registrant. Pursuant to the Agreement, the registrant
acquired from the above named stockholders all of the capital stock of TKG.
Following the acquisition, the registrant intends to operate TKG as a subsidiary
of the registrant, and TKG shall continue to operate under its current name in
its current line of business.
The consideration for the acquisition consisted of (a) $1,375,000 payable in
value of common stock purchase warrants of the registrant's Common Stock to the
holders of preferred stock of TKG in equal installments of $275,000 payable on
June 18, 1996, September 30, 1996, December 31, 1996, March 31, 1997, and June
30, 1997, (b) $358,489 payable on June 18, 1996 in value of common stock
purchase warrants of the registrant's Common Stock to the holders of common
stock of TKG, (c) a contingent amount of $330,000 payable in value of common
stock purchase warrants of the registrant's Common Stock to the holders of the
preferred stock of TKG upon the future liquidation of the first $300,000 of
closing inventory of TKG, (d) a contingent amount equal to approximately
$2,000,000 payable quarterly to Martin P. Krasner, as Trustee of the above-
referenced trusts, in value of common stock purchase warrants of the
registrant's Common Stock upon the future liquidation of the closing inventory
of TKG, (e) the guarantee by the registrant of the repayment of TKG's line of
credit with its lending institution, IBJ Schroder Bank & Trust Company, which
totaled approximately $1,800,000 on April 28, 1996; in connection with the
guarantee, the registrant will provide a $500,000 deposit to IBJ Schroder for
the purpose of collateralizing the line of credit; such account shall bear
interest at market rates and belong to the registrant, (f) the registrant will
arrange substitute financing of the line of credit for TKG no later than
September 30, 1996, (g) the registrant will pay to an unrelated individual,
Jason Workman, a finders fee in connection with the acquisition in the amount of
$275,000 payable in value of common stock purchase warrants of the registrant's
Common Stock payable on June 18, 1996, (h) the registrant will grant to Richard
Ogust, an aggregate of $308,000 payable in value of common stock purchase
warrants of the registrant's Common Stock to be delivered in installments on
June 18, 1996 ($198,000) and June 18, 1997 ($110,000) in connection with a
liability owed to Richard Ogust by TKG, and (i) the registrant will deliver to
key employees of TKG warrants to purchase 20,987 shares of the Common Stock of
registrant at the exercise price of $7.75 per share. With respect to the
contingent amounts above, warrants will be issued on a basis of $1 in warrant
value of the registrant's Common Stock per $1 in cash received by the registrant
from the liquidation of the closing inventory of TKG. Value in connection with
each share of common stock covered by a warrant means the difference between the
average closing bid price of registrant's common shares for the five trading
days immediately preceding the date of delivery of the warrant and the exercise
price of the warrant.
<PAGE>
Martin P. Krasner, as president of TKG, signed a 5 year employment contract with
TKG with annual compensation of $225,000 and eligibility to participate in the
stock plan of the registrant and a bonus program to be determined. In addition,
Mr. Krasner received warrants to purchase 64,706 shares of the Common Stock of
registrant at the exercise price of $7.75 per share.
The assets acquired by the registrant include the operating lease for the TKG
office in New York City, the operating lease for a manufacturing facility in
Providence, Rhode Island, the fixtures, furnishings, equipment and leasehold
improvements located in the office and manufacturing facilities, and various
trademarks and contracts with celebrities for endorsement of products. All such
assets were used by TKG in the operation of the costume jewelry and fashion
accessory manufacturing and wholesaling business and registrant intends to
continue the use of such assets in the operation of the costume jewelry and
fashion accessory manufacturing and wholesaling business.
The transaction will be accounted for as a purchase.
Neither registrant nor any affiliate thereof had any preexisting relationship
with the sellers.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
----------------------------------
(a) Financial statements of business acquired:
------------------------------------------
It is impracticable to provide the required financial statements for TKG
for this Form 8-K at this time. The required financial statements for TKG will
be filed as an amendment to this Form 8-K as soon as practicable but not later
than 60 days after this Form 8-K is filed. To be included by amendment to this
Form 8-K are audited financial statements of TKG for the fiscal years ended
January 28, 1996 and January 29, 1995, and unaudited financial statements for
the partial fiscal year ended April 30, 1996.
(b) Pro forma financial information:
--------------------------------
It is impracticable to provide the required pro forma financial information
in this Form 8-K at this time. The required pro forma financial information will
be filed as an amendment to this Form 8-K as soon as practicable but not later
than 60 days after this form 8-K is filed. To be included by amendment to this
Form 8-K are a pro forma condensed statement of income of the registrant for the
fiscal year ended December 31, 1995 and a pro forma balance sheet and statement
of income for the partial fiscal year ended March 31, 1996.
(c) Exhibits:
---------
Included as part of this Form 8-K are the exhibits listed on the Exhibit
Index appearing on page 5.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: July 3, 1996
THE L.L. KNICKERBOCKER CO., INC.,
a California corporation
By: /s/Anthony P. Shutts
------------------------
Anthony P. Shutts
Chief Financial Officer
<PAGE>
<TABLE>
EXHIBIT INDEX
Exhibit No. Item Sequential
----------- ---- Page No.
----------
<S> <C> <C>
2.1 Agreement of Purchase and 6
Sale dated as of June 18, 1996
by and among the Registrant,
Krasner Group, Inc., Martin P.
Krasner and Ina Ostrow, as
Trustees U/I DTD 2/5/85 FBO
Martin P. Krasner, Martin
and Stephanie Krasner, as
Trustees U/I DTD June 15,
1970, Joan Glaser, as Executor
of the Estate of Murray Glaser,
F. William Graham, Consumer
Venture Partners I, L.P.,
Donald F. Swanson, as Trustee,
Donald F. Swanson Revocable
Trust U/A Dated December 22,
1988.
</TABLE>
<PAGE>
EXHIBIT 2.1
AGREEMENT OF PURCHASE AND SALE
OF THE CAPITAL STOCK OF
KRASNER GROUP, INC.,
A Delaware corporation
BY
THE L. L. KNICKERBOCKER CO., INC.,
A California corporation,
as BUYER;
DATED: June 18, 1996
<PAGE>
CONTENTS
RECITALS............................................................. 1
1. SUBJECT MATTER OF AND CONSIDERATION FOR SALE.................... 2
1.1 Transfer of the Company Shares........................... 2
1.2 Consideration for the Company Shares..................... 2
1.2.1 Definitions...................................... 3
1.2.2 Payments to Common Shareholders.................. 4
1.2.3 Payments to Preferred Shareholders............... 5
2. Supplemental Payment and Non-Competition Agreement.............. 5
2.1 Supplemental Payment..................................... 5
2.2 Schedule of Supplemental Payment......................... 5
2.3 Non-Competition Agreement................................ 5
3. CLOSING AND CLOSING DATE........................................ 6
4. SELLERS REPRESENTATIONS AND WARRANTIES.......................... 6
4.1 Joint and Several Representations and Warranties......... 6
4.1.1 Validity of Agreement, etc........................ 6
4.1.2 Ownership of the Company Shares................... 7
4.1.3 Corporate Organization............................ 8
4.1.4 Capitalization of the Company..................... 8
4.1.5 Subsidiaries and Affiliates...................... 8
4.2 Krasner's Representations and Warranties................. 9
4.2.1 Financial Condition Of the Company................ 9
4.2.2 Taxes............................................. 10
4.2.3 Machinery, Equipment and Furniture................ 11
4.2.4 Accounts Receivable............................... 12
4.2.5 Inventory......................................... 12
4.2.6 Absence of Certain Changes........................ 13
4.2.7 Title to Properties; Encumbrances................. 16
4.2.8 Patents, Trademarks, Trade Names, Etc............. 17
4.2.9 Leases............................................ 18
4.2.10 Bank Accounts..................................... 18
4.2.11 Liens on Assets................................... 18
4.2.12 Customers And Suppliers........................... 19
4.2.13 Contracts and Agreements.......................... 19
4.2.14 Fringe Benefit Plans.............................. 22
4.2.15 Insurance Coverage................................ 23
4.2.16 Losses on Contracts and Agreements................ 24
4.2.17 Compliance with Law............................... 25
4.2.18 Undisclosed Liabilities........................... 28
4.2.19 Liability as Guarantor; Powers of Attorney........ 28
(i)
<PAGE>
4.2.20 Corporate Records........................................ 28
4.2.21 Material Misstatements or Omissions...................... 29
4.2.22 Brokerage and Finder's Fees.............................. 29
4.2.23 Litigation............................................... 29
4.2.24 Labor Disputes........................................... 30
4.2.25 Insider Interests........................................ 32
4.2.26 Products Liability....................................... 32
4.2.27 Permits and Other Operating Rights....................... 32
4.2.28 Joint Ventures........................................... 33
4.2.29 Assets of Business....................................... 33
4.2.30 Burdensome Restrictions.................................. 33
4.2.31 Business Generally....................................... 33
4.2.32 Books of Account and Reports; Internal Controls.......... 33
4.2.33 Downward Price Adjustment................................ 34
4.2.34 Foreign Transactions..................................... 34
4.2.35 Other Business Activity.................................. 34
5. SELLERS' COVENANTS AND AGREEMENTS............................... 34
5.1 Pending the Closing...................................... 35
5.1.1. Regular Course of Business....................... 35
5.1.2 Amendments....................................... 35
5.1.3 Capital Changes; Dividends; Redemptions.......... 35
5.1.4 Subsidiaries..................................... 36
5.1.5 Organization..................................... 36
5.1.6 Certain Changes.................................. 36
5.1.7 Insurance; Property.............................. 38
5.1.8 No Default....................................... 38
5.1.9 Compliance With Laws............................. 38
5.1.10 Tax Returns...................................... 38
5.2 Contracts................................................ 38
5.3 Access and Information................................... 39
6. REPRESENTATIONS AND WARRANTIES OF BUYER......................... 39
6.1 Authority and Validity of Agreement and Instruments...... 39
6.2 Organization and Good Standing........................... 40
6.3 Material Misstatements or Omissions...................... 40
6.4 No Violation............................................. 40
6.5 Brokerage and Finder's Fees.............................. 40
6.6 Authority................................................ 41
6.7 No Litigation............................................ 41
6.8 Financial Condition of Buyer............................. 42
6.9 Offer of Warrants........................................ 42
6.10 Registration Statement................................... 43
7. COVENANTS AND AGREEMENTS OF BUYER............................... 43
7.1 Execution of Employment Agreement........................ 43
7.2 IBJ Shroder Agreement.................................... 43
7.3 Option Holders........................................... 44
7.4 Registration Agreement................................... 44
(ii)
<PAGE>
8. Intentionally Omitted........................................... 44
9. CONDITIONS PRECEDENT TO CLOSING................................. 44
9.1 Conditions Precedent to Obligations of Buyer............. 44
9.1.1 Correctness of Representations and Warranties.... 44
9.1.2 Performance of Covenants and Agreements.......... 45
9.1.3 Execution of Non-Competition Agreements.......... 45
9.1.4 Execution of Employment Agreement................ 45
9.1.5 Corporate Records................................ 45
9.1.6 Resignation of Directors......................... 45
9.1.7 Repayment of Loans............................... 45
9.1.8 No Government Proceeding or Litigation........... 46
9.1.9 No Injunction.................................... 46
9.1.10 Material Change.................................. 46
9.1.11 Consents Obtained................................ 46
9.1.12 Opinion of the Sellers' Counsel.................. 46
9.1.13 Ogust Agreement.................................. 47
9.2 Conditions Precedent to the Obligations of Sellers..... 47
9.2.1 Correctness of Representations and Warranties.... 47
9.2.2 Purchase Price................................... 47
9.2.3 Performance of Covenants and Agreement........... 47
9.2.4 No Governmental Proceeding or Litigation......... 48
9.2.5 No Injunction.................................... 48
9.2.6 Material Change.................................. 48
9.2.7 Consents Obtained................................ 48
9.2.8 Opinion of Buyer's Counsel....................... 48
9.2.9 Repayment of Loans............................... 49
9.2.10 Execution of Employment Agreement................ 49
9.2.11 Ogust Agreement.................................. 49
9.2.12 Execution of Registration Agreement.............. 49
9.3 Regulatory Approvals..................................... 49
10. SELLER'S INDEMNITIES............................................ 49
10.1 Indemnity Obligation..................................... 49
10.2 Event of Indemnity....................................... 50
10.3 Procedure for Making Claims for Indemnity................ 50
10.4 Joint and Several Indemnity.............................. 52
10.5 Limitation on Indemnity.................................. 53
10A. BUYER'S INDEMNITIES............................................. 53
10A.1 Indemnity Obligation..................................... 53
10A.2 Seller's Event of Indemnity.............................. 54
10A.3 Procedure for Making Claims for Indemnity................ 54
10A.4 Limitation on Indemnity.................................. 56
11. SURVIVAL OF REPRESENTATIONS AND WARRANTIES...................... 56
12. OTHER REMEDIES.................................................. 57
12.1 Remedies................................................. 57
13. RELATED MATTERS................................................. 57
13.1 Confidentiality.......................................... 57
(iii)
<PAGE>
13.2 Disclosure Schedule..................................... 58
13.3 Non-Solicitation of Employees........................... 58
13.4 Employment Agreement; Martin P. Krasner................. 58
14. GENERAL PROVISIONS............................................... 58
14.1 Notices................................................. 58
14.2 Arbitration............................................. 60
14.3 Entire Agreement........................................ 61
14.4 Section Headings........................................ 61
14.5 Severability............................................ 61
14.6 Counterparts............................................ 62
14.7 Further Assurances...................................... 62
14.8 Waiver of Compliance.................................... 62
14.9 Expenses................................................ 63
14.10 Assignment.............................................. 63
14.11 Publicity............................................... 64
14.12 Governing Law........................................... 64
14.13 Third Parties........................................... 64
14.14 Construction............................................ 64
14.14.1 No Strict Construction................................. 64
14.14.2 Independent Signifigance............................... 65
(iv)
<PAGE>
AGREEMENT OF PURCHASE AND SALE
------------------------------
THIS AGREEMENT OF PURCHASE AND SALE ("Agreement") is made and entered
into as of the 18th day of June, 1996, by and among the parties listed on
Exhibit A (collectively "Sellers"); THE L. L. KNICKERBOCKER CO., INC., a
California corporation ("Buyer"), and KRASNER GROUP, INC., a Delaware
corporation (the "Company") and, with respect to Section 4.2, Martin P. Krasner
as Trustee Under Instruments Dated June 15, 1970 and February 5, 1985 ("Krasner,
as Trustee") and with respect to Section 13.4, MARTIN P. KRASNER, individually
("Krasner").
RECITALS
---------
A. Sellers collectively own of record 1,550,000 preferred shares of the
Company (Sellers thereof, the "Preferred Shareholders") and 1,357,914 common
shares of the Company (Sellers thereof, the "Common Shareholders")
(collectively, the "Shares" or the "Company Shares"), which represent all of the
issued and outstanding stock of the Company. The Company Shares owned of record
by each of the Sellers are set forth on Exhibit A attached hereto.
B. Each of the Sellers desires to sell all of the Company Shares now
owned by each Seller to Buyer and Buyer desires to purchase all of the Company
Shares from Sellers. The purchase and sale of the Company Shares shall be made
upon the terms and subject to all of the conditions contained in this Agreement.
C. Buyer further desires to obtain from those Common Shareholders who are
officers of the Company, in connection with its purchase of such Sellers'
Shares, Non-
1
<PAGE>
Competition Agreement with the Company, and such Sellers are willing to execute
such Agreements in the form attached hereto as Exhibit E.
NOW THEREFORE, in consideration of the foregoing recitals and the mutual
promises, agreements, representations and warranties herein contained, the
parties hereto agree as follows:
1. SUBJECT MATTER OF AND CONSIDERATION FOR SALE
--------------------------------------------
1.1 Transfer of the Company Shares. Upon the terms and subject to all of
------------------------------
the conditions contained herein and upon the performance by each of the parties
hereto of their obligations hereunder, Sellers hereby agree to sell, assign,
transfer and deliver to Buyer, as of the Closing Date, all of the Company Shares
including all rights and interest in connection with such Shares (including any
rights to accrued dividends) by delivering to Buyer at the Closing the
certificates representing the Company Shares, duly endorsed for transfer or
accompanied by stock powers duly executed by Sellers.
1.2 Consideration for the Company Shares. As consideration for Buyer's
------------------------------------
purchase of the Company Shares and upon and subject to all of the terms and
conditions herein and upon the performance by each of the parties hereto of
their obligations hereunder, Buyer agrees to pay to Sellers, as described in
Sections 1.2.1, 1.2.2 and 1.2.3, (i) for the preferred shares, the sum of
$1,250,000, plus the Contingent Payment and (ii) for the common shares, the sum
of $325,899, for an aggregate purchase price for all Company Shares of One
Million Five Hundred Seventy Five Thousand Eight Hundred Ninety Nine and 00/100
Dollars ($1,575,899), plus the Contingent Payment ("Purchase
2
<PAGE>
Price"). Set forth in Exhibit A is the allocation of the Purchase Price
payable to each of the Sellers on the basis of $1.00 (including the Contingent
Payment) for each of the preferred shares and $0.24 for each of the common
shares.
The Purchase Price shall be paid as follows:
1.2.1 Definitions. For purposes of this Agreement, the following terms
-----------
shall have the following respective meanings:
(a) "Warrants" means options, in the form annexed hereto as Exhibit C-1, or
Warrants, in the form annexed hereto as Exhibit C-2, which grant the holder the
immediate right to purchase shares of Buyer's common stock, which Warrants will
be exercisable for a period of five (5) years after the respective date of
grant. Any shares issued upon the exercise of such Warrants will, upon delivery,
be registered and freely tradeable and shall remain so throughout the period
that the Warrants are exercisible. In lieu of Warrants, Buyer may issue its
registered and freely tradeable Common Stock of an equivalent value to the Value
of the Warrants.
(b) "Value", in connection with each share of common stock covered by a
Warrant, means the difference between (i) the average closing bid price of
Buyer's common shares for the five (5) trading days immediately preceding the
date of delivery of the Warrant, and (ii) the exercise (or strike) price of the
Warrant.
(c) In recognition of the potential volatility of Buyer's stock and any
commissions, finance charges and other costs in connection with the exercise of
the Warrants and the sale of the Warrants and/or the stock, a 10% premium will
be added to the Value which is to be received by each of the Sellers.
(d) The number of Warrants granted pursuant to Sections 1.2.2 and 1.2.3
shall be subject to adjustment as to each Seller (the "Adjustment") in
accordance with the
3
<PAGE>
following provisions:
(i) The number of Warrants granted on each occasion shall be divided
by four (4) and it shall be assumed for the purposes of this Section 1.2 that
each such quarterly amount of Warrants is sold at the mean trading price on each
of the four (4) successive trading dates immediately following the delivery of
such Warrants. The gross amount, less commissions and fees, which would be
received upon such assumed sales is referred to herein as the "Realizable
Amount."
(ii) If the Realizable Amount for each Seller is at least equal to the
respective Value amount to which such Seller is entitled, there shall be no
Adjustment. If, and to the extent that the Realizable Amount is less than said
Value amount, such difference (the "Deficiency") shall be made up by Warrants of
equivalent Value in amount to such Deficiency (the "Make-up Warrants"). The
Make-up Warrants shall be delivered to the Common Shareholders within four (4)
months of the Closing Date. The Make-up Warrants shall be delivered to the
Preferred Shareholders, on a cumulative basis, within four (4) months after the
last delivery of Warrants to such Sellers.
(iii) Notwithstanding the foregoing, if, in fact, a Seller shall have
traded the Warrants on any of such four immediately succeeding trading dates and
shall have realized more than the "Realizable Amount," for such day as
determined under (d)(i) above, then the actual amount realized by such Seller
less commissions and fees shall be used as the "Realizable Amount" in
calculating the amount of "Make-up Warrants" to be issued to such Seller
pursuant to this paragraph.
1.2.2 Payments to Common Shareholders. At the Closing, Buyer shall
-------------------------------
deliver to
4
<PAGE>
the Common Shareholders, Warrants with a Value equal to the aggregate amount of
$325,899 plus the 10% premium pursuant to Section 1.2.1(c) in full payment of
the amount of the Purchase Price, allocated among the Common Shareholders as set
forth in Exhibit A.
1.2.3 Payments to Preferred Shareholders.
----------------------------------
(a) On demand following the Closing, Buyer shall deliver to the Preferred
Shareholders, Warrants with a Value equal to the aggregate amount of $250,000
plus the 10% premium pursuant to Section 1.2.1(c).
(b) Buyer shall deliver to the Preferred Shareholders, additional Warrants
with a Value equal to $250,000 plus the 10% premium pursuant to Section
1.2.1(c), on each of (a) September 30, 1996, (b) December 31, 1996, (c) March
31, 1997 and (d) June 30, 1997. In the event of a "change of control" (as used
in Item 403 of Regulation S-K) of Buyer prior to the time all of such additional
Warrants have been delivered to the Preferred Shareholders, any of such
additional Warrants which have not been delivered shall be delivered to the
Preferred Shareholders within ten (10) days after the effective date of such
"change of control."
(c) Buyer shall deliver to the Preferred Shareholders additional Warrants
with a Value equal in amount to the first $300,000, plus the 10% premium
pursuant to Section 1.2.1(c), of proceeds of the liquidation of the Company's
closing inventory (the "Inventory Liquidation"), in accordance with Exhibit B
(the "Contingent Payment"). Such Warrants shall be delivered to the Preferred
Shareholders within thirty (30) days after the Company's receipt of such
Proceeds.
(d) The Warrants to be delivered to the Preferred Shareholders shall be
allocated between them in their respective proportion as set forth in Exhibit A.
2. Supplemental Payment and Non-Competition Agreement.
--------------------------------------------------
2.1 Supplemental Agreement. In connection with the sale of the Company
----------------------
Shares by Krasner as Trustee to Buyer, Buyer agrees to pay Krasner as Trustee a
supplemental payment in the form of Warrants having a Value equal to the balance
of the proceeds of the Inventory Liquidation in excess of the first $300,000
(the "Supplemental Payment").
2.2 Schedule of Supplemental Payment. Buyer shall grant Krasner as
--------------------------------
Trustee, from time to time during the 36 month period commencing with the
effective date of Closing, Warrants having a Value equal to the Supplemental
Payment. Such Warrants shall be delivered no less frequently than every three
months or sooner, at Krasner's option, as and when the Value to be paid equals
or exceeds $200,000.
2.3 Noncompetition Agreement. In connection with the sale of the Company
------------------------
Shares to the Buyer, Krasner agrees to execute a Noncompetition Agreement in the
form set forth in Exhibit E ("Non-Competition Agreement").
5
<PAGE>
3. CLOSING AND CLOSING DATE. The Closing ("Closing") of the transaction
------------------------
contemplated by this Agreement shall take place at the offices of Cooperman
Levitt Winikoff Lester & Newman, P.C., 800 Third Avenue, New York, New York at
10:00 A.M., on June 27, 1996 or at such other date, time and place as may be
agreed upon by the parties, and shall for all purposes be deemed consummated as
of June 18, 1996 (the "Closing Date").
4. SELLERS REPRESENTATIONS AND WARRANTIES.
--------------------------------------
4.1 Joint and Several Representations and Warranties. Sellers, jointly
------------------------------------------------
and severally, represent and warrant the following, the truth and accuracy of
each of which shall constitute a condition precedent to the obligations of Buyer
hereunder.
4.1.1 Validity of Agreement, etc. This Agreement is, or will be at the
--------------------------
Closing, valid and binding upon each of the respective Sellers and is, or will
be at the Closing, enforceable in accordance with its respective terms, except
as enforceability may be limited by bankruptcy, insolvency, reorganization or
other laws affecting generally the enforcement of creditors' rights and except
to the extent that courts may award money damages rather than specific
performance of contractual provisions. Each of the Sellers, respectively, have,
or will have on the Closing Date, valid marketable title to the Company Shares,
free and clear of any restrictions, claims, liens, pledges, hypothecation and
encumbrances of or by others, and full power and authority to transfer and
deliver the Company Shares to Buyer as contemplated in this Agreement, including
all Company
6
<PAGE>
Shares held in trust by any of the Sellers.
Except as set forth in a schedule to be delivered by Sellers to Buyer as
provided in Section 9.1.1 hereof ("Disclosure Schedule"), neither the execution
and delivery of this Agreement by Sellers nor the consummation of the
transactions contemplated hereby by any or all of them, nor any action of the
Company contemplated by this Agreement will violate any provision of the
Articles of Incorporation or By-Laws of the Company, nor will such actions
violate, or be in conflict with, or constitute a default (or an event which,
with notice or lapse of time or both, would constitute a default) under, or
result in the termination of, or accelerate the performance required by, or
cause the acceleration of the maturity of any debt or obligation pursuant to, or
result in the creation or imposition of any security interest, lien or other
encumbrance upon any property or assets of the Company under any agreement or
commitment to which the Company is a party or by which the Company is bound, or
to which the property of the Company is subject, or violate any statute or law
or any judgment, decree, order, regulation or rule of any court or governmental
authority.
4.1.2 Ownership of the Company Shares. Sellers are the sole owners of
-------------------------------
record of all of the Company Shares, each owning the number of shares set forth
on Exhibit A. The shares of the Company set forth on Exhibit A after each
Seller's name constitute all of the shares of the Company owned by such Seller
and the Company Shares constitute all of the issued and outstanding capital
stock of the Company; and each Seller has the full right, power and authority to
sell and transfer the Company Shares held by such Seller, free and clear of any
lien, encumbrance, charge, equity or restriction whatsoever. Except as set
forth in the Disclosure Schedule, there are no outstanding
7
<PAGE>
subscriptions, options, rights, warrants, convertible securities, or other
agreements, commitments or rights obligating the Company to issue any shares of
stock to any person or firm, nor obligating Sellers or either of them to
transfer any shares to any person or firm.
4.1.3 Corporate Organization. The Company is a corporation duly
----------------------
organized, validly existing and in good standing under the laws of the State of
Delaware and has full corporate power and authority to carry on its business as
it is now being conducted and to own the properties and assets it now owns; is
not, and the nature of the Company's activities do not require it to be
qualified to do business as a foreign corporation in any jurisdiction in which
it is not qualified. The copies of the Certificate of Incorporation and By-Laws
of the Company previously delivered to Buyer are complete and correct copies of
such instruments as presently in effect.
4.1.4 Capitalization of the Company. As of the date of this Agreement,
-----------------------------
the authorized capital stock of the Company consists of 4,000,000 shares of
preferred stock and 10,000,000 shares of common stock; of which 1,550,000 shares
of preferred stock and 1,357,914 shares of common stock are issued and
outstanding. All issued and outstanding shares of preferred and common capital
stock of the Company are validly issued, fully paid and nonassessable and have
been offered, sold and delivered by the Company in compliance with all
applicable federal and state security laws.
4.1.5 Subsidiaries and Affiliates. Except as set forth in the
----------------------------
Disclosure Schedule, the Company has no subsidiaries, nor any equity interest
in any other corporation, partnership or business. Except as set forth in the
Disclosure Schedule, as of the Closing Date, the Company will be the sole owner
of record and sole beneficial owner of all of
8
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the issued and outstanding shares of each subsidiary, owning all such shares of
each such subsidiary, free and clear of any lien, encumbrance, charge, equity
or restriction whatsoever. As of the Closing, there will be no outstanding
subscriptions, options, rights, warrants, convertible securities, or other
agreements, commitments or rights obligating the Company to issue any shares of
any subsidiary to any person or firm, nor obligating Sellers or any of them to
transfer any shares of any subsidiary to any person or firm. Each of the
Company's subsidiaries is a corporation duly organized, validly existing and in
good standing under the laws of the state of such subsidiary's organization and
has full corporate power and authority to carry on its business as it is now
being conducted and to own the properties and assets it now owns; is not, and
the nature of each of the Company's subsidiaries' activities do not require it
to be, qualified to do business as a foreign corporation in any other
jurisdiction. The copies of the Articles of Incorporation and By-Laws of each
subsidiary of the Company previously delivered to Buyer are complete and
correct copies of such instruments as presently in effect.
4.2 Krasner's Representations and Warranties. Krasner, as Trustee,
----------------------------------------
represents and warrants the following, the truth and accuracy of each of which
shall constitute a condition precedent to the obligations of Buyer hereunder.
4.2.1 Financial Condition Of the Company. Subject to the Disclosure
----------------------------------
Schedules, Exhibit F contains a true, complete and correct copy of the Company's
consolidated Statement of Financial Condition including all subsidiaries
("Balance Sheet") for the three months ended as of April 28, 1996 ("Balance
Sheet Date") and its consolidated statement of income including all
subsidiaries for the three months
9
<PAGE>
ended April 28, 1996, hereinafter collectively referred to as the "Company
Financial Statement". The Company Financial Statement is (i) a statement
prepared from the books and records of the Company, (ii) prepared substantially
in accordance with the same accounting methods, practices and principles
utilized in connection with the preparation of the last three annual prior
financial statements issued by the Company, (iii) sets forth fairly and
completely the consolidated financial position and the results of operations of
the Company as at the relevant dates thereof and for the period covered
thereby, (iv) contains and reflects all necessary adjustments, including
appropriate reserves, for a fair and complete presentation of the Company's
consolidated financial position and the results of its operations for the
period covered by the Company Financial Statement, (v) reflects all
liabilities, realized or unrealized, contingent or not contingent to which the
Company is liable, except for liabilities and obligations incurred in the
ordinary course of business and consistent with past practice since the Balance
Sheet Date; and (vi) the reserves reflected in the Company Financial Statement
are adequate, appropriate and conservative.
4.2.2 Taxes. To the best of Krasner's knowledge, the Company,
-----
including all subsidiaries, has duly filed when due all tax reports and returns
required to be filed by it and, except as set forth in the Disclosure Schedule,
has duly paid all taxes, assessments, penalties, interest and other charges due
or claimed to be due from it by federal, state, local or foreign taxing
authorities (including, without limitation, those due in respect of the
properties, income, franchises, licenses, sales or payrolls of the Company) and
the Company shall have no further liability for any such tax, assessment,
penalty or interest,
10
<PAGE>
except for current taxes not yet due; the tax reports and returns required to
be filed by the Company reflect all income and receipts required to be
disclosed, all deductions set forth therein are properly deductible and all
credits set forth on such reports and returns are proper and appropriate; the
sales tax reports required to be filed reflect the proper character of taxable
transactions, including all sales and use tax, penalties and interest due in
connection with all such transactions; the reserves for taxes, assessments,
interest and penalties reflected in the Balance Sheet whether or not disputed
are adequate; and, except as set forth in the Disclosure Schedule, there are no
tax liens upon any property or assets of the Company, except liens for current
taxes not yet due. There are no present disputes or pending investigations or
administrative actions relating to the Company's taxes of any nature. All
Company tax returns have been examined and settled by applicable taxing
authorities to the extent indicated in the Disclosure Schedule, and where they
have not been so examined and settled, no waivers of statutes of limitations
have been given except to the extent indicated in such Schedule. Since 1992,
all such returns and reports have been prepared on a basis consistent from year
to year, except as otherwise required by law. Copies of all income tax returns
for the Company in respect of all years not barred by the statute of
limitations have heretofore been delivered by the Company to Buyer and all such
returns are listed in the Disclosure Schedule.
4.2.3 Machinery, Equipment and Furniture. At the Closing, except as
----------------------------------
set forth in the Disclosure Schedule, all of the machinery, equipment and
furniture owned or leased by the Company or any of its subsidiaries will be in
good working condition and repair, normal wear and tear excepted.
11
<PAGE>
4.2.4 Accounts Receivable. All accounts receivable of the Company and
-------------------
its subsidiaries as of the Balance Sheet Date and as of the date of this
Agreement, and all accounts receivable of the Company and its subsidiaries
created after the Balance Sheet Date through the Closing Date, arose, or will
have arisen, from valid sales by the Company or its subsidiaries in the ordinary
course of its business and have not been "written off" by the Company. Except
as set forth in the Disclosure Schedule, none of the Company's accounts
receivable, or any portion thereof, has been assigned, pledged or given as
collateral or is currently subject to any such interest or claim. All of the
accounts receivable, net of reserves, on such dates are believed to be
collectable.
4.2.5 Inventory. To the best of Krasner's knowledge:
---------
(a) All inventories of raw materials, supplies, work-in-process and
finished goods of the Company and all of its subsidiaries as of the Balance
Sheet Date, and all such inventories created after such date through the Closing
Date, consist of items of a quality and quantity usable and salable in the
ordinary course of business by the Company except for obsolete items, slow
moving items and below standard quality items;
(b) All such inventories are free from defects which might give rise to
claims for breach of warranty or products liability, except for repairs of items
in the ordinary course of business;
(c) All items included in the inventories as of the Balance Sheet Date are
the property of the Company, except for sales made in the ordinary course of
business since such date, and for each of these sales, either the purchaser has
made full payment or the purchaser's liability to make payment is reflected on
the books and records of the
12
<PAGE>
Company; and,
(d) Except as set forth in the Disclosure Schedule, there are no items
included in the aforementioned inventories which have been manufactured for
individual customers which involve a dispute or have been refused by the
customer.
4.2.6 Absence of Certain Changes. Except as and to the extent set
--------------------------
forth in the Disclosure Schedule, or the Financial Statements or notes thereto,
since the Balance Sheet Date, neither the Company nor any of its subsidiaries
have:
(a) Suffered any material adverse change in, or the occurrence of any
events which, individually or in the aggregate, have had, or might be reasonably
expected to have, a material adverse effect on, its working capital, financial
condition, assets, liabilities (absolute, accrued, contingent or otherwise),
reserves, business, operations or prospects;
(b) Incurred any liabilities or obligations (absolute, accrued, contingent
or otherwise), except items incurred in the ordinary course of business and
consistent with past practice, or increased, or experienced any material change
in any assumptions underlying or methods of calculating, any bad debt,
contingency or other reserves;
(c) Paid, discharged or satisfied any claim, liability or obligation
(absolute, accrued, contingent or otherwise) other than the payment, discharge
or satisfaction in the ordinary course of business and consistent with past
practice;
(d) Permitted or allowed any of its property or assets (real, personal or
mixed, tangible or intangible) to be subjected to any mortgage, pledge, lien,
security interest, encumbrance, restriction or charge of any kind, except for
liens for current taxes not yet
13
<PAGE>
due;
(e) Written down the value of any inventory (including write-downs by
reason of shrinkage or mark-down) or written off as uncollectible any notes or
accounts receivable, except for immaterial write-downs and write-offs in the
ordinary course of business and consistent with past practice;
(f) Canceled any debts or waived any claims or rights of substantial value;
(g) Sold, transferred, or otherwise disposed of any of its properties or
assets (real, personal or mixed, tangible or intangible), except in the ordinary
course of business and consistent with past practice;
(h) Disposed of or permitted to lapse any rights to the use of any patent,
trademark, trade name or copyright, or disposed of or disclosed to any person,
any trade secret, formula, process or know-how not theretofore a matter of
public knowledge;
(i) Granted any general increase in the compensation of officers or
employees (including any such increase pursuant to any bonus, pension, profit-
sharing or other plan or commitment) or any increase in the compensation payable
or to become payable to any officer or employee from the day following the
Balance Sheet Date through the Closing Date, and no such increase is required by
agreement or understanding except for employee salary increases in the ordinary
course of business and in accordance with past practice;
(j) Made any single capital expenditure or commitment in excess of $10,000
for additions to property, plant, equipment or intangible capital assets or made
aggregate capital expenditures and commitments in excess of $150,000 for
additions to property,
14
<PAGE>
plant, equipment or intangible capital assets;
(k) Declared, paid or set aside for payment any dividend for the period
from January 29, 1996 through the Closing Date (except for dividends on the
preferred stock) or other distribution in respect of its capital stock or
redeemed, purchased or otherwise acquired, directly or indirectly, any share of
capital stock or other securities of the Company;
(1) Made any change in any method of accounting or accounting practice;
(m) Paid, loaned or advanced any amount to, or sold, transferred or leased
any properties or assets (real, personal or mixed, tangible or intangible) to,
or entered into any agreement or arrangement with, any of its officers or
directors or any affiliate, family member or associate of any of its officers or
directors;
(n) Suffered any loss, damage, destruction or other casualty materially and
adversely affecting any of the properties, assets or business of the Company
(whether or not covered by insurance);
(o) Borrowed or agreed to borrow any funds or incurred, or assumed or
become subject to, whether directly or by way of guarantee or otherwise, any
obligation or liability, except obligations and liabilities incurred in the
ordinary course of business and consistent with past practice;
(p) Licensed, sold, transferred, pledged, modified, disclosed, disposed of
or permitted to lapse any rights to the use of the name of the Company or any
fictitious firm name used by the Company;
(q) Entered into any transaction with Sellers, or any of them, their
immediate
15
<PAGE>
relatives, related trusts or related business entities;
(r) Entered into any other transaction, contract or commitment other than
in the ordinary course of business; and
(s) Agreed, whether in writing or otherwise, to take any action described
in this section.
4.2.7 Title to Properties; Encumbrances. Except as and to the extent
---------------------------------
set forth in the Disclosure Schedule and except as expressed in the second
sentence of this Section 4.2.7, the Company and all of its subsidiaries have
good, valid and marketable title to all the properties and assets which each
purports to own (real, personal and mixed, tangible and intangible), including,
without limitation, all the properties and assets reflected in the Balance Sheet
except for property sold since the Balance Sheet Date in the ordinary course of
business and consistent with past practice. Except as noted in the Disclosure
Schedule, all properties and assets reflected in the Balance Sheet are free and
clear of all title defects or objections, liens, claims, charges, security
interests or other encumbrances of any nature whatsoever including, without
limitation, leases, chattel mortgages, conditional sales contracts, collateral
security arrangements and other title or interest retention arrangements, and
are not, in the case of real property, subject to any rights of way, building
use restrictions, exceptions, variances, reservations or limitations of any
nature whatsoever; except, with respect to all such properties and assets, (a)
liens shown on the Balance Sheet as securing specified liabilities or
obligations with respect to which no default exists; (b) minor imperfections of
title, if any, none of which are substantial in amount, materially detract from
the value or impair the use of the property subject
16
<PAGE>
thereto, or impair the operations of the Company and which have arisen only in
the ordinary course of business and consistent with past practice; (c) liens
for current taxes not yet due; and (d) liens or other imperfections of title
listed in the Disclosure Schedule. The rights, properties and other assets
presently owned, leased or licensed by the Company and described elsewhere in
this Agreement include all rights, properties and other assets necessary to
permit the Company to conduct its business in all material respects in the same
manner as its business has been conducted prior to the date hereof.
4.2.8 Patents, Trademarks, Trade Names, Etc.
-------------------------------------
The Disclosure Schedule identifies all licenses and other contracts or
commitments to which the Company or each of its subsidiaries is a party (either
as licensor or licensee) or is otherwise subject relating to patents,
trademarks, trade names or copyrights (or applications for any thereof), trade
secrets or other proprietary know-how or technical assistance, and no claims
have been asserted by any person to the use of any such patents, trademarks,
trade names, copyrights, technology, know-how or processes or challenging or
questioning the validity or effectiveness of any such license or agreement and
the Company does not know of any valid basis for any such claim. Except as set
forth in the Disclosure Schedule, neither the Company nor any of its
subsidiaries have, nor have been alleged to have, infringed upon any patent,
trademark, trade name or copyright or misappropriated or misused any invention,
trade secret or other proprietary information entitled to legal protection.
The Company has not asserted any claim of infringement, misappropriation or
misuse within the past three years.
The Company has good and valid title to, or otherwise possesses adequate
and
17
<PAGE>
exclusive rights to use, all patents, trademarks, trade names, copyrights,
inventions, trade secrets and other proprietary information necessary to permit
the Company to conduct its business in the same manner as its business has been
conducted prior to the date hereof.
4.2.9 Leases. The Disclosure Schedule contains an accurate and
------
complete description of the material terms of all leases pursuant to which the
Company leases real or personal property. Except as set forth in the Disclosure
Schedule, all such leases are valid, binding and enforceable in accordance with
their terms, and are in full force and effect; there are no existing defaults by
the Company thereunder; no event of default has occurred which (whether with or
without notice, lapse of time or the happening or occurrence of any other event)
would constitute a default thereunder; and all lessors under such leases have
consented (where such consent is necessary) to the consummation of the
transactions contemplated by this Agreement without requiring modification in
the rights or obligations of the lessee under such leases. Executed counterpart
copies of all consents referred to in the preceding sentence are being delivered
to Buyer simultaneously with the execution hereof.
4.2.10 Bank Accounts. The Disclosure Schedule sets forth the names and
-------------
locations of all banks, trust companies, savings and loan associations and other
financial institutions at which the Company maintains safe deposit boxes or
deposit accounts of any nature and the names of all persons authorized to draw
thereon, make withdrawals therefrom or have access thereto. At the Closing,
the Company shall deliver to Buyer copies of all records, including all
signature or authorization cards, pertaining to such bank accounts.
4.2.11 Liens on Assets. The Disclosure Schedule contains a complete and
---------------
accurate
18
<PAGE>
list of all liens, pledges, encumbrances, claims under bailment and storage
requirements, charges and restrictions (except for liens, if any, for real or
personal property taxes not delinquent) with respect to the assets and
properties of the Company and all of its subsidiaries.
4.2.12 Customers And Suppliers. Except to the extent set forth in the
-----------------------
Disclosure Schedule, to the best knowledge of Krasner, since the Balance Sheet
Date, there has not been any material adverse change in the business
relationship of the Company with any of its customers or suppliers. All of the
Company's accepted and unfilled orders and contracts and commitments for the
purchase of supplies have been made in the ordinary course of business. The
Disclosure Schedule sets forth each claim against the Company to return in
excess of an aggregate of $3,000 of merchandise by reason of alleged over-
shipments, defective merchandise or otherwise, or of merchandise in the hands of
customers under an understanding that such merchandise would be returnable.
4.2.13 Contracts and Agreements. The Disclosure Schedule contains a
------------------------
complete and accurate list setting forth a description of each indenture, trust
deed, mortgage, chattel mortgage, security agreement, conditional sales
contract, collective bargaining agreement, royalty agreement, labor union
agreement, employment agreement, agreement with suppliers, distributorship
agreement, employee agreement, broker agreement, sales representative
agreement, marketing agreement or any other material purchase or sales
contract, agreement or arrangement, whether written or oral, or other material
obligation, if any, to which the Company or any of its subsidiaries is a party,
or by which it is bound as of the date hereof. For purposes of this Agreement,
a "material purchase or sales
19
<PAGE>
contract, agreement, commitment or arrangement" shall be defined to mean any
purchase or sales contract, agreement commitment or arrangement in which the
total consideration to be paid or received exceeds $10,000. Each of the
contracts and agreements described in the Disclosure Schedule is a valid and
binding obligation of the parties thereto and no party to any such contract or
agreement is in material default with respect to any term or condition thereof,
nor has any event occurred which, through the passage of time or the giving of
notice or both, would constitute a material default thereunder or would cause
the acceleration of any obligation of any party thereto, or the creation of a
material lien or encumbrance upon any of the Company's assets. The
consummation of this Agreement will not constitute a material default under or
otherwise affect the rights of the Company under any contract or agreement
described in the Disclosure Schedule. True and complete copies of all
contracts and agreements described in the Disclosure Schedule will be exhibited
or made available to Buyer not later than five (5) days prior to the Closing
Date.
Except as set forth in the Disclosure Schedule:
(a) The Company and its subsidiaries have no other agreements, contracts,
commitments or restrictions which are material (as defined above) to its
business, operations or prospects or which require the making of any charitable
contribution;
(b) There are no purchase contracts or commitments of the Company or of its
subsidiaries which continue for a period of more than 12 months or are in excess
of the normal, ordinary and usual requirements of the Company's business or at
any excessive price;
20
<PAGE>
(c) There are no outstanding sales contracts, commitments or proposals of
the Company or its subsidiaries which continue for a period of more than 12
months, nor are there any outstanding contracts, bids or sales or service
proposals quoting prices which will not result in a profit;
(d) Neither the Company nor its subsidiaries have outstanding contracts
with officers, employees, agents, consultants, advisors, salesmen, sales
representatives, distributors or dealers that are not cancelable by it on notice
of not longer than 30 days and without liability, penalty or premium or any
agreement or arrangement providing for the payment of any bonus or commission
based on sales or earnings;
(e) The Company and its subsidiaries have no employment agreement, or any
other agreement that contains any severance or termination pay liabilities or
obligations;
(f) The Company and its subsidiaries have no collective bargaining or union
contracts or agreements;
(g) The Company and its subsidiaries are not in material default, nor is
there any known basis for any valid claim of default, under any material
contract made or obligation owed by any of them;
(h) The Company and its subsidiaries have no employee to whom it is paying
compensation (including estimated bonus payments) at the annual rate of more
than $40,000 for services rendered;
(i) The Company and its subsidiaries are not restricted by agreement from
carrying on their business anywhere in the world;
(j) The Company and its subsidiaries are not under any liability or
obligation
21
<PAGE>
with respect to the return of inventory or merchandise in the possession of
wholesalers, distributors, retailers or other customers;
(k) The Company and its subsidiaries have no debt obligation for borrowed
money, including guarantees of or agreements to acquire any such debt obligation
of others;
(l) The Company and its subsidiaries have no outstanding loan to any
person.
(m) The Company has no contracts, understandings or verbal or written
agreements between the Company or any of its subsidiaries and any of its
shareholders, of record or beneficial, or any person or entity related by blood
or marriage to any of the Sellers.
4.2.14 Fringe Benefit Plans. The Disclosure Schedule contains a
--------------------
complete description of and sets forth the annual amount payable pursuant to, or
the funding policy and status of such funding policy with respect to, each
bonus, deferred compensation, pension, profit sharing or retirement plan or
arrangement and each other fringe benefit plan or arrangement of the Company and
its subsidiaries (the "Plan"), whether formal or informal and whether legally
binding or not. The Company and its subsidiaries have no commitment, whether
formal or informal and whether legally binding or not, to create any additional
such plan or arrangement except as accurately and completely described in the
Disclosure Schedule. All Plans of the Company and its subsidiaries comply
currently, and have at all times since their inception, both as to form and in
operation, with the terms of such Plans and with the applicable provisions of
ERISA, as defined below, the Internal Revenue Code of 1986, as amended (the
"Code"), regulations issued thereunder and all
22
<PAGE>
other applicable federal or state laws. All necessary governmental approvals
for the Plans have been obtained and a favorable determination as to the
qualification under Section 401(a) of the Code and of each amendment thereto has
been made by the Internal Revenue Service, and a recognition of exemption from
federal income taxation under Section 501(a) of the Code has been made by the
Internal Revenue Service. Nothing has occurred since the date of each such
determination letter that would adversely affect such qualification or
exemption. Except as set forth in the Disclosure Schedule, all sums required to
be paid to conform to full funding of the Plans as of the Closing Date have been
paid and termination of such plans would not result in a funding deficiency nor
create any liability to the Company or any of its subsidiaries.
The Company and its subsidiaries have complied with the continuation
coverage requirements for Health Plans contained in Section 162(k) of the Code,
as added by the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended, relating to Company group health plans. Each Plan is in compliance
with applicable federal laws, including but not limited to ERISA. Whenever the
term "ERISA" is used in this Agreement, it shall mean the Employee Retirement
Income Security Act of 1974, as amended from time to time.
4.2.15 Insurance Coverage. The Disclosure Schedule contains a complete
------------------
and accurate description of each insurance policy maintained by the Company and
its subsidiaries. Each insurance policy described in the Disclosure Schedule is
a valid and binding obligation of the insurer, and neither the Company nor, to
the Company's or Krasner's knowledge, the insurer is in default with respect to
any term or condition
23
<PAGE>
thereof, nor has any event occurred which, through the passage of time or the
giving of notice or both, would constitute a default thereunder or give rise to
a right to cancel such policy. The insurance policies of the Company and its
subsidiaries are in both amounts and scope deemed by the Sellers to be
sufficient in view of the business of the Company.
No notice of cancellation or termination has been received with respect to
any such policy. Such policies are sufficient for compliance with all
requirements of law and of all agreements to which the Company is a party; are
valid, outstanding and enforceable policies; to the best of Krasner's knowledge
provide adequate insurance coverage for the assets and operations of the
Company; will remain in full force and effect through the respective dates set
forth in the Disclosure Schedule without the payment of additional premiums
beyond what is already scheduled; and will not in any way be affected by, or
terminate or lapse by reason of, the transactions contemplated by this
Agreement. Except for the deductibles on the Company's insurance policies, the
Disclosure Schedule identifies all risks which the Company, its Board of
Directors or officers have designated as being self insured. The Company has
not been refused any insurance with respect to its assets or operations, nor has
its coverage been limited, by any insurance carrier to which it has applied for
any such insurance or with which it has carried insurance during the last three
years.
4.2.16 Losses on Contracts and Agreements. To the best of Krasner's
----------------------------------
knowledge, the Company will earn a gross profit from each material purchase or
sales contract, commitment, agreement or arrangement providing for the sale of
goods or the rendering of services by the Company that is outstanding as of the
Closing Date.
24
<PAGE>
4.2.17 Compliance with Law. The operations of the Company and all of
-------------------
its subsidiaries have been conducted in substantial accordance with all
applicable laws, regulations and other requirements of all national
governmental authorities, and of all states, municipalities and other political
subdivisions and agencies thereof, having jurisdiction over the Company,
including, but not limited to all laws, regulations and requirements relating
to antitrust, environmental protection and conservation, pollution, equal
employment and anti-discrimination acts, consumer protection, currency
exchange, health, occupational safety, pension, securities and
trading-with-the-enemy matters. The Company has not received any notification
of any asserted present or past failure by the Company to comply with such
laws, rules or regulations.
Except as set forth in the Disclosure Schedule, the Company has filed when
due all reports required to be filed with any governmental, regulatory or
administrative agency.
Except as set forth in the Disclosure Schedule, the Company has obtained
all permits, licenses, certificates, registrations, qualifications and other
authorizations which are required to be obtained by the Company under federal,
state and local laws relating to pollution or protection of the environment,
including laws relating to emissions, discharges, releases or threatened
releases of pollutants, contaminants, or hazardous or toxic materials or wastes
into ambient air, surface water, ground water, or land, or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants or hazardous or toxic
materials or wastes. Except as set forth in the Disclosure Schedule, the
Company is in substantial compliance with all terms and conditions of the
required permits, licenses and
25
<PAGE>
authorizations, and is also in substantial compliance with all other
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules and timetables contained in those laws relating to
pollution or protection of the environment or contained in any regulation,
code, plan, order, decree, judgment, notice or demand letter issued, entered,
promulgated or approved thereunder. Except as set forth in the Disclosure
Schedule, the Company has not engaged in any activities that could cause any
material violation of any federal, state or local laws, ordinances, rules or
regulations relating to air or water pollution, toxic waste or other
environmental protection or relating to occupational health or safety or
Hazardous Materials (as defined below) applicable to its properties, assets,
the real estate which it now occupies nor any real estate which it has
previously occupied. The Company and its subsidiaries have no liability,
contingent or otherwise with respect to the contamination with toxic waste or
Hazardous Materials of premises it now occupies or has previously occupied,
which contamination occurred during a time that such premises were occupied by
a previous tenant, whether the contamination occurred from the activities
conducted by the previous tenant, from contamination flow from other properties
or otherwise. As used herein, the term "Hazardous Materials" shall mean any
explosives, radioactive materials, hazardous wastes (including, without
limitation, asbestos and asbestos containing materials), hazardous or toxic
substances, or related materials defined in the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended (42 U.S.C.
(S)9601), et. seq.), the Hazardous Materials Transportation Act, as amended (49
U.S.C. (S)1801, et. seq.), the Resource Conservation and Recovery Act of 1976,
as amended (42 U.S.C. (S)6901, et. seq.) and in
26
<PAGE>
the regulations adopted and publications promulgated pursuant thereto, or any
other federal, state or local environmental laws, ordinances, rules, or
regulations.
Except as set forth in the Disclosure Schedule, the Company is not aware
of, nor has the Company received notice of, any past, present or future events,
conditions, circumstances, activities, practices, incidents, actions or plans
which may interfere with or prevent continued compliance, or which may give
rise to any common law or legal liability, or otherwise form the basis of any
claim, action, suit, proceeding, hearing or investigation, based on or related
to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling, or the emission, discharge, release or
threatened release into the environment, of any pollutant, contaminant, or
hazardous or toxic material or waste.
Neither the Company nor any director, officer, agent, employee or other
person acting on behalf of the Company, has, directly or indirectly, within the
past five years, given or agreed to give any gift or similar benefit (other then
legal price concessions to customers in the ordinary course of business) to any
customer, supplier, employee or agent of a customer or supplier or official or
employee of any governmental agency or instrumentality of any government or any
political party or candidate for office or other person who is or may be in a
position to help or hinder the business of the Company (or assist it in
connection with any actual or proposed transaction) which (i) might subject the
Company to any damage or penalty in any civil, criminal or governmental
litigation or proceeding, (ii) if not given in the past, might have had a
materially adverse effect on the assets, business or operations of the Company
as reflected in the Financial Statements, or
27
<PAGE>
(iii) if not continued in the future, might adversely affect the assets,
business, operations or prospects of the Company. Neither Sellers nor the
Company have obtained, directly or indirectly, any property as a result of
activities, or used any property to conduct activities, which activities may
constitute or result in a violation of the Racketeer Influenced and Corrupt
Organization Act (18 U.S.C. 1961, et. seq.) or any other federal, state or
local law, rule or regulation, the penalty for which could be forfeiture.
4.2.18 Undisclosed Liabilities. Except as set forth in the Company
-----------------------
Financial Statement or in the Disclosure Schedule and except as disclosed
herein or in any Schedule attached hereto, the Company is not obligated for,
nor are any of the Company's assets subject to, any liabilities (whether
absolute, accrued or contingent and whether due or to become due) other than
liabilities arising in the ordinary course of business since the Balance Sheet
Date, none of which liabilities individually or in the aggregate is materially
adverse when comparing the condition of the Company as of the Balance Sheet
Date with the date of this Agreement.
4.2.19 Liability as Guarantor; Powers of Attorney. The Company is not
------------------------------------------
liable as guarantor, surety, co-signer, indemnitor or endorser in connection
with the obligation or obligations of any other company, association, firm,
joint venture, entity or person. The Company has not granted, authorized or
empowered any other corporation, association, firm or person to act as its
attorney in fact to exercise any of its rights or to take any action in
connection with the conduct of the business of the Company, and will not enter
into any such arrangement prior to the Closing Date.
4.2.20 Corporate Records. Except as set forth in the Disclosure
-----------------
Schedule, the
28
<PAGE>
corporate minute books of the Company and its subsidiaries contain a complete
and accurate record of all actions taken or required to be taken by the Board
of Directors and shareholders of the Company and its subsidiaries, and the
stock transfer records, books of account, financial records and correspondence
of the Company and its subsidiaries have been kept in the usual course of
business and are complete insofar as they relate to the business of the Company
from its inception to the date of this Agreement, and will be complete insofar
as they relate to the business of the Company from its inception to the Closing
Date. The financial books and records of the Company and its subsidiaries
have been maintained consistently and, to the best of Krasner's knowledge, in
accordance with sound business practices.
4.2.21 Material Misstatements or Omissions. No representations or
-----------------------------------
warranties by Sellers contained in this Agreement or in the Disclosure Schedule
referred to herein or in any document, statement or certificate furnished or to
be furnished to Buyer in connection with the transactions contemplated hereby,
contain, or will contain on the Closing Date, any statement of a material fact
known to be untrue, or omit, or will omit on the Closing Date, any material
known fact necessary to make the statements of fact contained therein not
misleading.
4.2.22 Brokerage and Finder's Fees. To the best of their knowledge, the
---------------------------
Company has not incurred any liability to any broker, finder or agent for any
brokerage fees, finder's fees or commissions with respect to the transactions
contemplated by this Agreement.
4.2.23 Litigation. The Disclosure Schedule contains a complete and
----------
accurate
29
<PAGE>
description of all actions, suits and proceedings pending before any court,
arbitration panel or governmental agency, authority or body and all actions,
suits and proceedings threatened involving the Company or any of its
subsidiaries or affecting its business. Except as described in said Disclosure
Schedule there are no actions, suits or proceedings pending or threatened
involving the Company or affecting its business, nor are there any claims of
third parties made or threatened against the Company, provided, however, that
such threat has been conveyed to any employee of the Company.
The Company and its subsidiaries are not subject to any judgment, order or
decree entered in any lawsuit or proceeding which may have an adverse effect on
its business practices or on its ability to acquire any property or conduct its
business in any area.
Neither the whole nor any portion of the leaseholds or any other assets of
the Company or any of its subsidiaries is subject to any governmental decree or
order to be sold or is being condemned, expropriated or otherwise taken by any
public authority with or without payment of compensation therefor, nor, to the
best of Krasner's knowledge, has any such condemnation, expropriation or taking
been proposed.
Except as set forth in the Disclosure Schedule, no consent of any person is
necessary to the consummation of the transactions contemplated hereby,
including, without limitation, consents from parties to loans, contracts, leases
or other agreements and consents from governmental agencies, whether federal,
state or local.
4.2.24 Labor Disputes. Except as set forth in the Disclosure
--------------
Schedule, there is not pending, and there is not threatened, any labor dispute,
strike or work stoppage which affects or which may affect the business of the
Company or which may disrupt its
30
<PAGE>
operations, provided, however, that such threat has been conveyed to any
employee of the Company.
(a) The Company is in material compliance with all applicable laws
respecting employment and employment practices (including without limitation,
compliance with the Immigration Reform And Control Act of 1986), terms and
conditions of employment and wages and hours, and is not engaged in any unfair
labor practice;
(b) there is no unfair labor practice complaint against the Company pending
before the National Labor Relations Board;
(c) there is no labor strike, dispute, slowdown or stoppage actually
pending or threatened against or affecting the Company;
(d) no representation question exists respecting the employees of the
Company;
(e) no grievance or any arbitration proceeding arising out of or under
collective bargaining agreements is pending and no claim therefor exists;
(f) no collective bargaining agreement which is binding on the Company
restricts it from relocating or closing any of its operations;
(g) the Company has not experienced any work stoppage or other labor
difficulty during the last five years; and
(h) the Company has not engaged in any sexual, age, or racial
discrimination, nor has it violated any civil rights of any current or former
employee. Neither Krasner nor the Company have any knowledge of any condition
or circumstance which will or may cause the Company to suffer any strike, union
representation contest, labor trouble, work stoppage or work slowdown.
31
<PAGE>
4.2.25 Insider Interests. Except as set forth in the Disclosure
-----------------
Schedule, no officer or director of the Company has any material interest in any
property, real or personal, tangible or intangible, including without
limitation, inventions, patents, trademarks or trade names, used in or
pertaining to the business of the Company.
4.2.26 Products Liability. Other than those warranties provided for
-------------------
under law, there are no warranty obligations with regard to products, goods or
services sold by the Company, except as set forth in the Disclosure Schedule.
Except as set forth in the Disclosure Schedule, there is no action, suit,
inquiry, proceeding or investigation by or before any court or governmental or
other regulatory or administrative agency or commission pending or, to the best
knowledge of Krasner, threatened against or involving the Company relating to
any product alleged to have been defective, or improperly designed or
manufactured, and the Sellers do not know of any valid basis for any such
action, proceeding or investigation, nor has the Company, to the best knowledge
of Krasner, engaged in any act which would create a claim to be made against it
for misrepresentation or fraud with respect to the sale of any of its products.
4.2.27 Permits and Other Operating Rights. The Company has received the
----------------------------------
consent of all third persons required to permit it to operate its business in
the manner in which it presently is being conducted, and possesses all necessary
permits and other authorizations from third persons, including without
limitation, federal, foreign, state and local governmental authorities,
presently required by applicable provisions of law, including statutes,
regulations and existing judicial decisions, and by the property and contract
rights of third persons, the absence of which would have a material adverse
effect
32
<PAGE>
upon the business or properties of the Company.
4.2.28 Joint Ventures. The Disclosure Schedule sets forth a list of
--------------
all joint ventures and written proposals for joint ventures between the Company
and any other person.
4.2.29 Assets of Business. The assets owned or leased by the Company
------------------
and its subsidiaries constitute all of the assets held for use or used primarily
in connection with its business and are adequate to carry on such business as
presently conducted.
4.2.30 Burdensome Restrictions. Except as set forth in the Disclosure
-----------------------
Schedule, the Company is not obligated under any contract or agreement which
presently materially adversely affects, or in the future may reasonably be
expected materially and adversely to affect, its financial condition,
operations, results of operations, earnings, business or prospects.
4.2.31 Business Generally. Except as set forth in the Disclosure
------------------
Schedule, there have been no events or transactions, or information which has
come to the attention of the Company or the Sellers which, as they relate
directly to the business and assets of the Company, could reasonably be
expected to have a material adverse effect on the profitability of the business
and operations of the Company.
4.2.32 Books of Account and Reports; Internal Controls.
-----------------------------------------------
(a) The Company's books of account accurately reflect all of its items of
income and expense, and all of its assets, liabilities and accruals. The
Company has accurately prepared and filed when due all reports required by any
law or regulation to be filed by the Company, and it has duly paid or accrued on
its books of account all applicable duties
33
<PAGE>
and charges due (or assessed against it) pursuant to such reports, none of
which charges or duties are delinquent.
(b) The Company has devised and maintained a system of internal accounting
controls sufficient to provide reasonable assurances that: (i) transactions are
executed in accordance with management's general or specific authorization; and
(ii) transactions are recorded as necessary to maintain accountability for
assets and expenses.
4.2.33 Downward Price Adjustment. The Company does not have any
-------------------------
liability or obligation for any downward price adjustment required to be made to
any of its customers except for price adjustments in the ordinary course of
business, and provided further that such adjustments shall not be materially
adverse (either individually or in the aggregate) to the financial condition or
business of the Company, nor does it contemplate making a downward price
adjustment which would materially affect its profits or prospects.
4.2.34 Foreign Transactions. Except as set forth in the Disclosure
--------------------
Schedule, the Company does not engage in foreign exchange transactions.
4.2.35 Other Business Activity. None of the Common Shareholders,
-----------------------
directly or indirectly, nor any family member, trust in which the Common
Shareholders or a family member is a beneficiary, own or have the right to
acquire any interest in any other corporation, business, sole proprietor or
other entity, which (i) engages in any activities similar to that conducted by
the Company, or (ii) is a supplier or customer of the Company, other than the
ownership of less than 5% of the shares of a publicly traded company.
5. SELLERS' COVENANTS AND AGREEMENTS. Sellers hereby afford
----------------------------------
34
<PAGE>
Buyer the following affirmative and negative covenants, thereby agreeing to do
or not to do, or to cause the Company to do or not to do, as the case may be,
the following, the fulfillment of each of which (except for those covenants
which survive or are required to be performed subsequent to the Closing) shall
constitute a condition precedent to the obligations of Buyer hereunder:
5.1 Pending the Closing. Pending the Closing, and except as disclosed
-------------------
in the Disclosure Schedule or otherwise expressly consented to or approved by
Buyer in writing, Sellers hereby covenant and agree that Sellers will use
Sellers' best efforts in order that:
5.1.1. Regular Course of Business. The Company will carry on its
--------------------------
business diligently and substantially in the same manner as heretofore
conducted. The Company shall not institute any new methods of manufacture,
purchase, sale, lease, management, accounting or operation or engage in any
transaction or activity, enter into any agreement or make any commitment, except
in the ordinary course of business and consistent with past practice.
5.1.2 Amendments. No change or amendment shall be made in the Articles
----------
of Incorporation or By-Laws of the Company.
5.1.3 Capital Changes; Dividends; Redemptions. The Company will not
---------------------------------------
issue or sell any shares of its capital stock or other securities, acquire
directly or indirectly, by redemption or otherwise, any such capital stock,
reclassify or split-up any such capital stock, declare or pay any dividends
thereon in cash, securities or other property or make any other distribution
with respect thereto, or grant or enter into any options, warrants, calls or
commitments of any kind with respect thereto.
35
<PAGE>
5.1.4 Subsidiaries. The Company will not organize any new subsidiary,
------------
acquire any capital stock or other equity securities of any corporation or
acquire any equity or ownership interest in any business.
5.1.5 Organization. The Company shall use its best efforts to preserve
------------
its corporate existence and business organization intact, to keep available to
Buyer, its officers and key employees, and to preserve for Buyer, its
relationships with licensors, suppliers, distributors, customers and others
having business relations with it.
5.1.6 Certain Changes. The Company will not:
---------------
(a) Borrow or agree to borrow any funds or incur, or assume or become
subject to, whether directly or by way of guarantee or otherwise, any obligation
or liability (absolute or contingent), except obligations and liabilities
incurred in the ordinary course of business and consistent with past practice;
(b) Pay, discharge or satisfy any claim, liability or obligation (absolute,
accrued, contingent or otherwise), other than the payment, discharge or
satisfaction in the ordinary course of business and consistent with past
practice of liabilities or obligations reflected or reserved against in the
Balance Sheet or incurred in the ordinary course of business and consistent with
past practice since the date of the Balance Sheet;
(c) Prepay any obligation having a fixed maturity of more than 90 days from
the date such obligation was issued or incurred;
(d) Permit or allow any of its property or assets (real, personal or mixed,
tangible or intangible) to be subjected to any mortgage, pledge, lien or
encumbrance;
36
<PAGE>
(e) Write down the value of any inventory or write off as uncollectible any
notes or accounts receivable, except for immaterial write-downs and write-offs
in the ordinary course of business and consistent with past practice;
(f) Cancel any debts or waive any claims or rights of substantial value or
sell, transfer, or otherwise dispose of any of its properties or assets, except
in the ordinary course of business and consistent with past practice;
(g) Dispose of or permit to lapse any rights to the use of any patent,
trademark, trade name or copyright, or dispose of or disclose to any person any
trade secret, formula, process or know-how not theretofore a matter of public
knowledge;
(h) Except for increases in remuneration due to some salesmen selling more
and hence earning more commission than in the past, grant any increase in the
compensation of officers or employees (including any such increase pursuant to
any bonus, pension, profit sharing or other plan or commitment) or any increase
in the compensation payable or to become payable to any officer or employee
except for salary increases in the ordinary course of business and in accordance
with past practices, other than to officers of the Company;
(i) Make aggregate capital expenditures and commitments in excess of
$25,000 (on a consolidated basis) for additions to property, plant or equipment;
(j) Pay, loan or advance any amount to, or sell transfer or lease any
properties or assets to, or enter into any agreement or arrangement with, any of
its officers or directors or any affiliate of any of its officers or directors;
(k) Change any of its banking or safe deposit arrangements described in
the
37
<PAGE>
Disclosure Schedule;
(1) Grant or extend any power of attorney; act as guarantor, surety, co-
signer, endorser, co-maker, indemnitor or otherwise in respect of the
obligation of any person, corporation, partnership, joint venture, association,
organization or other entity; or
(m) Agree, whether in writing or otherwise, to do any of the foregoing.
5.1.7 Insurance; Property. The Company shall maintain its current
-------------------
level of insurance on all property, real, personal and mixed, owned or leased by
the Company; and all such property shall be used, operated, maintained and
repaired in a manner consistent with prior practices.
5.1.8 No Default. The Company shall not do any act or omit to do any
----------
act, or permit any act or omission, which will cause a breach of any material
contract or commitment of the Company or which would cause the breach of any
material warranty made hereunder.
5.1.9 Compliance With Laws. The Company shall duly materially comply
--------------------
with all laws applicable to it and its properties, operations, business and
employees.
5.1.10 Tax Returns. The Company shall prepare and file when due all
-----------
federal, state, local and foreign tax returns and amendments thereto required to
be filed by it. The Company will ensure that Buyer shall have a reasonable
opportunity to review each such return and amendment prior to the filing
thereof.
5.2 Contracts. From the date hereof through the Closing Date, the Company
---------
will not, without the prior written consent of Buyer, except in the ordinary
course of the Company's business, amend or terminate any material contract or
agreement to which it is
38
<PAGE>
a party or enter into or become a party to any material contract or agreement
(other than orders for the purchase or sale of goods or services in the
ordinary course of business) under which the Company would not reasonably
anticipate earning a gross profit or which would materially and adversely
affect the business of the Company.
5.3 Access and Information. Prior to the Closing Date, the Company will
----------------------
afford to Buyer, its counsel, accountants and other representatives, reasonable
access to all of the properties, books, contracts and records of the Company and
any records concerning the Company maintained and accumulated by the Company's
counsel and accountants concerning the affairs of the Company which Buyer or its
representatives may reasonably request subject to the provisions of the
Confidentiality Agreement between Buyer and the Company (the "Confidentiality
Agreement").
6. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and
---------------------------------------
warrants the following, the truth and accuracy of each of which shall constitute
a condition precedent to the obligations of Sellers hereunder:
6.1 Authority and Validity of Agreement and Instruments. The
---------------------------------------------------
execution and delivery to Sellers of this Agreement and the Warrants have been,
or will be at the Closing, duly authorized by the Board of Directors of Buyer
and will remain authorized during the period the Warrants are exercisable. The
Employment Agreements have been, or will be at the Closing, duly authorized by
the Board of Directors of the Company. All of the aforementioned agreements and
instruments are, or will be at the Closing, valid and binding upon the Buyer or
the Company as the case may be and are, or will be at the Closing, enforceable
in accordance with their respective terms, except as enforceability
39
<PAGE>
may be limited by bankruptcy, insolvency, reorganization or other laws
affecting generally the enforcement of creditors' rights or the sale of Buyer's
securities and except to the extent that courts may award money damages rather
than specific performance of contractual provisions. The shares of the Buyer's
common stock underlying the Warrants have been, or will be at the date of
issuance, duly registered for public sale and will be freely tradeable on the
date of exercise and will remain freely tradeable thereafter. The provision of
this Section 6.1 shall survive the Closing.
6.2 Organization and Good Standing. Buyer is duly organized, validly
------------------------------
existing and in good standing under the laws of the State of California. Buyer
has full corporate power and authority to carry on its business as it is now
conducted and is entitled to own, lease or operate the properties and assets it
now owns, leases or operates.
6.3 Material Misstatements or Omissions. No representations or warranties
-----------------------------------
by Buyer contained in this Agreement or in any document, statement or
certificate furnished or to be furnished to Sellers or in connection with the
transactions contemplated hereby, contain, or on the Closing Date will contain,
any statement of a material fact known to be untrue, or omit, or on the Closing
Date will omit, to state any material known fact necessary to make the
statements of fact contained therein not misleading.
6.4 No Violation. Neither the execution and delivery of this Agreement
------------
nor the consummation of the transactions contemplated hereby will violate any
provisions of the Articles of Incorporation or By-laws of Buyer or any agreement
to which Buyer is a party.
6.5 Brokerage and Finder's Fees. Other than a commitment to Jason
---------------------------
Workman, which shall be the sole responsibility of Buyer, Buyer has not incurred
any
40
<PAGE>
liability to any broker, finder or agent for any brokerage fees, finder's fees
or commissions with respect to the transactions contemplated by this Agreement.
6.6 Authority. Buyer has the full right, power and capacity to execute,
---------
deliver and perform its obligations under this Agreement, the Warrants and all
other agreements, instruments and documents in connection herewith. The
execution, delivery and performance of this Agreement, the Warrants and all
other agreements, instruments and documents to be executed and delivered by
Buyer in connection herewith (a) do not violate or conflict with Buyer's
Articles of Incorporation or By-Laws, (b) do not conflict with any note,
security agreement, lease, guaranty, license, permit, franchise or other
agreement or arrangement to which Buyer is a party or by which it or its assets
or properties may be bound, or any order, decree, injunction or judgment of any
court, governmental authority or regulatory agency or any local, state or
Federal laws, ordinances, regulations or orders applicable to Buyer, and (c) do
not require the consent, approval or authorization of, or declaration, filing or
registration with any governmental or regulatory authority or any third party.
6.7 No Litigation. There are no claims, actions, suits, proceedings or
-------------
investigations pending or threatened in any court or before any governmental
agency or before any arbitrator, by or against or affecting or relating to Buyer
or any of Buyer's affiliates, at law or equity, which, if adversely determined
by Buyer, would have a material adverse effect upon Buyer, its financial
condition or its business operation or which may affect Buyer's right or ability
to consummate this transaction and fulfill its obligations hereunder.
41
<PAGE>
6.8 Financial Condition of Buyer. Exhibit D contains the annual report
----------------------------
Form 10-KSB, which contains a true, complete and correct copy of Buyer's
consolidated Statement of Financial Condition, including all subsidiaries, as of
December 31, 1995 and its consolidated statement of income and Statement of
Cash Flows, including all subsidiaries for the twelve months ended December 31,
1995 (the "Buyer Financial Statement"). The Buyer Financial Statement is: (a) a
statement prepared from the books and records of the Buyer and reviewed by its
independent certified public accountants, (b) prepared substantially in
accordance with the same accounting methods, practices and principles utilized
in connection with the preparation of the last three annual prior financial
statements issued by the Buyer, (c) sets forth fairly and completely the
consolidated financial position and the results of operations of Buyer as at
the relevant dates thereof and for the period covered thereby, (d) contains and
reflects all necessary adjustments for a fair and complete presentation of
Buyer's consolidated financial position and the results of its operations for
the period covered by the Buyer Financial Statement, (e) reflects all
liabilities, realized or unrealized, contingent or not contingent to which the
Company is liable, except for liabilities and obligations incurred in the
ordinary course of business and consistent with past practice since December
31, 1995 and (f) the reserves reflected in the Buyer Financial Statement are
adequate, appropriate and reasonable.
6.9 Offer of Warrants. The shares issuable upon exercise of the
-----------------
Warrants will be, when issued, duly and validly authorized and issued, and fully
paid and nonassessable. The offer (as defined in Section 2(3) of the Securities
Act of 1933, as amended (the
42
<PAGE>
"Securities Act")) and sale (as defined in Section 2(3) of the Securities Act)
of the Warrants and the underlying shares issuable upon the exercise of the
Warrants, including any transactions which may be deemed included as a part of
any such offer and sale, have been and will be made in conformity with Section
4(2) of the Securities Act.
6.10 Registration Statement. The Registration Statement pursuant to
----------------------
which the shares are to be issued upon exercise of the Warrants does not, and
will not, contain an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements included therein, in
light of the circumstances under which they were made, not misleading.
7. COVENANTS AND AGREEMENTS OF BUYER. Buyer hereby affords Sellers the
----------------------------------
following affirmative and negative covenants, thereby agreeing to do or not to
do, or to cause the Company to do or not to do, as the case may be, the
following, the fulfillment of each of which (except for those covenants required
to be performed subsequent to the Closing) shall constitute a condition
precedent to the obligations of Sellers hereunder:
7.1 Execution of Employment Agreement. Concurrently with the Closing,
---------------------------------
Buyer shall cause the Company to execute and deliver the Employment Agreement
with Krasner and the Company.
7.2 IBJ Schroder Agreement. At or prior and as a condition to the
----------------------
Closing, Buyer will enter into an agreement with IBJ Schroder Bank & Trust
Company (the "Bank"), which agreement shall include the following provisions:
(a) Buyer will execute and deliver a guaranty to IBJ Schroder Bank & Trust
43
<PAGE>
Company (the "Bank") in the form annexed hereto as Exhibit C-3;
(b) Buyer will acquire by assignment the $500,000 collateral deposit with
the Bank for the Pledge made by Krasner (of $400,000) and Consumer Venture
Partners I, LLP ("CVP") (of $100,000) by paying such amounts respectively to
Krasner and CVP pursuant to the Assignment and Assumption Agreements annexed
hereto as Exhibits M-1 and M-2;
(c) Buyer is to arrange substitute financing for the Company no later than
September 30, 1996, at which time the Company's credit facility with the Bank
will expire; and
(d) Bank is to provide waivers of certain covenant defaults with respect to
the Company's fiscal year ended January 28, 1996.
7.3 Option Holders. At or prior to the Closing, Buyer agrees to issue
--------------
Warrants of Buyer to those certain option holders of the Company set forth on
Exhibit H in the amounts set forth therein.
7.4 Registration Agreement. Buyer will execute the Registration Agreement
----------------------
in the form annexed hereto as Exhibit L.
8. INTENTIONALLY OMITTED
---------------------
9. CONDITIONS PRECEDENT TO CLOSING.
-------------------------------
9.1 Conditions Precedent to Obligations of Buyer. The Closing shall not
--------------------------------------------
take place unless all of the following conditions not waived by Buyer have been
fulfilled before, or will be fulfilled at the Closing:
9.1.1 Correctness of Representations and Warranties. There shall be
---------------------------------------------
no representation or warranty of Sellers contained in this Agreement or in the
Disclosure
44
<PAGE>
Schedule or in any Exhibit attached hereto which is untrue or
inaccurate to any material extent or which would permit Buyer to abandon the
transactions contemplated by this Agreement pursuant to the preceding section
hereof. Sellers shall deliver the Disclosure Schedule to Buyer on or prior to
Closing. Sellers shall have the right to update the Disclosure Schedule up to
the time of the Closing.
9.1.2 Performance of Covenants and Agreements. There shall be no
---------------------------------------
covenant or agreement of Sellers contained in this Agreement and required to be
performed on or before the Closing which has been breached to any material
extent.
9.1.3 Execution of Non-Competition Agreements. The Non-Competition
---------------------------------------
Agreements have been duly executed and delivered to the Company.
9.1.4 Execution of Employment Agreement. The Employment Agreement
---------------------------------
shall have been duly executed and delivered by the parties thereto.
9.1.5 Corporate Records. Sellers shall have delivered to Buyer the
-----------------
stock book, stock ledger, minute books, corporate seal of the Company and those
contracts and agreements described in this Agreement.
9.1.6 Resignation of Directors. Sellers shall have delivered to Buyer
------------------------
written resignations of all of the directors of the Company and a release by
each director of any claim against the Company in connection with his services
as director.
9.1.7 Repayment of Loans. Prior to the Closing, all loans and advances
------------------
made by the Company to any individual comprising Seller or any member of their
families, or any trust or other entity controlled by them shall be repaid
together with any interest accrued thereon.
45
<PAGE>
9.1.8 No Government Proceeding or Litigation. Except as set forth in
--------------------------------------
the Disclosure Schedule, no suit, action, investigation, inquiry or other
proceeding by any governmental body or other person or legal or administrative
proceeding shall have been instituted or threatened which (a) questions the
validity or legality of the transactions contemplated hereby, (b) in the sole
and exclusive judgment of Buyer materially impairs Buyer's ability to exercise
control over or manage the business and affairs of the Company after the
Closing, or (c) in the sole and exclusive judgment of Buyer might have a
material adverse effect on the business or financial condition of the Company.
9.1.9 No Injunction. On the Closing Date, there shall be no effective
-------------
injunction, writ, preliminary restraining order or any order of any nature
issued by a court of competent jurisdiction directing that the transactions
provided for herein or any of them not be consummated as so provided or imposing
any conditions on the consummation of the transactions contemplated hereby which
the Buyer deems unacceptable in its sole discretion.
9.1.10 Material Change. From the date of the Balance Sheet to the
---------------
Closing Date, the Company shall not have suffered any material adverse change
(whether or not such change is referred to or described in any supplement to the
Disclosure Schedule) in its business, financial condition, working capital,
assets, liabilities (absolute, accrued, contingent or otherwise), reserves or
operations.
9.1.11 Consents Obtained. All required consents referred to herein
-----------------
shall have been obtained.
9.1.12 Opinion of the Sellers' Counsel. The Sellers shall have
-------------------------------
delivered to Buyer
46
<PAGE>
an opinion of Cooperman Levitt Winikoff Lester & Newman, P.C., counsel to the
Sellers, dated as of the date of the Closing, in form and substance
satisfactory to Buyer, covering the matters set forth in Exhibit I hereto.
9.1.13 Ogust Agreement. The execution and delivery of each of (a) the
---------------
Settlement Agreement between the Company and KGI Fashions, Inc., and Chelonian
Signatories, Inc., Element Publishers, Inc., Richard Ogust, Catherine Ogust and
Samuel Ogust, substantially in the form annexed hereto as Exhibit K, and (b) all
other documents and agreements referred to therein, including Buyer's delivery
of the Warrants and its commitment to grant Warrants to Ogust, the Escrow
Agreement, the Royalty Agreement and the Non-Competition Agreement.
9.2 Conditions Precedent to the Obligations of Sellers. The
----------------------------------------------------
Closing shall not take place unless all of the following conditions not waived
by Sellers are fulfilled before, or will be fulfilled at, the Closing:
9.2.1 Correctness of Representations and Warranties. There shall be no
---------------------------------------------
representation or warranty of Buyer contained in this Agreement which is untrue
or inaccurate to any material extent or which would permit Sellers to abandon
the transactions contemplated by this Agreement pursuant to the preceding
section hereof.
9.2.2 Purchase Price. Sellers shall have received the Purchase Price
--------------
to be paid in accordance with Section 1.2 hereof.
9.2.3 Performance of Covenants and Agreement. There shall be no
--------------------------------------
covenant or agreement of Buyer contained in this Agreement and required to be
performed on or before the Closing which has been breached to any material
extent.
47
<PAGE>
9.2.4 No Governmental Proceeding or Litigation. No suit, action,
----------------------------------------
investigation, inquiry or other proceeding by any governmental body or other
person or legal or administrative proceeding shall have been instituted or
threatened which (a) questions the validity or legality of the transactions
contemplated hereby, (b) in the sole and exclusive judgment of the Sellers
materially affects Buyer's ability to exercise control over or manage the
business or affairs of the Company after the Closing, or (c) in the sole and
exclusive judgment of the Sellers might have a material effect on the business
or financial condition of Buyer.
9.2.5 No Injunction. On the Closing Date, there shall be no effective
-------------
injunction, writ, preliminary restraining order or any order of any nature
issued by a court of competent jurisdiction directing that the transactions
provided for herein or any of them not be consummated as so provided or
imposing any conditions on the consummation of the transactions completed
hereby which the Seller deems unacceptable in its sole discretion.
9.2.6 Material Change. From the date of the Buyer Balance Sheet to the
---------------
Closing Date, the Buyer shall not have suffered any material adverse change in
its business, financial condition, working capital, assets, liabilities
(absolute, accrued, contingent or otherwise), reserves or operations.
9.2.7 Consents Obtained. All required consents referred to herein
-----------------
shall have been obtained.
9.2.8 Opinion of Buyer's Counsel. Buyer shall have delivered to
--------------------------
Sellers an opinion of William R. Black, Esq., counsel to Buyer, dated as of the
date of the Closing,
48
<PAGE>
in form and substance satisfactory to Sellers, covering the matters set forth
in Exhibit J hereto.
9.2.9 Repayment of Loans. Prior to the Closing, all loans and advances
------------------
made by the Company to Buyer shall be repaid together with any interest accrued
thereon.
9.2.10 Execution of Employment Agreement. The Employment Agreement
---------------------------------
shall have been duly executed and delivered by the parties thereto.
9.2.11 Ogust Agreement. The execution and delivery of each of (a) the
---------------
Settlement Agreement between the Company and KGI Fashions, Inc., and Chelonian
Signatories, Inc., Element Publishers, Inc., Richard Ogust, Catherine Ogust and
Samuel Ogust, substantially in the form annexed hereto as Exhibit K, and (b)
all other documents and agreements referred to therein, including the Buyer's
delivery of the Warrants and its commitment to grant Warrants to Ogust, the
Escrow Agreement, the Royalty Agreement and the Non-Competition Agreement.
9.2.12 Execution of Registration Agreement. The Registration Agreement
-----------------------------------
shall have been duly executed and delivered by the parties thereto.
9.3 Regulatory Approvals. The Closing shall not take place until any
---------------------
required regulatory approvals have been obtained.
10. SELLER'S INDEMNITIES.
--------------------
10.1 Indemnity Obligation. Subject to the other express provisions of
--------------------
this Section 10, Sellers shall indemnify, defend and hold Buyer harmless against
and in respect of any and all third party claims, demands, losses, costs,
expenses, obligations, liabilities, judgments, damages, recoveries, and
deficiencies, including interest, penalties and reasonable attorneys' fees, that
Buyer shall incur or suffer which arise, result from or relate to any Event of
Indemnity (as hereafter defined).
49
<PAGE>
10.2 Event of Indemnity. The occurrence of any one or more of the
------------------
following events which expose Buyer to a third party claim ("Event of
Indemnity") shall give Buyer the right to indemnity as provided in Section 10.1
hereof:
(a) Any material untruth or inaccuracy of the Sellers or the Company set
forth in this Agreement, in the Disclosure Schedule or in any Exhibit or
Schedule attached hereto or in any certificate required of Sellers to be
delivered hereunder, as well as any failure to disclose a material fact
thereunder;
(b) Any material breach of Sellers' covenants and agreements set forth
herein shall be an Event of Indemnity; or
(c) Any and all claims, demands, suits, actions, causes of action,
proceedings, losses, liabilities, judgments (including, but not limited to,
reasonable costs and reasonable legal and other expenses), incident to any of
the matters indemnified and defended against in Section 10.2.
10.3 Procedure for Making Claims for Indemnity. In the event that
-----------------------------------------
Buyer shall have any claim or claims for indemnity under Section 10 of this
Agreement, Buyer (the "Indemnified Person" upon the giving of written notice)
shall give written notice to Sellers of the nature and basis of such claim or
claims and the amount (or estimated amount) thereof. The Indemnified Person
shall provide the Sellers with copies of any claims or other documents received
and make available to the Sellers all relevant information (in its possession)
which is material to the defense of any losses or claims against the Indemnified
Person which shall serve as the basis for a claim by the Indemnified Person
relating to such losses or claims pursuant to the terms hereof. The
50
<PAGE>
Seller or Sellers responsible for the event which gave rise to the claimed for
indemnity agrees to defend, contest or otherwise protect the Buyer or the
Company against any such suit, action, investigation, claim or proceeding at
such Sellers' sole cost and expense. Buyer or the Company shall have the
right, but not the obligation, to participate at its own expense in the defense
thereof by counsel of the Buyer's or the Company's choice. In the event that
such Sellers fail timely to defend, contest or otherwise protect against any
such suit, action, investigation, claim or proceeding, the Buyer or the Company
shall have the right to do so, including, without limitation, the right to make
any compromise or settlement thereof, and Buyer shall be entitled to recover
the entire cost thereof from such Sellers to the extent of the Buyer's rights
to indemnification hereunder, including without limitation, reasonable
attorneys' fees, disbursements and amounts paid as the result of such suit,
action, investigation, claim or proceeding. At such time and to the extent
that Buyer has made payment with respect to a third party claim for which it is
entitled to indemnity hereunder and/or incurred expenses in connection with
defending such claim, Buyer will be entitled to an offset against any balance
due to such Sellers. In the event that there are no further amounts due such
Sellers, Buyer shall be entitled to recover from such Sellers the amount not
offset to the extent of Buyer's rights to indemnification hereunder. If
Sellers contend that the Buyer or the Company is not entitled to the
indemnification claimed, Sellers shall give written notice to the Buyer and the
Company of Sellers objection to such claim within thirty (30) days after the
date that the notice of such claim is first received by Sellers. In the event
that written notice of objection is received by the Buyer and the Company
within such thirty (30) day period,
51
<PAGE>
such dispute shall be finally resolved by means of an arbitration proceeding.
The costs of the arbitration shall be born equally by the parties, except that
each party shall pay its own attorneys' fees. Any arbitration award, whether
in favor of the Buyer, the Company or the Sellers shall include interest on the
amount of the award at the rate of 5% simple per annum. In the event that
written notice of objection is not delivered to the Buyer and the Company by
Sellers within such thirty (30) day period, or if Sellers accept the claim for
indemnity, or if the arbitration proceeding results in any award in favor of
the Buyer or the Company, the liability of Sellers under these indemnity
provisions shall be deemed conclusive.
If any claim or lawsuit involves a matter which falls within the scope of
the Company's insurance coverage, then and in such event the provisions of this
Section 10 shall apply only with respect to any claims incurred by the
Indemnified Person, that exceed the amounts payable to such Indemnified Person
by the insurance carrier on account of such claim. The parties agree to
promptly notify the insurance carrier of the Company of all claims that fall
within the scope of the relevant insurance coverage.
10.4 Joint and Several Indemnity. The indemnity obligations under
---------------------------
Section 4.2 are solely the obligation of the two trusts dated February 5, 1985
and June 15, 1970, respectively, as Common Shareholders. The indemnity
obligations of Sellers under Section 4.1 shall be joint and several. As to any
joint obligation, in the first instance, Buyer will seek to recover from such
Sellers in proportion to the portion of the Purchase Price received and
receivable by each such Seller. A dispute between or among the individual
Sellers shall not affect or limit Buyer's indemnity rights under Section 10.1.
52
<PAGE>
10.5 Limitation on Indemnity.
-----------------------
(a) Notwithstanding the provisions of Section 10.1 hereof, Sellers shall be
obligated to indemnify the Indemnified Person with respect to any of all Events
of Indemnity only to the extent that such indemnity obligations, in the
aggregate, exceed the sum of $100,000 (the "Cushion Amount"); provided, however,
Sellers may allocate such Cushion Amount among themselves as they may mutually
agree.
(b) Notwithstanding any provision in this Agreement to the contrary, the
maximum indemnity obligation for any Seller shall be the total consideration
received by such Seller under Section 1.2.
(c) There shall be no indemnity obligation under Section 4.2.2 unless and
until the amount thereof, in the aggregate, exceeds any tax refunds, tax credits
and other tax benefits (e.g., net operating loss carryforward) which may be
enjoyed by the Company subsequent to Closing, based upon events or operations
occurring or returns filed on or prior to the Closing Date (the "Tax Benefits"),
in which event, such indemnity obligation shall apply only to the extent such
excess amount exceeds the Tax Benefit and any available Cushion Amount.
10A. BUYER'S INDEMNITIES.
-------------------
10A.1 Indemnity Obligation. Subject to the other express provisions of
--------------------
this Section 10A, Buyer shall indemnify, defend and hold Sellers harmless
against and in respect of any and all third party claims, demands, losses,
costs, expenses, obligations, liabilities, judgments, damages, recoveries, and
deficiencies, including interest, penalties and reasonable attorneys' fees,
that Sellers shall incur or suffer which arise, result from or
53
<PAGE>
relate to any Sellers' Event of Indemnity (as hereafter defined).
10A.2 Sellers' Event of Indemnity. The occurrence of any one or more
---------------------------
of the following events which expose any of the Sellers to a third party claim
("Sellers' Event of Indemnity") shall give Sellers the right to indemnity as
provided in Section 10.A hereof:
(a) Any material untruth or inaccuracy of the Buyers set forth in this
Agreement or in any Exhibit or Schedule attached hereto or in any certificate
required of Buyer to be delivered hereunder, as well as any failure to disclose
a material fact thereunder;
(b) Any material breach of Buyer's covenants and agreements set forth
herein shall be an Event of Indemnity; or
(c) Any claim by the Bank against Krasner with respect to Krasner's
guaranty of certain obligations of the Company to the Bank;
(d) Any and all claims, demands, suits, actions, causes of action,
proceedings, losses, liabilities, judgments (including, but not limited to,
reasonable costs and reasonable legal and other expenses), incident to any of
the matters indemnified and defended against in Section 10A.2.
10A.3 Procedure for Making Claims for Indemnity. In the event that
-----------------------------------------
Sellers shall have any claim or claims for indemnity under Section 10A of this
Agreement, Sellers (for purposes of this Section 10A, the "Indemnified Person"
upon the giving of written notice) shall give written notice to Buyer of the
nature and basis of such claim or claims and the amount (or estimated amount)
thereof. The Indemnified Person shall provide the Buyer with copies of any
claims or other documents received and make available to the Buyer all
54
<PAGE>
relevant information (in its possession) which is material to the defense of
any losses or claims against the Indemnified Person which shall serve as the
basis for a claim by the Indemnified Person relating to such losses or claims
pursuant to the terms hereof. Buyer agrees to defend, contest or otherwise
protect the Indemnified Person against any such suit, action, investigation,
claim or proceeding at Buyer's sole cost and expense. The Indemnified Person
shall have the right, but not the obligation, to participate at its own expense
in the defense thereof by counsel of such person's choice. In the event that
Buyer fails timely to defend, contest or otherwise protect against any such
suit, action, investigation, claim or proceeding, the Indemnified Person shall
have the right to do so, including, without limitation, the right to make any
compromise or settlement thereof, and such person shall be entitled to recover
the entire cost thereof from Buyer to the extent of such person's rights to
indemnification hereunder, including without limitation, reasonable attorneys'
fees, disbursements and amounts paid as the result of such suit, action,
investigation, claim or proceeding. If Buyer contends that the Indemnified
Person is not entitled to the indemnification claimed, Buyer shall give written
notice to such person of Buyer's objection to such claim within thirty (30)
days after the date that the notice of such claim is first received by Buyer.
In the event that written notice of objection is received by the Indemnified
Person within such thirty (30) day period, such dispute shall be finally
resolved by means of an arbitration proceeding. The costs of the arbitration
shall be born equally by the parties, except that each party shall pay its own
attorneys' fees. Any arbitration award, whether in favor of the Buyer or the
Indemnified Person shall include interest on the amount of the award at the
rate of 5% simple per annum. In
55
<PAGE>
the event that written notice of objection is not delivered to the Indemnified
Person by Buyer within such thirty (30) day period, or if Buyer accepts the
claim for indemnity, or if the arbitration proceeding results in any award in
favor of the Indemnified Person, the liability of Buyer under these indemnity
provisions shall be deemed conclusive.
If any claim or lawsuit involves a matter which falls within the scope of
insurance coverage, then and in such event the provisions of this Section 10
shall apply only with respect to any claims incurred that exceed the amounts
payable by the insurance carrier on account of such claim. The parties agree to
promptly notify the insurance carrier of all claims under this Section that fall
within the scope of the relevant insurance coverage.
10A.4 Limitation on Indemnity. The maximum amount Buyer shall be
-----------------------
obligated to indemnify the Indemnified Person for with respect to any or all
Events of Default shall not exceed an amount equal to the Purchase Price.
11. SURVIVAL OF REPRESENTATIONS AND WARRANTIES Each of the
------------------------------------------
representations and warranties made by Sellers and made by Buyer shall survive
the Closing of the transactions contemplated in this Agreement, provided
however, that the right of Indemnity shall cease if action is not taken by the
Indemnified Person prior to the following dates, to wit
a) For any claim relating to the representations in Section 4.2.3 and
4.2.4, 180 days after the Closing;
b) For any claim relating to representations in Section 4.2.2, the sixth
annual anniversary of the Closing;
c) For any claim other than those set forth in subsection (a) and (b)
above, July 1,1997.
56
<PAGE>
It is expressly understood and agreed that neither the Company, the
Sellers, nor the Buyer, nor their officers or agents has made any warranty or
agreement, express or implied, as to the tax consequences of the transactions
contemplated by this Agreement or the tax consequences of any action pursuant to
or growing out of this Agreement. The parties agree to treat all payments
required to be made under this Agreement or any exhibit thereto in a consistent
manner when reporting all of the transactions for tax purposes.
12. OTHER REMEDIES.
---------------
12.1 Remedies. None of the remedies provided for herein is intended
--------
to be exclusive, and each party shall have all other remedies now or hereafter
existing at law or in equity or by statute or otherwise, and the election of any
one or more remedies shall not constitute a waiver of the right to pursue other
available remedies.
13. RELATED MATTERS.
---------------
13.1 Confidentiality. Each party hereto will hold and will cause its
---------------
consultants and advisors to hold in strict confidence in a manner consistent
with the Confidentiality Agreement, unless compelled to disclose by judicial or
administrative process or, in the opinion of its counsel, by other requirements
of law, all documents and information concerning the other party furnished it by
such other party or its representatives in connection with the transactions
contemplated by this Agreement (except to the extent that such information can
be shown to have been (i) previously known by the party to which it was
furnished, (ii) in the public domain through no fault of the party to which it
57
<PAGE>
was furnished, or (iii) later lawfully acquired from other sources other than
by the party to which it was furnished, and each party will not release or
disclose such information to any other person, except its auditors, attorneys,
financial advisors, bankers and other consultants and advisors in connection
with this Agreement.
13.2 Disclosure Schedule. Sellers will deliver a complete Disclosure
-------------------
Schedule to Buyer on or prior to the Closing, except that such Disclosure
Schedule shall be subject to amendment or modification and shall be amended or
modified based on events occurring subsequent to the delivery of the Disclosure
Schedule and prior to the Closing.
13.3 Non-Solicitation of Employees. From the date hereof until the
-----------------------------
expiration of a period of one year following the date hereof, neither the
Sellers, nor any entity which they are then in control thereof, shall solicit
the employment or services as an employee, any person who is on the date hereof
is an officer or employee of the Company.
13.4 Employment Agreement; Martin P. Krasner. Krasner, the Company
---------------------------------------
and the Buyer hereby agree that the Employment Agreement set forth in Exhibit G
between Krasner and the Company will, at the Closing, be valid and binding upon
the parties thereto and will be at the Closing enforceable in accordance with
its terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization or other laws affecting generally the enforcement of creditors'
rights.
14. GENERAL PROVISIONS.
-------------------
14.1 Notices. All notices, requests, demands, claims and other
-------
communications hereunder shall be in writing and shall be deemed to have been
duly given (i) if personally delivered, (ii) if mailed, five business days after
having been sent by registered or certified
58
<PAGE>
mail, return receipt requested, postage prepaid, addressed to the intended
recipient as set forth below, (iii) if given by telex or telecopier, once such
notice or other communication is transmitted to the telex or telecopier number
specified below and the appropriate answer back or telephonic confirmation is
received, provided that such notice or other communication is promptly
thereafter mailed in accordance with the provisions of clause (ii) above, or
(iv) if sent through an overnight delivery service in circumstances to which
such service guarantees next day delivery, the day following being so sent:
If to Buyer:
THE L. L. KNICKERBOCKER CO., INC.
30055 Comercio
Rancho Santa Margarita, CA. 92688
Facsimile (714) 858-4960
Copy to:
William R. Black, Esq.
29 Summitcrest
Dove Canyon, CA 92679
Facsimile (714) 888-7700
If to Sellers:
(See addresses set forth on Exhibit A)
If to the Company:
KRASNER GROUP, INC.
40 West 37th Street
Penthouse
New York, New York 10018
Attention: Martin P. Krasner
Facsimile: (212) 268-4209
59
<PAGE>
with a copy to:
KRASNER GROUP, INC.
c/o THE L. L. KNICKERBOCKER CO., INC.
30055 Comercio
Rancho Santa Margarita, CA. 92688
Facsimile (714) 858-4960
Any party may give any notice, request, demand, claim or other
communication hereunder using any other means (including ordinary mail or
electronic mail), but no such notice, request, demand, claim or other
communication shall be deemed to have been duly given unless and until it
actually is received by the individual for whom it is intended. Any party may
change the address to which notices, requests, demands, claims and other
communications hereunder are to be delivered by giving the other parties notice
in the manner herein set forth.
14.2 Arbitration. The parties hereby agree to submit all controversies,
-----------
claims and matters of difference arising out of or relating to this Agreement
and the transactions contemplated hereby to arbitration before three arbitrators
according to the rules and practices of the American Arbitration Association
from time to time in force. Such arbitration shall be conducted in New York
City, New York. This submission and agreement to arbitrate shall be
specifically enforceable. Without limiting the generality of the foregoing, the
following shall be considered controversies for this purpose: (a) all questions
relating to the breach of any obligation, warranty or condition hereunder; (b)
failure of any party to deny or reject a claim or demand of any other party; and
(c) all questions as to whether the right to arbitrate any question exists.
Arbitration may
60
<PAGE>
proceed in the absence of any party if written notice (pursuant to the American
Arbitration Association's rules and regulations) of the proceedings has been
given to such party. The parties agree to abide by all awards rendered in such
proceedings. Such awards shall be final and binding on all parties to the
extent, and in the manner, provided by New York statute. Such awards shall not
be subject to appeal. All such awards may be filed with the Clerk of the
appropriate New York Court as a basis of judgment and of the issuance of
execution for its collection and, at the election of the party making such
filing, with the clerk of one or more other courts, state or federal, having
jurisdiction over the party against whom such an award is rendered or the
property of said party.
14.3 Entire Agreement. This Agreement and the Exhibits, Schedules and
----------------
certificates specifically referred to herein or required to be delivered
pursuant to the terms hereof represent the entire agreement of the parties
hereto with respect to the subject matter hereof superseding all prior
agreements, understandings, discussions, negotiations, representations and
commitments of any kind. This Agreement may not be amended or supplemented, nor
may any rights hereunder be waived, except in a writing signed by each of the
parties affected thereby.
14.4 Section Headings. The section headings in this Agreement are
----------------
included for convenience only, are not a part of this Agreement and shall not be
used in construing it.
14.5 Severability. In the event that any provision or any part of any
------------
provision of this Agreement is held to be illegal, invalid or unenforceable in
any jurisdiction, as to such jurisdiction, such illegality, invalidity or
unenforceability shall not affect the validity or enforceability of any other
provision or part hereof. Any such illegality, invalidity or
61
<PAGE>
unenforceability shall not invalidate or render unenforceable such provision in
any other jurisdiction. To the extent permitted by law, the parties hereby
waive any provision of law that renders any provision illegal, invalid or
unenforceable in any respect. In addition, in the event of any such
illegality, invalidity or unenforceability, the parties agree that it is their
intention and agreement that such provision which is held or determined to be
illegal, invalid or unenforceable as written, in any jurisdiction shall
nonetheless be in force and binding to the fullest extent permitted by the law
of the jurisdiction as though such provision had been written in such a manner
and to such an extent as to be enforceable under the circumstances. Without
limiting the foregoing, with respect to any restrictive covenant contained in
this Agreement or in its exhibits, if it is determined that any such provision
is excessive as to duration or scope, it is intended that it nonetheless be
enforced for such shorter duration or with such narrower scope as will render
it enforceable.
14.6 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
14.7 Further Assurances. Each party hereto shall execute and deliver
------------------
such instruments and take such other actions as the other party or parties, as
the case may be, may reasonably require in order to carry out the intent of this
Agreement.
14.8 Waiver of Compliance. Any failure of the Sellers, on the one
--------------------
hand, or Buyer, on the other, to comply with any obligation, agreement or
condition herein may be
62
<PAGE>
expressly waived in writing by the party having the right to insist upon
performance of such obligation, agreement or condition; but such waiver or
failure to insist upon strict compliance with such obligation, agreement or
condition shall not operate as a waiver of, or estoppel with respect to, any
subsequent or other failure.
14.9 Expenses. All expenses incurred by or on behalf of Sellers in
--------
connection with the preparation, authorization, execution and performance of
this Agreement (including but not limited to all fees and expenses of agents,
representatives, shall be paid by the Company except that the Company shall not
pay the counsel fees of the individual Sellers, other than Cooperman Levitt
Winikoff Lester & Newman. Buyer shall pay all expenses incurred by or on
behalf of Buyer in connection with the preparation, authorization, execution
and performance of this Agreement, including but not limited to all fees of its
agents, representatives and counsel.
14.10 Assignment. This Agreement and all of the provisions hereof
----------
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by any of
the parties hereto without the prior written consent of the other parties,
except by operation of law and except that Buyer may assign its rights, but not
its obligations, under this Agreement to any wholly owned subsidiary of Buyer.
If such assignment shall be made by Buyer, such subsidiary shall be entitled to
all of the rights and shall assume all of the obligations of Buyer hereunder,
provided, however, that Buyer shall guarantee the payment and performance of
such subsidiary's obligations under this Agreement, shall be and remain
primarily liable
63
<PAGE>
therefor and shall deliver evidence thereof reasonably satisfactory to the
Sellers.
14.11 Publicity Neither the Company nor Buyer shall make or issue, or
---------
cause to be made or issued, any announcement or written statement concerning
this Agreement or the transactions contemplated hereby for dissemination to the
general public prior to the Closing Date without the prior consent of the other
party. This provision shall not apply, however, to any announcements made after
the Closing Date, or to any announcement or written statement required to be
made by law or the regulations of any federal or state governmental agency or
any stock exchange, except that the party required to make such announcement
shall, whenever practicable, consult with the other party concerning the timing
and content of such announcement before such announcement is made.
14.12 Governing Law. This Agreement and the legal relations among the
-------------
parties hereto shall be governed by and construed in accordance with the laws of
the State of New York.
14.13 Third Parties. Except as specifically set forth or referred to
-------------
herein, nothing herein expressed or implied is intended or shall be construed to
confer upon or give to any person or corporation other than the parties hereto
and their successors or assigns, any rights or remedies under or by reason of
this Agreement.
14.14 Construction:
-------------
14.14.1 No Strict Construction. The language used in this Agreement
----------------------
will be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction shall be applied against any
other party. Whenever required by the context, any gender shall include any
other gender, the singular shall include the plural and the
64
<PAGE>
plural shall include the singular. The words "herein", "hereof ", "hereunder"
and words of similar import shall refer to the Agreement as a whole and not to
a particular section.
14.14.2 Independent Significance. The parties hereto intend that each
------------------------
representation, warranty and covenant contained herein shall have independent
significance. If any party has breached any representation, warranty or covenant
contained herein in any respect, the fact that there exists another
representation, warranty or covenant relating to the same subject matter
(regardless of the relative levels of specificity) that the party has not
breached, shall not detract from or mitigate the fact that the party is in
breach of the first representation, warranty or covenant.
IN WITNESS WHEREOF, the parties have duly executed Agreement as of the date
first above mentioned.
THE L. L. KNICKERBOCKER CO., INC.
By: ___________________________________
KRASNER GROUP, INC.
By: __________________________________
MARTIN P. KRASNER AND INA OSTROW, AS TRUSTEES
U/I DTD. 2/5/85 FBO MARTIN P. KRASNER
By:___________________________________
65
<PAGE>
MARTIN AND STEPHANIE KRASNER, AS TRUSTEES
U/I DTD. JUNE 15, 1970
By:___________________________________
JOAN GLASER, AS EXECUTOR OF THE
ESTATE OF MURRAY GLASER
By:___________________________________
______________________________________
F. WILLIAM GRAHAM
CONSUMER VENTURE PARTNERS I, L.P.
By: ___________________________________
DONALD F. SWANSON, AS TRUSTEE,
DONALD F. SWANSON REVOCABLE TRUST
U/A DATED DECEMBER 22, 1988
By:___________________________________
66
<PAGE>
As to Section 13.4 As to Section 4.2
_____________________________________ _____________________________
MARTIN P. KRASNER MARTIN P. KRASNER, as Trustee
under Instruments dated
February 5, 1985 and
June 15, 1970
<PAGE>
Exhibit A
Krasner Group, Inc.
List of Holders of Equity Interest
<TABLE>
<CAPTION>
(1)Purchase Inventory
Sellers Shares Price Liquidation Address Tax I.D. No.
- ------------------------------------------------ ---------- ----------- ----------- --------------------------- ------------
<S> <C> <C> <C> <C> <C>
(1)Common Stock:
Martin P. Krasner & Ina Ostrow, Trustees U/I 29 Wilputte Place 58-6210812
Dtd. 2/5/85 FBO Martin P. Krasner 555,621 133,349 New Rochelle, NY 10804
Martin and Stephanie Krasner, Trustees U/I 29 Wilputte Place 13-6597826
Dtd. June 15, 1970 396,879 95,251 New Rochelle, NY 10804
Estate of Murray Glaser 266,525 63,966 c/o Joan Glaser ###-##-####
525 East 86 Street
New York, NY 10028
F. William Graham 138,889 33,333 3200 Coastal Highway ###-##-####
St. Augustine, FL 32095
---------- ----------- -----------
Subtotal 1,357,914 325,899 0
---------- ----------- -----------
Convertible Preferred Stock:
Consumer Venture Partners I, L.P. 1,500,000 1,209,677 290,323 3 Pickwick Plaza 06-1182943
Greenwich, CT 06830
Donald F. Swanson, Trustee,
Donald F. Swanson Revocable Trust 2171 Gulf Shore Blvd. No. ###-##-####
U/A Dated December 22, 1988 50,000 40,323 9,677 Naples, FL 34102
---------- ----------- -----------
Subtotal 1,550,000 1,250,000 300,000
---------- ----------- -----------
TOTAL 2,907,914 1,575,899 300,000
========== =========== ===========
</TABLE>
(1) Common @ $0.24 per share; Preferred @ $1.00 per share, less contingent
payment.
<PAGE>
Exhibit B
Inventory Liquidation
(Pursuant to (P)1.2.3(c) and (P)2)
A. In determining the amount of the Proceeds from the liquidation of the
Company's Closing Inventory as used in Section 1.2.3(c) and Section 2, the
following definitions shall apply:
1. "Closing Inventory" means the aggregate, on a consolidated basis, each
item of the Company's finished goods, work-in-process and raw materials on hand
as of the effective date of the Closing.
2. "Proceeds" means:
(i) as to each item of finished goods in the Closing Inventory, the
lower of the Net Sales Price or the Cost of such item as reflected in the
Closing Inventory;
(ii) as to each item of raw material or work-in-process, the Cost of
such item as reflected in the Closing Inventory; each such item shall, for the
purposes of this Schedule, be deemed sold, as to raw material, when put into
production, and as to work-in-process, when put into finished goods, provided
that in each such case it is reasonably believed that such items will be sold in
the normal course.
3. "Net Sales Price" means the invoice amount, less freight, sales tax,
and any discounts taken by customer or other amounts not paid by the customer.
<PAGE>
4. "Cost" means the purchase price of each item in the Closing Inventory
plus duty and inbound freight, if any, consistent with past practice.
B. Inventory sold and/or used in production will be monitored by a report
which lists each item in the Closing Inventory which was sold during the
applicable period, the Cost per Item, and extended Cost of the items sold. A
separate report will monitor any items sold for less than Cost.
<PAGE>
EXHIBIT C-1
STOCK OPTION AGREEMENT UNDER THE
THE L. L. KNICKERBOCKER CO., INC.
1995 AMENDED AND RESTATED STOCK OPTION PLAN
THIS STOCK OPTION AGREEMENT is entered into this ____ day of
______________, 19___ between The L. L. Knickerbocker Co., Inc., a California
corporation (the "Corporation" or " Grantor") and ____________________,
employee, director, officer or independent consultant of the Corporation (the
"Grantee") with respect to the following facts:
WHEREAS, pursuant and subject to the Corporation's Stock Option Plan, a
copy of which is attached hereto as Exhibit "A" and incorporated herein by this
reference (the "Plan"), the Corporation's Board of Directors has determined that
it is to the advantage and interest of the Corporation and its stockholders to
grant the option provided for herein to Grantee.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set
forth and for other good and valuable consideration, the parties hereto agree as
follows:
1. Grant of Option. The Corporation hereby grants to Grantee the right
---------------
and option to purchase, on the terms and conditions heretofore set forth, all or
any part of an aggregate of _________ shares of the Corporation's Common Stock.
2. Purchase Price. The purchase price of each share of the Corporation's
--------------
Common Stock subject to the Option shall be $____ per share, which is the
closing price of the Common Stock on NASDAQ as of the date first written above.
3. Term of Option. The term of the Option shall be ten years from the
--------------
date hereof, subject to the provisions of the Plan with respect to termination
of employment, death or disability of Grantee. Any portion of the Option not
exercised prior to the termination of the Option shall thereupon become null and
void.
4. Time and Manner of Exercise. The Option shall become exercisable in
---------------------------
full on June __, 1996. However, the Option shall become fully vested on the
occurrence of either one of the following events: (i) a merger in which the
Corporation is not the surviving corporation as provided for in Section 9 of the
Plan, or (ii) a Change of Control of the Corporation as provided for in Sections
11 and 12 of the Plan.
5. Antidilution Provisions. The number of shares that Grantee is entitled
-----------------------
to purchase upon the exercise of this Option and the purchase price of those
shares are subject only to the adjustments set forth in Section 9 of the Plan.
<PAGE>
6. Representations of Grantor. So long as this Option remains outstanding
--------------------------
and unexpired, Grantor will reserve for issuance upon the exercise of this
Option the number of shares of Grantor's Common Stock that are subject to this
Option. The shares of Common Stock of Grantor subject to this Option shall,
when issued, be validly issued, fully paid and nonassessable. Grantor will
pay, when due and payable, any and all federal and state taxes or fees that may
be payable by Grantor with respect to the grant of this Option or the issuance
of any shares of Common Stock or certificates therefore subject to this Option.
However, this does not include any federal, state or other personal income tax
payable by the Grantee by virtue of (i) the grant of this Option; (ii) the
issuance of any shares of Common Stock upon exercise thereof; or (iii) any
subsequent disposition of such shares which shall remain the obligation of
Grantee.
7. Withholding Taxes. If the Corporation determines that it is required
------------------
to withhold federal, state or local tax as a result of the exercise of this
Option, the Grantee, as a condition to the exercise of this Option, shall make
arrangements satisfactory to the Corporation to enable it to satisfy such
withholding requirements.
8. Notice. Any notice, request or instructions given in connection with
------
this Option shall be in writing and shall be delivered in person or by certified
mail as follows:
(a) If to Grantor, at
30055 Comercio,
Rancho Santa Margarita, California 92688
Attention: Corporate Secretary
(b) If to Grantee, at
________________________________
________________________________
________________________________
(c) Notice may be given at such other address as either of the parties
shall have given notice to the other in accordance with the
provisions hereof.
9. Committee Determination Final. The interpretation and construction of
-----------------------------
the Plan and this Stock Option Agreement, including any inconsistency between
the two documents, shall be reserved to and made by the Committee of the Board
of Directors provided for under the Plan. The Committee's determination shall
be final as between the parties hereto unless otherwise determined by the Board
of Directors of Grantor.
2
<PAGE>
10. Governing Law. This Option is granted and delivered in the State of
-------------
California and is intended to be construed and enforced under the laws thereof.
IN WITNESS WHEREOF, this Option is executed on behalf of Grantor and its
duly authorized officers and by Grantee as of this ____ day of __________,
19___.
THE L. L. KNICKERBOCKER CO., INC.,
a California corporation
By: ______________________________
GRANTEE:
___________________________________
___________________________________
Type or Print Name
___________________________________
Social Security Number
3
<PAGE>
EXHIBIT C-2
THESE SECURITIES MAY NOT BE PUBLICLY OFFERED OR SOLD UNLESS AT THE TIME OF SUCH
OFFER OR SALE, THE PERSON MAKING SUCH OFFER OR SALE DELIVERS A PROSPECTUS
MEETING THE REQUIREMENTS OF SECTION 10 OF THE SECURITIES ACT OF 1933 FORMING A
PART OF A REGISTRATION STATEMENT, OR POST-EFFECTIVE AMENDMENT THERETO, WHICH IS
EFFECTIVE UNDER SAID ACT, UNLESS IN THE OPINION OF COUNSEL TO THE CORPORATION,
SUCH OFFER AND SALE IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF SAID ACT.
WARRANT
For the Purchase of Common Stock, No Par Value, of
THE L.L. KNICKERBOCKER CO., INC.
(Incorporated Under the Laws of the State of California)
Void After 5 P.M. June __, 2001
Warrant to Purchase
( ) Shares
-----------------------------------------------
THIS IS TO CERTIFY, that, for value received, _______________ (the
"Holder") or registered assigns, is entitled, subject to the terms and
conditions hereinafter set forth, on or after ____________ __ 1996 and at any
time prior to 5 P.M., California Time, on _______ __, 2001 but not thereafter,
to purchase such number of shares (the "Shares") of Common Stock, no par value
(the "Common Stock"), of THE L.L. KNICKERBOCKER CO., INC., a California
corporation (the "Company"), from the Company as is set forth above and upon
payment to the Company of $____ per share (the "Purchase Price") if and to the
extent this Warrant is exercised, in whole or in part, during the period this
Warrant remains in force, subject in all cases to adjustment as provided in
Article II hereof, and to receive a certificate or certificates representing the
Shares so purchased, upon presentation and surrender to the Company of this
Warrant, with the form of subscription attached hereto duly executed, and
accompanied by payment of the Purchase Price of each Share purchased.
1. Terms of the Warrant
1.1 Time of Exercise. Subject to the provisions of Sections 1.5
----------------
hereof, this Warrant may be exercised at any time and from time to time after
9:00 A.M., California time, on _______ __, 1996 (the "Exercise Commencement
Date"), but no later than 5:00 P.M., ________ __, 2001 (the "Expiration Time")
at which it shall become void, and all rights hereunder shall thereupon cease.
<PAGE>
1.2 Manner of Exercise.
------------------
1.2.1 The Holder may exercise this Warrant, in whole or in
part, upon surrender of this Warrant with the form of subscription attached
hereto duly executed, to the Company at its corporate office in Rancho Santa
Margarita, California together with the full Purchase Price for each Share to be
purchased in lawful money of the United States, or by certified check, bank
draft or postal or express money order payable in United States dollars to the
order of the Company, and upon compliance with and subject to the conditions set
forth herein.
1.2.2 Upon receipt of this Warrant with the form of
subscription duly executed and accompanied by payment of the aggregate Purchase
Price for the Shares for which this Warrant is then being exercised, the Company
shall cause to be issued certificates for the total number of whole Shares for
which this Warrant is being exercised in such denominations as are required for
delivery to the Holder, and the Company shall thereupon deliver such
certificates to the Holder or its nominee.
1.2.3 In case the Holder shall exercise this Warrant with
respect to less than all of the Shares that may be purchased under this Warrant,
the Company shall execute a new Warrant for the balance of the Shares that may
be purchased upon exercise of this Warrant and deliver such new Warrant to the
Holder.
1.2.4 The Company covenants and agrees that it will pay when
due and payable any and all taxes which may be payable in respect of the issue
of this Warrant, or the issue of any Shares upon the exercise of this Warrant.
The Company shall not, however, be required to pay any tax which may be payable
in respect of any transfer involved in the issuance or delivery of this Warrant
or of the Shares in a name other than that of the Holder at the time of
surrender, and until the payment of such tax the Company shall not be required
to issue such Shares.
1.3 Exchange of Warrant. This Warrant may be split-up, combined or
-------------------
exchanged for another Warrant or Warrants of like tenor to purchase a like
aggregate number of Shares. If the Holder desires to split-up, combine or
exchange this Warrant, he shall make such request in writing delivered to the
Company at its corporate office and shall surrender this Warrant and any other
Warrants to be so split-up, combined or exchange, the Company shall execute and
deliver to the person entitled thereto a Warrant or Warrants, as the case may
be, as so requested. The Company shall not be required to effect any split-up,
combination or exchange which will result in the issuance of a Warrant entitling
the Holder to purchase upon exercise a fraction of a Share. The Company may
require the Holder to pay a sum sufficient to cover any tax or governmental
charge that may be imposed in connection with any split-up, combination or
exchange of Warrants.
2
<PAGE>
1.4 Holder as Owner. Prior to due presentment for registration of
---------------
transfer of this Warrant, the Company may deem and treat the Holder as the
absolute owner of this Warrant (notwithstanding any notation of ownership or
other writing hereon) for the purpose of any exercise hereof and for all other
purposes, and the Company shall not be affected by any notice to the contrary.
1.5 Transfer and Assignment. Prior to _______ __, 19__, this Warrant
-----------------------
may not be sold, hypothecated, exercised, assigned or transferred, except to
individuals who are officers of the Holder or any successor to its business or
pursuant to the laws of descent and distribution, and thereafter and until its
expiration shall be assignable and transferable in accordance with and subject
to the provisions of the Securities Act of 1933.
1.6 Method for Assignment. Any assignment permitted hereunder shall be
---------------------
made by surrender of this Warrant to the Company at its principal office with
the form of assignment attached hereto duly executed and funds sufficient to pay
any transfer tax. In such event, the Company shall, without charge, execute and
deliver a new Warrant in the name of the assignee named in such instrument of
assignment and this Warrant shall promptly be canceled. This Warrant may be
divided or combined with other Warrants which carry the same rights upon
presentation thereof at the corporate office of the Company together with a
written notice signed by the Holder, specifying the names and denominations in
which such new Warrants are to be issued.
1.7 Rights of Holder. Nothing contained in this Warrant shall be
----------------
construed as conferring upon the Holder the right to vote or to consent or to
receive notice as a stockholder in respect of any meetings of stockholders for
the election of directors or any other matter, or as having any rights
whatsoever as a stockholder of the Company. If, however, at any time prior to
the expiration of this Warrant and prior to its exercise, any of the following
shall occur:
1.7.1 the Company shall take a record of the holders of its
shares of Common Stock for the purpose of entitling them to receive a dividend
or distribution payable otherwise than in cash, or a cash dividend or
distribution payable otherwise than out of current or retained earnings; as
indicated by the accounting treatment of such dividend or distribution on the
books of the Company; or
1.7.2 the Company shall offer to the holders of its Common
Stock any additional shares of capital stock of the Company or securities
convertible into or exchangeable for shares of capital stock of the Company, or
any option, right or warrant to subscribe therefor; or
1.7.3 there shall be proposed any capital reorganization or
reclassification of the Common Stock, or a sale of all or substantially all of
the assets of the Company, or a consolidation or merger of the Company with
another entity; or
1.7.4 there shall be proposed a voluntary or involuntary
dissolution, liquidation or winding up of the Company;
3
<PAGE>
then, in any one or more of said cases, the Company shall cause to be mailed to
the Holder, at the earliest practicable time (and, in any event, not less than
thirty (30) days before any record date or other date set for definitive
action), written notice of the date on which the books of the Company shall
close or a record shall be taken to determine the stockholders entitled to such
dividend, distribution, convertible or exchangeable securities or subscription
rights, or entitled to vote on such reorganization, reclassification, sale,
consolidation, merger, dissolution, liquidation or winding up, as the case may
be. Such notice shall also set forth such facts as shall indicate the effect of
such action (to the extent such effect may be known at the date of such notice)
on the Purchase Price and the kind and amount of the Common Stock and other
securities and property deliverable upon exercise of this Warrant. Such notice
shall also specify the date as of which the holders of the Common Stock of
record shall participate in said distribution or subscription rights or shall be
entitled to exchange their Common Stock for securities or other property
deliverable upon such reorganization, reclassification, sale, consolidation,
merger, dissolution, liquidation or winding up, as the case may be (on which
date, in the event of voluntary or involuntary dissolution, liquidation or
winding up of the Company, the right to exercise this Warrant shall terminate).
Without limiting the obligation of the Company to provide notice to the holder
of actions hereunder, it is agreed that failure of the Company to give notice
shall not invalidate such action of the Company.
1.8 Lost Certificates. If this Warrant is lost, stolen, mutilated or
-----------------
destroyed, the Company shall, on such reasonable terms as to indemnity or
otherwise as it may impose (which shall, in the case of a mutilated Warrant,
include the surrender thereof, issue a new Warrant of like denomination and
tenor as, and in substitution for, this Warrant, which shall thereupon become
void.
1.9 Covenants of the Company. The Company covenants and agrees as
------------------------
follows:
1.9.1 at all times it shall reserve and keep available for the
exercise of this Warrant such number of authorized Shares as are sufficient to
permit the exercise in full of this Warrant; and
1.9.2 all Shares when issued upon the exercise of this Warrant
will be validly issued, fully paid, non-assessable and free of preemptive
rights.
2. Adjustment of Purchase Price and Number of Shares Purchasable Upon
Exercise
2.1 Recapitalization. In case the Company shall, while this Warrant
----------------
remains unexercised, in whole or in part, and in force effect a recapitalization
of such character that the Shares purchasable hereunder shall be changed into or
become exchangeable for a larger or smaller number of shares, then, after the
date of record for effecting such recapitalization, the number of Shares of
Common Stock which the Holder hereof shall be entitled to purchase hereunder
shall be increased or decreased, as the case may be, in direct proportion to the
increase or decrease in the number of shares of Common Stock by reason such
recapitalization, and of the Purchase Price, per share, whether or not in effect
immediately prior to the time of such recapitalization, of such recapitalized
Common Stock shall in the case of an increase in the number of such Shares be
4
<PAGE>
proportionately reduced, and in the case of a decrease in the number of such
Shares shall be proportionately increased. For the purposes of this Section
2.1, a stock dividend, stock split-up or reverse split shall be considered as
a recapitalization and as an exchange for a larger or smaller number of shares,
as the case may be.
2.2 Merger or Consolidation. In case of any consolidation of the
-----------------------
Company with, or merger of the Company into, any other corporation, or in case
of any sale or conveyance of all or substantially all of the assets of the
Company other than in connection with a plan of complete liquidation of the
Company, then, as a condition of such consolidation, merger or sale or
conveyance, adequate provision shall be made whereby the Holder shall thereafter
have the right to purchase and receive, upon the basis and upon the terms and
conditions specified in this Warrant and in lieu of Shares of Common Stock
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby, such shares of stock or securities as may be issued
in connection with such consolidation, merger or sale or conveyance, with
respect to or in exchange for the number of outstanding shares of Common Stock
equal to the number of shares of Common Stock immediately theretofore
purchasable and receivable upon the exercise of the rights represented hereby
had such consolidation, merger or sale or conveyance, not taken place, and in
any such case appropriate provision shall be made with respect to the rights and
interests of the Holder of this Warrant to the end that the provisions hereof
shall be applicable as nearly as may be in relation to any shares of stock or
securities thereafter deliverable upon the exercise hereof.
2.3 Dilution.
--------
2.3.1 In case the Company shall, while this Warrant remains
unexercised, in whole or in part, and in force, issue (otherwise than by stock
dividend or split-up or reverse split) or sell shares of its Common Stock
(hereinafter referred to as "Additional Shares") for a consideration per share
(before deduction of expenses or commissions or underwriting discounts or
allowances in connection therewith) which shall be less than the Purchase Price,
per share, in effect immediately prior to the time of the issuance or sale of
such Additional Shares, then after the date of such issuance or sale, the
Purchase Price per share shall be reduced to a price determined by dividing (i)
an amount equal to the total amount of shares of Common Stock outstanding
immediately prior to the time of such issuance or sale multiplied by such
Purchase Price per share as in effect immediately prior to the issuance of such
additional shares, and then adding the consideration (before deduction of
expenses or commission or underwriting discounts or allowances in connection
therewith), if any, received by the Company upon such issuance or sale of such
additional shares, by (ii) the total number of shares of Common Stock
outstanding after the date of the issuance or sale of such Additional Shares,
and the number of Shares of Common Stock which the Holder shall be entitled to
purchase hereunder at each such adjusted Purchase Price per share, at the time
such adjusted Purchase Price per share, shall be in effect, shall be the number
of whole shares of Common Stock obtained by multiplying such Purchase Price Per
Share, before such adjustment, by the number of Shares of Common Stock
purchasable upon exercise of the Warrant immediately before such adjustment and
dividing the product so obtained by such adjusted Purchase Price per share.
5
<PAGE>
2.3.2 In case the Company shall, while this Warrant remains
unexercised, in whole or in part, and in force, issue or grant any rights to
subscribe for or to purchase, or any option for the purchase of Common Stock or
any shares of stock convertible into or exchangeable for Common Stock (shares of
stock convertible or exchangeable for Common Stock being hereafter referred to
as "Convertible Securities"), or issue or sell Convertible Securities and the
price per share for which Common Stock is issuable upon the exercise of such
rights or options or upon conversion or exchange of such Convertible Securities
at the time such Convertible Securities first become convertible or exchangeable
(determined by dividing (i) in the case of any issuance or grant of any such
rights or options, the total amount, if any, received or receivable by the
Company as consideration for the issuance or grant of such rights or options,
plus minimum aggregate amount of additional consideration, if any, payable to
the Company upon conversion or exchange of such Convertible Securities at the
time such Convertible Securities first become convertible or exchangeable, or
(ii) in the case of an issuance or sale of Convertible Securities other than
where the same are issuable upon the exercise of any such rights or options, the
total amount, if any, received or receivable by the Company as consideration for
the issuance or sale of such Convertible Securities, plus the minimum aggregate
amount of additional consideration, if any, payable to the Company upon the
conversion or exchange of such Convertible Securities at the time such
Convertible Securities first become convertible or exchangeable, by, in either
case (iii) the total maximum number of shares of Common Stock issuable upon the
exercise of such rights or options or upon the conversion or exchange of such
Convertible Securities at the time such Convertible Securities first become
convertible or exchangeable) shall be less than either or both of the two
Purchase Prices hereunder, per share, whether or not in effect immediately prior
to the time of the issuance or grant of such rights or options or the issuance
or sale of such Convertible Securities, then the total maximum number of shares
of Common Stock issuable upon the exercise of such rights or options or upon
conversion or exchange of the total maximum amount of such Convertible
Securities at the time such Convertible Securities first become convertible or
exchangeable, shall (as of the date of the issuance or grant of such rights or
options or, in the case of the issuance or sale of Convertible Securities other
than where the same are issuable upon the exercise of rights or Options, as of
the date of such issuance or sale) be deemed to be outstanding and to have been
issued for said price per share; provided, that (A) no further adjustment of the
Purchase Price per share shall be made upon the actual issuance of such Common
Stock upon the exercise of such rights or options or upon the conversion or
exchange of such Convertible Securities or upon the actual issuance of
Convertible Securities where the same are issuable upon the exercise of such
rights or options; and (B) rights or options issued or granted pro rata to
stockholders without consideration and Convertible Securities issuable by way of
dividend or other distribution to stockholders shall be deemed to have been
issued or granted at the close of business on the date fixed for the
determination of stockholders entitled to such rights, options or Convertible
Securities and shall be deemed to have been issued without consideration; and
(C) if, in any case, the total maximum number of shares of Common Stock issuable
upon exercise of such rights or options or upon conversion or exchange of such
rights or options or upon conversion or exchange of such Convertible Securities
is not, in fact, issued and the rights to exercise such right or option or to
convert or exchange such Convertible Securities shall have expired or
terminated, then, and in any such event, the Purchase Price, per share, as
adjusted, shall be appropriately readjusted at the time
6
<PAGE>
of such expiration or termination. In such case, each Purchase Price per share
which is greater than the price per share for which Common Stock is issuable
upon the exercise of such rights or options or upon conversion or exchange of
such Convertible Securities at the time such Convertible Securities first
become convertible or exchangeable, as determined in this subsection (b) shall
thereupon be reduced to a price determined by dividing (1) an amount equal to
(x) the total number of shares of Common Stock outstanding immediately prior to
the time of the issuance or grant of such rights or options or the issuance or
sale of such Convertible Securities multiplied by such Purchase Price per share
plus (y) the total amount, if any, received or receivable by the Company as
consideration for such issuance or grant or such issuance or sale, plus the
additional amounts referred to and more fully set forth in clauses (i) and (ii)
of the parenthetical material above in this subsection (b), whichever clause
and whichever additional amounts may be applicable, by (2) the total number of
shares of Common Stock outstanding after the date of such issuance or grant or
such issuance or sale, and the number of Shares of Common Stock which the
Holder shall be entitled to purchase hereunder at such adjusted Purchase Price
per share, at the time such adjusted Purchase Price per share shall be in
effect, shall be the number of whole shares of Common Stock obtained by
multiplying such Purchase Price per share, before such adjustment, by the
number of Shares of Common Stock purchasable upon the exercise of this Warrant
immediately before such adjustment and dividing the product so obtained by such
adjusted Purchase Price per share.
2.3.3 For the purpose of Sections 2.3.1 and 2.3.2 above, in
case the Company shall issue or sell Additional Shares, issue or grant any
rights to subscribe for or to purchase, or any options for the purchase of
Common Stock or Convertible Securities, or issue or sell Convertible Securities
for a consideration other than cash or a consideration part of which shall be
other than cash, the amount of the consideration received by the Company
therefor shall be deemed to be the cash proceeds, if any, received by the
Company plus the fair value of the consideration other than cash, as determined
by the Board of Directors of the Company in good faith, before deduction of
commissions, underwriting discounts or allowances or other expenses paid or
incurred by the Company for any underwriting of, or otherwise in connection
with, such issuance, grant or sale.
2.4 Notice of Dissolution or Liquidation. Except as otherwise provided
------------------------------------
in Section 2.2 above, in the case of any sale or conveyance of all or
substantially all of the assets of the Company in connection with a plan of
complete liquidation of the Company, in the case of the dissolution, liquidation
or winding-up of the Company, all rights under this Warrant shall terminate on a
date fixed by the Company, such date so fixed to be not earlier than the date of
the commencement of the proceedings for such dissolution, liquidation or
winding-up and not later than thirty (30) days after such commencement date.
Notice of such termination of purchase rights shall be given to the Holder at
least thirty (30) days prior to such termination date.
2.5 Statement of Adjustment. Any adjustment pursuant to the provisions
-----------------------
of this Section 2 shall be made on the basis of the number of Shares of Common
Stock which the Holder would have been entitled to acquire by exercise of this
Warrant immediately prior to the event giving rise to such adjustment and, as to
the Purchase Price per share in effect immediately prior to the rise to such
adjustment. Whenever any such adjustment is required to be made, the Company
shall
7
<PAGE>
forthwith determine the new number of Shares of Common Stock which the Holder
hereof shall be entitled to purchase hereunder and/or such new Purchase Price
per share and shall prepare, retain on file and transmit to the Holder within
10 days after such preparation a statement describing in reasonable detail the
method used in calculating such adjustment.
2.6 No Fractional Shares. Anything contained herein to the contrary
--------------------
notwithstanding, the Company shall not be required to issue any fraction of a
Share in connection with the exercise of this Warrant, and in any case where the
Holder would, except for the provisions of this Section 2.6, be entitled under
the terms of this Warrant to receive a fraction of a Share upon such exercise,
the Company shall upon the exercise and receipt of the Purchase Price, issue the
largest number of whole Shares purchasable upon exercise of this Warrant. The
Company shall not be required to make any cash or other adjustment in respect of
such fraction of a Share to which the Holder would otherwise be entitled. The
Holder, by the acceptance of this Warrant, expressly waives his right to receive
a certificate for any fraction of a Share upon exercise hereof.
2.7 No Change in Form Required. The form of Warrant need not be changed
--------------------------
because of any change pursuant to this Section in the Purchase Price or in the
number of Shares of Common Stock purchasable upon the exercise of a Warrant, and
Common Stock Purchase Warrants issued after such change may state the same
Purchase Price and the same number of shares of Common Stock as are stated in
the Warrants initially issued pursuant to the Agreement.
3. Other Matters
3.1 Payment of Taxes. The Company will from time to time promptly pay,
----------------
subject to the provisions of Section 1.2.4 hereof, all taxes and charges that
may be imposed upon the Company in respect of the issuance or delivery of this
Warrant or the Shares purchasable upon the exercise of this Warrant.
3.2 Binding Effect. All the covenants and provisions of this Warrant by
--------------
or for the benefit of the Company shall bind and inure to the benefit of its
successors and assigns hereunder.
3.3 Notices. Notices or demands pursuant to this Warrant to be given or
-------
made by the Holder to or on the Company shall be sufficiently given or made if
sent by certified or registered mail, return receipt requested, postage prepaid,
and addressed, until another address is designated in writing by the Company, as
follows:
The L.L. Knickerbocker Co., Inc.
30055 Commercio
Rancho Santa Margarita, CA 92688
Notices to the Holder provided for in this Warrant shall be deemed given or made
by the Company if sent by certified or registered mail, return receipt
requested, postage prepaid, and addressed to the Holder at his last known
address as it shall appear on the books of the Company.
8
<PAGE>
3.4 Governing Law. The validity, interpretation and performance of this
-------------
Warrant shall be governed by the laws of the State of California.
3.5 Parties Bound and Benefitted. Nothing in this Warrant expressed and
----------------------------
nothing that may be implied from any of the provisions hereof is intended, or
shall be construed, to confer upon, or give to, any person or corporation other
than the Company and the Holder any right, remedy or claim under promise or
agreement hereof, and all covenants, conditions, stipulations, promises and
agreements contained in this Warrant shall be for the sole and exclusive benefit
of the Company and its successors and of the Holder, its successors and, if
permitted, its assignees.
3.6 Headings. The Article headings herein are for convenience only and
--------
are not part of this Warrant and shall not affect the interpretation thereof.
IN WITNESS WHEREOF, this Warrant has been duly executed by the Company
under its corporate seal as of the ______ day of _____________ 19__.
THE L.L. KNICKERBOCKER CO., INC.
By:_____________________________________
Louis Knickerbocker, President
[Corporate Seal]
Attest:
__________________________________
Peggy Vicioso, Secretary
9
<PAGE>
THE L.L. KNICKERBOCKER CO., INC.
Assignment
FOR VALUE RECEIVED, __________________________________________________
hereby sells, assigns and transfers unto _______________________________________
the within Warrant and the rights represented thereby, and does hereby
irrevocably constitute and appoint _____________________________________________
Attorney, to transfer said Warrant on the books of the Company, with full power
of substitution.
Dated: _____________________
Signed:______________________________________
Signature guaranteed:
__________________________________
10
<PAGE>
Subscription Form
THE L.L. KNICKERBOCKER CO., INC.
30055 Commercio
Rancho Santa Margarita, CA 92688
The undersigned hereby irrevocably subscribes for the purchase of
shares of your Common Stock pursuant to and in accordance with the terms and
conditions of this Warrant, and herewith makes payment, covering such shares of
Common Stock which should be delivered to the undersigned at the address stated
below, and, if said number of shares shall not be all of the shares purchasable
hereunder, that a new Warrant of like tenor for the balance of the remaining
shares purchasable hereunder be delivered to the undersigned at the address
stated below.
The undersigned agrees that: (1) the undersigned will not offer,
sell, transfer or otherwise dispose of any such shares of Common Stock unless
either (a) a registration statement, or post-effective amendment thereto,
covering such shares of Common Stock has been filed with the Securities and
Exchange Commission pursuant to the Securities Act if 1933, as amended (the
"Act"), and such sale, transfer or other disposition is accompanied by a
prospectus meeting the requirements of Section 10 of the act forming a part of
such registration statement, or post-effective amendment thereto, which is in
effect under the Act covering the shares of Common Stock to be so sold,
transferred or otherwise disposed of, or (b) counsel to THE L.L. KNICKERBOCKER
CO., INC. has rendered an opinion in writing and addressed to THE L.L.
KNICKERBOCKER CO., INC. that such proposed offer, sale, transfer or other
disposition of the shares of Common Stock is exempt from the provisions of
Section 5 of the Act in view of the circumstances of such proposed offer, sale,
transfer or other disposition; (2) THE L.L. KNICKERBOCKER CO., INC. may notify
the transfer agent for its Common Stock that the certificates for the Common
Stock acquired by the undersigned are not to be transferred unless the transfer
agent receives advice from THE L.L. KNICKERBOCKER CO., INC. that one or both of
the conditions referred to in (1)(a) and (1)(b) above have been satisfied; and
(3) THE L.L. KNICKERBOCKER CO., INC. may affix a restrictive legend to the
certificates for shares of Common Stock hereby subscribed for, if such legend is
applicable.
Dated: ______________________ Signed: _____________________________________
Address: _____________________________________
_____________________________________
Signature Guaranteed:
_____________________________
11
<PAGE>
EXHIBIT C-3
BUYER'S GUARANTEE TO IBJ SCHRODER BANK & TRUST COMPANY
To be filed by amendment.
<PAGE>
EXHIBIT D
BUYER'S FORM 10-KSB
Not included herein. Form 10-KSB was filed with the Securities and Exchange
Commission on April 15, 1996.
<PAGE>
EXHIBIT E
NON-COMPETITION AGREEMENT
To be filed by amendment.
<PAGE>
EXHIBIT F
Date: Krasner Group, Inc. Page: 1
Apr 28, 1996
Consolidated Income Statement
For the period April 1, 1996 to April 28, 1996
<TABLE>
<CAPTION>
Description F/Y/E
01/97
<S> <C>
Total Sales $ 4,406,144.06
Less Eliminations $ 1,557,534.11
--------------
Net Sales $ 2,848,609.95
Cost of Goods Sold $ 4,697,723.27
Less Eliminations $ 1,557,534.11
--------------
Total Cost of Goods Sold $ 3,140,189.16
Gross Profit $ (291,579.21)
S. G. & A. (Note 1) $ 1,247,567.43
--------------
Operating Income $(1,539,146.64)
Interest (Expense) $ (57,526.78)
Other Income $ 2,700.00
--------------
Pre-Tax Income $(1,593,973.42)
Income Tax $ (482,698.18)
--------------
Net Income $(1,111,275.24)
==============
</TABLE>
Note 1: Consolidated S. G. & A. includes $100K of additional reserve for
KGIF FYE 1/97 losses
<PAGE>
EXHIBIT F
Krasner Group, Inc
Consolidated Balance Sheet
As of April 28, 1996
<TABLE>
<CAPTION>
ASSETS
- ------------------------------
<S> <C>
Current Assets
Cash $ (79,531.55)
Accounts Receivable (Net) $ 917,861.55
Inventory $2,216,964.47
Prepaid Expenses $ 83,818.54
Other Current Assets $1,610,041.95
-------------
Total Current Assets $4,749,154.96
Fixed Assets (Net) $ 711,326.24
Other Assets $ 58,712.00
-------------
Total Assets $5,519,193.20
=============
LIABIL. & STOCKHOLDER'S EQUITY
- --------------------------------
Liabilities
Accounts Payable $ 1,194,017.56
Accrued Expenses $ 303,883.55
Accrued Royalties $ 447,352.86
Accrued Payroll & Taxes $ 162,364.96
Accrued Vacation & Bonus $ 39,890.00
Accrued Legal & Professional $ 121,500.00
Accrued Other $ 8,015.72
Corporate Tax Payable $ 1,221.00
Leases Payable $ 74,086.57
Reserve - P.G. Discont. $ 493,064.02
Note Payable - IBJ Schroder $ 1,834,399.66
Note Payable - Penthouse $ 711,373.94
--------------
Total Liabilities $ 5,391,169.84
Stockholders' Equity
P/F Stock $ 15,500.00
Treasury Stock $ (7,434.00)
Common Stock $ 13,909.80
Paid-In-Capital $ 1,521,071.00
Beginning Ret. Earnings (Deficit) $ (303,748.20)
Current Period Income (Loss) $(1,111,275.24)
--------------
Ending Ret. Earnings (Deficit) $(1,415,023.44)
Total Stockholders' Equity $ 128,023.36
--------------
Total Liabilities & S/H/E $ 5,519,193.20
==============
</TABLE>
<PAGE>
EXHIBIT G
KRASNER GROUP, INC.
40 WEST 37TH STREET
NEW YORK, NEW YORK 10018
As of June 18, 1996
Mr. Martin P. Krasner
29 Wilputte Place
New Rochelle, NY 10804
Re: EMPLOYMENT AGREEMENT
--------------------
Dear Mr. Krasner:
This letter, when signed by you and us, confirms the agreement with respect to
your continued employment by Krasner Group, Inc. (the "Company"), as follows:
This Agreement shall commence as of the effective date of the Closing
held pursuant to the Agreement of Purchase and Sale of the Capital Stock of the
Company by L.L. Knickerbocker, Co., Inc. ("Knickerbocker") (the "Commencement
Date") and shall continue for an initial period expiring on June 30, 2001 (the
"Initial Expiration Date"). You are hereby granted the option to extend the
term of this Agreement for an additional period of three years from the Initial
Expiration Date by furnishing the Company with notice of the exercise of your
option not less than three months prior to the Initial Expiration Date. This
Agreement shall terminate automatically upon your death or, at the election of
the Company, after twelve consecutive months of your disability, as defined in
paragraph 8 below, provided the Company furnishes notice of termination prior to
the time that you return to active employment.
1. You shall serve as a member of the Company's Board of Directors, its
Chief Executive Officer and President and, consistent with such positions,
shall perform such other duties and
<PAGE>
functions and have such other authority as may from time to time be assigned to
you by the Board of Directors. You shall, at all times, be based out of the
Company's principal offices within the New York City metropolitan area, which
offices and facilities shall be consistent with the offices and facilities
presently maintained by the Company in New York City at 40 West 37th Street.
2. Your compensation and benefits will consist of the following:
(a) A base annual salary at the rate of $225,000, payable weekly,
subject to increase in each fiscal year of the Company, beginning with February,
1997, by a percentage equal to the percentage increase of the Consumer Price
Index for All Urban Consumers in the New York City Metropolitan Area, not
seasonally adjusted (as published by the U.S. Bureau of Labor Statistics) (the
"CPI-U") as of the immediate preceding December, over the CPI-U for the December
which was 12 months earlier, i.e. the first increase in your base annual salary
will be paid to you beginning February, 1997 based upon the percentage increase
of the CPI-U for December, 1996 over the CPI-U for December, 1995.
(b) An annual incentive bonus (the "Bonus") in such amount and on such
basis to be mutually agreed upon.
(c) You shall also be entitled to participate in all medical, health
and dental (family coverage) and deferred compensation plans generally
available to executives of the Company.
3. You shall be entitled to the reimbursement of your ordinary and
necessary expenses incurred in the performance of your duties hereunder upon
submission of appropriate documentation in accordance with the Company's
policies.
4. You shall be entitled to paid vacation at the rate of 3 weeks in each
fiscal year of the Company.
5. You shall be entitled to participate in the Knickerbocker Employee
Incentive Stock Option Plan, as follows, to be mutually agreed upon.
6. (a) In addition to your compensation, and as further consideration for
your entering into this Employment Agreement, you shall receive simultaneously
herewith Warrants (as hereinafter
<PAGE>
Mr. Martin P. Krasner
As of June 17, 1996
Page 3
defined), having a Value (as hereinafter defined) in the aggregate amount of
$250,000.
(b) (1) For purposes of this Paragraph 7:
(i) "Warrants" means warrants or options which grant the holder the
immediate right to purchase shares of Knickerbocker's common stock which
Warrants will be exercisable for a period of 10 years after the respective date
of grant. Any shares issued upon the exercise of such Warrants will, upon
issuance, be registered and freely tradeable. In lieu of Warrants,
Knickerbocker may issue its registered and freely tradeable Common Stock of an
equivalent value to the Value of the Warrants.
(ii) "Value", in connection with each share of common stock covered by
a Warrant, means the difference between (A) the average closing bid price of the
Knickerbocker common shares for the five trading days immediately preceding the
date of delivery of the Warrant, and (B) the exercise (or strike) price of the
Warrant.
(iii) In recognition of the potential volatility of Knickerbocker's
stock and any commissions, finance charges and other costs in connection with
the exercise of the Warrant and the sale of the Warrants and/or the stock, a 10%
premium will be added to the Value which is to be received by you under
paragraph 7(a) above.
(iv) The number of Warrants granted pursuant to paragraph 7 above
shall be subject to adjustment in accordance with the following provisions:
(1) The number of Warrants granted on each such occasion shall be
divided by 4 and it shall be assumed that each quarterly amount of Warrants is
sold at the mean trading price on each of the four successive trading dates
immediately following the delivery of the Warrants to you. The gross amount,
less
<PAGE>
Mr. Martin P. Krasner
As of June 17, 1996
Page 4
commissions and fees, which would be received upon such assumed sales is
referred to herein as the "Realizable Amount;"
(2) If the Realizable Amount is at least equal to the Value there
shall be no adjustment. If, and to the extent that the Realizable Amount is less
than said amount, such difference (the "Deficiency") shall be made up by
Warrants of equivalent Value in amount to such Deficiency (the "Make-up
Warrants"). The Make-up Warrants shall be delivered to you within four months of
the delivery to you of the grant of Warrants.
(3) Notwithstanding the foregoing, if you, in fact, shall have
traded the Warrants on such four immediately succeeding trading dates and have
realized more than the "Realizable Amount," then the actual gross amount
realized by you shall be used in calculating the amount of "Make-up Warrants" to
be issued to you pursuant to this subparagraph 7(b)(iv).
7. (a) If you shall become physically or mentally disabled and thereby
rendered unable to substantially perform your duties on behalf of the Company
you shall continue to be entitled to receive your full compensation and benefits
hereunder for a period of up to six consecutive months and one-half your full
compensation and benefits for the next consecutive six month period of such
disability ("Disability Pay"). After twelve consecutive months of such
disability you shall not be entitled to any further Disability Pay until you
resume active employment with the Company.
(b) In determining the amount of Disability Pay the Company may deduct
any disability benefits received by you from an insurance carrier, the premiums
for which insurance policy were paid in whole or in part by the Company.
(c) In determining whether or not you are "disabled" the definition of
disability for United States Social Security purposes shall be applied.
<PAGE>
Mr. Martin P. Krasner
As of June 17, 1996
Page 5
8. (a) If your employment by the Company is terminated either by the
Company for cause (as hereinafter defined) or because you quit then, for the
twelve month period immediately following such termination of employment, you
agree that you will not, without the Company's prior written consent, directly
or indirectly, alone or as a partner, joint venturer, officer, director or
employee, consultant, agent, independent contractor or stockholder of any
company or business, engage (for anyone other than the Company, including its
affiliates) in a business activity which is competitive with the business of the
Company; nor will you, during such period directly or indirectly employ any
person who is employed by the Company.
(b) Termination by the Company for cause means (i) you have been
convicted of a felony which is likely to adversely affect the reputation of the
Company, (ii) you have engaged in gross misconduct which poses an immediate and
substantial threat to the operations or reputation of the Company, (iii) you
have engaged in material and repeated dereliction of your duties, provided
however, that you shall be entitled to reasonable notice of and, if feasible, a
reasonable opportunity to cure any such violation, (iv) you are otherwise in
breach of any of the material provisions of this Agreement, provided however,
that you shall be entitled to reasonable notice of and, if feasible, a
reasonable opportunity to cure any such breach, or (v) you are unable to
discharge the majority of your duties as a result of death, or of physical or
mental disability for a continuous period in excess of twelve months.
9. Miscellaneous.
-------------
(a) You hereby agree to be bound to the Company's policies regarding
Trade Secrets and Confidential Information as set forth in Exhibit A hereto.
(b) No modification, amendment or waiver of any of the provisions of
this Agreement shall be valid unless in writing and
<PAGE>
Mr. Martin P. Krasner
As of June 17, 1996
Page 6
signed by both parties and further provided that any action by the Company to
amend, modify or waive any provisions of this Agreement shall require the
unanimous approval of the Company's Board of Directors.
(c) This Agreement shall be binding upon and inure to the benefit of each
of the parties, their respective representatives, heirs, successors and
permitted assigns. The Employee may not assign his rights hereunder without the
prior written consent of the Company. The Company may assign its rights and
obligations hereunder in connection with any merger, consolidation or sale of
substantially all of its operating assets.
(d) This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of New York. Any proceeding in connection
with the enforcement of this Agreement may be brought only in the Supreme Court
of the State of New York within the Counties of New York City or Nassau,
Westchester County. The parties consent to the exclusive jurisdiction and venue
of such court to resolve all matters between them arising out of or under this
Agreement.
(e) All notices, demands or other communications required or permitted to
be given under this Agreement must be in writing and shall be deemed to have
been given when delivered by hand or within 3 business days after mailing by
first class, registered or certified mail, return receipt requested, postage
prepaid, to the other party, at his address set forth above or to such other
address as may have been specified in any written notice to the other party.
<PAGE>
Mr. Martin P. Krasner
As of June 17, 1996
Page 7
Please confirm your agreement to the foregoing by signing this letter agreement
below where indicated. A copy is for your files.
Very truly yours,
KRASNER GROUP, INC.
By:
----------------------
AGREED TO:
By:
-----------------------
Martin P. Krasner
<PAGE>
EXHIBIT H
LIST OF OPTION HOLDERS
----------------------
<TABLE>
<CAPTION>
WARRANTS TO PURCHASE
COMMON SHARES
EMPLOYEE GRANTED AT CLOSING
- ------------------- --------------------
<S> <C>
Barry S. Ort 9,671
Albert J. G. Cerbo, Jr. 7,032
David Partington 3,548
Tom Verola 640
Shari Birdoff 32
Lois Holgate 32
Beth Martin 32
------------
TOTALS 20,987
============
</TABLE>
<PAGE>
EXHIBIT I
As of June 18, 1996
The L.L. Knickerbocker Co., Inc.
30055 Comercio
Rancho Santa Margarita, California 92688
Ladies and Gentlemen:
We have acted as special counsel for Krasner Group, Inc., a Delaware
corporation (the "Company") in connection with the sale of all of the issued and
outstanding stock of the Company (the "Shares") to The L.L. Knickerbocker Co.,
Inc. (the "Buyer") pursuant to the Agreement of Purchase and Sale, dated the
date hereof (the "Purchase Agreement"), by and among the holders of the Shares
(the "Sellers"), the Company, Martin P. Krasner ("Krasner") and the Buyer.
In rendering the opinions expressed below, we have examined the following
agreements, instruments and other documents:
(a) The Purchase Agreement, including the Exhibits, Schedules and any
supplement thereto, to be executed and delivered by the Sellers, the Company,
Krasner and the Buyer; and
(b) the records of the Company and such other documents as we have deemed
necessary as a basis for the opinions expressed below.
<PAGE>
We have also examined originals, or copies certified to our satisfaction,
of such corporate records, certificates of public officials of pertinent states,
certificates of corporate officers of the Company and such other instruments or
documents as we have deemed necessary as a basis for the opinions hereinafter
set forth. As to questions of fact, we have, to the extent that such facts were
not independently established by us, relied upon such certificates and we have
assumed that any such certificates or other evidence which was given or dated
earlier than the date of this letter has remained accurate, as far as relevant
to the opinions contained herein, from such earlier date through and including
the date of this letter. In rendering the opinions hereinafter set forth as to
factual matters, we have also relied upon and assumed the accuracy of the
representations and warranties made in the Purchase Agreement by the Sellers.
Whenever any statement herein is qualified by our knowledge, it is intended to
indicate that, during the course of our representation of the Company, no
information that would give us actual knowledge of the inaccuracy of such
statement has come to the attention of the attorneys presently in this firm and
who are actively engaged in the representation of the Company. Further, we have
not represented the Company on a regular basis and the Company has utilized the
services of other counsel for legal services.
In our examination, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals and the conformity
with authentic original documents of all documents submitted to us as copies.
In rendering the opinions expressed below, we have assumed, with respect to
all of the documents referred to in this opinion letter, that:
(i) such documents have been duly authorized by, have been duly executed
and delivered by, and constitute legal, valid, binding and enforceable
obligations of all of the parties to such documents;
2
<PAGE>
(ii) all signatories to such documents have been duly authorized;
(iii) all of the parties to such documents are duly organized and
validly existing and have the power and authority (corporate
or otherwise) to execute, deliver and perform such
documents; and
(iv) all natural persons have all requisite legal capacity.
Based upon and subject to the foregoing and subject also to the
comments and qualifications set forth below, and having considered such
questions of law as we have deemed necessary as a basis for the opinions
expressed below, we are of the opinion that:
(1) The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the jurisdiction of its incorporation;
(2) The execution, delivery and performance by the Company has been
duly authorized by all necessary corporate action on the part of the Company;
(3) Based solely on our review of the stock ledger of the Company, (a)
the authorized capital stock of Company consists of 10,000,000 shares of common
stock of which 1,357,914 shares are issued and outstanding, and 4,000,000 shares
of preferred stock of which 1,550,000 shares are issued and outstanding; and (b)
all of the issued and outstanding shares of capital stock of the Company have
been duly authorized and validly issued and, to the best of our knowledge, are
fully paid and nonassessable; and
(4) No facts have come to our attention which would lead us to believe
that any representation or warranty of the Sellers contained in the Purchase
Agreement, including the Exhibits, Schedules and any supplement thereto, is
incorrect, false or misleading although we have made no independent inquiries or
investigations with respect to such matters.
3
<PAGE>
Our opinions are limited to the specific issues addressed and are
limited in all respects to laws and facts existing on the date hereof. By
rendering our opinions, we do not undertake to advise you of any changes in such
laws or facts which may occur after the date hereof.
The foregoing opinions are limited to matters involving the Federal
laws of the United States, the Delaware General Corporation Law and the laws of
the State of New York, and we do not express any opinion as to the laws of any
other jurisdiction.
At the request of our clients, this opinion letter is, pursuant to
Section 9.1.12 of the Purchase Agreement, provided to you by us in our capacity
as special counsel to the Company and may not be relied upon by any person or
entity for any purpose other than in connection with the transactions
contemplated by the Purchase Agreement without, in each instance, our prior
written consent.
Very truly yours,
COOPERMAN LEVITT WINIKOFF
LESTER & NEWMAN, P.C.
By:
----------------------
4
<PAGE>
EXHIBIT J
WILLIAM R. BLACK
ATTORNEY AT LAW
29 SUMMITCREST
DOVE CANYON, CALIFORNIA 92679
----------
TELEPHONE (714) 858-1089
FACSIMILE (714) 888-7700
As of June 18, 1996
To the Parties Listed on Exhibit A annexed hereto:
Ladies and Gentlemen:
I have acted as special counsel for The L.L. Knickerbocker Co., Inc., a
California corporation (the "Company") in connection with the purchase of all of
the issued and outstanding stock of Krasner Group, Inc., a Delaware corporation
("KGI") by the Company, pursuant to the Agreement of Purchase and Sale, dated
the date hereof (the "Purchase Agreement"), by and among the holders of the
common shares of KGI (the "Common Shareholders"), the holders of the preferred
shares of KGI (the "Preferred Shareholders"; together with the Common
Shareholders, the "Sellers"), the Company, Martin P. Krasner and KGI.
In rendering the opinions expressed below, I have examined the following
agreements, instruments and other documents:
(a) The Purchase Agreement, including the Exhibits, Schedules and any
supplement thereto, to be executed and delivered by the Sellers, the Company,
Krasner and KGI; and
(b) the records of the Company and such other documents as I have deemed
necessary as a basis for the opinions expressed below.
I have also examined originals, or copies certified to our satisfaction, of
such corporate records, certificates of public officials of pertinent states,
certificates of corporate officers of the Company and such other instruments or
documents as I have deemed necessary as a basis for the opinions hereinafter set
forth. As to questions of fact, I have, to the extent that such facts were not
independently established by me, relied upon such certificates and I have
assumed that any such certificates or other evidence which was given or dated
earlier than the date of this letter has remained accurate, as far as relevant
to the opinions contained herein, from such earlier date through and including
the date of this letter. In rendering the opinions hereinafter set forth as to
factual
<PAGE>
matters, I have also relied upon and assumed the accuracy of the
representations and warranties made in the Purchase Agreement by the Company.
Whenever any statement herein is qualified by my knowledge, it is intended to
indicate that, during the course of my representation of the Company, no
information that would give me actual knowledge of the inaccuracy of such
statement has come to my attention. Further, the Company has utilized the
services of other counsel from time to time for legal services.
In my examination, I have assumed the genuineness of all signatures, the
authenticity of all documents submitted to me as originals and the conformity
with authentic original documents of all documents submitted to me as copies.
In rendering the opinions expressed below, I have assumed, with respect to
all of the documents referred to in this opinion letter, that:
(i) such documents have been duly authorized by, have been
duly executed and delivered by, and constitute legal, valid,
binding and enforceable obligations of all of the parties to
such documents;
(ii) all signatories to such documents have been duly
authorized;
(iii) all of the parties to such documents are duly
organized and validly existing and have the power and
authority (corporate or otherwise) to execute, deliver and
perform such documents; and
(iv) all natural persons have all requisite legal capacity.
Based upon and subject to the foregoing and subject also to the
comments and qualifications set forth below, and having considered such
questions of law as I have deemed necessary as a basis for the opinions
expressed below, I am of the opinion that:
(1) The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the jurisdiction of its incorporation;
(2) The execution, delivery and performance by the Company has been
duly authorized by all necessary corporate action on the part of the Company;
(3) (a) All of the issued and outstanding shares of capital stock of
the Company have been duly authorized and validly issued and, to the best of my
knowledge, are fully paid and nonassessable; and (b) all of the options of the
Company to be issued to the Common Shareholders and certain of the Preferred
Shareholders will be, when issued, duly registered and freely tradeable; and (c)
I am not aware of any event which would cause the warrants of the Company which
are to be issued to certain of the Preferred Shareholders, pursuant to the
Purchase Agreement, not to be
2
<PAGE>
freely tradeable, upon registration of such warrants; and
(4) No facts have come to my attention which would lead me to believe
that any representation or warranty of the Company contained in the Purchase
Agreement, including the Exhibits, Schedules and any supplement thereto, is
incorrect, false or misleading although I have made no independent inquiries or
investigations with respect to such matters.
My opinions are limited to the specific issues addressed and are
limited in all respects to laws and facts existing on the date hereof. By
rendering my opinions, I do not undertake to advise you of any changes in such
laws or facts which may occur after the date hereof.
The foregoing opinions are limited to matters involving the Federal
laws of the United States, the Delaware General Corporation Law and the laws of
the State of California, and I do not express any opinion as to the laws of any
other jurisdiction.
At the request of my clients, this opinion letter is, pursuant to
Section 9.2.8 of the Purchase Agreement, provided to you by me in my capacity as
counsel to the Company and may not be relied upon by any person or entity for
any purpose other than in connection with the transactions contemplated by the
Purchase Agreement without, in each instance, my prior written consent.
Very truly yours,
William R. Black
3
<PAGE>
EXHIBIT A TO EXHIBIT J
STOCKHOLDERS OF KRASNER GROUP, INC.
Name and addresses
- ------------------
Common Stockholders:
Martin P. Krasner & Ina Ostrow, Trustees U/I Dtd. 2/15/85 FBO Martin P. Krasner
29 Wilputte Place, New Rochelle, NY 10804
Martin P. Krasner & Stephanie Krasner, Trustees U/I Dtd. June 15, 1970
29 Wilputte Place, New Rochelle, NY 10804
Estate of Murray Glaser
c/o Joan Glaser
525 East 86 Street
New York, NY 10028
F. William Graham
3200 Coastal Highway
St. Augustine, FL 32095
Preferred Stockholders:
Consumer Venture Partners I, L.P.
3 Pickwick Plaza
Greenwich, CT 06830
Donald F. Swanson, Trustee, Donald F. Swanson Revocable Trust U/A Dated December
22, 1968
2171 Gulf Shore Blvd. No.
Naples, Florida 34102
<PAGE>
EXHIBIT K
SETTLEMENT AGREEMENT
--------------------
AGREEMENT made this 26th day of June, 1996 between:
1. KRASNER GROUP, INC., a Delaware corporation ("KGI"), KGI FASHIONS,
INC., a Delaware corporation ("KGIF") and any other entity affiliated with KGI
or KGIF which has had dealings with Ogust (collectively, with KGI and KGIF,
referred to herein as "Krasner"), all on the one hand; and
2. CHELONIAN SIGNATORIES, INC. (formerly known as PENTHOUSE GALLERY,
INC.), a New York corporation ("CSI"), ELEMENT PUBLISHERS, INC., a New York
corporation ("EPI"), RICHARD OGUST, ("Richard"), CATHERINE OGUST, ("Catherine")
and SAMUEL OGUST, ("Samuel") and any other entity affiliated with CSI, EPI,
Richard, Catherine or Samuel which has dealings with Krasner (collectively, with
CSI, EPI, Richard, Catherine and Samuel, referred to herein as "Ogust"), all on
the other hand.
RECITALS:
A. On or about January 23, 1995 KGIF acquired the business of CSI and in
connection with such transaction, KGIF executed and delivered a promissory note
(the "Note") which was guaranteed by KGI, and the parties entered into related
security agreements, UCC-1's, employment, consulting, non-competition, and
<PAGE>
other agreements and arrangements (as heretofore amended, modified or
supplemented, collectively, the "Transaction Documents").
B. KGI and KGIF have not paid certain amounts due and payable under the
Transaction Documents and the parties have entered into other agreements with
respect to such arrearages.
C. The parties contemplate that on or before June 30, 1996 but in no
event later than July 31, 1996, a closing will be held in a transaction between
Krasner and L.L. KNICKERBOCKER, INC., a California corporation with its
principal place of business in Rancho Santa Marguerita, CA 92688
("Knickerbocker") (the "Closing") at which Closing Knickerbocker will acquire
Krasner.
D. A condition to the acquisition of Krasner by Knickerbocker is that all
of the debts, obligations and liabilities of Krasner to Ogust be settled and
resolved.
E. Except for those rights and obligations expressly preserved pursuant to
this Settlement Agreement, Krasner and Ogust by this Settlement Agreement agree
that at the Closing they will resolve, release and discharge all debts,
obligations, liabilities, claims and controversies in law or in equity which
Krasner and Ogust or their respective successors and assigns ever had, may now
have or may hereafter have against the other relating to anything whatsoever
through the date of the Closing.
2
<PAGE>
F. On and after the Closing, and subject to the issuance of the Warrants
referred to in paragraphs 2(a) and (b) of this Settlement Agreement, the
respective rights and obligations of Krasner and Ogust shall be limited only to
those rights and obligations expressly preserved pursuant to this Settlement
Agreement and which rights and obligations will be embodied in documents to be
entered into between Krasner and Ogust at the Closing pursuant to the terms of
this Settlement Agreement.
NOW, THEREFORE, in consideration of the promises and for other good and
valuable consideration the parties hereto hereby agree as follows:
1. In consideration of Ogust entering into this Settlement Agreement,
simultaneously herewith, Krasner shall pay to Ogust the nonrefundable sum of
$70,000 by check, subject to collection.
2. At the Closing, Ogust will receive in the aggregate:
(a) Warrants (as hereinafter defined) then having a Value (as
hereinafter defined) in the aggregate amount of $180,000.
(b) A binding commitment of Knickerbocker to grant to Ogust no later
than one year after the date of Closing, Warrants then having a Value in the
aggregate amount of $100,000.
3. For purposes of Paragraph 2 above:
3
<PAGE>
(a) "Warrants" means warrants or options which grant the holder the
immediate right to purchase shares of Knickerbocker's common stock which
Warrants will be exercisable for a period of 5 years after the Closing. Any
shares issued upon the exercise of such Warrants will, upon issuance, be
registered and freely tradeable. In lieu of Warrants, Knickerbocker may issue
its registered and freely tradeable Common Stock of an equivalent value to the
Value of the Warrants.
(b) "Value", in connection with each share of common stock covered by a
Warrant, means the difference between (i) the average closing bid price of the
Knickerbocker common shares for the five trading days immediately preceding the
date of issuance of the Warrant, and (ii) the exercise (or strike) price of the
Warrant.
(c) In recognition of the potential volatility of Knickerbocker's stock
and any commissions, finance charges and other costs in connection with the
exercise of the Warrant and the sale of the Warrants and/or the stock, a 10%
premium will be added to the Value which is to be received by Ogust under
paragraph 2 (a) and (b) above.
(d) The number of Warrants issued pursuant to paragraph 2(a) and to be
issued pursuant to paragraph 2(b) above
4
<PAGE>
shall be subject to adjustment (the "Adjustment") in accordance with the
following provisions:
(i) The number of Warrants issued on each such occasion shall be
divided by 4 and it shall be assumed for the purposes of this paragraph 3(d)
that each such quarterly amount of Warrants is sold at the mean trading price on
each of the four successive trading dates immediately following the issuance of
the Warrants. The gross amount, less commissions and fees, which would be
received upon such assumed sales is referred to herein as the "Realizable
Amount;"
(ii) If the Realizable Amount is at least $180,000 as to the
paragraph 2(a) Warrants and is at least $100,000 as to the paragraph 2(b)
Warrants there shall be no Adjustment. If, and to the extent that the Realizable
Amount is less than said amounts, respectively, such difference (the
"Deficiency") shall be made up by Warrants of equivalent Value in amount to
such Deficiency (the "Make-up Warrants"). The Make-up Warrants shall be issued
to Ogust, if with respect to the paragraph 2(a) Warrants, within one year of the
initial issuance of the paragraph 2(a) Warrants and/or if with respect to the
paragraph 2(b) Warrants, within four months of the initial issuance of the
paragraph 2(b) Warrants.
5
<PAGE>
(iii) Notwithstanding the foregoing, if Ogust, in fact, shall have
traded the Warrants on any of such four immediately succeeding trading dates and
shall have realized more than the "Realizable Amount," as determined under
(d)(i) above, then the actual gross amount realized by Ogust shall be used as
the "Realizable Amount" in calculating the amount of "Make-up Warrants" to be
issued to Ogust pursuant to this paragraph 3(d).
4. At the Closing:
(a) Ogust will deliver to the Escrow Agent (as described in paragraph
5(a)):
(i) general releases and satisfactions to Krasner for all debts,
liabilities and obligations of Krasner to Ogust through the date of Closing,
excluding only the obligations referred to in paragraph 5 below;
(ii) the original Note;
(iii) such other and further documents, and in such form, as
Krasner's or Knickerbocker's counsel may reasonably request.
(b) Krasner will deliver to the Escrow Agent:
(i) general releases and satisfactions to Ogust for all debts,
liabilities and obligations of Ogust to Krasner
6
<PAGE>
through the date of Closing, excluding only the obligations referred to in
paragraph 5 below;
(ii) Undated and signed UCC-1 forms with respect to any assets
previously secured to Ogust which remain in Krasner's possession on the date the
Escrow Agent is required to release the Escrow Documents to Ogust.
(iii) such other and further documents, and in such form, as
Ogust's counsel may reasonably request.
(c) Ogust will deliver to Krasner for recording duly executed UCC
termination statements in recordable form with respect to all security
interests;
5. The only rights and obligations as between Krasner and Ogust which
shall survive after the Closing shall be those contained in the following
agreements which will be entered into at the Closing:
(a) The annexed Escrow Agreement among the parties hereto and
Cooperman Levitt Winikoff Lester & Newman, P.C., as Escrow Agent.
(b) The annexed Royalty Agreement between KGIF and EPI.
(c) The annexed Non-Competition Agreement between KGIF and Catherine.
7
<PAGE>
6. From and after the date hereof and until the Closing or if the Closing
does not occur on or prior to July 31, 1996, then until July 31, 1996, Ogust
agrees not to take or suffer any action against Krasner with respect to the
enforcement of Ogust's rights or claims which it may have against Krasner.
7. The parties agree that Catherine will continue to be paid under her
agreement with KGIF until the Closing, at which time such agreement will
automatically terminate and be of no further force or effect and Catherine shall
not be entitled to any further payments thereunder.
8. MISCELLANEOUS.
-------------
(a) The parties acknowledge and agree that each has had separate
counsel with respect to this Settlement Agreement and neither is relying upon
any representations, statements or warranties of the other except as the same
may be expressly included herein.
(b) At and after the Closing the parties shall execute and deliver such
other and further documents as may be reasonably necessary or appropriate to
implement the purposes of this Settlement Agreement.
(c) Any notice or other communication required by this Settlement
Agreement shall be given in writing, sent by
8
<PAGE>
overnight delivery with confirmation of delivery, telecopy to an automatic
machine (answer back requested) or with oral confirmation of receipt, or by
certified or registered mail, return receipt requested, as set forth below.
<TABLE>
<CAPTION>
<C> <S>
If to: KRASNER GROUP, INC.
KGI FASHIONS, INC.
40 West 37th Street
New York, NY 10018
Attn: Martin P. Krasner
Fax: 212-268-4209
With a Copy To: Robert N. Cooperman, Esq.
COOPERMAN LEVITT WINIKOFF LESTER & NEWMAN, P.C.
800 Third Avenue
New York, NY 10022
Fax 212-755-2839
If to: CHELONIAN SIGNATORIES, INC.
ELEMENT PUBLISHERS, INC.
RICHARD OGUST
CATHERINE OGUST
SAMUEL OGUST
c/o Richard Ogust
451 Broome Street, Apt. 12E
New York, NY 10013
Fax: 212-431-0799
With a Copy To: Robert Stonehill, Esq.
SILVERBERG STONEHILL & GOLDSMITH, P.C.
111 West 40th Street
New York, NY 10018
Fax: 212-391-4556
</TABLE>
(d) This Settlement Agreement shall be binding upon and inure to the
benefit of the parties hereto, their respective successors, legal
representatives and assigns, but shall
9
<PAGE>
not be assignable by any party hereto without the prior written consent of a
duly authorized representative of each of the other parties hereto.
(e) This Settlement Agreement may be amended only in writing signed by a
duly authorized representative of each of the parties hereto. No provision
hereof shall be deemed waived unless in writing, signed by the party against
whom such waiver shall be enforced, provided that no waiver of any provision
hereof in any circumstance shall be deemed a waiver of such provision in any
other circumstances or of any other provision in any circumstance.
(f) This Agreement and all matters arising in connection herewith shall be
governed and construed in accordance with the laws of the State of New York
without regard to conflicts of laws principles.
(g) This Agreement constitutes the entire agreement of the parties hereto
with respect to the subject matter hereof and supersedes any prior agreements
with respect thereto.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
hereof.
KRASNER GROUP, INC.
By:
--------------------
10
<PAGE>
KGI FASHIONS, INC.
By:
------------------------
CHELONIAN SIGNATORIES, INC.
By:
------------------------
ELEMENT PUBLISHERS, INC.
By:
------------------------
---------------------------
Richard Ogust
---------------------------
Catherine Ogust
---------------------------
Samuel Ogust
11
<PAGE>
EXHIBIT L
REGISTRATION AGREEMENT
THIS REGISTRATION AGREEMENT (the "Agreement") is entered into effective as
of the date set forth below, by and among THE L.L. KNICKERBOCKER CO., INC., a
California corporation (the "Company"), and the individuals who are signatories
to this Agreement, as listed on Exhibit C annexed hereto (individually and
collectively sometimes hereinafter referred to as "Stockholder").
W I T N E S S E T H
WHEREAS, the Company and Stockholder have entered into that certain
Agreement of Purchase and Sale, dated even date herewith (the "Purchase
Agreement"), pursuant to which the Company has acquired all of the stock of
Krasner Group, Inc., a Delaware corporation ("KGI");
WHEREAS, pursuant to the terms of the Purchase Agreement, the Company has
paid the purchase price for KGI to Stockholder, in warrants and options which
grant the Stockholder the right to purchase shares of the Company's Common
Stock, no par value ("Common Stock"); and
WHEREAS, pursuant to the terms of the Purchase Agreement, the Company has
agreed to register the shares of Common Stock received by Stockholder
thereunder, pursuant to the terms and conditions set forth herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. DEFINITIONS. As used herein, the following terms shall have the
-----------
meanings indicated.
"Broker's Letter", a form of which is attached to this Agreement as Exhibit
--------------- -------
B, shall have the meaning ascribed to it in Section 5(f) of this Agreement.
- - ------------
"Commission" means the Securities and Exchange Commission.
----------
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
<PAGE>
"Indemnifying Party" shall have that meaning ascribed to it in Section 6(c)
------------------ ------------
of this Agreement.
"Indemnified Party" shall have that meaning ascribed to it in Section 6(c)
----------------- ------------
of this Agreement.
"Inspectors" shall have that meaning ascribed to it in Section 3(d) of this
---------- ------------
Agreement.
"Records" shall have that meaning ascribed to it in Section 3(d) of this
------- ------------
Agreement.
"Registrable Securities" means the shares of Common Stock that may be
----------------------
received by Stockholder pursuant to the Purchase Agreement and held of record by
Stockholder; provided, however, that any Registrable Security will cease to be a
-------- -------
Registrable Security when such Registrable Security is no longer held of record
by Stockholder, subject to Section 7(i) of this Agreement.
"Registration Statement" shall have that meaning ascribed to it in Section
---------------------- -------
2 of this Agreement.
- -
"Seller's Letter", a form of which is attached to this Agreement as Exhibit
--------------- -------
A, shall have that meaning ascribed to it in Section 5(f) of this Agreement.
- - ------------
2. REGISTRATION STATEMENT. No later than September 30, 1996, the Company
----------------------
shall file a registration statement on Form S-3 or other appropriate form
pursuant to Rule 415 under the Securities Act, or other similar rule that may be
adopted by the Commission covering the sale by Stockholder of all of the
Registrable Securities and any other shares of Common Stock or other securities
of the Company that the Company, in its sole discretion, elects to include
therein (however constituted, hereinafter referred to as the "Registration
Statement"). The Company shall use its best efforts to have the Registration
Statement declared effective by the Commission under the Securities Act promptly
after such filing and to keep the Registration Statement effective for a period
of one (1) year following the date on which the Registration Statement is first
declared effective. The Company further agrees, if necessary, to amend or
supplement the Registration Statement when required by the registration form, by
the instructions applicable
2
<PAGE>
to Form S-3, or by the Securities Act or the rules and regulations thereunder.
3. REGISTRATION PROCEDURES. The Company will as expediently as
-----------------------
commercially possible:
(a) Furnish to Stockholder, prior to filing the Registration
Statement, no less than two (2) copies of the Registration Statement as
proposed to be filed, and thereafter furnish to Stockholder such number of
copies of the Registration Statement, each amendment and supplement thereto
(in each case including all exhibits thereto), the prospectus included in
the Registration Statement (including each preliminary prospectus) and such
other documents as Stockholder may reasonably request in writing in order
to facilitate the disposition of the Registrable Securities owned by
Stockholder;
(b) Use all commercially reasonable efforts to register or
qualify the Registrable Securities under such other securities or blue sky
laws of such jurisdictions as Stockholder may reasonably request and do any
and all other acts and things which may be reasonably necessary to enable
Stockholder to consummate the disposition in such jurisdictions of the
Registrable Securities; provided, however, that the Company will not be
-------- -------
required to (i) qualify generally to do business in any jurisdiction where
it would not otherwise be required to qualify but for this subsection; (ii)
subject itself to taxation in any such jurisdiction where it is not then so
subject in excess of a nominal amount; or (iii) consent to general service
of process in any such jurisdiction where it is not then so subject.
(c) Notify Stockholder holding the Registrable Securities, at any
time when a prospectus relating thereto is required to be delivered under
the Securities Act, of the occurrence of (i) an event requiring the
preparation of a supplement to such prospectus or an amendment of the
Registration Statement so that such prospectus will not contain an untrue
statement of material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein not
misleading, and to promptly make available to Stockholder any such
supplemented prospectus
3
<PAGE>
or amended Registration States; or (ii) any other event which may impair
the ability of Stockholder to dispose of the Registrable Securities.
(d) Make available for inspection by any Stockholder holding the
Registrable Securities and any attorney, accountant or other professional
retained thereby (collectively, the "Inspectors") all financial and other
records, pertinent corporate documents and properties of the Company
(collectively, the "Records") as shall be reasonably necessary to enable
such Inspectors to exercise their due diligence responsibility with respect
to the Registration Statement, and cause the Company's officers, directors
and employees to supply all information reasonably requested by any such
Inspectors in connection with the Registration Statement. Records which the
Company determines, in good faith, to be confidential and which it notifies
the Inspectors are confidential shall not be disclosed by the Inspectors
unless (i) in the judgment of counsel to the Company the disclosure of such
Records is necessary to avoid or correct a misstatement or omission in the
Registration Statement; (ii) the release of such Records is ordered
pursuant to a subpoena or other order from a court of competent
jurisdiction (iii) information in Records is generally available to the
public; or (iv) disclosure of such information is necessary in connection
with any proceeding against any Inspector relating to this Agreement.
Stockholder agrees that information obtained by it as a result of such
inspections shall be deemed confidential and shall not be used by it as the
basis for any market transactions in the securities of the Company unless
and until such is made generally available to the public. Stockholder
further agrees that it will, upon learning that disclosure of such Records
is sought in a court of competent jurisdiction, give notice to the Company
and allow the Company, at its expense, to undertake appropriate action to
prevent disclosure of the Records deemed confidential. The Company may
require Stockholder to promptly furnish in writing to the Company such
information regarding the distribution of the Registrable Securities as it
may from time to time reasonably request and such other information
regarding Stockholder as may be legally required in connection with such
registration. Stockholder agrees that, upon receipt of written notice from
the Company or the happening of any event
4
<PAGE>
of the kind described in subsection 3(c) hereof, Stockholder will
---------------
immediately discontinue the disposition of the Registrable Securities
pursuant to the Registration Statement until Stockholder's receipt of the
copiers of the revised prospectus contemplated by subsection 3(c) hereof,
---------------
and, if so directed by the Company, Stockholder will deliver to the Company
all copies, other than permanent file copies then in Stockholder's
possession, of the most recent prospectus covering such Common Stock at the
time of receipt of such notice. If the Company shall give such notice, the
Company shall extend the period during which the Registration Statement
shall be required to be maintained effective by the number of days during
the period from and including the date of the giving of notice pursuant to
subsection 3(c) hereof to the date when the Company shall make
---------------
available to Stockholder a prospectus revised to confirm with the
requirements of subsection 3(c) hereof.
---------------
4. REGISTRATION EXPENSES. In connection with the Registration
---------------------
Statement, the Company shall pay the following registration expenses: (i) all
registration, listing and filing fees; (ii) the fees and expenses of compliance
with securities or blue sky laws (including reasonable fees and disbursements of
counsel in connection with NASD filings and blue sky qualifications of the
Registrable Securities); (iii) printing expenses; (iv) the reasonable fees and
disbursements of counsel for the Company and the customary fees and expenses for
independent certified public accountants retained by the Company; and (v) the
reasonable fees and expenses of any experts retained by the Company in
connection with such registration. The Company shall not have any obligation to
pay any legal fees of Stockholder, any underwriting fees, discounts or
commissions attributable to the sale of Registrable Securities or any out-of-
pocket expenses of Stockholder (or Stockholder's agents who manage Stockholder's
accounts).
5. COVENANTS OF STOCKHOLDER. As a condition of the Company's
------------------------
obligation to register the Registrable Securities and any and all other
obligations of the Company under this Agreement, each Stockholder hereby
represents, warrants and agrees:
(a) To furnish to the Company the information requested below
such Stockholder's signature below, which shall include such Stockholder's
name exactly as it appears
5
<PAGE>
upon the stock transfer records of the Company, and on Exhibit C hereto,
---------
its current street address, phone number, telecopy number, relationship to
the Company, if any, and the exact number of shares of Registrable
Securities beneficially owned by such Stockholder and such other
information reasonably available to such Stockholder as the Company may
reasonably request;
(b) That such Stockholder shall not take, directly or indirectly,
any action that is designed to or which has constituted or that might
reasonably be expected to cause or result in stabilization or manipulation
of the price of any security of the Company to facilitate the sale or
resale of the Registrable Securities;
(c) That such Stockholder will comply with Rule 10b-2 under the
Exchange Act, which prohibits any person from making any payment to another
person to solicit the purchase of or to purchase securities on a
securities exchange other than for the account of the person who pays or is
to pay such compensation;
(d) That such Stockholder will comply with Rule 10b-6 under the
Exchange Act, which requires a seller of Registrable Securities and all
affiliates of that seller (as "affiliate" is defined in such Rule 10b-6) to
suspend all bids for or purchases of shares of Common Stock at least two
(2) business days before and during any offers and sales of Registrable
Securities by that seller and until that seller's offers and sales
terminate;
(e) That such Stockholder will comply with Rule 10b-7 under the
Exchange Act, which prohibits any person from stabilizing the prices of a
security to facilitate an offering of that security;
(f) That, if such Stockholder sells Registrable Securities on the
Nasdaq National Market System in an ordinary brokerage transaction, such
holder will deliver to its broker (i) a copy of the letter attached as
Exhibit A completed and executed by such Stockholder (the "Seller's
---------
Letter"); and (ii) a copy of the letter attached as Exhibit B (the
---------
"Broker's Letter") and shall cause its broker to execute the Broker's
6
<PAGE>
Letter and promptly to deliver both the Seller's Letter and
the Broker's Letter to the Company in accordance with the provisions of
Section 7(b) of this Agreement, and that the Company may refuse to
------------
authorize the transfer of such Registrable Securities if such letters are
not delivered to the Company in form and substance satisfactory to the
Company; and
(g) That, if such Stockholder sells Registrable Securities
directly to another person other than in an ordinary brokerage transaction
on the Nasdaq National Market System, such Stockholder will deliver to the
Company (in accordance with the provisions of Section 7(b) of this
------------
Agreement), a copy of the Seller's Letter completed and executed by such
Stockholder, and that the Company may refuse to authorize transfer of such
Registrable Securities if such letter is not delivered to the Company in
form and substance satisfactory to the Company.
6. INDEMNIFICATION CONTRIBUTION.
----------------------------
(a) Indemnification by the Company. The Company agrees to
------------------------------
indemnify and hold harmless Stockholder, its directors and officers and
each person, if any, who controls Stockholder within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act from and
against any and all losses, claims, damages, liabilities and expenses
(including reasonable costs of investigation) arising out of or based upon
any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement or prospectus contained therein or
in any amendment or supplement thereto or in any preliminary prospectus, or
arising out of or based upon any omissions or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, except insofar as such losses,
claims, damages, liabilities or expenses arise out of, or are based upon,
any such untrue statement or omission or allegation thereof based upon
information furnished in writing to the Company by Stockholder or on
Stockholder's behalf expressly for use therein; and provided, further,
that, with respect to any untrue statement or omission or alleged untrue
statement or omission made in any preliminary prospectus, the indemnity
agreement contained
7
<PAGE>
in this subsection shall not apply to the extent that any such loss, claim,
damage, liability or expense results from the fact that a current copy of
the prospectus was not sent or given to the person asserting any such loss,
claim, damage, liability or expense at or prior to the written confirmation
of the sale of the Registrable Securities to such person and such current
copy of the prospectus would have cured the defect giving rise to such
loss, claim, damage, liability or expense.
(b) Indemnification by Stockholder. Stockholder agrees to
------------------------------
indemnify and hold harmless the Company, its directors and officers and
each person, if any, who controls the Company within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act to the
same extent as the foregoing indemnity from the Company to Stockholder, but
only with respect to information furnished in writing by Stockholder or on
Stockholder's behalf expressly for use in the Registration Statement or
prospectus relating to the Registrable Securities, any amendment or
supplement thereto or any preliminary prospectus. In case any action or
proceeding shall be brought against the Company or its directors or
officers, or any such controlling person, in respect of which indemnity may
be sought against Stockholder, Stockholder shall have the rights and duties
given to the Company, and the Company or its directors or officers or such
controlling person shall have the rights and duties given to such
Stockholder, by the preceding subsection hereof.
(c) Conduct of Indemnification Proceedings. If any action or
--------------------------------------
proceeding (including any governmental investigation) shall be brought or
asserted against any person entitled to indemnification under subsection
----------
6(a) or 6(b) above (an "Indemnified Party") in respect of which indemnity
------------
may be sought from any party who has agreed to provide such indemnification
(an "Indemnifying Party"), the Indemnifying Party shall assume the defense
thereof, including the employment of counsel reasonably satisfactory to
such Indemnified Party, and shall assume the payment of all expenses. Such
Indemnified Party shall have the right to employ separate counsel in any
such action and to participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Party
8
<PAGE>
unless (i) the Indemnifying Party has agreed to pay such fees and expenses;
or (ii) the named parties to any such action or proceeding (including any
impleaded parties) include both such Indemnified Party and the Indemnifying
Party, and such Indemnified Party shall have been advised by counsel that
there is a conflict of interest on the part of counsel employed by the
Indemnifying Party to represent such Indemnified Party (in which case, if
such Indemnified Party notifies the Indemnifying Party, the Indemnifying
Party shall not have the right to assume the defense of such action or
proceeding on behalf of such Indemnified Party; it being understood,
however, that the Indemnifying Party shall not, in connection with any one
such action or proceeding or separate but substantially similar or related
actions or proceedings in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the fees and expenses
of more than one separate firm of attorneys (together with appropriate
local counsel) at any time for all such Indemnified Parties, which firm
shall be designated in writing by such Indemnified Parties). The
Indemnifying Party shall not be liable for any settlement of any such
action or proceeding effected without its written consent, but if settled
with its written consent, or if there be a final judgment for the plaintiff
in any such action or proceeding, the Indemnifying Party shall indemnify
and hold harmless such Indemnified Parties from and against any loss or
liability (to the extent stated above) by reason of such settlement or
judgment.
(d) Contribution. If the indemnification provided for in this
------------
Section 6 is unavailable to the Indemnified Parties in respect of any
---------
losses, claims, damages, liabilities or judgments referred to herein, then
each Indemnifying Party, in lieu of indemnifying such Indemnified Party,
shall contribute to the amount paid or payable by such Indemnified Party as
a result of such losses, claims, damages, liabilities and judgments in the
following manner: as between the Company on the one hand and Stockholder
on the other, in such proportion as is appropriate to reflect the relative
fault of the Company on the one hand and each selling stockholder on the
other in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or judgments, as well as any other
relevant equitable
9
<PAGE>
considerations. The relative fault of the Company on the one hand and of
Stockholder on the other shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by such party, and the party's relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. No person guilty of fraudulent misrepresentation
(within the meaning of subsection 11(f) of the Securities Act) shall be
entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
(e) Survival. The indemnity and contribution agreements
--------
contained in this Section 6 shall remain operative and in full force and
---------
effect regardless of (i) any termination of this Agreement; (ii) any
investigation made by or on behalf of any Indemnified Party or by or on
behalf of the Company; and (iii) the consummation of the sale or successive
resale of the Registrable Securities.
7. MISCELLANEOUS.
-------------
(a) Amendments and Waivers. The provisions of this Agreement may
----------------------
not be amended, modified or supplemented, and waivers or consents to
departures from the provisions hereof may not be given other than as
initially agreed upon in writing by the Company and Stockholder.
(b) Notices. All notices and other communications provided for
-------
or permitted hereunder shall be made in writing by hand delivery,
registered first-class mail, telex, telecopier or air courier
guaranteeing overnight delivery:
(i) If to Stockholder, to the address given by Stockholder
on Exhibit C hereto.
---------
(ii) If to the Company, initially at 30055 Comercio, Rancho
Santa Margarita, California 92688, and thereafter at such other
address as may be designated from time to time by notice given in
accordance with the provisions of this Section.
10
<PAGE>
(c) Successors and Assigns. Stockholder shall not assign any
----------------------
rights or benefits under this Agreement without the prior written consent
of the Company. This Agreement shall inure to the benefit of, and be
binding upon, the permitted successors and assigns of the Company and the
Stockholder.
(d) Counterparts. This Agreement may be executed in a number of
------------
identical counterparts and it shall not be necessary for the Company and
Stockholder to execute each of such counterparts, but when each has
executed and delivered one or more of such counterparts, the several
counterparts, when taken together, shall be deemed to constitute one and
the same instrument, enforceable against each in accordance with its terms.
In making proof of this Agreement, it shall not be necessary to produce or
account for more than one such counterpart executed by the party against
whom enforcement of this Agreement is sought.
(e) Headings. The descriptive headings of the several sections
--------
and paragraphs of this Agreement are inserted for convenience of reference
only, do not constitute a part of this Agreement, and shall not limit or
otherwise affect the meaning or interpretation of this Agreement.
(f) Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of New York, without
regard to principle of conflicts or choice of law.
(g) Severability. If any provision of this Agreement is held to
------------
be illegal, invalid or unenforceable under present or future laws effective
during the term of this Agreement, such provision shall be fully severable,
this Agreement shall be construed and enforced as if such illegal, invalid
or unenforceable provision had never comprised a part of this Agreement;
and the remaining provisions of this Agreement shall remain in full force
and effect and shall not be affected by the illegal, invalid or
unenforceable provision or by its severance from this Agreement.
Furthermore, in lieu of each such illegal, invalid or unenforceable
provision, there shall be added automatically as a part of this Agreement a
provision as similar in terms to such illegal, invalid or
11
<PAGE>
unenforceable provision as may be possible and be legal, valid and
enforceable.
(h) Entire and Controlling Agreement. This Agreement is intended
--------------------------------
by the Company and Stockholder as a final expression of their agreement and
is intended to be a complete and exclusive statement of their agreement and
understanding in respect of the subject matter contained herein. This
Agreement supersedes all prior agreements and understandings between the
Company and Stockholder with respect to such subject matter. The
provisions of this Agreement shall control in any conflict with the
provisions of the Purchase Agreement, with regard to the Registrable
Securities.
(i) Third Party Beneficiaries. Other than Indemnified Parties
-------------------------
not a party hereto, this Agreement is intended only for the benefit of the
Company and Stockholder and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be
enforced by, any other person or entity.
(j) Rule 144. The Company covenants to the Stockholders that
--------
during any period to the extent it shall be required to do so under the
Exchange Act, the Company shall timely file the reports required to be
filed by it under the Exchange Act or the Securities Act (including, but
not limited to, the reports under Sections 13 and 15(d) of the Exchange Act
referred to in subparagraph (c)(1) of Rule 144 adopted by the Commission
under the Securities Act) and the rules and regulations adopted by the
Commission thereunder, and shall take such further action as the
Stockholder may reasonably request, all to the extent required from time to
time during such period to enable the Stockholder to sell Registrable
Securities without registration under the Securities Act within the
limitations of the exemption provided by Rule 144 under the Securities Act,
as such Rule may be amended from time to time, or any similar rule or
regulation hereafter adopted by the Commission. Upon the request of the
Stockholder, the Company shall deliver a written statement as to whether it
has complied with such requirements.
12
<PAGE>
(Signatures Begin on Next Page)
13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the 18th day of June, 1996.
COMPANY
-------
THE L.L. KNICKERBOCKER CO., INC.
By:
-----------------------------
STOCKHOLDER
-----------
MARTIN P. KRASNER AND INA OSTROW, TRUSTEES U/I DTD
2/5/85 FBO MARTIN P. KRASNER
By:
-----------------------------
MARTIN AND STEPHANIE KRASNER, TRUSTEES U/I DTD. JUNE
15, 1970
By:
-----------------------------
ESTATE OF MURRAY GLASER
By:
-----------------------------
--------------------------------
F. WILLIAM GRAHAM
CONSUMER VENTURE PARTNERS I, L.P.
By:
-----------------------------
DONALD F. SWANSON, TRUSTEE,
DONALD F. SWANSON REVOCABLE TRUST
U/A DATED DECEMBER 22, 1988
By:
------------------------------
14
<PAGE>
EXHIBIT A TO EXHIBIT L
FORM OF SELLER'S LETTER
_________________________, 199__
The L.L. Knickerbocker Co., Inc.
30555 Comercio
Rancho Santa Margarita, California 92688
Re: The L.L. Knickerbocker Co., Inc (the "Company") - Common Stock
Issued in Connection With Agreement of Purchase and Sale, dated
as of June 18, 1996
Ladies and Gentlemen:
The undersigned has sold [insert number] shares ("Shares") of Common Stock
-------------
of the Company to ("Purchaser"). Terms having their
--------------------
initial letter capitalized but not defined in this letter have the meanings
ascribed to them in the Registration Agreement dated as of June 18, 1996,
between the undersigned and the Company. In order to induce you to transfer the
Shares and to issue, register and countersign new certificates representing the
Shares without a legend restricting the transfer thereof, the undersigned
acknowledges and represents to the Company as follows:
1. The undersigned delivered, or caused to be delivered, to
Purchaser a copy of the Prospectus of the Company relating to the Shares at or
before the written confirmation of the sale of the Shares to Purchaser.
2. No written materials other than the Prospectus and confirmation
were used in connection with the sale.
3. The sale was made in compliance with all applicable state
securities or blue-sky laws.
4. The undersigned also acknowledges and represents that the
undersigned has complied with all of the undersigneds'
<PAGE>
The L.L. Knickerbocker Co., Inc.
___________,____
Page 2
covenants in the Registration Agreement, including, without limitation, the
covenants regarding compliance with Rule 10b-2, Rule 10b-6 and Rule 10b-7 under
the Exchange Act and the prohibitions against offering or selling the Shares
before the Effective Date of the Registration Statement. The undersigned
represents that the undersigned is not, and at no time has been, an affiliate of
the Company.
INDIVIDUAL:
----------
---------------------------------
(Signature of Stockholder)
---------------------------------
(Printed Name of Stockholder)
PARTNERSHIP, CORPORATION OR TRUST:
---------------------------------
---------------------------------
(Print Name of Entity)
By:
------------------------------
(Signature of Authorized
Officer or Representative)
---------------------------------
(Print Name of Authorized
Officer or Representative)
---------------------------------
(Title)
<PAGE>
EXHIBIT B TO EXHIBIT L
FORM OF BROKER'S LETTER
The L.L. Knickerbocker Co., Inc.
30555 Comercio
Rancho Santa Margarita, California 92688
Re: The L.L. Knickerbocker Co., Inc (the "Company") - Common Stock
Issued in Connection With Agreement of Purchase and Sale, dated
as of June 18, 1996
Ladies and Gentlemen:
We have read the letter if [print name of seller] dated , ,
-------------------- ------------ ----
concerning the proposed sale of shares (the "Shares") of Common Stock of
the Company through us and advise you that, in connection with the sale of the
shares:
1. We have sold or will sell the Shares in a brokerage transaction
as agent for the named seller.
2. The undersigned delivered, or caused to be delivered, to the
purchaser of the Shares a copy of the Prospectus of the Company relating to the
Shares at or before the written confirmation of the sale of the Shares to the
Purchaser through the undersigned firm.
3. No written material other than the Prospectus and confirmation
were used in connection with the sale.
4. The selling of the Shares by the undersigned as agent for the
named seller does not constitute participation by the undersigned in a
distribution within the meaning of the Securities and Exchange Commission's Rule
10b-6(c)(5). We understand that this determination may depend on the magnitude
of the number of
<PAGE>
The L.L. Knickerbocker Co., Inc.
_________, 19__
Page 2
shares we are asked to sell, or foreseeably will be asked to sell, and the
presence of any special selling efforts or selling methods. If our participation
constitutes participation in a distribution within the meaning of Rule 10b-
6(c)(5), we represent and acknowledge to you that we have complied with
Rule 10b-6.*
Sincerely,
------------------------------
(Print Name of Firm)
------------------------------
(Signature of Authorized
Representative)
------------------------------
(Print Name and Capacity of
Signer)
------------------------------
(Telephone Number)
- --------------------
* Note: In the view of the Securities and Exchange Commission, additional
compensation offered to registered representatives or a favorable research
report or any recommendations by the broker are indicia of special selling
efforts and may indicate the transaction constitutes a distribution for purposes
of Rule 10b-6. When a broker-dealer agrees with one or more shareholders to act
as their exclusive agent in connection with the sales off a shelf registration
statement or similar registration statement, the broker-dealer will be subject
to Rule 10b-6, and the broker-dealer will be prohibited from engaging in market
making or other activities proscribed by Rule 10b-6.
<PAGE>
EXHIBIT C TO EXHIBIT L
STOCKHOLDERS OF KRASNER GROUP, INC.
Name and addresses
- ------------------
Common Stockholders:
Martin P. Krasner & Ina Ostrow, Trustees U/I Dtd. 2/15/85 FBO Martin P. Krasner
29 Wilputte Place, New Rochelle, NY 10804
Martin P, Krasner & Stephanie Krasner, Trustees U/I Dtd. June 15, 1970
29 Wilputte Place, New Rochelle, NY 10804
Estate of Murray Glaser
c/o Joan Glaser
525 East 86 Street
New York, NY 10028
F. William Graham
3200 Coastal Highway
St. Augustine, FL 32095
Preferred Stockholders:
Consumer Venture Partners I, L.P.
3 Pickwick Plaza
Greenwich, CT 06830
Donald F. Swanson, Trustee, Donald F. Swanson Revocable Trust U/A Dated December
22, 1968
2171 Gulf Shore Blvd. No.
Naples, Florida 34102
<PAGE>
EXHIBIT M-1
ASSIGNMENT AND ASSUMPTION AGREEMENT
-----------------------------------
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT (this "Assignment and
Assumption"), dated as of the 18th day of June, 1996, from Martin P. Krasner
(the "Assignor") to The L. L. Knickerbocker Co., Inc., a California corporation
having an address at 30055 Comercio, Rancho Santa Margarita, California 92688
(the "Assignee").
WHEREAS, the Assignor and IBJ Schroder Bank & Trust Company (the "Bank")
entered into that certain Pledge of Investment Property, dated as of September
22, 1995 (the "Pledge Agreement"), whereby the Assignor agreed to pledge and
grant to the Bank a first and prior security interest in and to all of his
right, title, interest and obligations in and to a blocked account maintained
with the Bank in the amount equal to $400,000, plus any interest accrued thereon
after June 27, 1996 (the "Account"); and
WHEREAS, the Assignor desires to assign to the Assignee, subject to the
termination of the Pledge Agreement pursuant to the terms thereof, all of the
Assignor's right, title and interest in and to the Pledge Agreement and all
funds maintained in the Account and the Assignee desires to accept such
assignment and to perform
52
<PAGE>
and discharge all obligations of Assignor under the Pledge Agreement.
NOW, THEREFORE, for good and valuable consideration, the mutual receipt and
legal sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Subject to the termination of the Pledge Agreement pursuant to the
terms thereof, the Assignor hereby assigns to the Assignee, and the Assignee
hereby accepts from the Assignor, all of the Assignee's right, title, interest
and obligation in, to and under the Pledge Agreement and the assignment of all
funds maintained in the Account as of the date first set forth above (the
"Effective Date").
2. Without limitation of Assignor's obligations to the Bank, from and
after the Effective Date, the Assignee hereby assumes and agrees to be bound by
and to perform and discharge all of the terms, agreements, covenants and
conditions of the Pledge Agreement which, under the terms and conditions
thereof, are to be performed and discharged by the Assignor.
3. This Assignment and Assumption shall inure to the benefit of, and shall
be binding upon, the parties named herein and their respective successors and
assigns.
4. This Assignment and Assumption may be executed in any number of
separate counterparts, each of which shall be deemed
53
<PAGE>
an original, but all of which shall constitute one and the same agreement.
5. This Agreement shall be governed by the laws of New York State.
54
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Assignment
and Assumption as of the date first above written.
ASSIGNOR:
---------------------------------
Martin P. Krasner
ASSIGNEE:
The L. L. Knickerbocker Co., Inc.
By:
------------------------------
Name:
Title:
55
<PAGE>
EXHIBIT M-2
ASSIGNMENT AND ASSUMPTION AGREEMENT
-----------------------------------
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT (this "Assignment and
Assumption"), dated as of the 18th day of June, 1996, from Consumer Venture
Partners I, L.P. (the "Assignor") to The L. L. Knickerbocker Co., Inc., a
California corporation having an address at 30055 Comercio, Rancho Santa
Margarita, California 92688 (the "Assignee").
WHEREAS, the Assignor and IBJ Schroder Bank & Trust Company (the "Bank")
entered into that certain Pledge of Investment Property, dated as of September
22, 1995 (the "Pledge Agreement"), whereby the Assignor agreed to pledge and
grant to the Bank a first and prior security interest in and to all of its
right, title, interest and obligations in and to a blocked account maintained
with the Bank in the amount equal to $100,000, plus any interest accrued thereon
after June 27, 1996 (the "Account"); and
WHEREAS, the Assignor desires to assign to the Assignee, subject to the
termination of the Pledge Agreement pursuant to the terms thereof, all of the
Assignor's right, title and interest in and to the Pledge Agreement and all
funds maintained in the Account and the Assignee desires to accept such
assignment and to perform
<PAGE>
and discharge all obligations of Assignor under the Pledge Agreement.
NOW, THEREFORE, for good and valuable consideration, the mutual receipt and
legal sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Subject to the termination of the Pledge Agreement pursuant to the
terms thereof, the Assignor hereby assigns to the Assignee, and the Assignee
hereby accepts from the Assignor, all of the Assignee's right, title, interest
and obligation in, to and under the Pledge Agreement and the assignment of all
funds maintained in the Account as of the date first set forth above (the
"Effective Date").
2. Without limitation of Assignor's obligations to the Bank, from and
after the Effective Date, the Assignee hereby assumes and agrees to be bound by
and to perform and discharge all of the terms, agreements, covenants and
conditions of the Pledge Agreement which, under the terms and conditions
thereof, are to be performed and discharged by the Assignor.
3. This Assignment and Assumption shall inure to the benefit of, and shall
be binding upon, the parties named herein and their respective successors and
assigns.
4. This Assignment and Assumption may be executed in any number of
separate counterparts, each of which shall be deemed
<PAGE>
an original, but all of which shall constitute one and the same agreement.
5. This Agreement shall be governed by the laws of New York State.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Assignment
and Assumption as of the date first above written.
ASSIGNOR:
Consumer Venture Partners
I, L.P.
By:
-------------------------------
Name:
ASSIGNEE:
The L. L. Knickerbocker Co., Inc.
By:
-------------------------------
Name:
Title:
