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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
--------------------
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ________ to ________
COMMISSION FILE NUMBER 0-25488
THE L.L. KNICKERBOCKER CO., INC.
(Name of Small Business Issuer in its Charter)
CALIFORNIA 33-0230641
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
30055 COMERCIO 92688
Rancho Santa Margarita, CA (Zip Code)
(Address of Principal Executive Offices)
ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 858-3661
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports) and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
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The number of shares outstanding of the registrant's Common Stock, as of
November 13, 1996 was 15,107,784.
Transitional Small Business Disclosure Format Yes No X
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TABLE OF CONTENTS
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<TABLE>
<CAPTION>
ITEM PAGE
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<S> <C>
PART I - Financial Information
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1. FINANCIAL STATEMENTS............................................... 1
A. Condensed Consolidated Income Statements (unaudited) for
the three and nine month periods ended September 30, 1996
and September 30, 1995....................................... 1
B. Condensed Consolidated Balance Sheets (unaudited) at
September 30, 1996 and December 31, 1995....................... 2
C. Condensed Consolidated Statements of Cash Flows (unaudited)
for the nine month periods ended September 30, 1996 and
September 30, 1995 .......................................... 4
D. Notes to Condensed Consolidated Financial Statements........... 5
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS................................ 9
A. General Business Description................................... 9
B. Results of Operations.......................................... 10
C. Liquidity and Capital Resources................................ 12
PART II - Other Information
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5. OTHER INFORMATION
A. Acquisition of Harlyn International Company, Ltd................ 13
B. Issuance of Convertible Debentures and Warrant.................. 14
6. Exhibits and Reports on Form 8-K................................... 15
SIGNATURES......................................................... 16
</TABLE>
i
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Sheet 1
PART I. FINANCIAL INFORMATION
-----------------------------
Item 1. Financial Statements
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THE L.L. KNICKERBOCKER CO., INC.
CONDENSED CONSOLIDATED INCOME STATEMENTS
(unaudited)
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<CAPTION>
Three months ended September 30, Nine months ended September 30,
------------------------------- -------------------------------
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Sales, net of returns $ 8,271,591 $ 4,774,324 18,852,412 $ 9,125,228
Cost of sales 4,676,772 1,731,242 9,971,212 3,858,723
----------- ----------- ----------- -----------
Gross profit 3,594,819 3,043,082 8,881,200 5,266,505
Selling, general and administrative
expenses 3,278,428 1,169,568 6,807,736 2,986,740
----------- ----------- ----------- -----------
Income from operations 316,391 1,873,514 2,073,464 2,279,765
Interest and other income (expense),
net 146,891 62,175 184,427 132,036
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Income before provision for income
taxes 463,282 1,935,689 2,257,891 2,411,801
Provision for income taxes 73,934 774,275 792,971 962,211
----------- ----------- ----------- -----------
Net income 389,348 1,161,414 1,464,920 1,449,590
=========== =========== =========== ===========
Net income per share (See
Primary $ 0.02 $ 0.07 $ 0.09 $ 0.11
Fully Diluted $ 0.02 $ 0.07 $ 0.09 $ 0.09
=========== =========== =========== ===========
Weighted average common
shares outstanding:
Primary 17,236,195 16,097,153 16,310,702 13,770,531
=========== =========== =========== ===========
Fully Diluted 17,261,260 16,191,356 16,380,230 13,852,744
=========== =========== =========== ===========
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Page 1
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THE L.L. KNICKERBOCKER CO., INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
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(unaudited) (unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $16,385,153 $ 2,469,750
Accounts receivable 5,986,095 5,456,701
Inventories 6,210,633 413,576
Prepaid expenses & other current assets 2,553,628 1,655,446
Deferred income taxes 1,906,259 394,900
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Total current assets $33,041,768 $10,390,373
Property and equipment, net 3,889,807 226,574
Investments 3,412,152 590,000
Other assets 1,058,792 6,667
Goodwill, net 4,433,895
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$45,836,414 $11,213,614
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</TABLE>
Page 2
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THE L.L. KNICKERBOCKER CO., INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
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(unaudited) (unaudited)
<S> <C> <C>
LIABILITIES AND
STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued
expenses $ 5,773,721 $ 984,805
Commissions and royalties payable 632,556 407,503
Notes payable to Harlyn shareholders 2,224,262
Income taxes payable 784,569 1,066,941
Other current liabilities 268,005 83,917
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Total current liabilities $ 9,683,113 $ 2,543,166
Convertible debentures 15,500,000
Notes payable 2,756,955
Deferred income 104,443 50,854
Deferred income taxes 19,450 19,450
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Total long-term liabilities: $18,380,848 $ 70,304
Stockholders' equity:
Common Stock 9,088,744 6,574,677
Additional paid-in capital 5,443,322 250,000
Retained earnings 3,240,387 1,775,467
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Total stockholders' equity $17,772,453 $ 8,600,144
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$45,836,414 $11,213,614
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</TABLE>
Page 3
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THE L.L. KNICKERBOCKER CO., INC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
1996 1995
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<S> <C> <C>
Cash flows provided by (used in) operating activities :
Net income $ 1,464,920 $ 1,449,590
Adjustments to reconcile net income
to net cash provided by (used in) operations :
Depreciation and amortization 176,702 21,069
Amortization of deferred revenue (70,001) (72,222)
Reserve for discontinuance of operations (277,705)
Loss on investment 30,000 0
Equity on net loss of investee 84,890
Deferred income taxes 228,929
Common stock received in lieu of cash (140,000)
(Increase) decrease in :
Accounts receivable (98,514) (4,177,362)
Inventories (949,521) 261,808
Other current assets (758,906) (678,656)
Other assets 76,895
Increase (decrease) in :
Accounts payable and accrued expenses (808,992) 85,704
Commissions payable (73,694) 136,900
Income taxes payable (282,372) 338,661
Other current liabilities 211,217 37,608
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Net cash provided by (used in) operating
activities $(1,046,152) $(2,736,900)
Cash flow used for investing activities :
Purchases of machinery and equipment (306,886) (102,615)
Other assets - (43,400)
Investments on common stock of investees (1,232,042)
Cash paid for acquisitions less cash acquired (714,568)
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Net cash provided by (used in) investing activities $(2,253,496) $ (146,015)
Cash flow provided by (used in) financing activities :
Proceeds from net borrowings on credit line $ 434,410
Proceeds from exercise of common stock
purchase warrants 2,144,364
Repayments on note payable to stockholder (94,132)
Receipt (payment) of royalty commitment (27,723) (15,000)
Deferred offering costs (116,525)
Principal payments on note payable (66,720)
Deferred debt issue costs (769,280)
Proceeds from issuance of convertible debentures 15,500,000
Proceeds from initial public offering of stock 5,599,776
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Net cash provided by (used in) financing activities $17,215,051 $ 5,490,644
----------- -----------
Net increase (decrease) in cash 13,915,403 2,607,229
Cash, beginning of period 2,469,750 106,553
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Cash, end of period $16,385,153 $ 2,714,282
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</TABLE>
Noncash investing and financing activity - The Company received 800,000 shares
of common stock in exchange for performing marketing services. The Company has
recorded an asset for the discounted value of the stock received and a deferred
revenue liability which is amortized to income over the term of the marketing
agreement.
4
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THE L.L. KNICKERBOCKER CO., INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 1: As contemplated by the Securities and Exchange Commission under Item
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310(b) of Regulation S-B, the accompanying financial statements and footnotes
have been condensed and therefore do not contain all disclosures required by
generally accepted accounting principles.
NOTE 2: Basis of Presentation:
- -------
The information set forth in these consolidated financial statements is
unaudited except for the December 31, 1995 balance sheet. These statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information, the instructions to Form 10-QSB and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
The accompanying consolidated financial statements consolidate the accounts of
Krasner Group, Inc. ("Krasner") which was acquired on June 18, 1996, Harlyn
International Company, Ltd. which was acquired effective July 1, 1996, and L.L.
Knickerbocker (Thai) Company, Ltd, which includes the operations of Grant King
International,Ltd and S.L.S Trading Co., Ltd, which were acquired effective July
1, 1996. All intercompany transactions have been eliminated.
In the opinion of management, all adjustments, consisting only of normal
recurring accruals, necessary for a fair presentation have been included. The
results of operations for the nine months ended September 30, 1996 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1996. For further information, refer to the financial statements
and notes thereto included in the Company's annual report for the year ended
December 31, 1995.
NOTE 3: Acquisition:
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On June 18, 1996, the Company acquired the business, assets and properties of
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 Company. Pursuant to the Agreement, the Company
acquired from the above named stockholders all of the capital stock of TKG.
Following the acquisition, the Company intends to operate TKG as a subsidiary of
the Company, and TKG shall continue to operate under its current name in its
current line of business.
5
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The consideration for the acquisition of TKG consisted of the following: (a)
$ 1,375,000 payable in value of common stock purchase warrants of the Company'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 Company'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 Company'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 Company's
Common Stock upon the future liquidation of the closing inventory of TKG, (e)
the guarantee by the Company of the repayment of TKG's line of credit with its
lending institution, IBJ Shroder Bank & Trust Company ("IBJ Shroder"), which
totalled approximately $1,800,000 on April 28, 1996; in connection with the
guarantee, the Company agreed to 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 Company, (f) the Company agreed to
arrange substitute financing of the line of credit for TKG no later than
September 30, 1996, (g) the Company agreed to 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 Company's
Common Stock, (h) the Company agreed to grant to Richard Ogust an aggregate of
$308,000 payable in value of common stock purchase warrants of the Company's
Common Stock to be delivered in equal installments on June 18, 1996 and June 18,
1997 in connection with a liability owed to Richard Ogust by TGK, and (I) the
Company agreed to grant to key employees of TKG at June 18, 1996 warrants to
purchase 20,987 shares of the Common Stock of the Company at the exercise price
of $7.75 per share. With respect to the contingent amounts specified above,
warrants will be issued in the quarter following inventory liquidation on a
basis of $1 in warrant value of the Company's Common Stock per $1 in cash
received by the Company 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 the Company's Common
shares for the five trading days immediately preceding the date of delivery of
the warrant and the exercise price of the warrant.
The acquisition of TKG by the Company was accounted for under the purchase
method. While management is not aware of any adjustments that would currently be
required, the allocation of the purchase price will be adjusted to the extent
that amounts differ from their estimates in accordance with Statements of
Financial Accounting Standards No. 38, "Accounting for Preacquisition
Contingencies of Purchased Enterprises". The results of operations for the 9
months ended September 30, 1996 include TKG's operations from June 18, 1996
through September 30, 1996.
6
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NOTE 3: Acquisition (continued):
- ------
On a proforma basis, if the Company and TKG had been combined as of the
beginning of the fiscal year, sales for the nine month period ended September
30, 1996 would have been $17,508,381 and net loss after tax would have been
$1,081,372 or $.07 share. On a pro forma basis, if the companies had been
combined as of the beginning of the fiscal year, sales for the nine month period
ended September 30, 1995 would have been $16,084,018 and net income after tax
would have been $961,617 or $.07 share. The unaudited proforma financial
information presented above is not necessarily indicative of either the results
of operations that would have occurred had the acquisition occurred at the
beginning of the periods presented or of future results of operations of the
consolidated companies. The above nine month periods ended September 30, 1996
and 1995 include Krasner Group, Inc.'s activity from January 29, to September
30, or 8 months of activity.
NOTE 4: On November 14, 1996, the Company completed a transaction whereby it
- ------
acquired 100% of the outstanding common stock of Harlyn International Company,
Ltd. ("Harlyn"), a costume jewelry manufacturing company located in Bangkok,
Thailand for approximately $2,300,000 in cash. The effective date of the
transaction was July 1, 1996. On a proforma basis, if the Company and Harlyn had
been combined as of the beginning of the fiscal year, sales for the nine month
period ended September 30, 1996 would have been $13,582,458 and net income after
tax would have been $642,040 or $.04 share. On a pro forma basis, if the
companies had been combined as of the beginning of the fiscal year, sales for
the nine month period ended September 30, 1995 would have been $13,358,622 and
net income after tax would have been $2,105,506 or $.16 share. The unaudited
proforma financial information presented above is not necessarily indicative of
either the results of operations that would have occurred had the acquisition
occurred at the beginning of the periods presented or of future results of
operations of the consolidated companies. The above nine month periods, due to
Harlyn International, Ltd.'s fiscal year end of June 30, 1996 and 1995, ended
September 30, 1996 and 1995 include Harlyn International, Ltd.'s activity from
July 1, 1996 to September 30, 1996 and July 1, 1995 to September 30, 1996, or 8
months of activity.
NOTE 5: On March 13, 1996, the Company entered into an agreement to
- --------
acquire 40% of the outstanding common stock of Pure Energy Corporation, a
privately held corporation. Under the terms of the agreement, the company's
Chief Executive Officer will assume the post of Chairman and Chief Executive
Officer of Pure Energy Corporation. The Company received the 40% interest in
exchange for its commitment to fund up to $1,000,000 of further development and
marketing costs associated with Pure Energy Corporation's product and by issuing
in April 1996 400,000 stock options exercisable in the following manner, 200,000
exercisable at $8.50 per share and 200,000 at $12.00 per share. The Company
accounted for the performance of the investment on the funding commitment on the
equity method of accounting. The Company, in October of 1996, participated in a
$5,000,000 private placement of equity in Pure Energy Corporation by investing
$2,000,000 for additional equity, after which the Company owned approximately
38% of the outstanding Common Stock of Pure Energy Corporation.
NOTE 6: The Company capitalizes certain direct-response advertising costs and
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amortizes such costs over a four month period beginning on the date the
advertisement airs. The four month period approximates the period during which
future period revenues are expected to be received from each direct-response
advertising campaign. The nature of the direct-response advertising costs are
primarily advertising and design costs associated with print advertisements.
7
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NOTE 7: On February 7, 1996, the Company acquired 49% of the outstanding capital
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stock of Grant King International Co., Ltd. located in Bangkok, Thailand. The
Company acquired the interest in Grant King International, Co. Ltd. in exchange
for the issuance to its sole stockholder of 300,000 warrants exercisable at
$5.50 per share. The Company has recorded an asset in the amount of $250,000
representing the ascribed value of the Company's investment in Grant King
International, Co. Ltd. Additionally, on June 21, 1996, the Company acquired the
remaining 51% interest in Grant King International, Ltd. for $414,000 in cash.
The effective date for this second acquisition was July 1, 1996.
On June 21, 1996, the Company entered into an agreement to acquired certain
assets of S.L.S Trading Co., Ltd for $650,000 paid with $150,000 in cash and
$500,000 in stock warrants. The effective date of the transaction was July 1,
1996.
In August of 1996, the Company merged the operations of both Grant King
International Co., Ltd. and S.L.S Trading Co., Ltd into a Thai corporation named
The L.L. Knickerbocker (Thai) Company, Ltd. The corporation was inactive prior
to the date of the merging of the above operations.
NOTE 8: In October 1995, the Financial Accounting Standards Board issued
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Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation", which became effective for the Company beginning
January 1, 1996. SFAS No. 123 requires expanded disclosures of stock-based
compensation arrangements with employees and encourages (but does not require)
compensation costs to be measured based on the fair value of the equity
instrument awarded. Companies are permitted, however, to continue to apply APB
Opinion No. 25, which recognizes compensation cost based on the intrinsic value
of the equity instrument awarded. The Company will continue to apply APB
Opinion No. 25 to its stock based compensation awards to employees and will
disclose the required pro forma effect on net income and earnings per share.
NOTE 9: On September 24, 1996, the Company completed a private placement of
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convertible debentures of the Company which raised gross proceeds of $15,500,000
and net proceeds to the Company of $14,880,000. The debentures bear interest at
the annual rate of seven percent (7%) and interest is paid quarterly in arrears.
The maturity date of each debenture is four years from the date of issuance. The
outstanding principal amount of and all accrued and unpaid interest under each
debenture may be converted, at the option of the holder thereof, into shares of
common stock of the Company at the conversion price in effect on the date of
conversion. The conversion price per share of common stock of the Company may
not be less than $5.25 per share nor greater than $12.00 per share and shall be
determined as follows: during the first and second years that each debenture is
outstanding the conversion price shall be equal to eighty-five percent (85%) of
the market price of the Company's common stock on the date of conversion, during
the third year that each debenture is outstanding the conversion price shall be
equal to the market price of the Company's common stock on the date of
conversion, and during the fourth year that each debenture is outstanding the
conversion price shall be equal to one hundred twenty percent (120%) of the
market price of the Company's common stock on the date of conversion. Up to 1/3
of the outstanding principal amount, and all accrued and unpaid interest thereon
at such time, of each debenture will become convertible on the date that is ten
(10) days after the date that the registration statement of the common shares
underlying the debentures has been declared effective by the Securities and
Exchange Commission (the "Registration Date"), with an additional 1/3 of the
outstanding principal amount of, and all accrued and unpaid interest thereon at
such time, of each debenture becoming convertible on the dates that are thirty
(30) and sixty (60) days from the Registration Date.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
The following discussion should be read in conjunction with the financial
statements and the notes thereto appearing elsewhere in this Form 10-QSB/A.
GENERAL BUSINESS DESCRIPTION
The Company's core business is to develop a diverse line of consumer products,
contract for the manufacture of those products to the Company's specifications,
and market those products to customers. The Company's strength and history has
been its strategy in marketing to the home shopping industry by identifying the
industry's key product segments (i.e. collectibles, environmental systems,
jewelry, and health and beauty products) and building brand name recognition
within those product segments. The Company attempts to use a celebrity or
spokesperson to enhance the appeal of its products. Using this strategy, the
Company was the first to bring celebrities to the home shopping industry. The
Company's celebrity programs have included products endorsed by Marie Osmond,
Annette Funicello, Bob Mackie, Farrah Fawcett, Angie Dickinson, Richard Simmons,
Phyllis Diller, Joan Collins, and Rue McClanahan. The Company plans to expand
celebrity programs introducing new key product segments.
The Company has expanded from marketing its products through its core, home
shopping business to include direct response marketing channels such as print
media advertising, infomercials, direct mail campaigns, and the internet. The
Company has also developed product distribution through retail stores and retail
catalog accounts.
The Company is actively involved in the development of an alternative fuel
through its 38% ownership of the Pure Energy Corporation. Pure Energy
Corporation is attempting to develop a proprietary alternative fuel source.
The Company, through its joint venture with Paxson Communications Corporation,
is currently developing infomercials for several new products and services. The
Company believes that the joint venture will provide synergistic opportunities
for strategic growth.
The Company cancelled plans to market a patented hair removal system,
called "Classy Lady". The Company cancelled marketing the hair removal
system due to long delays in obtaining FDA approval.
As a result of the Company's growth in its core, home shopping business, the
Company has scaled back its marketing consulting services to outside companies
so that it can direct its resources towards fulfilling the demands related to
the expansion of its home shopping business.
The Company, on June 18, 1996, acquired 100% of the outstanding common stock of
Krasner Group, Inc., a costume jewelry manufacturer and wholesaler. The
acquisition of Krasner Group, Inc. will allow the Company to penetrate the large
jewelry market in the home shopping industry.
Effective July 1, 1996, the Company acquired the remaining interest in Grant
King International, Ltd, a jewelry design and development company located in
Bangkok, Thailand. The Company also acquired the operations of S.L.S. Trading
Company, a stone cutting and wholesaling company, also located in Bangkok,
Thailand. The integration of the U.S. and Thailand jewelry operations is
expected to give the Company an advantage in the home shopping jewelry
market, although no assurance can be given in this regard. In August of 1996,
the operations of Grant King International, Ltd. and S.L.S Trading Co., Ltd were
merged into a new 100% owned Thai corporation named The L.L. Knickerbocker
(Thai) Company, Ltd. The results of operations for the quarter ended September
30, 1996 include three months of activity of the L.L. Knickerbocker (Thai)
Company, Ltd.
9
<PAGE>
Effective July 1, 1996, the Company acquired 100% of the outstanding common
stock of Harlyn International Company, Ltd, a Thailand-based manufacturer and
wholesaler of fine jewelry ("Harlyn"). The purchase price for Harlyn was
approximately $2,300,000 in cash, all of which was paid on November 14, 1996.
Harlyn has an established base of international customers. The Company expects
to utilize the manufacturing abilities of Harlyn, to help establish the Company
in the significant jewelry category within the home shopping industry.
The Company, on September 18, 1996, acquired 25% of the common stock of both
Self-Heating Container Corporation and Insta-Heat, Inc., a related corporation.
The Company has received distribution rights from these companies for a product
that self-heats canned liquids and meals on demand by pressing a button.
On October 10, 1996, the Company signed a letter of intent to acquire
simultaneously 100% of the common stock of Georgetown Collection, Inc. and Magic
Attic Press, Inc., marketers of collectible dolls, books, and accessories
through catalogs. The acquisition is expected to allow the Company to expand its
distribution channels to include catalog.
The intent of the Company in signing the above agreements is to identify and
introduce new, marketable products while expanding the Company's distribution
network.
This Quarterly Report on Form 10-QSB/A contains certain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"), and the
Company intends that such forward-looking statements be subject to the safe
harbors created thereby. The Company may experience significant fluctuations in
future operating results due to a number of factors, including, among other
things, the size and timing of customer orders, new or increased competition,
delays in new product enhancements and new product introductions, quality
control difficulties, changes in market demand, market acceptance of new
products, product returns, seasonality in product purchases, pricing trends in
the specific markets in which the Company is active, acquisitions of new
companies and dispositions of subsidiaries or divisions of the Company. Any of
these factors could cause operating results to vary significantly from prior
periods. Significant variability in orders during any period may have a
material adverse impact on the Company's cash flow or work flow, and any
significant decrease in orders could have a material adverse impact on the
Company's results of operations and financial condition. As a result, the
Company believes that period-to-period comparisons of its results of operations
are not necessarily meaningful and should not be relied upon as any indication
of future performance. Fluctuations in the Company's operating results could
cause the price of the Company's Common Stock to fluctuate substantially.
Assumptions relating to the foregoing involve judgments with respect to, among
other things, future economic, competitive and market conditions, all of which
are difficult or impossible to predict accurately, and many of which are beyond
the control of the Company. In addition, the business and operations of the
Company are subject to substantial risks which increase the uncertainty inherent
in the forward-looking statements. In light of the significant uncertainties
inherent in the forward-looking information included herein, the inclusion of
such information should not be regarded as a representation by the Company or
any other person that the objectives or plans of the Company will be achieved.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage of
revenues represented by items included in the Company's Statements of
Operations.
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
---------------------------------- --------------------------------
1996 1995 1996 1995
---------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Revenue 100.0% 100.0% 100.0% 100.0%
Cost of revenue 56.5 36.3 52.3 42.3
Gross profit 43.4 63.7 47.1 57.7
Operating expenses 39.6 24.5 36.1 32.7
Operating income 3.8 39.2 11.0 25.0
Interest/other income 1.7 1.3 0.9 1.4
Net Income 4.7 24.3 7.7 15.9
</TABLE>
THE FOLLOWING COMPARISONS ARE FOR THE QUARTERS ENDED SEPTEMBER 30, 1996 AND
SEPTEMBER 30, 1995.
Revenues
Third quarter revenues increased 73% from $4,774,324 in 1995 to $8,271,591 in
1996. The increase in revenues was due primarily to an increase in jewelry sales
as a result of the acquisitions of the Company's subsidiaries, Krasner Group,
Inc. and L.L. Knickerbocker (Thai) Company, Ltd. Revenues from the sales of
costume jewelry increased to $3,303,925 in 1996 from $0 in 1995. Revenues from
the sales of fine jewelry increased to $2,312,254 in 1996 from $0 in 1995.
Revenues from the Marie Osmond collectible doll line decreased to $1,191,367 in
1996 from $$2,006,273 in 1995. Revenues from the Annette Funicello collectible
bear line increased to $192,973 in 1996 from $163,696 in 1995.
10
<PAGE>
Gross profit
Gross profit increased 18% from $3,043,082 in 1995 to $3,594,819 in 1996 due
primarily to the increase in revenues due to the acquisitions of Krasner Group,
Inc. and L.L. Knickerbocker (Thai) Company, Ltd. Additionally, the Company's
core business which includes the Marie Osmond collectible doll program and
Annette Funcello collectible bear programs also contributed to the Company's
gross profit. As a percentage of revenues, gross profit decreased to 43.6% in
the third quarter of 1996 from 63.7% in the third quarter of 1995. Gross profit
in 1996, although greater in amount than 1995, was negatively impacted by
several shipments that were pushed from the third quarter of 1996 into the
fourth quarter. The reason for the delay in shipments was primarily flooding
and adverse weather in southeast Asia. The decrease, as a percentage of
revenues, in gross profit was related primarily to the discontinuance of the
Media Production services in 1996. Media Production services historically
generated larger profit margins due to the service nature of the revenues. The
Company discontinued Media Production services in 1996 due to the human resource
demands and cash collection problems.
Selling, general and administrative expenses
Total selling, general and administrative expenses increased from $1,169,568 in
1995 to $3,278,428 in 1996. The percentage of revenues represented by these
expenses increased from 24.5% in 1995 to 38.6% in 1996. The primary reason for
the increase as a percentage of revenues is due to Company's acquisitions of
jewelry companies whose overhead is typically higher than what the Company, on a
stand alone basis, traditionally reported. The Company's overall selling,
general, and administrative expenses have increased due to the Company's focus
on expanding its infrastructure to accommodate anticipated future growth by
adding employees, office space, and equipment. Remaining expenses in this
category were in proportion to the corresponding revenues between 1995 and 1996.
Other income (expense)
Other income (expense) increased from $62,175 in 1995 to $146,891 in 1996 as a
result of an increase in interest income from the Company's increased cash
reserves.
Net Income
As a result of the foregoing factors, net income decreased 66% to $389,348 for
the three month period ended September 30, 1996 from net income of $1,161,414
for the three month period ended September 30, 1995.
THE FOLLOWING COMPARISONS ARE FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND
SEPTEMBER 30, 1995.
Revenues
Revenues increased 107% from $9,125,228 in 1995 to $18,852,412 in 1996. The
increase in revenues is due primarily to the increase in the Marie Osmond
collectible doll program and the Annette Funicello collectible bear program.
Revenues from the Marie Osmond collectible doll line have increased from
$4,198,066 in 1995 to $8,331,333 in 1996. Revenues from the Annette Funcello
collectible bear line have increased from $411,066 in 1995 to $1,321,299 in
1996. Additionally, year to date 1996 revenues have increased due to the
jewelry revenues recognized through the acquisitions of the Company's
subsidiaries, Krasner Group, Inc. and L.L. Knickerbocker (Thai) Company, Ltd.
11
<PAGE>
Gross profit
Gross profit increased 69% from $5,266,505 in 1995 to $8,881,200 in 1996 due
primarily to the growth in revenues from the Marie Osmond collectible doll
program, Annette Funicello collectible bear program, and the addition of jewelry
programs. Gross profit also increased from direct response revenues where
products are sold at retail prices, as opposed to wholesale prices, to the home
shopping industry. The overall gross profit percentage of the Company decreased
slightly due to the lower gross profit associated with the lower margins
associated with jewelry sales. The Company has also discontinued its Media
Production division which, although achieved high margins to the Company,
brought on collection issues. As a result of the foregoing, the overall gross
profit percentage of the Company decreased from 57.7% in 1995 to 47.1% in 1996.
Selling, general and administrative expenses
Total selling, general and administrative expenses increased from $2,986,740 in
1995 to $6,807,736 in 1996. The percentage of sales represented by these
expenses increased from 32.7% to 36.1%. The primary reason for the increase as a
percentage of sales is due to the Company's acquisitions of its subsidiaries
Krasner Group, Inc. and L.L. Knickerbocker (Thai) Company, Ltd. Additionally,
the Company has increased the number of employees and has increased its overall
overhead in anticipation of expected future growth. Remaining expenses in this
category were in proportion to the corresponding revenues between 1995 and 1996.
Other income (expense)
Other income (expense) increased from $132,036 in 1995 to $184,427 in 1996 as a
result of an increase in interest income due to the Company's cash balances.
Net Income
As a result of the foregoing factors, net income increased 1% to $1,464,920 for
the nine month period ended September 30, 1996 from net income of $1,449,590 for
the nine month period ended September 30, 1995.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1996, the Company had working capital of $21,626,035.
Working capital increased substantially by the issuance of convertible
debentures of $15,500,000 which resulted in $14,880,000 in net proceeds to the
Company. The unsecured debt requires quarterly interest payments in cash based
upon an annual interest rate of 7%. The debt matures in four years, at which
time any convertible debt then outstanding is to be repaid by the Company in
cash. All conversions into common stock before the second anniversary of
issuance are at a 15% discount to the then-present price of the Company's common
stock at the time of conversion. The Company intends to use the proceeds from
the debenture offering to make acquisitions of companies and to finance existing
subsidiaries.
Cash flow used in operations was $1,046,152 due to the increase in inventory and
other current assets associated with the acquisitions of Krasner Group, Inc,
Harlyn International Company, Ltd., and L.L. Knickerbocker (Thai) Company, Ltd.
The Company's cash flow also decreased due to the payments made to decrease
accounts payable. The Company's liquidity increased due to the influx of capital
from the exercise of stock options and warrants and due to the increase in
profits experienced during the first nine months of 1996. The combination of the
above factors resulted in an overall increase in working capital from $7,847,207
at December 31, 1995 to $21,626,035 at September 30, 1996. The current ratio for
the Company decreased from 4.09 at December 31, 1995 to 2.28 at September 30,
1996. The decrease in the Company's current ratio is primarily attributed to the
assumption of lines of credit of Krasner Group, Inc., Haryln International
Company, Ltd., and L.L. Knickerbocker (Thai) Company, Ltd.
12
<PAGE>
The Company currently has approximately 307,500 warrants remaining to be
exercised associated with the overallotment of shares in connection with the
initial public offering. The infusion of cash from the initial public offering
and the subsequent exercise of the common stock warrants has improved the
liquidity of the Company considerably. Additionally, in addition to other
options currently outstanding, the Company has outstanding 1,296,000 options to
acquire common stock of the Company held by various celebrities, spokespersons,
consultants, and officers and directors of the Company exercisable at $.75 per
share. The Company expects to receive additional funds from the exercise of
these shares. The above exercise of warrants and options should contribute to
the liquidity and working capital of the Company.
13
<PAGE>
PART II. OTHER INFORMATION
--------------------------
ITEM 5. Other Information
- ------- -----------------
A. Acquisition of Harlyn International Company, Ltd.
-------------------------------------------------
(i) Acquisition
-----------
On November 14, 1996, the Company completed a transaction whereby it
acquired one hundred percent (100%) of the outstanding common stock of Harlyn
International Company, Ltd. ("Harlyn"), a costume jewelry manufacturing company
located in Bangkok, Thailand, for approximately $2,300,000 in cash. The
effective date of the transaction was July 1, 1996. The Company acquired the
stock of Harlyn from Harlyn Products, Inc., a California corporation. The
Company used its own funds to pay the purchase price for the acquisition of
Harlyn. The assets of Harlyn include a manufacturing plant and equipment used in
connection with the manufacture of jewelry, and the Company intends to continue
to use the assets of Harlyn for the manufacture of jewelry.
(ii) Financial Statements of Business Acquired.
------------------------------------------
It is impracticable to provide the required financial statements for
Harlyn for this Form 10-QSB/A at this time. The required financial statements
for Harlyn will be filed as an amendment to this Form 10-QSB/A as soon as
practicable but not later than sixty (60) days after this Form 10-QSB/A has been
filed, in accordance with the requirements contained in the instructions for
filing reports on Form 8-K.
(iii) Pro Forma Financial Information.
--------------------------------
It is impracticable to provide the required pro forma financial
information in this Form 10-QSB/A at this time. The required pro forma financial
information will be filed as an amendment to this Form 10-QSB/A as soon as
practicable but not later than sixty (60) days after this Form 10-QSB/A has been
filed, in accordance with the requirements contained in the instructions for
filing reports on Form 8-K.
13
<PAGE>
B. Issuance of Convertible Debentures and Warrant.
-----------------------------------------------
On September 24, 1996, the Company completed a private placement of
convertible debentures of the Company which raised gross proceeds of $15,500,000
and net proceeds to the Company of $14,880,000. The debentures bear interest at
the annual rate of seven percent (7%) and interest is paid quarterly in arrears.
The maturity date of each debenture is four years from the date of issuance. The
outstanding principal amount of and all accrued and unpaid interest under each
debenture may be converted, at the option of the holder thereof, into shares of
common stock of the Company at the conversion price in effect on the date of
conversion. The conversion price per share of common stock of the Company may
not be less than $5.25 per share nor greater than $12.00 per share and shall be
determined as follows: during the first and second years that each debenture is
outstanding the conversion price shall be equal to eighty-five percent (85%) of
the market price of the Company's common stock on the date of conversion, during
the third year that each debenture is outstanding the conversion price shall be
equal to the market price of the Company's common stock on the date of
conversion, and during the fourth year that each debenture is outstanding the
conversion price shall be equal to one hundred twenty percent (120%) of the
market price of the Company's common stock on the date of conversion. Up to 1/3
of the outstanding principal amount, and all accrued and unpaid interest thereon
at such time, of each debenture will become convertible on the date that is ten
(10) days after the date that the registration statement of the common shares
underlying the debentures has been declared effective by the Securities and
Exchange Commission (the "Registration Date"), with an additional 1/3 of the
outstanding principal amount of, and all accrued and unpaid interest thereon at
such time, of each debenture becoming convertible on the dates that are thirty
(30) and sixty (60) days from the Registration Date.
In connection with the purchase and sale of the debentures, (i) the
Company and each investor entered into a Private Securities Subscription
Agreement pursuant to which each investor and the Company made certain
representations and warranties to each other in connection with the
purchase of the debentures by the investors, (ii) the Company executed and
delivered to each investor a 7% Convertible Debenture containing the terms
discussed above, (iii) the Company and each investor entered into a Registration
Rights Agreement pursuant to which the Company granted to each investor certain
registration rights with respect to the shares of the Common Stock of the
Company into which the Debentures are convertible, and (iv) the Company executed
and delivered to Shoreline Pacific Institutional Finance, the Institutional
Division of Financial West Group, a Common Stock Purchase Warrant Certificate
for the purchase of 31,313 shares of the Common Stock of the Company at an
exercise price of $9.90 per share.
14
<PAGE>
ITEM 6. Exhibits and Reports on Form 8-K
- ------ --------------------------------
A. Exhibits.
---------
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<C> <S>
3.1 Articles of Incorporation of International Beauty Supply, Ltd.
("IBS") dated July 11, 1985.(1)
3.2 Amendment to Articles of Incorporation of IBS dated May 24, 1993.(1)
3.3 Certificate of Amendment to Articles of Incorporation of The L. L.
Knickerbocker Co., Inc. (the "Company") dated June 20, 1994.(1)
3.4 Certificate of Amendment to Articles of Incorporation of the Company
dated September 27, 1994.(1)
3.5 Bylaws of the Company.(2)
4.1 Qualified Stock Option Plan adopted by the Company on September 27,
1994 along with form of Stock Option Agreement.(3)
4.2 Form of Warrant Agreement.(3)
4.3 Form of Representative's Warrant issued to W.B. McKee Securities, Inc.
upon consummation of the Company's offering on January 25, 1995.(3)
4.4 Form of Common Stock Purchase Warrant Certificate issued to
Shoreline Pacific, the Institutional Finance Division of Financial
West Group.(4)
4.5 Form of 7% Convertible Debenture.(4)
10.1 Form of Private Securities Subscription Agreement.(4)
10.2 Form of Registration Rights Agreement.(4)
10.3 Stock Purchase Agreement dated September 30, 1996 by and among Harlyn
Products, Inc., Harlyn International and the Company.(4)
10.4 First Amendment to Stock Purchase Agreement dated October 15, 1996 by
and among Harlyn Products, Inc., Harlyn International Company, Ltd. and
the Company.(4)
10.5 Second Amendment to Stock Purchase Agreement dated November 7, 1996 by
and among Harlyn Products, Inc., Harlyn International Company, Ltd.
and the Company.(4)
27.1 Financial Data Schedule(4)
</TABLE>
- -------------------------------------------
(1) Filed as part of Exhibit 3.1 to The L. L. Knickerbocker Co., Inc. Form SB-2
Registration Statement No. 33-85230-LA as filed with the Securities and
Exchange Commission on or about October 13, 1994.
(2) Filed as an Exhibit to the L. L. Knickerbocker Co., Inc. Annual Report
on Form 10-KSB filed on or about March 29, 1995.
(3) Filed as an Exhibit to The L. L. Knickerbocker Co., Inc. Form SB-2
Registration Statement No. 33-85230-LA as filed with the Securities and
Exchange Commission on or about October 13, 1994.
(4) Filed Herewith.
15
<PAGE>
B. Reports on Form 8-K
-------------------
No reports on Form 8-K were filed.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
THE L.L. KNICKERBOCKER CO., INC.
Date: November 27, 1996 By: /s/ Anthony P. Shutts
-----------------------------
Anthony P. Shutts
Chief Financial Officer
16
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- ------------------------------------------------------------------
<S> <C>
3.1 Articles of Incorporation of International Beauty Supply, Ltd.
("IBS") dated July 11, 1985.(1)
3.2 Amendment to Articles of Incorporation of IBS dated May 24,
1993.(1)
3.3 Certificate of Amendment to Articles of The L. L. Knickerbocker
Co., Inc. (the "Company") dated June 20, 1994.(1)
3.4 Certificate of Amendment to Articles of Incorporation of the
Company dated September 27, 1994.(1)
3.5 Bylaws of the Company.(2)
4.1 Qualified Stock Option Plan adopted by the Company on September
27, 1994 along with form of Stock Option Agreement.(3)
4.2 Form of Warrant Agreement.(3)
4.3 Form of Representative's Warrant issued to W.B. McKee Securities,
Inc. upon consummation of the Company's offering on January 25,
1995.(3)
4.4 Form of Common Stock Purchase Warrant Certificate issued to
Shoreline Pacific, the Institutional Finance Division of Financial
West Group.(4)
4.5 Form of 7% Convertible Debenture(4)
10.1 Form of Private Securities Subscription Agreement(4)
10.2 Form of Registration Rights Agreement(4)
10.3 Stock Purchase Agreement dated September 30, 1996 by and among
Harlyn Products, Inc., Harlyn International and the Company(4)
10.4 First Amendment to Stock Purchase Agreement dated October 15, 1996
by and among Harlyn Products, Inc., Harlyn International Company,
Ltd. and the Company(4)
10.5 Second Amendment to Stock Purchase Agreement dated November 7,
1996 by and among Harlyn Products, Inc., Harlyn International
Company, Ltd. and the Company(4)
27.1 Financial Data Schedule(4)
</TABLE>
- -------------------------------------------------------------------------------
(1) Filed as part of Exhibit 3.1 to The L. L. Knickerbocker Co., Inc. Form
SB-2 Registration Statement No. 33-85230-LA as filed with the Securities &
Exchange Commission on or about October 13, 1994.
(2) Filed as an exhibit to the L. L. Knickerbocker Co., Inc. Annual Report
on Form 10-KSB filed on or about March 29, 1995.
(3) Filed as an Exhibit to The L. L. Knickerbocker Co., Inc. Form SB-2
Registration Statement No. 33-85230-LA as filed with the Securities &
Exchange Commission on or about October 13, 1994.
(4) Filed herewith.
<PAGE>
EXHIBIT 4.4
NEITHER THIS WARRANT NOR ANY SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE
OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER (THE "SECURITIES
ACT"). THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT
MAY NOT BE OFFERED, SOLD, OR OTHERWISE TRANSFERRED IN THE ABSENCE OF
REGISTRATION UNDER THE SECURITIES ACT OR SUCH OFFER, SALE OR TRANSFER IS EXEMPT
FROM SUCH REGISTRATION.
COMMON STOCK PURCHASE WARRANT CERTIFICATE
-----------------------------------------
Dated: [Month] ____, 1996
[Number ( )] Warrants
to Purchase [Number ( )] Shares
of Common Stock, $0.10 Par Value Per Share
[COMPANY], a [State] corporation (the "Company"), hereby certifies
that [Holder], its permissible transferees, designees, successors and assigns
(collectively, the "Holder"), for value received, is entitled to purchase from
the Company at any time commencing on [Month] , 1996 up to [Number] ( ) shares
--
(the "Shares") of the Company's common stock, par value $0.10 per share (the
"Common Stock"), at [$_____] per share (the "Exercise Price").
1. Exercise of Warrants. Upon presentation and surrender of this
--------------------
Common Stock Purchase Warrant Certificate ("Warrant Certificate" or "this
Certificate"), with the attached Purchase Form duly executed, at the principal
office of the Company at [address], together with a check payable to the Company
in the amount of the Exercise Price multiplied by the number of Shares being
purchased, the Company, or the Company's Transfer Agent as the case may be,
shall deliver to the holder hereof, certificates of Common Stock which in the
aggregate represent the number of Shares being purchased. All or less than all
of the Warrants represented by this Certificate may be exercised and, in case of
the exercise of less than all, the Company, upon surrender hereof, will deliver
to the holder a new Warrant Certificate or Certificates of like tenor and dated
the date hereof entitling said holder to purchase the number of Shares
represented by this Certificate which have not been exercised and to receive
Registration Rights with respect to such Shares.
In lieu of tendering the requisite Exercise Price to the Company in
cash, the Holder may elect to exercise this Warrant Certificate on a net basis
whereupon (a) the number of shares of Common Stock issued upon such exercise
shall be reduced by that number of shares which have an aggregate fair market
value, based upon the average closing price for the Company's Common Stock for
the three trading days preceding the Exercise Date, equal to the requisite
aggregate Exercise Price and (b) the Exercise Price shall be deemed to have been
paid and satisfied by the tender of such shares to the Company.
2. Exchange and Transfer. This Certificate at any time prior to the
---------------------
exercise hereof, upon presentation and surrender to the Company, may be
exchanged, alone or with other Certificates of like tenor registered in the name
of the same holder, for another Certificate or Certificates of like tenor in the
name of such holder exercisable for the aggregate number of Shares as the
Certificate or Certificates surrendered.
3. Rights and Obligations of Holders of this Certificate. (a) The
-----------------------------------------------------
Holder of this Certificate shall not, by virtue hereof, be entitled to any
rights of a stockholder in the Company, either at law or in equity; provided,
however, that in the event any certificate representing shares of Common Stock
or other securities is issued to the holder hereof upon exercise of some or all
of the Warrants, such holder shall, for all purposes, be deemed to have become
the holder of record of such Common Stock on the date on which this Certificate,
together with a duly executed Purchase Form, was surrendered and payment of the
aggregate Exercise Price was made, irrespective of the date of delivery of such
share certificate.
<PAGE>
Common Stock Purchase Warrant Certificate
Page 2
(b) In case the Company shall (i) pay a dividend in Common Stock or
make a distribution in Common Stock, (ii) subdivide its outstanding Common Stock
into a greater number of shares, or (iii) combine its outstanding Common Stock
into a smaller number of shares (including a recapitalization in connection with
a consolidation or merger in which the Company is the continuing corporation),
then (x) the Exercise Price on the record date of such division or the effective
date of such action shall be adjusted by multiplying such Exercise Price by a
fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately before such event and the denominator of which is the
number of shares of Common Stock outstanding immediately after such event and
(y) the number of shares of Common Stock for which this Warrant Certificate may
be exercised immediately before such event shall be adjusted by multiplying such
number by a fraction, the numerator of which is the Exercise Price immediately
before such event and the denominator of which is the Exercise Price immediately
after such event.
(c) In case of any consolidation or merger of the Company with or
into another corporation (other than any consolidation or merger in which the
Company is the continuing corporation and which does not result in any
reclassification of the outstanding shares of Common Stock or the conversion of
such outstanding shares of Common Stock into shares or other stock or other
securities or property), or the sale or transfer of the property of the Company
as an entirety or substantially as an entirety, there shall be deliverable upon
exercise of the Warrant Certificate (in lieu of the number of shares of Common
Stock theretofore deliverable) the number of shares of stock or other securities
or property to which a holder of the number of shares of Common Stock which
would otherwise have been deliverable upon the exercise of this Warrant
Certificate would have been entitled upon such action if this Warrant
Certificate had been exercised immediately prior to such action.
4. Common Stock. (a) The Company covenants and agrees that all
------------
shares of Common Stock issuable upon exercise of this Warrant Certificate will,
upon delivery, be duly and validly authorized and issued, fully-paid and non-
assessable.
(b) The Company covenants and agrees that it will at all times
reserve and keep available an authorized number of shares of its Common Stock
and other applicable securities sufficient to permit the exercise in full of all
outstanding options, warrants and rights, including the Warrants.
5. Registration Rights. In the event the Company files a
-------------------
Registration Statement with the Securities and Exchange Commission for
registration of any shares of the Company's Common Stock, the Company agrees to
include the number of shares of Common Stock represented by this Warrant
Certificate in any such Registration Statement.
6. Issuance of Certificates. As soon as possible after full or
------------------------
partial exercise of this Warrant, but in any event not more than three (3)
business days, the Company, at its expense, will cause to be issued in the name
of and delivered to the holder of this Warrant, a certificate or certificates
for the number of fully paid and non-assessable shares of Common Stock to which
that holder shall be entitled on such exercise. No fractional shares will be
issued on exercise of this Warrant. If on any exercise of this Warrant a
fraction of a share results, the Company will pay the cash value of that
fractional share, calculated on the basis of the Exercise Price. Prior to
registration of the shares of Common Stock underlying this Warrant Certificate,
as provided in Section 5 hereof, all such certificates shall bear a restrictive
legend to the effect that the Shares represented by such certificate have not
been registered under the Securities Act of 1933, as amended, and the Shares may
not be sold or transferred in the absence of such registration or an exemption
therefrom, such legend to be substantially in the form of the bold face language
appearing on Page 1 of this Warrant Certificate.
7. Disposition of Warrants or Shares. The holder of this Warrant
---------------------------------
Certificate, each transferee hereof and any holder and transferee of any Shares,
by his or its acceptance thereof, agrees that no public distribution of Warrants
or Shares will be made in violation of the provisions of the Securities Act of
1933, as
2
<PAGE>
Common Stock Purchase Warrant Certificate
Page 3
amended, and the rules and regulations promulgated thereunder (collectively, the
"Act"). Furthermore, it shall be a condition to the transfer of the Warrants
that any transferee thereof deliver to the Company his or its written agreement
to accept and be bound by all of the terms and conditions contained in this
Warrant Certificate.
8. Notices. Except as otherwise specified herein to the contrary,
-------
all notices, requests, demands and other communications required or desired to
be given hereunder shall only be effective if given in writing by certified or
registered mail, return receipt requested, postage prepaid, or by U. S. express
mail service or private overnight mail service (e.g. Federal Express). Any such
notice shall be deemed to have been given (a) on the business day immediately
subsequent to mailing, if sent by U. S. express mail service or private
overnight mail service, or (b) three (3) business days following the mailing
thereof, if mailed by certified or registered mail, postage prepaid, return
receipt requested, and all such notices shall be sent to the following addresses
(or to such other address or addresses as a party may have advised the other in
the manner provided in this Section 8):
If to the Company:
[Name]
[Address]
If to the Holder:
[Name]
[Address]
9. Governing Law. This Warrant Certificate and all rights and
-------------
obligations hereunder shall be deemed to be made under and governed by the laws
of the State of California without giving effect to the conflicts of laws
provisions. The Holder hereby irrevocably consents to the venue and
jurisdiction of the State and Federal Courts located in the State of California,
County of Marin.
10. Successors and Assigns. This Warrant Certificate shall be
----------------------
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and assigns.
11. Headings. The headings of various sections of this Warrant
--------
Certificate have been inserted for reference only and shall not be a part of
this Certificate.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed, manually or by facsimile, by one of its officers thereunto
duly authorized.
[COMPANY]
Date:
-----------------
By:
------------------------------------
[Name and Title]
3
<PAGE>
ELECTION TO PURCHASE
--------------------
To Be Executed by the Holder
in Order to Exercise the Common Stock
Purchase Warrant Certificate
The undersigned Holder hereby irrevocably elects to exercise
-------
of the Warrants represented by this Common Stock Warrant Certificate, and to
purchase the shares of Common Stock issuable upon the exercise of such Warrants
and requests that certificates for securities be issued in the name of:
-------------------------------------------------------
(Please type or print name and address)
-------------------------------------------------------
-------------------------------------------------------
-------------------------------------------------------
(Social Security or tax identification number)
and delivered to
--------------------------------------
-------------------------------------------------------
(Please type or print name and address
and, if such number of Warrants shall not be all the Warrants
evidenced by this Common Stock Warrant Certificate, that a new Common Stock
Warrant Certificate for the balance of such Warrants be registered in the name
of, and delivered to, the Holder at the address stated below.
In full payment of the purchase price with respect to the Warrants
exercised and transfer taxes, if any, the undersigned hereby tenders payment of
$ by check or money order payable in United States currency to the
-----------
order of [Company].
[HOLDER]
Dated: By:
------------------- ---------------------------------
Name:
Title:
-------------------------------------------------------
(Address)
-------------------------------------------------------
-------------------------------------------------------
<PAGE>
Common Stock Purchase Warrant Certificate
Page 5
(Social Security or tax identification number)
5
<PAGE>
EXHIBIT 4.5
NEITHER THESE SECURITIES NOR ANY SECURITIES ISSUABLE UPON THE CONVERSION HEREOF
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE
RULES AND REGULATIONS PROMULGATED THEREUNDER (THE "1933 ACT"), OR THE SECURITIES
LAWS OF ANY STATE. NEITHER THESE SECURITIES NOR ANY SECURITIES ISSUABLE UPON
THE CONVERSION HEREOF MAY BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED
UNLESS THEY ARE REGISTERED UNDER THE 1933 ACT OR THE LAWS OF APPLICABLE STATES
OR SUCH OFFER, SALE OR TRANSFER IS EXEMPT FROM SUCH REGISTRATION.
7% CONVERTIBLE DEBENTURE DUE , 2000
-------------
$ [ ], 1996
----------- -----------
Number
------
FOR VALUE RECEIVED, The L.L. Knickerbocker Company, a California
corporation (the "Company"), hereby promises to pay to ,
-----------------------
or registered assigns (the "Holder") on , 2000 (the "Maturity
-------------------
Date"), the principal amount of Dollars
------------------------------
($ ), and to pay interest on the principal amount hereof, in such
---------
amounts, at such times and on such terms and conditions as are specified herein.
ARTICLE 1. Interest
The Company shall pay interest on the unpaid principal amount of this
Debenture (this "Debenture") at the rate of Seven Percent (7%) per year, payable
quarterly in arrears until the principal hereof is paid in full or has been
converted. Interest on this Debenture shall accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from the date of
issuance of this Debenture. Interest shall be computed on the basis of a 360-
day year of 12 30-day months. If the Holder shall convert this Debenture during
any quarter, the Company shall pay to the Holder, upon conversion, the pro-rata
portion of accrued interest payable through the conversion date.
ARTICLE 2. Method of Payment
This Debenture must be surrendered to the Company in order for the Holder
to receive payment of the principal amount hereof. The Company shall pay the
principal of and interest on this Debenture in United States dollars. However,
the Company may pay principal and interest by a check payable in such money.
The Company may draw a check for the payment of interest to the order of the
Holder of this Note and mail it to the Holder's address as shown on the Register
(as defined in Section 7.2 below). Interest and principal payments shall be
subject to withholding under applicable United States Federal Internal Revenue
Service Regulations.
<PAGE>
ARTICLE 3. Conversion
SECTION 3.1. Conversion Privilege
(a) The Holder of this Debenture shall have the right, at its option, to
convert it into shares of common stock, no par value per share, of the Company
("Common Stock") at any time which is before the close of business on the
Maturity Date, except as set forth in Section 3.1(c) below. The number of
shares of Common Stock issuable upon the conversion of this Debenture is
determined by dividing the principal amount hereof to be converted plus all
accrued interest thereon minus any required withholding by the conversion price
in effect on the conversion date (as defined in paragraph (b) of this Section
3.1 below) and rounding the result to the nearest 1/100th of a share. On
conversion, no payment of or adjustment (other than as provided in the previous
sentence) for accrued interest shall be made whether or not such conversion
occurs before, on or after an interest payment date.
(b) The conversion price is Fifteen Percent (15%) off the current market
price of the Common Stock on the conversion date, but may not be less than $5.25
per share nor greater than $12.00 per share.
(c) Less than all of the principal amount of this Debenture may be
converted into Common Stock if the portion converted is $10,000 or a whole
multiple of $10,000 and the provisions of this Article 3 that apply to the
conversion of all of the Debenture also apply to the conversion of a portion of
it. All accrued interest on this Debenture shall be added to the amount
converted if less than all of the principal amount of this Debenture is
converted and shall be deemed to be paid and discharged thereby. Up to one-third
(1/3) of the Debentures will be convertible on or after Ten (10) days from the
date (the "Registration Date") that the registration statement for the common
shares underlying the Debentures has been declared effective by the Securities
and Exchange Commission (the "SEC"), with an additional one-third (1/3) of the
remaining Debentures becoming convertible on or after 30 and 60 days from the
Registration Date, respectively.
(d) In the event any Debentures remain outstanding on the second
anniversary of the date hereof, the unconverted portion of such Debentures will
be convertible in the manner set forth in this Section 3.1; however, the
conversion price shall be equal to the current market price on the conversion
date, but in no event less than $5.25 per share nor greater than $12.00 per
share. In the event any of the Debentures remain outstanding on the third
anniversary of the date hereof, the unconverted portion of such Debentures will
be convertible as above except that the conversion price shall be equal to 120%
of the current market price on the conversion date, but in no event less than
$5.25 per share nor greater than $12.00 per share.
SECTION 3.2. Conversion Procedure. To convert this Debenture into Common
Stock, the Holder must (a) complete and sign the Notice of Conversion attached
hereto and (b) surrender the Debenture to the Company. The date upon which the
Company receives the completed Notice of Conversion (by mail, facsimile or
otherwise) is the conversion date, provided that the Company shall not be
required to deliver a certificate for Common Shares unless and until the Company
receives the Debenture. Within five business days after receipt of the Notice
of Conversion,
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<PAGE>
providing the Company has received the Debenture from the Holder, the Company
shall deliver a certificate for the number of full shares of Common Stock
issuable upon the conversion and a check for any fraction of a share. The person
in whose name the certificate of Common Stock is to be registered shall be
treated as a shareholder of record on and after the conversion date. No payment
or adjustment shall be made for accrued interest on a converted Debenture
whether the conversion date is on, at or after an interest payment date. If one
person converts more than one Debenture at the same time, the number of full
shares issuable upon the conversion shall be based on the total principal amount
of Debentures converted. Upon surrender of a Debenture that is to be converted
in part, the Company shall issue to the Holder a new Debenture equal in
principal amount to the unconverted portion of the Debenture surrendered.
SECTION 3.3. Fractional Shares. The Company shall not issue a fractional
share of Common Stock upon the conversion of this Debenture. Instead, the
Company shall pay in lieu of any fractional share the cash value thereof at the
then current market price of the Common Stock as determined under Section 3.7
below.
SECTION 3.4. Taxes on Conversion. The Company shall pay any documentary,
stamp or similar issue or transfer tax due on the issue of shares of Common
Stock upon the conversion of this Debenture. However, the Holder shall pay any
such tax which is due because the shares are issued in a name other than its
name.
SECTION 3.5. Company to Reserve Stock. The Company shall reserve out of
its authorized but unissued Common Stock or Common Stock held in treasury enough
shares of Common Stock to permit the conversion of this Debenture. All shares
of Common Stock which may be issued upon the conversion hereof shall be fully
paid and nonassessable.
SECTION 3.6. Restrictions on Transfer. This Debenture and the Common
Stock issuable upon the conversion hereof have not been registered under the
Securities Act of 1933 (the "Act") and this Debenture and the Common Stock
issuable upon the conversion of this Debenture may not be offered for sale, sold
or otherwise transferred unless such offer, sale or other transfer is registered
under the Act or such securities or such transfer is exempt from such
registration.
SECTION 3.7. Current Market Price.
(a) In Sections 3.1 and 3.3, the current market price per share of Common
Stock on any date is the average of the quoted prices of the Common Stock for
five consecutive trading days ending on the trading day before the date in
question.
(b) As used in this Section 3.7, the term quoted price shall mean (i) the
closing bid prices thereof on any such trading date, as reported by Bloomberg,
L.P. or (ii) in the event the Common Stock is not reported on such system, the
fair market value of the Common Stock as determined by the Board of Directors of
the Company in its good faith judgment.
SECTION 3.8. Mergers, Etc. If the Company merges or consolidates with
another corporation or sells or transfers all or substantially all of its assets
to another person and the holders of the Common Stock are entitled to receive
stock, securities or property in respect of or
-3-
<PAGE>
in exchange for Common Stock, then as a condition of such merger, consolidation,
sale or transfer, the Company and any such successor, purchaser or transferee
shall amend this Debenture to provide that it may thereafter be converted on the
terms and subject to the conditions set forth above into the kind and amount of
stock, securities or property receivable upon such merger, consolidation, sale
or transfer by a holder of the number of shares of Common Stock into which this
Debenture might have been converted immediately before such merger,
consolidation, sale or transfer.
ARTICLE 4. Mergers
The Company shall not consolidate or merge into, or transfer all or
substantially all of its assets to, any person, unless such person assumes the
obligations of the Company under this Debenture and immediately after such
transaction no Event of Default exists. Any reference herein to the Company
shall refer to such surviving or transferee corporation and the obligations of
the Company shall terminate upon such assumption.
ARTICLE 5. Reports
The Company will mail to the Holder hereof at its address as shown on the
Register a copy of any annual, quarterly or current report that it files with
the SEC promptly after the filing thereof and a copy of any annual, quarterly or
other report or proxy statement that it gives to its shareholders generally at
the time such report or statement is sent to shareholders.
ARTICLE 6. Defaults and Remedies
SECTION 6.1. Events of Default. An "Event of Default" occurs if (a) the
Company does not make the payment of the principal of this Debenture when the
same becomes due and payable at maturity, upon redemption or otherwise, (b) the
Company does not make a payment of interest when such interest becomes due and
payable and such default continues for a period of 5 days thereafter, (c) the
Company fails to issue shares of Common Stock upon conversion, (d) the Company
fails to comply with any of its other agreements in this Debenture and such
failure continues for the period and after the notice specified below, (e) the
Company pursuant to or within the meaning of any Bankruptcy Law (as hereinafter
defined): (i) commences a voluntary case; (ii) consents to the entry of an order
for relief against it in an involuntary case; (iii) consents to the appointment
of a Custodian (as hereinafter defined) of it or for all or substantially all of
its property; (iv) makes a general assignment for the benefit of its creditors;
or (v) a court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that: (A) is for relief against the Company in an involuntary
case; (B) appoints a Custodian of the Company or for all or substantially all of
its property or (C) orders the liquidation of the Company, and the order or
decree remains unstayed and in effect for 60 days. As used in this Section 6.1,
the term "Bankruptcy Law" means Title 11 of the United States Code or any
similar federal or state law for the relief of debtors. The term "Custodian"
means any receiver, trustee, assignee, liquidator or similar official under any
Bankruptcy Law. A default under clause (d) above is not an Event of Default
until the holders of at least 25% of the aggregate principal amount of the
Debentures notify the Company of such default and the Company does not cure it
within 5 days after the
-4-
<PAGE>
receipt of such notice, which must specify the default, demand that it be
remedied and state that it is a "Notice of Default."
SECTION 6.2. Acceleration. If an Event of Default occurs and is
continuing, the Holder hereof by notice to the Company, may declare the
principal of and accrued interest on this Debenture to be due and payable. Upon
such declaration, the principal and interest hereof shall be due and payable
immediately.
ARTICLE 7. Registered Debentures
SECTION 7.1. Series. This Debenture is one of a numbered series of
Debentures having an aggregate principal amount of not more than $15,500,000
which are identical except as to the principal amount and date of issuance
thereof and as to any restriction on the transfer thereof in order to comply
with the Securities Act of 1933 and the regulations of the Securities and
Exchange Commission promulgated thereunder. Such Debentures are referred to
herein collectively as the "Debentures". The Debentures shall be issued in
whole multiples of $10,000.
SECTION 7.2. Record Ownership. The Company shall maintain a register of
the holders of the Debentures (the "Register") showing their names and addresses
and the serial numbers and principal amounts of Debentures issued to or
transferred of record by them from time to time. The Register may be maintained
in electronic, magnetic or other computerized form. The Company may treat the
person named as the Holder of this Debenture in the Register as the sole owner
of this Debenture. The Holder of this Debenture is the person exclusively
entitled to receive payments of interest on this Debenture, receive
notifications with respect to this Debenture, convert it into Common Stock and
otherwise exercise all of the rights and powers as the absolute owner hereof.
SECTION 7.3. Registration of Transfer. Transfers of this Debenture may be
registered on the books of the Company maintained for such purpose pursuant to
Section 7.2 above (i.e., the Register). Transfers shall be registered when this
Debenture is presented to the Company with a request to register the transfer
hereof and the Debenture is duly endorsed by the appropriate person, reasonable
assurances are given that the endorsements are genuine and effective, and the
Company has received evidence satisfactory to it that such transfer is rightful
and in compliance with all applicable laws, including tax laws and state and
federal securities laws. When this Debenture is presented for transfer and duly
transferred hereunder, it shall be cancelled and a new Debenture showing the
name of the transferee as the record holder thereof shall be issued in lieu
hereof. When this Debenture is presented to the Company with a reasonable
request to exchange it for an equal principal amount of Debentures of other
denominations, the Company shall make such exchange and shall cancel this
Debenture and issue in lieu thereof Debentures having a total principal amount
equal to this Debenture in the denominations requested by the Holder. The
Company may charge a reasonable fee for any registration of transfer or exchange
other than one occasioned by a notice of redemption or the conversion hereof.
SECTION 7.4. Worn and Lost Debentures. If this Debenture becomes worn,
defaced or mutilated but is still substantially intact and recognizable, the
Company or its agent may issue a new Debenture in lieu hereof upon its
surrender. Where the Holder of this Debenture claims that
-5-
<PAGE>
the Debenture has been lost, destroyed or wrongfully taken, the Company shall
issue a new Debenture in place of the original Debenture if the Holder so
requests by written notice to the Company actually received by the Company
before it is notified that the Debenture has been acquired by a bona fide
purchaser and the Holder has delivered to the Company an indemnity bond in such
amount and issued by such surety as the Company deems satisfactory together with
an affidavit of the Holder setting forth the facts concerning such loss,
destruction or wrongful taking and such other information in such form with such
proof or verification as the Company may request.
ARTICLE 8. Notices
Except as otherwise provided in this Debenture, any notice which is
required or convenient under the terms of this Debenture shall be duly given if
it is in writing and (a) delivered in person (b) mailed by first class mail,
postage prepaid, or (c) sent by private overnight mail service (such as Federal
Express) and directed to the Holder of the Debenture at its address as it
appears on the Register or if to the Company to its principal executive offices.
Such notice shall be effective, when personally delivered, upon receipt, when so
sent by first class mail, four business days after deposit with the United
States Postal Service, or when so sent by private overnight mail service, the
next business day after deposit.
ARTICLE 9. Time
Where this Debenture authorizes or requires the payment of money or the
performance of a condition or obligation on a Saturday or Sunday or a public
holiday, or authorizes or requires the payment of money or the performance of a
condition or obligation within, before or after a period of time computed from a
certain date, and such period of time ends on a Saturday or a Sunday or a public
holiday, such payment may be made or condition or obligation performed on the
next succeeding business day, and if the period ends at a specified hour, such
payment may be made or condition performed, at or before the same hour of such
next succeeding business day, with the same force and effect as if made or
performed in accordance with the terms of this Debenture. Where time is
extended by virtue of the provisions of this Article 9, such extended time shall
not be included in the computation of interest.
ARTICLE 10. Waivers
The holders of a majority in principal amount of the Debentures may waive a
default or rescind the declaration of an Event of Default and its consequences
except for a default in the payment of principal of or interest on any
Debenture.
ARTICLE 11. Rules of Construction
In this Debenture, unless the context otherwise requires, words in the
singular number include the plural, and in the plural include the singular, and
words of the masculine gender include the feminine and the neuter, and when the
sense so indicates, words of the neuter gender may refer to any gender. The
numbers and titles of sections contained in this Debenture are
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<PAGE>
inserted for convenience of reference only, and they neither form a part of this
Debenture nor are they to be used in the construction or interpretation hereof.
Wherever, in this Debenture, a determination of the Company is required or
allowed, such determination shall be made by a majority of the Board of
Directors of the Company and if it is made in good faith, it shall be conclusive
and binding upon the Company and the Holder of this Debenture.
ARTICLE 12. Governing Law
The validity, terms, performance and enforcement of this Debenture shall be
governed and construed by the provisions hereof and in accordance with the laws
of the State of New York applicable to agreements that are negotiated, executed,
delivered and performed solely in the State of New York.
IN WITNESS WHEREOF, the Company has duly executed this Debenture as of the
date first written above.
THE L.L. KNICKERBOCKER COMPANY
By
------------------------------------
Name
----------------------------------
Title
---------------------------------
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<PAGE>
NOTICE OF CONVERSION
[To be completed and signed only upon conversion of Debenture]
The undersigned, the Holder of this Debenture, hereby irrevocably elects to
exercise the right to convert it into common stock, par value $ per share,
------
of The L.L. Knickerbocker Company as follows:
<TABLE>
<S> <C>
[Complete if less than ____________________ Dollars ($_________)*____
all of principal amount ($10,000 or integral multiples of $10,000)
is to be converted]
[Signature must be _______________________________________________
guaranteed if registered (Name of Holder of shares if different than
holder of stock differs registered Holder of Debenture)
from registered Holder of
Debenture)
________________________________________________
(Address of Holder if different than address of
registered Holder of Debenture)
________________________________________________
(Social Security or EIN of Holder of shares if
different than Holder of Debenture)
</TABLE>
*If the principal amount of the Debenture to be converted is less than the
entire principal amount thereof, a new Debenture for the balance of the
principal amount shall be returned to the Holder of the Debenture.
Date:________________ Sign:_____________________________________
(Signature must conform in all respects
to name of Holder shown on face of this
Debenture)
Signature Guaranteed:
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<PAGE>
Assignment of Note
The undersigned hereby sell(s) and assign(s) and transfer(s) unto
- ------------------------------------------------------------------------
(name, address and SSN or EIN of assignee)
Dollars ($ )
- --------------------------------------------------- ------- ---
(principal amount of Debenture, $10,000 or integral multiples of $10,000)
of principal amount of this Debenture together with all accrued interest hereon.
Date: Sign:
-------- ------------------------------------------
(Signature must conform in all respects to
name of Holder shown on face of Debenture)
Signature Guaranteed:
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<PAGE>
EXHIBIT 10.1
PRIVATE SECURITIES SUBSCRIPTION AGREEMENT
THE L.L. KNICKERBOCKER CO., INC./[BUYER]
[DATE]
THIS PRIVATE SECURITIES SUBSCRIPTION AGREEMENT (hereinafter the
"Agreement") has been executed by the undersigned in connection with the sale in
a private placement pursuant to Section 4(2) of the Securities Act of 1933, as
amended (the "Securities Act"), of certain Debentures (hereinafter the
"Debentures"), convertible into shares of common stock (hereinafter the
"Shares") of The L.L. Knickerbocker Co., Inc. (KNIC), 30055 Comercio, Rancho
Santa Margarita, CA, 92688, a corporation organized under the laws of California
(hereinafter "SELLER") to [BUYER], located at [BUYER STREET ADDRESS], [BUYER
CITY/STATE/ZIP], [BUYER COUNTRY], a corporation organized under the laws of
[INCORP LOC] (hereinafter "BUYER"). SELLER and BUYER (hereinafter collectively
the "parties") each hereby represents, warrants and agrees as follows:
1. AGREEMENT TO SUBSCRIBE; PURCHASE PRICE
(i) SELLER and BUYER are executing and delivering this Agreement
in reliance upon the exemption from securities registration afforded by
Rule 506 under Regulation D ("Regulation D") as promulgated by the United
States Securities and Exchange Commission under the Securities Act; and
(ii) BUYER hereby subscribes for [PURCHASE AMOUNT] U.S. principal
amount of Debentures, convertible into Shares in accordance with the terms
set forth in the form of Debenture attached as Exhibit A to this Agreement.
(iii) BUYER shall pay the purchase price by delivering same day
funds in United States Dollars to an escrow agent or as otherwise agreed
between the parties, to be delivered to the order of SELLER upon delivery
of the Debentures.
2. BUYER'S REPRESENTATIONS AND AGREEMENTS
Buyer represents, warrants and agrees as follows:
(i) BUYER understands that neither the Debentures nor the Shares
have been registered under the Securities Act, or any other applicable
securities law, and, accordingly, none of such securities may be offered,
sold, transferred, pledged, hypothecated or otherwise disposed of unless
registered pursuant to, or in a transaction exempt from registration under,
the Securities Act and any other applicable securities law;
<PAGE>
Page 2
(ii) BUYER is an "accredited investor" within the meaning of Rule
501(a)(1), (2), (3), or (7) of Regulation D (an "Accredited Investor") that
is acquiring the Debentures and the Shares either for its own account or as
a fiduciary or agent for one or more institutional accounts as to which it
exercises sole discretion, each of which is an Accredited Investor. BUYER
has such knowledge and experience in financial and business matters that it
is capable of evaluating the merits and risks of an investment in the
Debentures and the Shares. BUYER has had a reasonable opportunity to ask
questions of and receive answers from SELLER concerning SELLER and the
offering of the Debentures. BUYER is not subscribing for the Debentures as
a result of or pursuant to any advertisement, article, notice, or other
communication published in any newspaper, magazine, or similar media or
broadcast over television or radio. BUYER is aware that it (or such
institutional account) may be required to bear the economic risk of an
investment in the Debentures for an indefinite period, and it (or such
institutional account) is able to bear such risk for an indefinite period;
(iii) BUYER is acquiring the Debentures and the Shares for its
own account or for one or more institutional accounts as described in
Paragraph 2(ii) hereof, in each case for investment purposes and not with a
view to, or for offer or sale in connection with, any distribution thereof
(subject to any requirement of law that the disposition of its property or
the property of such institutional account or accounts remain within its or
their control). BUYER agrees on its own behalf and on behalf of any such
institutional account for which it is acquiring the Debentures and the
Shares to offer, sell or otherwise transfer any such securities only to
Accredited Investors (subject to any requirement of law that the
disposition of its property or the property of such institutional account
or accounts remain within its or their control) in conformity with the
Securities Act and any other applicable securities law and with the
restrictions on transfer set forth on the certificate(s) evidencing the
Debentures or the Shares. BUYER acknowledges that each certificate
evidencing the Debentures shall bear a legend substantially to the effect
of the foregoing paragraphs 2(i) and 2(ii) and this paragraph 2(iii). Such
legend shall be in substantially the following form:
"NEITHER THESE SECURITIES NOR ANY SECURITIES ISSUABLE UPON THE
CONVERSION HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER
(THE "1933 ACT"), OR THE SECURITIES LAWS OF ANY STATE. NEITHER THESE
SECURITIES NOR ANY SECURITIES ISSUABLE UPON THE CONVERSION HEREOF MAY
BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED UNLESS THEY ARE
<PAGE>
Page 3
REGISTERED UNDER THE 1933 ACT OR THE LAWS OF APPLICABLE STATES OR SUCH
OFFER, SALE OR TRANSFER IS EXEMPT FROM SUCH REGISTRATION."
Upon conversion of the Debentures, SELLER shall issue a Common
Stock certificate without such legend to the holder of such shares if (a)
such Shares are sold pursuant to an effective registration statement under
the Securities Act or (b) such holder provides SELLER with an opinion of
counsel reasonably acceptable to SELLER to the effect that a public sale or
a transfer of such security may be made without registration under the
Securities Act or (c) such holder provides SELLER with reasonable
assurances that such security can be sold free of any volume limitations
pursuant to Rule 144 under the Securities Act (or a successor thereto).
(iv) BUYER acknowledges that SELLER or any transfer agent of
SELLER shall register the transfer or exchange of any of the Shares only
upon receipt of the certificate(s) evidencing such Shares with the transfer
notice set forth thereon appropriately completed and upon receipt in
writing from the transferee or the recipient of such Shares in such
transfer or exchange (as the case may be) of a certificate setting forth
the representations in Paragraph 2 hereof;
(v) If BUYER is acquiring any Debentures or Shares as fiduciary
or agent for one or more institutional accounts, BUYER represents that it
has sole investment discretion with respect to each such account and that
it has full power to make the foregoing acknowledgments, representations
and agreements on behalf of each such institutional account;
(vi) BUYER acknowledges that SELLER and others will rely upon the
truth and accuracy of the foregoing acknowledgments, representations and
agreements and further agrees that if, prior to the closing, any of such
acknowledgments, representations and agreements made by BUYER are no longer
accurate, BUYER will promptly notify SELLER;
(vii) Buyer has received all information necessary to make an
informed business decision with respect to an investment in the Debentures,
including but not limited to SELLER'S latest Form 10-K, all Forms 10-Q and
8-K filed thereafter, and Proxy Statement for its latest fiscal year, and
the use of proceeds and risk factors, prepared by SELLER, which are
attached hereto as Exhibit 1;
(viii) This Agreement has been duly authorized, validly
executed, and delivered on behalf of BUYER and is a valid and binding
agreement enforceable in accordance with its terms, subject to general
principles of equity and to
<PAGE>
Page 4
bankruptcy or other laws affecting the enforcement of creditors' rights
generally; and
(ix) BUYER has not engaged and agrees not to engage in any short
sales of the Company's common stock prior to the date the Debentures become
convertible, except to the extent that any such short sale is fully covered
by shares of common stock of the Company other than the Shares purchased
pursuant to this Agreement.
3. SELLER'S REPRESENTATIONS AND AGREEMENTS
SELLER represents, warrants and agrees as follows:
(i) SELLER has not conducted any general solicitation or general
advertising (as defined in Regulation D) with respect to any of its
securities;
(ii) The Debentures or the Shares when issued and delivered will
be duly and validly authorized and issued, and with respect to the Shares,
fully-paid and nonassessable and will not subject the holders thereof to
personal liability by reason of being such holders. There are no preemptive
rights of any shareholder of SELLER with respect to the Debentures or the
Shares;
(iii) This Agreement has been duly authorized, validly executed
and delivered on behalf of SELLER and is a valid and binding agreement in
accordance with its terms, subject to general principles of equity and to
bankruptcy or other laws affecting the enforcement of creditors' rights
generally;
(iv) The execution and delivery of this Agreement and the
consummation of the issuance of the Debentures and the Shares and the
transactions contemplated by this Agreement do not and will not conflict
with or result in a breach by SELLER of any of the terms or provisions of,
or constitute a default under, the articles of incorporation (or charter)
or bylaws of SELLER, or any indenture, mortgage, deed of trust or other
material agreement or instrument to which SELLER is a party or by which it
or any of its properties or assets are bound, or any existing applicable
decree, judgment or order of any court, federal or state regulatory body,
administrative agency or other governmental body having jurisdiction over
SELLER or any of its properties or assets;
(v) No authorization, approval or consent of or filing with any
federal, state or local governmental body of the United States is legally
<PAGE>
Page 5
required for the issuance and sale of the Debentures or the Shares as
contemplated by this Agreement;
(vi) The information provided by or on behalf of SELLER to BUYER
and referred to in Section 2(vii) of this Agreement does not contain any
untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstance under which they are made, not misleading. Since December 31,
1995, there has been no material adverse development in the business,
properties, operations, financial condition or results of operations of
SELLER, except as disclosed in the documents referred to in Section 2(vii)
hereof.
(vii) SELLER will issue one or more certificates representing
the Debentures in the name of BUYER in such denominations to be specified
by BUYER prior to closing. The Debentures will bear the restrictive legend
specified in Section 2(iii) of this Agreement. SELLER further warrants
that no instructions other than these instructions and stop transfer
instructions to give effect to Section 2(i) hereof will be given to the
transfer agent and also warrants that the Shares shall otherwise be
transferable on the books and records of SELLER as and to the extent
provided in this Agreement, subject to compliance with Federal and State
securities laws. Following registration of the Shares, SELLER agrees to
furnish new instructions to the transfer agent advising them of
registration and instructing them to issue the Shares without a legend.
Nothing in this Section shall affect in any way BUYER'S obligations and
agreement to comply with all applicable securities laws upon resale of the
Shares.
4. THIRD PARTY BENEFICIARY. The parties acknowledge and agree that
Shoreline Pacific, the Institutional Division of Financial West Group
("Shoreline Pacific"), shall be deemed a third party beneficiary of SELLER'S
agreements and representations set forth in this Agreement, entitled to enforce
the terms thereof, and to indemnification for any damages resulting to Shoreline
Pacific from any actual or threatened breach thereof by SELLER, both in
Shoreline Pacific's personal capacity and, should Shoreline Pacific so elect, on
behalf of BUYER.
5. CLOSING. Debentures shall be delivered to BUYER and the funds
therefor shall be delivered to SELLER on [CLOSING DATE] (the "Closing") or at
such time to be mutually agreed.
6. CONDITIONS TO CLOSING
(i) BUYER understands that SELLER'S obligation to sell the
Debentures is conditioned upon delivery into escrow or otherwise as agreed
between BUYER and SELLER by BUYER of the amount set forth in Paragraph 1
hereof.
<PAGE>
Page 6
(ii) SELLER understands that BUYER'S obligation to purchase the
Debentures is conditioned upon delivery of certificate(s) representing
Debentures as described in Paragraph 1(ii) hereto and provision of an
opinion of counsel confirming the matters set out in Section 3(ii), (iii),
(iv) and (v) above.
(iii) SELLER understands that BUYER'S obligation to purchase the
Debentures is conditioned upon SELLER and BUYER entering into a
Registration Rights Agreement substantially in the form of Annex I hereto.
7. GOVERNING LAW; INTERPRETATION. This Agreement shall be governed
by and interpreted in accordance with the laws of the State of New York without
giving effect to rules governing the conflict of laws. Facsimile signatures of
this agreement shall be binding on all parties hereto.
IN WITNESS WHEREOF, this Agreement was duly executed on the date first
written above.
Official Signatory of BUYER:
[BUYER]
BY:
----------------------------
[BUYER SIGN]
[BUYER SIGN TITLE]
Official Signatory of SELLER:
THE L.L. KNICKERBOCKER CO., INC.
BY:
---------------------------
Louis L. Knickerbocker
President
<PAGE>
EXHIBIT 10.2
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of [DATE] (this
"Agreement"), is made by and among The L.L. Knickerbocker Co., Inc. a California
corporation (the "Company"), and the person named on the signature page hereto
(the "Initial Investor").
W I T N E S S E T H :
---------------------
WHEREAS, in connection with the Private Securities Subscription
Agreement, dated as of [DATE], between the Initial Investor and the Company (the
"Subscription Agreement"), the Company has agreed, upon the terms and subject to
the conditions of the Subscription Agreement, to issue and sell to the Initial
Investor Convertible Debentures (the "Debentures") convertible into shares (the
"Shares") of Common Stock, no par value (the "Common Stock") of the Company; and
WHEREAS, to induce the Initial Investor to execute and deliver the
Subscription Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"Securities Act"), and applicable state securities laws with respect to the
Shares;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Initial Investor hereby agree as follows:
1. Definitions.
-----------
(a) As used in this Agreement, the following terms shall have the
following meanings:
(i) "Investor" means the Initial Investor and any transferee
or assignee who agrees to become bound by the provisions of this
Agreement in accordance with Section 9 hereof.
(ii) "register," "registered," and "registration" refer to a
registration effected by preparing and filing a Registration Statement
or Statements in compliance with the Securities Act on such
appropriate registration form
<PAGE>
promulgated by the Commission as shall be selected by the Company,
and, when requested by the Initial Investor or any Investor pursuant
to Section 2(b) hereof, shall (A) be reasonably acceptable to the
holders of a majority of the Registrable Securities to which such
registration relates, and (B) shall permit the disposition of
Registrable Securities in accordance with the intended method or
methods specified in the Investor's request for such registration, and
the declaration or ordering of effectiveness of such Registration
Statement by the United States Securities and Exchange Commission
("SEC").
(iii) "Registrable Securities" means the Shares.
(iv) "Registration Statement" means a registration statement
under the Securities Act registering securities of the Company.
(b) As used in this Agreement, the term Investor includes (i)
each Investor (as defined above) and (ii) each person who is a permitted
transferee or assignee of the Registrable Securities pursuant to Section 9
of this Agreement.
(c) Capitalized terms used herein and not otherwise defined
herein shall have the respective meanings set forth in the Subscription
Agreement.
2. Registration.
------------
(a) Piggy-Back Registrations. If at any time the Company shall
------------------------
determine to prepare and file with the SEC a Registration Statement
relating to an offering for its own account or the account of others under
the Securities Act any of its equity securities, other than on Form S-4 or
Form S-8 or their then equivalents relating to equity securities to be
issued solely in connection with any acquisition of any entity or business
or equity securities issuable in connection with stock option or other
employee benefit plans, the Company shall send to each Investor, who is
entitled to registration rights under this Section 2(a) written notice of
such determination and, if within twenty (20) days after receipt of such
notice, such Investor shall so request in writing, the Company shall
include in such Registration Statement all or any part of the Registrable
Securities such Investor requests to be registered, except that if, in
connection with any underwritten public offering for the account of the
Company the managing underwriter(s) thereof shall impose a limitation on
the number of shares of Common Stock which may be included in the
Registration Statement because, in such underwriter(s)' judgment, such
limitation is necessary to effect an orderly public distribution, then the
Company shall be obligated to include in such Registration Statement only
such limited portion, if any, of the Registrable Securities with respect to
which such Investor has requested inclusion hereunder. Any exclusion of
Registrable Securities shall be made pro rata among the Investors seeking
to include Registrable Securities, in proportion to the number of
Registrable Securities sought to be included by such Investors; provided,
--------
however, that the Company shall not exclude any Registrable Securities
--------
unless the Company has first excluded all outstanding securities the
holders of which are not entitled by right to inclusion of securities in
such Registration Statement, and has also excluded any securities sought to
be registered by
-2-
<PAGE>
officers and directors of the Company; and provided, further, however,
--------- -------- -------
that, after giving effect to the immediately preceding proviso, any
exclusion of Registrable Securities shall be made pro rata with holders of
other securities having the right to include such securities in the
Registration Statement to the extent such pro rata allotment is permitted
under the Company's currently existing agreements with such holders of the
Company's securities. No right to registration of Registrable Securities
under this Section 2(a) shall be construed to limit any registration
required under Section 2(b) hereof. The obligations of the Company under
this Section 2(a) shall expire (i) after the Company has afforded the
opportunity for the Investors to exercise registration rights under this
Section 2(a) for two registrations; provided, however, that any Investor
-------- -------
who shall have had any Registrable Securities excluded from any
Registration Statement in accordance with this Section 2(a) shall be
entitled to include in an additional Registration Statement filed by the
Company the Registrable Securities so excluded or (ii) when all of the
Registrable Securities held by any Investor may be sold by such Investor
under Rule 144 under the Securities Act ("Rule 144") within any three-month
period.
(b) Demand Registration. If, at any time after the closing under
-------------------
the Subscription Agreement (the "Closing"), any Investor holding Twenty-
Five Percent (25%) or more of the Registrable Securities shall notify the
Company in writing that it intends to offer or cause to be offered for
public sale Registrable Securities held by such Investor, the Company shall
cause such of the Registrable Securities as may be requested by any
Investor to be registered, on Form S-3 under the Securities Act, on one
occasion only, under the Securities Act and applicable state laws as
expeditiously as possible. Once the right for registration of any
Registrable Securities under this Section 2(b) has been exercised by any
Investor, the Company shall prepare and file a Registration Statement on
Form S-3 covering such Registrable Securities with the SEC within seven (7)
days of the exercise of such registration right. Demand shall be deemed to
occur upon the Closing.
(c) If any offering pursuant to a Registration Statement pursuant
to Section 2(b) hereof involves an underwritten offering, the Investors who
hold at least Seventy-Five Percent (75%) in interest of the Registrable
Securities subject to such underwritten offering shall have the right to
select one legal counsel and an investment banker or bankers and manager or
managers to administer the offering, which investment banker or bankers or
manager or managers shall be reasonably satisfactory to the Company. The
Investors who hold the Registrable Securities to be included in such
underwriting shall pay all underwriting discounts and commissions and other
fees and expenses of such investment banker or bankers and manager or
managers so selected in accordance with this Section 2(c) (other than fees
and expenses relating to registration of Registrable Securities under
federal or state securities laws which are payable by the Company pursuant
to Section 5 hereof) with respect to their Registrable Securities and the
fees and expenses of such legal counsel selected by the Investors.
(d) Payments by the Company. If the Registration Statement
-----------------------
covering the Registrable Securities for which a demand for registration has
been made pursuant to Section 2(b) hereof is not effective within the
earlier of 90 days after the Closing or 90 days after such demand has been
made, then the Company will make payments to each
-3-
<PAGE>
holder of Registrable Securities (each, a "Holder") in such amounts and at
such times as shall be determined pursuant to this Section 2(d). The amount
to be paid by the Company to the Holders shall be determined as of each
Computation Date, and such amount shall be equal to (i) in the case of the
first Computation Date, One Percent (1%) and (ii) in the case of each other
Computation Date, Two Percent (2%), in each case of the aggregate
subscription price paid by the Initial Investor for the Debentures pursuant
to the Subscription Agreement (the "Periodic Amount"); provided, however,
-----------------
that if any Computation Date is less than 30 days subsequent to another
Computation Date, then the Periodic Amount payable on the later Computation
Date shall be prorated. The Periodic Amount shall be prorated based on each
Holder's Debenture holdings. The Periodic Amount shall be paid by the
Company within five business days after each Computation Date and shall be
payable in cash; provided, however, that the Company may elect in lieu of
-----------------
payment of any Periodic Amount in cash to deliver to the Initial Investor
shares of Common Stock having an Aggregate Market Value equal to the amount
of the Periodic Amount if, but only if, (i) such shares are freely tradable
by the Initial Investor without any restriction under the Securities Act or
any state securities or "blue sky" law and (ii) after the issuance of such
shares to the Holder, the aggregate number of shares of Common Stock
beneficially owned by the Holder (determined in accordance with Section
13(d) of, and Regulations 13 D-G under, the Securities Exchange Act of
1934, as amended (the "Exchange Act") would not exceed 4.9% of the
outstanding shares of Common Stock.
As used in this Section 2(d), the following terms shall have the
following meanings:
"Aggregate Market Value" of any shares of Common Stock as of any
Computation Date means the product obtained by multiplying (a) such number
of shares of Common Stock times (b) the Average Market Price of the Common
Stock for such Computation Date.
"Average Market Price" of any security for any period shall be
computed as the average closing bid price of the shares over the five
trading-day period ending on the relevant Computation Date, as reported by
Bloomberg, L.P.
"Computation Date" means the date which is 60 days after the
exercise of demand registration rights under Section 2(b) and, if the
Registration Statement required to be filed by the Company pursuant to
Section 2(b) has not theretofore been declared effective by the SEC, each
date which is 30 days after a Computation Date and, if the Registration
Statement required to be filed by the Company pursuant to Section 2(b) is
not declared effective by the SEC within 60 days after the exercise of
demand registration rights under Section 2(b), the date on which such
Registration Statement is declared effective.
3. Obligations of the Company. In connection with the registration
--------------------------
of the Registrable Securities, the Company shall:
-4-
<PAGE>
(a) prepare promptly and file with the SEC promptly (but in no
event later than 7 days) after a request in accordance with Section 2(b)
hereof a Registration Statement or Statements on Form S-3 with respect to
all Registrable Securities to be included therein, and thereafter use its
best efforts to cause the Registration Statement to become effective as
soon as reasonably possible after such filing. If such Registration
Statement is filed pursuant to Rule 415, the Company shall keep the
Registration Statement effective pursuant to Rule 415 at all times until
such date as is three years after the date such Registration Statement is
first ordered effective by the SEC. In any case, the Registration
Statement (including any amendments or supplements thereto and prospectuses
contained therein) filed by the Company shall not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein, or necessary to make the statements therein, in light of
the circumstances in which they were made, not misleading; provided,
--------
however, that, subject to the conditions set forth in Section 4(a) below,
-------
each Investor may notify the Company in writing that it wishes to exclude
all or a portion of its Registrable Securities from such Registration
Statement; provided further, however, that if at any time the Investors
-------------------------
shall be entitled to sell all Registrable Securities held by them pursuant
to Rule 144 promulgated under the Securities Act or any other similar rule
or regulation of the SEC that may at any time permit the Investors to sell
securities of the Company to the public without registration and without
imposing restrictions arising under the federal securities laws on the
purchases thereof in a period of three consecutive months, then the Company
shall, so long as it meets the current public information requirements of
Rule 144, thereafter no longer be required to maintain the registration of
Registrable Securities pursuant to this Agreement;
(b) prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement
and the prospectus used in connection with the Registration Statement as
may be necessary to keep the Registration Statement effective at all times
until such date as is three years after the date such Registration
Statement is first ordered effective by the SEC, and, during such period,
comply with the provisions of the Securities Act with respect to the
disposition of all Registrable Securities of the Company covered by the
Registration Statement until such time as all of such Registrable
Securities have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof as set forth in the
Registration Statement;
(c) furnish to each Investor whose Registrable Securities are
included in the Registration Statement, such number of copies of a
prospectus, including a preliminary prospectus, and all amendments and
supplements thereto and such other documents as such Investor may
reasonably request in order to facilitate the disposition of the
Registrable Securities owned by such Investor;
(d) use reasonable efforts to (i) register and qualify the
Registrable Securities covered by the Registration Statement under such
other securities or blue sky laws of such jurisdictions as the Investors
who hold a majority in interest of the Registrable Securities being offered
reasonably request, (ii) prepare and file in those jurisdictions such
amendments (including post-effective amendments) and supplements,
-5-
<PAGE>
(iii) take such other actions as may be necessary to maintain such
registrations and qualifications in effect at all times until such date as
is the earlier of three years after the date such Registration Statement is
first ordered effective by the SEC or is three years after the Initial
Investor acquired the Debentures and (iv) take all other actions reasonably
necessary or advisable to qualify the Registrable Securities for sale in
such jurisdictions; provided, however, that the Company shall not be
-------- -------
required in connection therewith or as a condition thereto to (I) qualify
to do business in any jurisdiction where it would not otherwise be required
to qualify but for this Section 3(d), (II) subject itself to general
taxation in any such jurisdiction, (III) file a general consent to service
of process in any such jurisdiction, (IV) provide any undertakings that
cause more than nominal expense or burden to the Company or (V) make any
change in its charter or by-laws, which in each case the Board of Directors
of the Company determines to be contrary to the best interests of the
Company and its stockholders;
(e) in the event Investors who hold a majority in interest of the
Registrable Securities being offered in the offering select underwriters
for the offering, enter into and perform its obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with
the managing underwriter of such offering;
(f) as promptly as practicable after becoming aware of such
event, notify each Investor who holds Registrable Securities being sold
pursuant to such registration of the happening of any event of which the
Company has knowledge, as a result of which the prospectus included in the
Registration Statement, as then in effect, includes an untrue statement of
a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and use its best
efforts promptly to prepare a supplement or amendment to the Registration
Statement to correct such untrue statement or omission, and deliver a
number of copies of such supplement or amendment to each Investor as such
Investor may reasonably request;
(g) as promptly as practicable after becoming aware of such
event, notify each Investor who holds Registrable Securities being sold
pursuant to such registration (or, in the event of an underwritten
offering, the managing underwriters) of the issuance by the SEC of any stop
order or other suspension of effectiveness of the Registration Statement at
the earliest possible time;
(h) permit a single firm of counsel designated as selling
stockholders' counsel by the Investors who hold a majority in interest of
the Registrable Securities being sold pursuant to such registration to
review the Registration Statement and all amendments and supplements
thereto a reasonable period of time prior to their filing with the SEC, and
shall not file any document in a form to which such counsel reasonably
objects;
(i) make generally available to its security holders as soon as
practical, but not later than ninety (90) days after the close of the
period covered thereby, an
-6-
<PAGE>
earnings statement (in form complying with the provisions of Rule 158 under
the Securities Act) covering a twelve-month period beginning not later than
the first day of the Company's fiscal quarter next following the date of
the Registration Statement;
(j) at the request of the Investors who hold a majority in
interest of the Registrable Securities being sold pursuant to such
registration, furnish on the date that Registrable Securities are delivered
to an underwriter for sale in connection with the Registration Statement
(i) a letter, dated such date, from the Company's independent certified
public accountants in form and substance as is customarily given by
independent certified public accountants to underwriters in an underwritten
public offering, addressed to the underwriters; and (ii) an opinion, dated
such date, from counsel representing the Company for purposes of such
Registration Statement, in form and substance as is customarily given in an
underwritten public offering, addressed to the underwriters and Investors;
(k) make available for inspection by any Investor whose
Registrable Securities are being sold pursuant to such registration, any
underwriter participating in any disposition pursuant to the Registration
Statement, and any attorney, accountant or other agent retained by any such
Investor or underwriter (collectively, the "Inspectors"), all pertinent
financial and other records, pertinent corporate documents and properties
of the Company (collectively, the "Records"), as shall be reasonably
necessary to enable each Inspector to exercise its due diligence
responsibility, and cause the Company's officers, directors and employees
to supply all information which any Inspector may reasonably request for
purposes of such due diligence; provided, however, that each Inspector
-------- -------
shall hold in confidence and shall not make any disclosure (except to an
Investor) of any Record or other information which the Company determines
in good faith to be confidential, and of which determination the Inspectors
are so notified, unless (i) the disclosure of such Records is necessary to
avoid or correct a misstatement or omission in any Registration Statement,
(ii) the release of such Records is ordered pursuant to a subpoena or other
order from a court or government body of competent jurisdiction or (iii)
the information in such Records has been made generally available to the
public other than by disclosure in violation of this or any other
agreement. The Company shall not be required to disclose any confidential
information in such Records to any Inspector until and unless such
Inspector shall have entered into confidentiality agreements (in form and
substance satisfactory to the Company) with the Company with respect
thereto, substantially in the form of this Section 3(k). Each Investor
agrees that it shall, upon learning that disclosure of such Records is
sought in or by a court or governmental body of competent jurisdiction or
through other means, give prompt notice to the Company and allow the
Company, at its expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, the Records deemed
confidential. The Company shall hold in confidence and shall not make any
disclosure of information concerning an Investor provided to the Company
pursuant to Section 4(e) hereof unless (i) disclosure of such information
is necessary to comply with federal or state securities laws, (ii) the
disclosure of such information is necessary to avoid or correct a
misstatement or omission in any Registration Statement, (iii) the release
of such information is ordered pursuant to a subpoena or other order from a
court or governmental body of competent jurisdiction or
-7-
<PAGE>
(iv) such information has been made generally available to the public other
than by disclosure in violation of this or any other agreement. The Company
agrees that it shall, upon learning that disclosure of such information
concerning an Investor is sought in or by a court or governmental body of
competent jurisdiction or through other means, give prompt notice to such
Investor, at its expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, such information;
(l) use its best efforts either to (i) cause all the Registrable
Securities covered by the Registration Statement to be listed on a national
securities exchange and on each additional national securities exchange on
which similar securities issued by the Company are then listed, if any, if
the listing of such Registrable Securities is then permitted under the
rules of such exchange or (ii) secure designation of all the Registrable
Securities covered by the Registration Statement as a National Association
of Securities Dealers Automated Quotations System ("NASDAQ") "national
market system security" within the meaning of Rule 11Aa2-1 of the SEC under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
the quotation of the Registrable Securities on the NASDAQ National Market
System or, if, despite the Company's best efforts to satisfy the preceding
clause (i) or (ii), the Company is unsuccessful in satisfying the preceding
clause (i) or (ii), to secure listing on a national securities exchange or
NASDAQ authorization and quotation for such Registrable Securities and,
without limiting the generality of the foregoing, to arrange for at least
two market makers to register with the National Association of Securities
Dealers, Inc. ("NASD") as such with respect to such Registrable Securities;
(m) provide a transfer agent and registrar, which may be a single
entity, for the Registrable Securities not later than the effective date of
the Registration Statement;
(n) cooperate with the Investors who hold Registrable Securities
being sold and the managing underwriter or underwriters, if any, to
facilitate the timely preparation and delivery of certificates (not bearing
any restrictive legends) representing Registrable Securities to be sold
pursuant to the denominations or amounts as the case may be, and registered
in such names as the managing underwriter or underwriters, if any, or the
Investors may reasonably request; and, within five business days after a
Registration Statement which includes Registrable Securities is ordered
effective by the SEC, the Company shall deliver, and shall cause legal
counsel selected by the Company to deliver, to the transfer agent for the
Registrable Securities (with copies to the Investors whose Registrable
Securities are included in such Registration Statement) instructions to the
transfer agent to issue new stock certificates without a legend and an
opinion of such counsel that the shares have been registered; and
(o) take all other reasonable actions necessary to expedite and
facilitate disposition by the Investor of the Registrable Securities
pursuant to the Registration Statement;
-8-
<PAGE>
4. Obligations of the Investors. In connection with the registration
----------------------------
of the Registrable Securities, the Investors shall have the following
obligations:
(a) It shall be a condition precedent to the obligations of the
Company to take any action pursuant to this Agreement with respect to each
Investor that such Investor shall furnish to the Company such information
regarding itself, the Registrable Securities held by it and the intended
method of disposition of the Registrable Securities held by it as shall be
reasonably required to effect the registration of the Registrable
Securities and shall execute such documents in connection with such
registration as the Company may reasonably request. At least fifteen (15)
days prior to the first anticipated filing date of the Registration
Statement, the Company shall notify each Investor of the information the
Company requires from each such Investor (the "Requested Information") if
such Investor elects to have any of such Investor's Registrable Securities
included in the Registration Statement. If within five (5) business days
prior to the filing date the Company has not received the Requested
Information from an Investor (a "Non-Responsive Investor"), then the
Company may file the Registration Statement without including Registrable
Securities of such Non-Responsive Investor;
(b) Each Investor by such Investor's acceptance of the
Registrable Securities agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of
the Registration Statement hereunder, unless such Investor has notified the
Company in writing of such Investor's election to exclude all of such
Investor's Registrable Securities from the Registration Statement;
(c) In the event Investors holding a majority in interest of the
Registrable Securities being registered determine to engage the services of
an underwriter, each Investor agrees to enter into and perform such
Investor's obligations under an underwriting agreement, in usual and
customary form, including, without limitation, customary indemnification
and contribution obligations, with the managing underwriter of such
offering and take such other actions as are reasonably required in order to
expedite or facilitate the disposition of the Registrable Securities,
unless such Investor has notified the Company in writing of such Investor's
election to exclude all of such Investor's Registrable Securities from the
Registration Statement;
(d) Each Investor agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section
3(f) or 3(g), such Investor will immediately discontinue disposition of
Registrable Securities pursuant to the Registration Statement covering such
Registrable Securities until such Investor's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 3(f) or 3(g)
and, if so directed by the Company, such Investor shall deliver to the
Company (at the expense of the Company) or destroy (and deliver to the
Company a certificate of destruction) all copies in such Investor's
possession, of the prospectus covering such Registrable Securities current
at the time of receipt of such notice; and
(e) No Investor may participate in any underwritten registration
hereunder unless such Investor (i) agrees to sell such Investor's
Registrable Securities on
-9-
<PAGE>
the basis provided in any underwriting arrangements approved by the
Investors entitled hereunder to approve such arrangements, (ii) completes
and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents reasonably required under the
terms of such underwriting arrangements and (iii) agrees to pay its pro
rata share of all underwriting discounts and commissions and other fees and
expenses of investment bankers and any manager or managers of such
underwriting and legal expenses of the underwriter applicable with respect
to its Registrable Securities, in each case to the extent not payable by
the Company pursuant to the terms of this Agreement.
5. Expenses of Registration. All expenses (other than underwriting
------------------------
discounts and commissions and other fees and expenses of investment bankers in
connection with an underwritten demand registration under Section 2(b) and other
than brokerage commissions) incurred in connection with registrations, filings
or qualifications pursuant to Section 3, including, without limitation, all
registration, listing and qualifications fees, printers and accounting fees and
the fees and disbursements of counsel for the Company, shall be borne by the
Company; provided, however, that the Investors shall bear the fees and out-of-
--------- -------
pocket expenses of the one legal counsel selected by the Investors pursuant to
Section 3(h) hereof.
6. Indemnification. In the event any Registrable Securities are
---------------
included in a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Investor who holds such Registrable Securities, the
directors, if any, of such Investor, the officers, if any, of such
Investor, each person, if any, who controls any Investor within the meaning
of the Securities Act or the Exchange Act, any underwriter (as defined in
the Securities Act) for the Investors, the directors, if any, of such
underwriter and the officers, if any, of such underwriter, and each person,
if any, who controls any such underwriter within the meaning of the
Securities Act or the Exchange Act (each, an "Indemnified Person"), against
any losses, claims, damages, expenses or liabilities (joint or several)
(collectively "Claims") to which any of them become subject under the
Securities Act, the Exchange Act or otherwise, insofar as such Claims (or
actions or proceedings, whether commenced or threatened, in respect
thereof) arise out of or are based upon any of the following statements,
omissions or violations in the Registration Statement, or any post-
effective amendment thereof, or any prospectus included therein: (i) any
untrue statement or alleged untrue statement of a material fact contained
in the Registration Statement or any post-effective amendment thereof or
the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, (ii) any untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus if used prior to the
effective date of such Registration Statement, or contained in the final
prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the omission or alleged
omission to state therein any material fact necessary to make the
statements made therein, in light of the circumstances under which the
statements therein were made, not misleading or (iii) any violation or
alleged violation by the Company of the Securities Act, the Exchange Act or
any state securities law or any rule or regulation (the matters in the
foregoing clauses (i) through
-10-
<PAGE>
(iv) being, collectively, "Violations"). Subject to the restrictions set
forth in Section 6 (d) with respect to the number of legal counsel, the
Company shall reimburse the Investors and each such underwriter or
controlling person, promptly as such expenses are incurred and are due and
payable, for any legal fees or other reasonable expenses incurred by them
in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(a) (I) shall not
apply to a Claim arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in writing to
the Company by any Indemnified Person or underwriter for such Indemnified
Person expressly for use in connection with the preparation of the
Registration Statement or any such amendment thereof or supplement thereto,
if such prospectus was timely made available by the Company pursuant to
Section 3(c) hereof; (II) with respect to any preliminary prospectus shall
not inure to the benefit of any such person from whom the person asserting
any such Claim purchased the Registrable Securities that are the subject
thereof (or to the benefit of any person controlling such person) if the
untrue statement or omission of material fact contained in the preliminary
prospectus was corrected in the prospectus, as then amended or
supplemented, if such prospectus was timely made available by the Company
pursuant to Section 3(c) hereof; and (III) shall not apply to amounts paid
in settlement of any Claim if such settlement is effected without the prior
written consent of the Company, which consent shall not be unreasonably
withheld. Such indemnity shall remain in full force and effect regardless
of any investigation made by or on behalf of the Indemnified Persons and
shall survive the transfer of the Registrable Securities by the Investors
pursuant to Section 9.
(b) In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees to indemnify and hold
harmless, to the same extent and in the same manner set forth in Section
6(a), the Company, each of its directors, each of its officers who signs
the Registration Statement, each person, if any, who controls the Company
within the meaning of the Securities Act or the Exchange Act, any
underwriter and any other stockholder selling securities pursuant to the
Registration Statement or any of its directors or officers or any person
who controls such stockholder or underwriter within the meaning of the
Securities Act or the Exchange Act (collectively and together with an
Indemnified Person, an "Indemnified Party"), against any Claim to which any
of them may become subject, under the Securities Act, the Exchange Act or
otherwise, insofar as such Claim arises out of or is based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written
information furnished to the Company by such Investor expressly for use in
connection with such Registration Statement; and such Investor will
promptly reimburse any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such Claim; provided,
--------
however, that the indemnity agreement contained in this Section 6(b) shall
-------
not apply to amounts paid in settlement of any Claim if such settlement is
effected without the prior written consent of such Investor, which consent
shall not be unreasonably withheld; provided, further, however, that the
-------- ------- -------
Investor shall be liable under this Section 6(b) for only that amount of a
Claim as does not exceed the net proceeds to such Investor as a result of
the sale of Registrable Securities
-11-
<PAGE>
pursuant to such Registration Statement. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf
of such Indemnified Party and shall survive the transfer of the Registrable
Securities by the Investors pursuant to Section 9. Notwithstanding anything
to the contrary contained herein, the indemnification agreement contained
in this Section 6(b) with respect to any preliminary prospectus shall not
inure to the benefit of any Indemnified Party if the untrue statement or
omission of material fact contained in the preliminary prospectus was
corrected on a timely basis in the prospectus, as then amended or
supplemented.
(c) The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities
industry professionals participating in any distribution, to the same
extent as provided above, with respect to information such persons so
furnished in writing by such persons expressly for inclusion in the
Registration Statement.
(d) Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of any
action (including any governmental action), such Indemnified Person or
Indemnified Party shall, if a Claim in respect thereof is to made against
any indemnifying party under this Section 6, deliver to the indemnifying
party a written notice of the commencement thereof and this indemnifying
party shall have the right to participate in, and, to the extent the
indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume control of the defense thereof with counsel
mutually satisfactory to the indemnifying parties; provided, however, that
-------- -------
an Indemnified Person or Indemnified Party shall have the right to retain
its own counsel, with the fees and expenses to be paid by the indemnifying
party, if, in the reasonable opinion of counsel retained by the
indemnifying party, the representation by such counsel of the Indemnified
Person or Indemnified Party and the indemnifying party would be
inappropriate due to actual or potential differing interests between such
Indemnified Person or Indemnified Party and other party represented by such
counsel in such proceeding. The Company shall pay for only one separate
legal counsel for the Investors; such legal counsel shall be selected by
the Investors holding a majority in interest of the Registrable Securities.
The failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action shall not relieve
such indemnifying party of any liability to the Indemnified Person or
Indemnified Party under this Section 6, except to the extent that the
indemnifying party is prejudiced in its ability to defend such action. The
indemnification required by this Section 6 shall be made by periodic
payments of the amount thereof during the course of the investigation or
defense, as such expense, loss, damage or liability is incurred and is due
and payable.
7. Contribution. To the extent any indemnification provided for
------------
herein is prohibited or limited by law, the indemnifying party agrees to make
the maximum contribution with respect to any amounts for which it would
otherwise be liable under Section 6 to the fullest extent permitted by law;
provided, however, that (a) no contribution shall be made under circumstances
- -------- -------
where the maker would not have been liable for indemnification under the fault
standards set forth in Section 6, (b) no seller of Registrable Securities guilty
of fraudulent
-12-
<PAGE>
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any seller of Registrable Securities who
was not guilty of such fraudulent misrepresentation and (c) contribution by any
seller of Registrable Securities shall be limited in amount to the net amount of
proceeds received by such seller from the sale of such Registrable Securities.
8. Reports under Exchange Act. With a view to making available to
--------------------------
the Investors the benefits of Rule 144 or any other similar rule or regulation
of the SEC that may at any time permit the Investors to sell securities of the
Company to the public without registration, until such time as the Investors
have sold all the Registrable Securities pursuant to a Registration Statement or
Rule 144, the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange
Act; and
(c) furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by
the Company that it has complied with the reporting requirements of Rule
144, the Securities Act and the Exchange Act, (ii) a copy of the most
recent annual or quarterly report of the Company and such other reports and
documents so filed by the Company and (iii) such other information as may
be reasonably requested to permit the Investors to sell such securities
pursuant to Rule 144 without registration.
9. Assignment of the Registration Rights. The rights to have the
-------------------------------------
Company register Registrable Securities pursuant to this Agreement shall be
automatically assigned by the Investors to transferees or assignees of all or
any portion of such securities only if: (a) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (i) the
name and address of such transferee or assignee and (ii) the securities with
respect to which such registration rights are being transferred or assigned,
(b) immediately following such transfer or assignment the further disposition of
such securities by the transferee or assignee is restricted under the Securities
Act and applicable state securities laws, and (c) at or before the time the
Company received the written notice contemplated by clause (a) of this sentence
the transferee or assignee agrees in writing with the Company to be bound by all
of the provisions contained herein.
10. Amendment of Registration Rights. Any provision of this
--------------------------------
Agreement may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and Investors who
hold Seventy-Five Percent (75%) of the outstanding Debentures. Any amendment or
waiver effected in accordance with this Section 10 shall be binding upon each
Investor and the Company.
-13-
<PAGE>
11. Third Party Beneficiary. The parties acknowledge and agree that
-----------------------
Shoreline Pacific, the Institutional Division of Financial West Group
("Shoreline Pacific"), shall be deemed a third party beneficiary of the
Company's agreements and representations set forth in this Agreement, entitled
to enforce the terms thereof, and to indemnification for any damages resulting
to Shoreline Pacific from any actual or threatened breach thereof by the
Company, both in Shoreline Pacific's personal capacity and, should Shoreline
Pacific so elect, on behalf of the Investor.
12. Miscellaneous.
-------------
(a) A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of
instructions, notice or election received from the registered owner of such
Registrable Securities.
(b) Notices required or permitted to be given hereunder shall be
in writing and shall be deemed to be sufficiently given when personally
delivered or when sent by registered mail, return receipt requested,
addressed (i) if to the Company, at The L.L. Knickerbocker Co., Inc., 30055
Comercio, Rancho Santa Margarita, CA 92688, Attention: Mr. Louis L.
Knickerbocker, President (ii) if to the Initial Investor, at the address
set forth under its name in the Subscription Agreement and (iii) if to any
other Investor, at such address as such Investor shall have provided in
writing to the Company, or at such other address as each such party
furnishes by notice given in accordance with this Section 12(b), and shall
be effective, when personally delivered, upon receipt, and when so sent by
certified mail, four business days after deposit with the United States
Postal Service.
(c) Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right
or remedy, shall not operate as a waiver thereof.
(d) This Agreement shall be enforced, governed by and construed
in accordance with the laws of the State of New York applicable to the
agreements made and to be performed entirely within such state, without
giving effect to rules governing the conflict of laws. In the event that
any provision of this Agreement is invalid or unenforceable under any
applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be
deemed modified to conform with such statute or rule of law. Any provision
hereof which may prove invalid or unenforceable under any law shall not
affect the validity or enforceability of any other provision hereof.
(e) This Agreement constitutes the entire agreement among the
parties hereto with respect to the subject matter hereof. There are no
restrictions, promises, warranties or undertakings, other than those set
forth or referred to herein. This
-14-
<PAGE>
Agreement supersedes all prior agreements and understandings among the
parties hereto with respect to the subject matter hereof.
(f) Subject to the requirements of Section 9 hereof, this
Agreement shall inure to the benefit of and be binding upon the successors
and assigns of each of the parties hereto.
(g) All pronouns and any variations thereof refer to the
masculine, feminine or neuter, singular or plural, as the context may
require.
(h) The headings in the Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original but all of which shall constitute
one and the same agreement. This Agreement, once executed by a party, may
be delivered to the other party hereto by telephone line facsimile
transmission of a copy of this Agreement bearing the signature of the party
so delivering this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective officers thereunto duly authorized as of day and
year first above written.
The L.L. Knickerbocker Co., Inc.
By:
-----------------------------------
Louis L. Knickerbocker
President
[BUYER]
By:
-----------------------------------
[BUYER SIGN]
[BUYER SIGN TITLE]
-15-
<PAGE>
EXHIBIT 10.3
STOCK PURCHASE AGREEMENT
by and among
HARLYN PRODUCTS, INC.,
a California corporation
("Seller"),
HARLYN INTERNATIONAL
a private Thailand limited company
(the "Company"),
and
THE L.L. KNICKERBOCKER CO., INC.,
a California corporation
("Buyer")
Dated: September 30, 1996
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
ARTICLE I DEFINITIONS............................................ 1
1.1 Defined Terms.......................................... 1
1.2 Other Defined Terms.................................... 4
ARTICLE II PURCHASE AND SALE OF STOCK............................. 4
2.1 Transfer of Stock...................................... 4
2.2 Consideration for Stock................................ 4
ARTICLE III SETTLEMENT............................................. 5
3.1 Settlement............................................. 5
3.2 Documents to be Delivered.............................. 5
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLER AND
THE COMPANY............................................ 6
4.1 Representations Regarding the Company.................. 6
4.2 Representations Regarding the Seller................... 16
ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER................ 17
5.1 Organization of Buyer.................................. 17
5.2 Authority Relative to Agreement........................ 17
5.3 No Conflict or Violation............................... 17
5.4 Consents and Approvals................................. 18
5.5 Litigation............................................. 18
5.6 Brokers and Finders.................................... 18
5.7 Material Misstatements or Omissions.................... 18
ARTICLE VI ACTIONS BY SELLER, THE COMPANY AND BUYER PRIOR TO THE
SETTLEMENT DATE........................................ 19
6.1 Maintenance of Business................................ 19
6.2 Certain Prohibited Transactions........................ 19
6.3 Investigation by Buyer................................. 20
6.4 Consents and Best Efforts.............................. 21
6.5 Notification of Certain Matters........................ 21
ARTICLE VII CONDITIONS TO SELLER'S OBLIGATIONS..................... 21
7.1 Representations, Warranties and Covenants.............. 21
7.2 Consents............................................... 21
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
7.3 No Governmental Proceeding or Litigation............... 22
7.4 Commitment to Purchase Inventory....................... 22
7.5 Certificates........................................... 22
7.6 Corporate Documents.................................... 22
ARTICLE VIII CONDITIONS TO BUYER'S OBLIGATIONS...................... 22
8.1 Representations, Warranties and Covenants.............. 22
8.2 Consents............................................... 23
8.3 No Governmental Proceeding or Litigation............... 23
8.4 Transfer of Shares of Capital Stock by Other
Shareholders........................................... 23
8.5 Certificates........................................... 23
8.6 Corporate Documents.................................... 23
8.7 Completion of Due Diligence............................ 23
ARTICLE IX [INTENTIONALLY OMITTED]................................ 23
ARTICLE X ACTIONS BY SELLER, THE COMPANY AND BUYER AFTER THE
SETTLEMENT............................................. 24
10.1 Books and Records...................................... 24
10.2 Further Assurances..................................... 24
10.3 Filing Tax Returns..................................... 24
ARTICLE XI INDEMNIFICATION........................................ 24
11.1 Survival of Representations, Etc....................... 24
11.2 Indemnification........................................ 25
ARTICLE XII MISCELLANEOUS.......................................... 25
12.1 Termination............................................ 25
12.2 Assignment............................................. 26
12.3 Notices................................................ 26
12.4 Choice of Law.......................................... 27
12.5 Entire Agreement; Amendments and Waivers............... 27
12.6 Counterparts........................................... 27
12.7 Invalidity............................................. 27
12.8 Headings............................................... 28
12.9 Expenses............................................... 28
12.10 Publicity.............................................. 28
12.11 Confidential Information............................... 28
</TABLE>
-ii-
<PAGE>
STOCK PURCHASE AGREEMENT
------------------------
THIS STOCK PURCHASE AGREEMENT, dated as of September 30, 1996, is made
by and among HARLYN PRODUCTS, INC., a California corporation ("Seller"), HARLYN
INTERNATIONAL, a private Thailand limited company (the "Company"), and THE L.L.
KNICKERBOCKER CO., INC., a California corporation (the "Buyer").
R E C I T A L S :
----------------
A. Seller owns 149,993 ordinary shares, with a par value of 100 baht
per share, of the Company (collectively, the "Stock"). The Company is currently
engaged in the business of the manufacture and sale of fine jewelry (the
"Business").
B. Buyer desires to purchase from Seller, and Seller desires to
transfer to Buyer, all of the Stock upon the terms and subject to the conditions
set forth in this Agreement.
A G R E E M E N T :
------------------
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
-----------
1.1 Defined Terms
-------------
As used herein, the terms below shall have the following meanings:
"Actions" shall mean any action, claim, suit, litigation, proceeding,
-------
dispute, arbitration or investigation and any outstanding order, writ,
injunction, judgment or decree.
"Affiliate" shall mean any person, corporation, partnership or other
---------
entity that, directly or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with, the specified
entity or person. The term "control" as used herein (including the terms
"controlled by" and "under common control with") means the possession, direct or
indirect, of the power to vote fifty person (50%) or more of the outstanding
voting securities or interests of such person or entity.
"Balance Sheet Date" shall mean June 30, 1996.
------------------
<PAGE>
"Benefit Arrangement" shall mean any written employment, consulting,
-------------------
severance or other similar contract, arrangement or policy and each written
plan, arrangement, program, agreement or commitment providing for insurance
coverage (including any self-insured arrangements), workers' compensation,
disability benefits, supplemental unemployment benefits, vacation benefits,
retirement benefits, life, health, disability or accident benefits or for
deferred compensation, profit-sharing bonuses, stock options, stock appreciation
rights, stock purchases or other forms of incentive compensation or post-
retirement insurance, compensation or benefits.
"Books and Records" shall mean (i) all records and lists pertaining to
-----------------
the business, customers, suppliers or personnel of the Company, (ii) all
product, business and marketing plans of the Company and (iii) all books,
ledgers, files, reports, plans, drawings and operating records of every kind
maintained by the Company in connection with its Business.
"Buyer" shall mean The L.L. Knickerbocker Co., Inc., a California
-----
corporation.
"Company" shall mean Harlyn International, a private Thailand limited
-------
company.
"Condition" shall mean the condition (financial or other), business,
---------
prospects, assets, liabilities and/or operations of the Company.
"Disclosure Schedules" means the schedules delivered by Seller to
--------------------
Buyer on or prior to the Settlement Date which set forth exceptions to the
representations and warranties contained in Article IV hereof and certain other
information called for by Article IV hereof and other provisions of this
Agreement.
"Encumbrances" shall mean any claim, lien, pledge, option, charge,
------------
easement, security interest, deed of trust, mortgage, right-of-way,
encroachment, building or use restriction, conditional sales agreement,
encumbrance, community property rights, or other right of third parties, whether
voluntarily incurred or arising by operation of law, and includes, without
limitation, any agreement to give any of the foregoing in the future and any
contingent sale or other title retention agreement or lease in the nature
thereof.
"Environmental Laws" shall mean all federal, state, local or foreign
------------------
statutes, ordinances, regulations, rules, judgments, orders, notice
requirements, court decisions, agency guidelines or principles of law which (i)
regulate or relate to the protection or clean-up of the environment, the use,
treatment, storage, transportation or disposal of hazardous, toxic or otherwise
dangerous substances (whether gas, liquid or solid), the preservation or
protection of waterways, groundwater, drinking water, air, wildlife, plants or
other natural resources, or the health and safety of persons or property or (ii)
impose liability with respect to any of the foregoing.
"Execution Date" shall mean September 30, 1996, or such other date as
--------------
may be mutually agreed upon in writing by Seller and Buyer.
"Execution Financial Statements" shall mean the balance sheet and the
------------------------------
related statements of operations, stockholders' equity and cash flows for the
Company as of and for the period ended on the Execution Financial Statements
Date, together with the notes thereto.
-2-
<PAGE>
"Execution Financial Statements Date" shall mean the Execution Date.
-----------------------------------
"Facilities" shall mean all offices, buildings and other real property
----------
and related facilities which are owned or leased by the Company.
"Financial Statements" shall mean the balance sheet and the related
--------------------
statements of operations, stockholders' equity and cash flows for the Company as
of, and for the year ended, June 30, 1996, together with the notes thereto which
were audited by Deloitte Touche Komatsu, employees of which are the Company's
statutory auditors.
"Fixtures and Equipment" shall mean all of the furniture, fixtures,
----------------------
furnishings, machinery and equipment owned by the Company and located in, at or
upon the Facilities as of the Balance Sheet Date plus all additions,
replacements or deletions since the Balance Sheet Date in the ordinary course of
the Company's Business.
"Material Adverse Effect" shall mean a material adverse effect on the
-----------------------
Condition of the Company.
"Permit(s)" shall mean any and all licenses, permits, franchises,
---------
approvals, authorizations, consents, orders or other permits of, or filings
with, any governmental authority, whether foreign, federal, state, county or
local relating to the operation of the Company's Business.
"Representative" shall mean any officer, director, principal,
--------------
attorney, accountant, agent, employee or other representative.
"Seller" shall mean Harlyn Products, Inc., a California corporation.
------
"Settlement Date" shall mean October 15, 1996, or such other date as
---------------
shall be agreed to in writing by Buyer and Seller.
"Subsidiaries" shall mean all corporations, partnerships, joint
------------
ventures or other entities in which the Company either owns capital stock, is a
general or limited partner or is in some other manner affiliated through an
investment or participation in the equity of such entities.
"Taxes" shall mean any federal, state, local or foreign income, sales,
-----
use, transfer, payroll, personal property, occupancy, franchise, premium or
other tax, levy, impost, fee, imposition, assessment or similar charge, together
with any related addition to tax, interest or penalty thereon.
-3-
<PAGE>
1.2 Other Defined Terms
----------------------
The following terms shall have the meanings given such terms in the
Sections set forth below:
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Business Recitals
Company Documents 4.1(a)
Contracts 4.1(q)
Damages 11.2(a)
Net Asset Value 2.2
Other Shareholders 2.1
Proprietary Rights 4.1(u)
Purchase Price 2.2
Settlement 3.1
Stock Recitals
Transfer 2.1
</TABLE>
ARTICLE II
----------
PURCHASE AND SALE OF STOCK
--------------------------
2.1 Transfer of Stock
-----------------
Upon the terms and subject to the conditions contained herein, Seller
will sell, convey, transfer, assign and deliver (collectively, "Transfer") to
Buyer, and Buyer will acquire on the Settlement Date, the Stock, free and clear
of all Encumbrances. In addition, Seller agrees to use its best efforts to
cause all of the shareholders of the Company, other than Seller (the "Other
Shareholders"), to Transfer to Buyer on or before the Settlement Date all shares
of capital stock of the Company owned by the Other Shareholders, free and clear
of all Encumbrances. In order to effect the Transfer of the Stock to Buyer on
the Settlement Date, Seller agrees to execute all documents necessary to
instruct Wells Fargo Bank, or any other holder of the Stock on the Settlement
Date, to effect such Transfer.
Notwithstanding the foregoing, for financial reporting purposes the
Transfer of the Stock shall be deemed to be effective as of July 1, 1996.
2.2 Consideration for Stock
-----------------------
Upon the terms and subject to the conditions contained herein, as
consideration for the purchase of the Stock, Buyer shall pay to Seller a
purchase price (the "Purchase Price") which shall be equal to the Net Asset
Value (as hereinafter defined) of the Company. The term "Net Asset Value" shall
mean the aggregate value of total assets of the Company as of June 30, 1996
reduced by the aggregate value of total liabilities of the Company as of June
30, 1996, subject to certain adjustments and/or eliminations of accounts as set
forth in that certain Letter of Intent dated September 20, 1996 by and between
Seller and The L.L. Knickerbocker (Thai) Co. Ltd., a
-4-
<PAGE>
wholly owned subsidiary of Buyer, and rolled forward to reflect the values of
such assets and liabilities as of September 30, 1996. The parties hereto agree
that the Net Asset Value is the aggregate amount set forth on Schedule 2.2
attached hereto and that such amount is subject to adjustment for any increase
or decrease in the aggregate amount of the Net Asset Value as determined upon
verification by the Buyer of the values in Schedule 2.2 attached hereto. The
Purchase Price shall be paid as follows: (a) on the Execution Date, $1,000,000
cash shall be paid by Buyer to Wells Fargo Bank to hold in escrow until such
time that (i) Seller and the Company deliver to Buyer the Disclosure Schedules
and Buyer completes its review of such Disclosure Schedules, and Buyer, in its
sole discretion, approves such Disclosure Schedules, (ii) the respective Boards
of Directors of the Seller and the Company approve the execution and delivery of
the Agreement and the consummation by the Seller and the Company of the
transactions contemplated thereby, and (iii) Seller obtains the requisite
consents of Wells Fargo Bank and Bank of Boston to the execution and delivery of
the Agreement by the Seller and the Company and the consummation by the Seller
and the Company of the transactions contemplated thereby, and at such time that
Buyer notifies Wells Fargo Bank of the occurrence of such events then the
$1,000,000 amount shall be released from escrow and paid to Wells Fargo Bank
and/or Bank of Boston and/or Seller in accordance with their mutual agreement,
with such amounts to be paid to said banks in partial repayment of obligations
of Seller and the Company to said banks; and (b) the remainder of the Purchase
Price, approximately $1,150,000, shall be paid on the Settlement Date by Buyer
to Wells Fargo Bank and/or Bank of Boston and/or Seller in accordance with their
mutual agreement, with such amounts to be paid to said banks in partial
repayment of obligations of Seller and the Company to said banks; provided,
however, such payment shall be contingent upon the satisfaction of the
requirements contained in Section 8.7 of this Agreement.
ARTICLE III
-----------
SETTLEMENT
----------
3.1 Settlement
----------
The closing of the transactions contemplated herein (the "Settlement")
shall be held at 10:00 a.m. local time on the Settlement Date at ,
--------------
unless the parties hereto otherwise agree.
3.2 Documents to be Delivered
-------------------------
(a) To effect the Transfer of the Stock referred to in Section 2.1 and
the delivery of the consideration described in Section 2.2 hereof, Seller
and Buyer shall, on the Settlement Date, deliver the following:
(i) Seller shall have delivered to Buyer certificate(s)
evidencing the Stock, free and clear of any Encumbrances of any nature
whatsoever, accompanied by a separate share transfer deed duly
endorsed for Transfer of the Stock;
(ii) Buyer and Seller shall each deliver all documents required to
be delivered by them, respectively, pursuant to Articles VII and VIII,
respectively;
-5-
<PAGE>
(iii) Buyer shall deliver to Seller the remaining balance of the
Purchase Price as provided in Section 2.2; and
(iv) Seller shall deliver to Buyer letters of resignation of all
of the members of the Board of Directors of the Company effective as
of the Settlement Date.
(b) All instruments and documents executed and delivered to Buyer
pursuant hereto shall be in form and substance, and shall be executed in a
manner, reasonably satisfactory to Buyer. All instruments and documents
executed and delivered to Seller pursuant hereto shall be in form and
substance, and shall be executed in a manner, reasonably satisfactory to
Seller.
ARTICLE IV
----------
REPRESENTATIONS AND WARRANTS
----------------------------
OF SELLER AND THE COMPANY
-------------------------
4.1 Representations Regarding the Company
-------------------------------------
Each of the Seller and the Company hereby, jointly and severally,
represent and warrant to Buyer, except as set forth on the Disclosure Schedules
attached hereto, the following:
(a) Organization and Qualification. The Company is a private
------------------------------
Thailand limited company duly organized, validly existing and in good
standing under the laws of Thailand and has the requisite corporate power
and authority to carry on its business as it is now being conducted. The
Company is duly qualified to do business and in good standing as a foreign
corporation in each jurisdiction in which the failure to be so qualified
and in good standing would have a Material Adverse Effect. Copies of the
Memorandum of Association, Articles of Association, Certificate of
Registration and Affidavit along with Statement of Purpose (collectively,
the "Company Documents") of the Company heretofore delivered to the Buyer
are accurate and complete as of the date hereof.
(b) Subsidiaries. The Company does not have any direct or
------------
indirect Subsidiaries other than Harlyn Thailand, a private Thailand
limited company, all of the shares of capital stock of which shall be
Transferred by the Company prior to the Settlement Date.
(c) Capitalization. The Company has authorized 150,000 ordinary
--------------
shares, with a par value of 100 baht per share, all of which are issued
and outstanding. There are no other shares of capital stock or other
equity securities of the Company outstanding, and no other outstanding
options, warrants, rights to subscribe (including any preemptive rights),
calls or commitments of any character whatsoever to which the Company is a
party or may be bound, requiring the issuance or sale of shares of any
capital stock or other equity securities of the Company or securities or
rights convertible into or exchangeable for such shares or other equity
securities, and there are no contracts,
-6-
<PAGE>
commitments, understandings or arrangements by which the Company is or may
become bound to issue additional shares of its capital stock or other
equity securities or options, warrants or rights to purchase or acquire any
additional shares of its capital stock or other equity securities or
securities convertible into or exchangeable for such shares or other equity
securities.
(d) Authority Relative to Agreement. The Company has the
-------------------------------
requisite power and authority to enter into this Agreement, to perform its
obligations hereunder and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement by the Company and
the consummation by the Company of the transactions contemplated hereby
have been duly approved by the board of directors and shareholders of the
Company. No other corporate proceedings on the part of the Company are
necessary to authorize this Agreement and the transactions contemplated
hereby. This Agreement has been duly executed and delivered by the Company
and constitutes a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except that
such enforceability may be limited by (a) bankruptcy, insolvency,
reorganization, moratorium or other similar laws, or by equitable
principles, relating to or limiting the rights of creditors generally and
(b) limitations imposed by law or equitable principles upon the
availability of specific performance, injunctive relief or other equitable
remedies.
(e) No Conflict or Violation. Neither the execution and delivery
------------------------
of this Agreement by the Company, nor the consummation of the transactions
contemplated hereby, will (i) violate, conflict with, or result in a breach
of any provisions of, 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
result in a right of termination or acceleration under, or result in the
creation of any Encumbrance upon any of the properties or assets of the
Company under, any of the terms, conditions or provisions of (A) the
Company Documents or (B) except as set forth on Schedule 4.1(e) of the
Disclosure Schedules, to the actual knowledge of the Seller and the
Company, any note, bond, mortgage, indenture, deed of trust, security or
pledge agreement, license, lease, franchise, Permit, partnership agreement
or other instrument or obligation to which the Company is a party or to
which the Company or any of its properties or assets may be subject, (ii)
subject to compliance with the statutes and regulations referred to in
Section 4.1(f) hereof, to the actual knowledge of the Seller and the
Company, violate any judgment, ruling, order, writ, injunction, decree,
statute, rule or regulation applicable to the Company or any of its
properties or assets; except, in the case of each of clauses (i) and (ii)
above, for such violations, conflicts, breaches, defaults, terminations,
accelerations or creations of Encumbrances which, in the aggregate, would
not have a Material Adverse Effect or (iii) except as set forth on Schedule
4.1(e) of the Disclosure Schedules, to the actual knowledge of the Seller
and the Company, result in the payment by, or the creation of any
obligation (absolute or contingent) to pay on behalf of, the Company of any
severance, termination, "golden parachute" or other similar payments
pursuant to any employment or other agreements of the Company.
-7-
<PAGE>
(f) Consents and Approvals. Except as set forth on Schedule
----------------------
4.1(f) of the Disclosure Schedules and except for the approval of the Board
of Investment of the Government of Thailand of the Transfer of the Stock,
to the actual knowledge of the Seller and the Company, no notice to,
declaration, filing or registration with, or authorization, consent or
approval of, or Permit from, any domestic or foreign governmental or
regulatory body or authority, or any other person or entity, is necessary
in connection with the execution and delivery of this Agreement by the
Company and the consummation by the Company of the transactions
contemplated by this Agreement.
(g) Financial Statements. The Financial Statements as of and for
--------------------
the year ended June 30, 1996 have been examined by Deloitte Touche Komatsu,
employees of which are the Company's statutory auditors. The Financial
Statements have been prepared in conformity with generally accepted
accounting principles consistently applied throughout the periods covered
thereby. The Financial Statements fairly and accurately present the
assets, liabilities and financial position of the Company as of the date
thereof and the results of operations and changes in shareholders' equity
and cash flows for the period then ended. At the Balance Sheet Date, there
were no material liabilities of the Company required to be reflected on the
Financial Statements in accordance with generally accepted accounting
principles other than the liabilities shown or reflected in the Financial
Statements or the notes thereto. On the Execution Date, the Company will
deliver to Buyer the Execution Financial Statements. The Execution
Financial Statements will have been prepared in conformity with generally
accepted accounting principles consistently applied throughout the periods
covered thereby. The Execution Financial Statements will fairly and
accurately present the assets, liabilities and financial position of the
Company as of the date thereof and the results of operations and changes in
shareholders' equity and cash flows for the periods then ended. At the
Execution Financial Statements Date, there will be no material liabilities
of the Company required to be reflected on the Execution Financial
Statements in accordance with generally accepted accounting principles
except liabilities shown or reflected in the Execution Financial Statements
or the notes thereto.
(h) Books and Records.
------------------
(i) The Company has made and kept (and given Buyer access
to) the Books and Records and accounts, which, in reasonable detail,
accurately reflect the activities, transactions and business of the
Company.
(ii) The minute books of the Company previously delivered to
Buyer accurately reflect all action previously taken by the
shareholders, boards of directors and committees of the boards of
directors of the Company and contain a true and complete copy of each
of the Company Documents, and all amendments thereto, of the Company.
The stock book records of the Company previously delivered to Buyer
are true, correct and complete.
(i) Litigation. Except as set forth on Schedule 4.1(i) of the
----------
Disclosure Schedules, there are no Actions pending or, to the actual
knowledge of the Seller and the
-8-
<PAGE>
Company, threatened (i) against the Company or the Seller which would have
a Material Adverse Effect or (ii) seeking to enjoin the transactions
contemplated hereby. Except as set forth on Schedule 4.1(i) of the
Disclosure Schedules, to the actual knowledge of Seller and the Company,
the Company is not subject to any order, judgment, writ, injunction or
decree which would have a Material Adverse Effect.
(j) Compliance with Law. To the actual knowledge of the Seller
-------------------
and the Company, (i) the Company has not violated or failed to comply with
any statute, law (including, without limitation, any Environmental Laws),
ordinance, regulation, rule, decree or order of any foreign, federal, state
or local government or any other governmental department or agency, or any
judgment, decree or order of any court, applicable to its business or
operations, (ii) the conduct of the Company's business is in conformity
with all building code, health and environmental requirements and (iii) the
conduct of the Company's business is in conformity with all energy, public
utility, zoning and all other foreign, federal, state and local
governmental and regulatory requirements, except, with respect to clauses
(i), (ii) and (iii) above, where the aggregate of all such violations,
failures to comply and non-conformities would not have a Material Adverse
Effect.
(k) Permits. To the actual knowledge of the Seller and the
-------
Company, the Company has all Permits from governmental agencies required to
conduct its present Business as now being conducted, except such Permits
the failure of which to obtain would not have a Material Adverse Effect.
All Permits of the Company are valid and in full force and effect.
(l) Changes. Except as described on Schedule 4.1(l) of the
-------
Disclosure Schedules, since the Balance Sheet Date, none of the following
have occurred:
(i) material adverse change in the financial condition,
working capital, shareholders' equity, assets, liabilities, reserves,
revenues, income or Condition of the Company;
(ii) change in accounting methods, principles or practices
by the Company affecting its assets, liabilities or Condition;
(iii) revaluation by the Company of any of its assets,
including, without limitation, writing down the value of inventory or
writing off notes or accounts receivable;
(iv) damage, destruction or loss (whether or not covered
by insurance) which had or will have a Material Adverse Effect;
(v) cancellation of any indebtedness or waiver or release
of any right or claim of the Company relating to its business
activities or properties which had or will have a Material Adverse
Effect;
-9-
<PAGE>
(vi) declaration, setting aside or payment of dividends or
distributions by the Company in respect of the Stock, or any
redemption, purchase or other acquisition of any stock or other
securities of the Company;
(vii) issuance by the Company of, or commitment of the
Company to issue, any shares of stock or other equity securities or
securities or other rights convertible into or exchangeable for shares
of stock or other equity securities;
(viii) adoption of a plan of liquidation or resolutions
providing for the liquidation, dissolution, merger, consolidation or
other reorganization of the Company;
(ix) increase in the rate of compensation payable or to
become payable to any director, officer or other employee of the
Company or any consultant, representative or agent of the Company,
including without limitation, the making of any loan to, or the
payment, grant or accrual of any bonus, incentive compensation,
service award or other similar benefit to, any such person;
(x) adverse change in employee relations which has or is
reasonably likely to have an adverse effect on the productivity, the
financial condition, results of operations or Condition of the Company
or the relationships between the employees of the Company and the
management of the Company;
(xi) amendment, cancellation or termination of any
material contract, agreement, lease or Permit relating to the Company
or its Business or operations or entry into any commitment, contract
or transaction which is not in the ordinary course of business,
including, without limitation, any employment or consulting
agreements;
(xii) mortgage, pledge or other encumbrance of any assets
of the Company;
(xiii) sale, assignment or transfer of any of the assets or
properties of the Company, other than in the ordinary course of
business;
(xiv) except in the ordinary course of business, incurrence
of indebtedness by the Company for borrowed money or commitment to
borrow money entered into by the Company, or loans made or agreed to
be made by the Company, or the guaranty of any indebtedness by the
Company;
(xv) incurrence of any material amount of liabilities,
except liabilities incurred in the ordinary course of business and
consistent with past practice, or material increase or change in any
assumptions underlying or methods of calculating, any doubtful account
contingency or other reserves;
-10-
<PAGE>
(xvi) payment, discharge or satisfaction of any material
liabilities other than the payment, discharge or satisfaction in the
ordinary course of business and consistent with past practice of
liabilities reflected or reserved against in the Financial Statements
or incurred in the ordinary course of business since the Balance Sheet
Date;
(xvii) except in the ordinary course of business, capital
expenditure by the Company, the execution of any lease by the Company
or the incurring of any obligation by the Company to make any capital
expenditure or execute any lease;
(xviii) failure to pay or satisfy when due any obligation
of the Company except where the failure would not have a Material
Adverse Effect;
(xix) failure to diligently carry on the Business of the
Company in the ordinary course so as to keep available to the Buyer
the services of the Company's employees, and to preserve for the Buyer
the Business of the Company and the goodwill of the Company's
suppliers, customers and others having business relations with it;
(xx) disposition or lapsing of any Proprietary Rights or
any disposition or disclosure to any person of any Proprietary Rights
not theretofore a matter of public knowledge;
(xxi) any other event or condition which has or might
reasonably be expected to have a Material Adverse Effect; or
(xxii) agreement by the Company to do any of the things
described in the preceding clauses (i) through (xxi) other than as
expressly provided for herein.
(m) Liabilities. The Company has no liabilities, obligations or
-----------
commitments of any nature (whether accrued, absolute, contingent or
otherwise and whether matured or unmatured), including, without limitation,
Tax liabilities due or to become due, except (i) liabilities reflected or
provided for in the Financial Statements, (ii) liabilities for lease
obligations under the leases listed on Schedule 4.1(p) of the Disclosure
Schedules, (iii) liabilities not required to be reflected on a balance
sheet or in the notes thereto in accordance with generally accepted
accounting principles which do not exceed $25,000 in the aggregate, and
(iv) liabilities incurred since the Balance Sheet Date in the ordinary
course of business and consistent with the Company's past practice which do
not, in any case, exceed $100,000 in the aggregate.
(n) Taxes and Tax Returns.
----------------------
(i) The Company (and any affiliated group of which the
Company is now or has been a member) has timely filed with the
appropriate taxing authorities all returns in respect of Taxes
required to be filed through the
-11-
<PAGE>
date hereof. The information filed is complete and accurate in all
material respects. Except as specified on Schedule 4.1(n) of the
Disclosure Schedules, neither the Company nor any group of which the
Company is now or was a member, has requested any extension of time
within which to file returns in respect of any Taxes.
(ii) All Taxes in respect of periods ending on or before
June 30, 1996 have been timely paid or will be timely paid by the
Company and the Seller, or an adequate reserve has been established
therefor, as set forth on Schedule 4.1(n) of the Disclosure Schedules
or in the Financial Statements, and the Company has no material
liability for Taxes in excess of the amounts so paid or reserves so
established.
(iii) Except as set forth on Schedule 4.1(n) of the
Disclosure Schedules, no deficiencies for Taxes have been claimed,
proposed or assessed by any taxing or other governmental authority
against the Company or the Seller with respect to the operations of
the Company. Except as set forth in Schedule 4.1(n) of the Disclosure
Schedules, there are no pending or, to the actual knowledge of the
Seller and the Company, threatened audits, investigations or claims
for or relating to any liability in respect of Taxes.
(o) Fixed Assets; Inventory. The fixed assets of the Company
-----------------------
shown on the Financial Statements are valued at or below actual cost less a
depreciation charge calculated in accordance with the description contained
in the footnotes to the Financial Statements. The values at which the
inventories are shown on the Financial Statements have been determined in
accordance with the normal valuation policy of the Company, in conformity
with generally accepted accounting principles consistently applied
throughout the periods covered thereby, with adequate provisions or
adjustments for excess inventory, slow-moving inventory and inventory
obsolescence and skrinkage and are valued at the lower of cost or
realizable value. Except as set forth on Section 4.1(o) of the Disclosure
Schedules or in the Financial Statements and the notes thereto, the Company
has good and marketable title to all land, buildings, machinery, equipment,
fixtures, furnishings, real property improvements and other assets
(tangible or intangible) reflected in the Financial Statements or acquired
after the Balance Sheet Date, free and clear of all Encumbrances. Schedule
4.1(o) of the Disclosure Schedules contains a complete and accurate list of
all real property owned or leased by the Company and a list of each
location where the Company maintains a Facility. The Company enjoys
peaceful and undisturbed possession of all such real property and all of
the buildings, machinery, equipment, fixtures, furnishings, real property
improvements (including leasehold improvements) and other tangible assets
located thereon, and there are no pending or threatened condemnation
proceedings relating to any of the same. To the actual knowledge of the
Seller and the Company, all of such buildings, machinery, equipment,
fixtures, furnishings, real property improvements (including leasehold
improvements) and other tangible assets owned, leased or used by the
Company in the conduct of its business are (a) insured to the extent and in
a manner customary in the industry in which the Company is engaged, (b)
structurally sound with no known material defects, (c) in good
-12-
<PAGE>
operating condition and repair, subject to ordinary wear and tear, (d) not
in need of maintenance or repair except for ordinary, routine maintenance
and repair the cost of which would not be material, (e) sufficient for the
operation of the Company's Business as presently conducted and (f) in
conformity with all applicable laws, ordinances, orders, regulations and
other requirements (including applicable zoning, environmental, motor
vehicle safety, occupational safety and health laws and regulations)
relating thereto currently in effect, except where the failure to conform
would not have a Material Adverse Effect.
(p) Leases. Schedule 4.1(p) of the Disclosure Schedules contains
------
a complete and accurate list of all leases pursuant to which the Company
leases real or personal property. To the actual knowledge of the Seller
and the Company, except as set forth on Schedule 4.1(e) of the Disclosure
Schedules, (i) all such leases are valid, binding and enforceable in
accordance with their terms and are in full force and effect and (ii) no
event of default has occurred which (whether with or without notice, lapse
of time or both or the happening or occurrence of any other event) would
constitute a default thereunder on the part of the Company.
(q) Contracts and Commitments. All executory contracts, plans,
-------------------------
undertakings and commitments to which the Company is a party or by which
the Company is bound (collectively, the "Contracts"), of the following
categories are listed on Schedule 4.1(q) of the Disclosure Schedules:
(i) partnership or joint venture agreements;
(ii) Contracts not made in the ordinary course of
business;
(iii) employment contracts, including without limitation,
contracts to employ executive officers and other contracts with
present or former officers, directors or shareholders;
(iv) labor or union contracts;
(v) distribution, franchise, license, sales, agency or
advertising contracts that are material to the Business of the Company
or which are not terminable on thirty (30) days notice or less,
whether or not material;
(vi) options with respect to any property, real or
personal, whether as grantor or grantee;
(vii) Contracts made in the ordinary course of business
involving expenditures or liabilities, actual or potential, in excess
of $50,000;
(viii) Contracts or commitments relating to commission
arrangements with others;
-13-
<PAGE>
(ix) promissory notes, loans, agreements, indentures,
evidences of indebtedness, guarantees or other instruments relating to
the lending of money individually in excess of $25,000 or in the
aggregate in excess of $100,000, whether as borrower, lender or
guarantor (excluding credit supplied by the Company in the ordinary
course of business); and
(x) Contracts containing covenants limiting the freedom of
the Company or any officer, director or shareholder of the Company to
engage in any line of business or compete with any person.
True copies of all of the Contracts, including all amendments and
supplements thereto, have been, or will be prior to the Settlement Date, made
available to the Buyer.
(r) Absence of Breaches or Defaults. To the actual knowledge of
-------------------------------
the Seller and the Company, except as set forth on Schedule 4.1(e) of the
Disclosure Schedules, (i) all of the Contracts are valid and in full force
and effect and (ii) no default or breach under any Contract by the Company
has occurred.
(s) Employee Benefit Plans. True, complete and correct
----------------------
copies of each Benefit Arrangement which covers or has covered
employees or former employees of the Company (with respect to their
relationship with the Company) have been delivered by the Company to
Buyer.
(t) Brokers and Finders. Except with respect to all fees to be
-------------------
paid to Barrington Associates which shall be the sole responsibility of
Seller, neither the Company nor any of its officers, directors, employees
or agents have employed any broker, finder or similar agent or incurred any
liability for any brokerage fees, commissions, finder's fees or similar
payments in connection with the transactions contemplated by this
Agreement.
(u) Proprietary Rights. Schedule 4.1(u) of the Disclosure
------------------
Schedules sets forth (a) all of the Company's federal, state and foreign
registrations of trademarks and of other marks, trade names or other trade
rights, and all pending applications for any such registrations and (b) all
other trademarks and other marks, trade names and other trade rights used
by the Company in connection with its Business (collectively, the
"Proprietary Rights") The Proprietary Rights listed on Schedule 4.1(u) of
the Disclosure Schedules are all those used in the Business of the Company.
No person has a right to receive any royalty or similar payment in respect
of any Proprietary Rights pursuant to any contractual arrangements entered
into by the Company. The Company has not granted any license nor sold or
otherwise transferred any interest in any of the Proprietary Rights to any
other person. All of the Proprietary Rights of the Company are valid and
enforceable rights of the Company and will not cease to be valid and in
full force and effect by reason of the execution and delivery of this
Agreement or the consummation of the transactions contemplated by this
Agreement.
(v) Insurance. Schedule 4.1(v) of the Disclosure Schedules
---------
contains a complete and accurate list of all policies or binders of fire,
liability, title, worker's
-14-
<PAGE>
compensation and other forms of insurance (showing as to each policy or
binder the carrier, policy number, coverage limits, expiration dates,
annual premiums and a general description of the type of coverage provided)
maintained by the Company on its Business, property or employees. Such
insurance provides coverage to the extent and in a manner (a) customary for
the industry in which the Company is engaged and (b) as may be required
pursuant to applicable law and any and all Contracts to which the Company
is a party. The Company is not in default under any of such policies or
binders, and the Company has not failed to give any notice or to present
any claim under any such policy or binder in a due and timely fashion.
There are no outstanding material unpaid claims under any such policies or
binders. All policies and binders provide sufficient coverage for the risks
insured against, are in full force and effect on the date hereof and shall
be kept in full force and effect by the Company through the Settlement
Date.
(w) Severance Arrangements. The Company has not entered into
----------------------
any agreement, oral or written, with any present or former employee of the
Company that will result in any commitment or obligation (absolute or
contingent) of Buyer to make any payment to any present or former employee
of the Company following his or her termination of employment.
(x) No Other Agreements to Sell the Company. Neither the
---------------------------------------
Company nor the Seller has any commitment or legal obligation, absolute or
contingent, to any person or firm other than Buyer to (i) sell, assign or
transfer any material portion of the assets of the Company or any of the
capital stock of the Company, (ii) effect any merger, consolidation or
other reorganization of the Company or (iii) enter into an agreement to do
any of the foregoing.
(y) Labor Matters. The Company is not a party to any labor
-------------
agreement with respect to its employees with any labor organization, union,
group or association. There is no labor strike or labor disturbance
pending or threatened against the Company and in the past five (5) years
the Company has not experienced a work stoppage or other labor difficulty.
To the actual knowledge of the Company and the Seller, the Company is in
compliance with all applicable laws respecting employment practices, terms
and conditions of employment, wages and hours and is not engaged in any
unfair labor practice. There is no unfair labor practice charge or
complaint against the Company pending before any governmental agency.
(z) Banking Relationships. Schedule 4.1(z) of the Disclosure
---------------------
Schedules sets forth a complete and accurate description of all
arrangements that the Company has with any banks, savings and loan
associations or other financial institutions providing for checking or
savings accounts, safe deposit boxes, borrowing arrangements, and
certificates of deposit or otherwise, indicating account numbers if
applicable, and the person or persons authorized to act on behalf of the
Company in respect thereof.
(aa) Material Misstatements or Omissions. No representation or
-----------------------------------
warranty by the Company or the Seller in this Agreement, or in any
document, exhibit, statement, certificate or schedule heretofore or
hereinafter furnished or made available to
-15-
<PAGE>
the Buyer pursuant to this Agreement or in connection with the transactions
contemplated by this Agreement, including, without limitation, the
Disclosure Schedules, contains or will contain any untrue statement of a
material fact, or omits or will omit to state any material fact necessary
to make the statements or facts contained therein not misleading.
4.2 Representations Regarding the Seller
------------------------------------
The Seller hereby represents and warrants to the Buyer the following:
(a) Ownership of Shares. Seller (a) is the record and beneficial
-------------------
owner of the Stock, (b) has good and marketable title to all of such Stock
and (c) has the absolute right, power and authority to sell, transfer and
deliver such Stock free and clear of all Encumbrances. Except for the
Stock, Seller does not own any shares of capital stock of the Company.
There are no options, warrants, rights, calls, commitments or other
agreements of any character whatsoever relating to the Stock owned by the
Seller.
(b) Authority Relative to Agreement. The Seller has the
-------------------------------
requisite power and authority to enter into this Agreement, to perform
Seller's obligations hereunder and to consummate the transactions
contemplated hereby. This Agreement has been duly executed and delivered
by Seller and constitutes a legal, valid and binding obligation of Seller,
enforceable against Seller in accordance with its terms, except that such
enforceability may be limited by (a) bankruptcy, insolvency,
reorganization, moratorium or other similar laws, or by equitable
principles, relating to or limiting the rights of creditors generally and
(b) limitations imposed by law or equitable principles upon the
availability of specific performance, injunctive relief or other equitable
remedies.
(c) No Conflict or Violation. To the actual knowledge of Seller,
------------------------
neither the execution and delivery of this Agreement by Seller, nor the
consummation of the transactions contemplated hereby, will (a) violate,
conflict with, or result in a breach of any provisions of, 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 result in a right of termination or
acceleration under, or result in the creation of any Encumbrance upon any
of the properties or assets of Seller under, any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, deed of trust,
security or pledge agreement, license, lease, partnership agreement or
other instrument or obligation to which Seller is a party or to which
Seller's properties or assets may be subject or (b) subject to compliance
with the statutes and regulations referred to in Section 4.1(f) hereof,
violate any judgment, ruling, order, writ, injunction, decree, statute,
rule or regulation applicable to Seller or any of Seller's properties or
assets.
(d) Indebtedness of Seller. Seller has not obtained any loans or
----------------------
incurred any indebtedness for which any property, assets or securities of
the Company is pledged as collateral and there are no Encumbrances on any
of the properties, assets or securities of the Company imposed in
connection with any indebtedness or other obligations of Seller.
-16-
<PAGE>
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
Buyer hereby represents and warrants to the Seller as follows:
5.1 Organization of Buyer
---------------------
Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the State of California and has the requisite
corporate power and authority to carry on its business as it is now being
conducted and as contemplated to be conducted following the consummation of the
transactions contemplated by this Agreement.
5.2 Authority Relative to Agreement
-------------------------------
Buyer has the requisite power and authority to enter into this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by Buyer and the consummation by Buyer of the transactions contemplated hereby
have been duly approved by the board of directors of Buyer. No other corporate
proceedings on the part of Buyer are necessary to authorize this Agreement and
the transactions contemplated hereby. This Agreement has been duly executed and
delivered by Buyer and constitutes a legal, valid and binding obligation of
Buyer, enforceable against Buyer in accordance with its terms, except that such
enforceability may be limited by (a) bankruptcy, insolvency, reorganization,
moratorium or other similar laws, or by equitable principles, relating to or
limiting the rights of creditors generally and (b) limitations imposed by law or
equitable principles upon the availability of specific performance, injunctive
relief or other equitable remedies.
5.3 No Conflict or Violation
------------------------
Neither the execution and delivery of this Agreement by Buyer, nor the
consummation of the transactions contemplated hereby, will (i) violate, conflict
with, or result in a breach of any provisions of, 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 result in a right of termination or acceleration under, or result in the
creation of any Encumbrance upon any of the properties or assets of Buyer under,
any of the terms, conditions or provisions of (A) the Articles of Incorporation
or Bylaws of Buyer or (B) to the actual knowledge of Buyer, any note, bond,
mortgage, indenture, deed of trust, security or pledge agreement, license,
lease, franchise, Permit, partnership agreement or other instrument or
obligation to which Buyer is a party or to which Buyer or any of its properties
or assets may be subject or (ii) subject to compliance with the statutes and
regulations referred to in Section 4.1(f) hereof to the actual knowledge of
Buyer, violate any judgment, ruling, order, writ, injunction, decree, statute,
rule or regulation applicable to Buyer or any of its properties or assets;
except, in the case of each of clauses (i) and (ii) above, for such violations,
conflicts, breaches, defaults, terminations, accelerations or creations of
Encumbrances which, in the aggregate, would not have
-17-
<PAGE>
a material adverse effect on the condition (financial or other), business,
prospects, assets, liabilities or operations of Buyer
5.4 Consents and Approvals
----------------------
Except for the approval of the Board of Investment of the Government
of Thailand of the Transfer of the Stock, to the actual knowledge of Buyer, no
notice to, declaration, filing or registration with, or authorization, consent
or approval of, or Permit from, any domestic or foreign governmental or
regulatory body or authority, or any other person or entity, is necessary in
connection with the execution and delivery of this Agreement by Buyer and the
consummation by Buyer of the transactions contemplated by this Agreement.
5.5 Litigation
----------
There are no Actions pending or, to the actual knowledge of Buyer,
threatened (i) against Buyer which would have a material adverse effect on the
condition (financial or other), business, prospects, assets, liabilities or
operations of Buyer or (ii) seeking to enjoin the transactions contemplated
hereby. To the actual knowledge of Buyer, Buyer is not subject to any order,
judgment, writ, injunction or decree.
5.6 Brokers and Finders
-------------------
Except with respect to all fees to be paid to Barrington Associates
which shall be the sole responsibility of Seller, neither Buyer nor any of its
officers, directors, employees or agents have employed any broker, finder or
similar agent or incurred any liability for any brokerage fees, commissions,
finder's fees or similar payments in connection with the transactions
contemplated by this Agreement.
5.7 Material Misstatements or Omissions
-----------------------------------
No representation or warranty by Buyer in this Agreement, or in any
document, exhibit, statement, certificate or schedule heretofore or hereinafter
furnished or made available to the Seller or the Company pursuant to this
Agreement or in connection with the transactions contemplated by this Agreement
contains or will contain any untrue statement of a material fact, or omits or
will omit to state any material fact necessary to make the statements or facts
contained therein not misleading.
ARTICLE VI
----------
ACTIONS BY SELLER, THE COMPANY
------------------------------
AND BUYERS PRIOR TO THE SETTLEMENT DATE
---------------------------------------
Seller, the Company and Buyer, as applicable, covenant as follows for
the period from the date hereof through the Settlement Date:
-18-
<PAGE>
6.1 Maintenance of Business
-----------------------
The Business of the Company shall be conducted only in, and the
Company shall not take any action except in, the ordinary course of business and
consistent with past practice, and the Company shall use its best efforts to
maintain and preserve its Business, assets, prospects, employees, suppliers,
customers and other advantageous business relationships.
6.2 Certain Prohibited Transactions
-------------------------------
Except as set forth in the Disclosure Schedules, neither the Company
nor the Seller shall, without the prior written consent of Buyer:
(a) issue, sell, pledge, dispose of or encumber any of the
capital stock of the Company;
(b) except in the ordinary course of business, sell, pledge,
dispose of or encumber any of the assets of the Company;
(c) whether or not in the ordinary course of business, sell or
dispose of any of the material assets of the Company;
(d) amend or propose to amend any of the Company Documents;
(e) split, combine or reclassify any shares of the capital stock
of the Company or declare, set aside or pay any dividend or distribution,
payable in cash, stock, property or otherwise with respect to any of the
capital stock of the Company;
(f) redeem, purchase or otherwise acquire or offer to redeem,
purchase or otherwise acquire any of the capital stock of the Company;
(g) adopt a plan of liquidation or resolutions providing for the
liquidation, dissolution, merger, consolidation or other reorganization of
the Company;
(h) issue, sell, pledge or dispose of, or authorize, propose or
agree to the issuance, sale, pledge or disposition of, any shares of, or
any options, warrants or rights of any kind to acquire any shares of, or
any securities convertible into or exchangeable for any shares of, capital
stock or any other equity securities of, the Company;
(i) acquire (by merger, consolidation, acquisition of stock or
assets or otherwise) any corporation, partnership or other business
organization or division thereof or make any material investment either by
purchase of stock or securities, contributions to capital, transfer of
property or purchase of any material amount of property or assets, in any
other individual or entity;
(j) authorize, recommend or propose any material change in the
capitalization of the Company;
-19-
<PAGE>
(k) enter into or terminate any material Contract, lease or other
agreement, release or relinquish any material contract right or modify any
material Contract, lease or other agreement;
(l) make any change in the management structure of the Company
including, but not limited to, the hiring of additional officers or the
termination of existing officers;
(m) take any action with respect to the grant of any severance or
termination pay or with respect to any increase of benefits payable under
the severance or termination pay policies or agreements of the Company in
effect on the date hereof;
(n) adopt or amend any bonus, profit sharing, compensation, stock
option, pension, retirement, deferred compensation, employment or other
employee benefit plan, agreement, trust, fund or other arrangement for the
benefit or welfare of any employee or increase in any manner the
compensation or fringe benefits of any employee or pay any benefit not
required by any existing plan, policy, arrangement or agreement, or pay any
salary or other compensation of any form to the Seller, except in the
ordinary course of business and consistent with past practice.
(o) make any tax election or settle or compromise any material
federal, state, local or foreign income tax liability; or
(p) do any other act which would cause any representation or
warranty of Seller or the Company in this Agreement to become untrue in any
material respect.
6.3 Investigation by Buyer
----------------------
Seller and the Company shall allow Buyer during regular business hours
through Buyer's Representatives, to make such investigation of the business,
properties, books and records of the Company, and to conduct such examination of
the condition of the Company, as Buyer deems necessary or advisable to
familiarize itself with such business, properties, books, records, condition and
other matters, and to verify the representations and warranties of Seller and
the Company hereunder.
6.4 Consents and Best Efforts
-------------------------
Seller and the Company will, as soon as possible, commence to take all
action required to obtain all consents, approvals and agreements of, and to give
all notices and make all other filings with, any third parties, including
governmental authorities, necessary to authorize, approve or permit the full and
complete sale and transfer of all of the Stock to Buyer. In addition, subject
to the terms and conditions herein provided, each of the parties hereto
covenants and agrees to use its best efforts to take, or cause to be taken, all
action or do, or cause to be done, all things necessary, proper or advisable
under applicable laws and regulations to consummate and make effective the
transactions contemplated hereby and to cause the fulfillment of the parties'
obligations hereunder.
-20-
<PAGE>
6.5 Notification of Certain Matters
-------------------------------
Seller shall give prompt notice to Buyer, and Buyer shall give prompt
notice to Seller, of (i) the occurrence, or failure to occur, of any event which
occurrence or failure would be likely to cause any representation or warranty
contained in this Agreement to be untrue or inaccurate in any material respect
any time from the date hereof to the Settlement Date and (ii) any material
failure of Seller, the Company or Buyer, as the case may be, to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder, and each party shall use all reasonable efforts to remedy same.
ARTICLE VII
CONDITIONS TO SELLER'S OBLIGATIONS
----------------------------------
The obligation of Seller to cause the Transfer of the Stock to Buyer
on the Settlement Date is subject, in the discretion of Seller, to the
satisfaction, on or prior to the Settlement Date, of each of the following
conditions:
7.1 Representations, Warranties and Covenants
-----------------------------------------
All representations and warranties of Buyer contained in this
Agreement shall be true and correct in all material respects at and as of the
Settlement Date as if such representations and warranties were made at and as of
the Settlement Date, and Buyer shall have performed in all material respects all
agreements and covenants required hereby to be performed by it prior to or at
the Settlement Date. There shall be delivered to Seller a certificate (signed
by the President of Buyer) to the foregoing effect.
7.2 Consents
--------
All consents, approvals and waivers from governmental authorities and
other parties necessary to permit Seller to cause the Transfer of the Stock to
Buyer as contemplated hereby shall have been obtained.
7.3 No Governmental Proceeding or Litigation
----------------------------------------
No suit, action, investigation, inquiry or other proceeding by any
governmental authority or other person shall have been instituted which
questions the validity or legality of the transactions contemplated hereby and
which could reasonably be expected materially to damage Seller if the
transactions contemplated hereunder are consummated.
7.4 Commitment to Purchase Inventory
--------------------------------
Buyer shall purchase from Seller certain finished goods inventory
currently owned by Seller with an approximate value of $198,780, which inventory
currently is being used as salesman samples by Messers. Vahe Kizirian and Matti
Antonen.
-21-
<PAGE>
7.5 Certificates
------------
Buyer will furnish Seller with such certificates of its officers to
evidence compliance with the conditions set forth in this Article VII as may be
reasonably requested by Seller.
7.6 Corporate Documents
-------------------
Seller shall have received from Buyer resolutions adopted by the board
of directors of Buyer approving this Agreement and the transactions contemplated
hereby, certified by Buyer's corporate secretary.
ARTICLE VIII
CONDITIONS TO BUYER'S OBLIGATIONS
---------------------------------
The obligation of Buyer to purchase the Stock as provided hereby is
subject, in the discretion of Buyer, to the satisfaction, on or prior to the
Settlement Date, of each of the following conditions:
8.1 Representations, Warranties and Covenants
-----------------------------------------
All representations and warranties of Seller and the Company contained
in this Agreement shall be true and correct in all material respects at and as
of the Settlement Date as if such representations and warranties were made at
and as of the Settlement Date, and Seller and the Company shall have performed
in all material respects all agreements and covenants required hereby to be
performed by them prior to or at the Settlement Date. There shall be delivered
to Buyer certificates (one certificate to be signed by the President of the
Company and one certificate to be signed by the President of the Seller) to the
foregoing effect.
8.2 Consents
--------
All consents, approvals and waivers from governmental authorities and
other parties necessary to permit Buyer to purchase the Stock from Seller and
Seller to cause the Transfer of the Stock to Buyer as contemplated hereby shall
have been obtained.
8.3 No Governmental Proceeding or Litigation
----------------------------------------
No suit, action, investigation, inquiry or other proceeding by any
governmental authority or other person shall have been instituted which
questions the validity or legality of the transactions contemplated hereby and
which could reasonably be expected to materially and adversely affect the value
of the Stock or have a Material Adverse Effect if the transactions contemplated
hereunder are consummated.
-22-
<PAGE>
8.4 Transfer of Shares of Capital Stock by Other Shareholders
---------------------------------------------------------
On or prior to the Settlement Date, the Other Shareholders shall have
Transferred to Buyer all of the shares of the capital stock of the Company owned
by the Other Shareholders.
8.5 Certificates
------------
Seller and the Company shall furnish Buyer with such certificates of
their respective officers to evidence compliance with the conditions set forth
in this Article VIII as may be reasonably requested by Buyer.
8.6 Corporate Documents
-------------------
Buyer shall have received from the Company and the Seller resolutions
adopted by the board of directors of the Company and the Seller, respectively,
approving this Agreement and the transactions contemplated hereby, certified by
the corporate secretary of the Company and the Seller, as applicable.
8.7 Completion of Due Diligence
---------------------------
Completion of Buyer's due diligence review of the items set forth on
Schedule 8.7 attached hereto and Buyer's satisfaction with the results of such
review.
ARTICLE IX
[INTENTIONALLY OMITTED]
---------------------
ARTICLE X
---------
ACTIONS BY SELLER, THE COMPANY
------------------------------
AND BUYER AFTER THE SETTLEMENT
------------------------------
10.1 Books and Records
-----------------
Seller and Buyer agree that so long as any books, records and files
relating to the business, properties, assets or operations of the Company, to
the extent that they pertain to the operations of the Company prior to the
Settlement Date, remain in existence, each party (at its expense) shall have the
right to inspect and to make copies of the same at any time during business
hours for any proper purpose.
-23-
<PAGE>
10.2 Further Assurances
------------------
On and after the Settlement Date, Seller, the Company and Buyer will
take all appropriate action and execute all documents, instruments or
conveyances of any kind which may be reasonably necessary or advisable to carry
out any of the provisions hereof.
10.3 Filing Tax Returns
-------------------
Buyer agrees to file the Company's tax return for the fiscal year
ended June 30, 1996 on a timely basis, Seller agrees to assist Buyer with the
preparation of such tax return and Seller shall be responsible for the payment
of all taxes due and payable in connection with such tax return.
ARTICLE XI
INDEMNIFICATION
---------------
11.1 Survival of Representations, Etc.
---------------------------------
All statements contained in the Disclosure Schedules or in any
certificate or instrument of conveyance delivered by or on behalf of the parties
pursuant to this Agreement or in connection with the transactions contemplated
hereby shall be deemed to be representations and warranties by the parties
hereunder. The representations and warranties of each of the Company, Seller
and Buyer contained herein shall survive for a period of two (2) years from the
Settlement Date regardless of any investigation made by any of the parties
hereto.
11.2 Indemnification.
----------------
(a) By Seller. Seller shall indemnify, save and hold harmless
---------
Buyer and its Representatives from and against any and all costs, losses,
Taxes, liabilities, damages, lawsuits, claims and expenses, including
without limitation, interest, penalties, attorneys' fees and all amounts
paid in investigation, defense or settlement of any of the foregoing
(collectively, "Damages"), incurred in connection with, arising out of,
resulting from or incident to any breach of any covenant or warranty, or
the inaccuracy of any representation, made by the Company in or pursuant to
this Agreement. Seller shall save and hold harmless Buyer and its
Representatives from and against any and all Damages incurred in connection
with, arising out of, resulting from or incident to any breach of any
covenant or warranty, or the inaccuracy of any representation, made by
Seller in or pursuant to this Agreement.
(b) Assistance. Seller shall cooperate in all reasonable
----------
respects, at its cost, risk and expense, with Buyer's attorneys in the
investigation, prosecution, trial and defense of any lawsuit, claim,
proceeding, arbitration or action that is subject to indemnification under
Section 11.2(a) above.
(c) By Buyer. Buyer shall indemnify, save and hold harmless
--------
Seller from and against any and all Damages incurred in connection with,
arising out of, resulting
-24-
<PAGE>
from or incident to any breach of any covenant or warranty, or the
inaccuracy of any representation, made by the Buyer in or pursuant to this
Agreement.
ARTICLE XII
MISCELLANEOUS
-------------
12.1 Termination
-----------
This Agreement may be terminated and the transactions contemplated
hereby abandoned by the mutual written consent of each of the parties hereto or
by any party hereto if the conditions to such party's obligations set forth in
Articles VII and VIII, respectively, have not been satisfied on or before
October 15, 1996 (unless waived by the party entitled to the benefit thereof),
- ----------
without liability of any party hereto; provided that no party will be released
--------
from liability hereunder if this Agreement is terminated and the transactions
abandoned by reason of willful failure of any party to have performed its
obligations hereunder. This Agreement shall terminate automatically if the
Settlement Date has not occurred on or prior to October 15, 1996, unless the
----------
parties hereto agree to extend such date. In the event that a condition
precedent to its obligations is not satisfied, nothing contained herein shall be
deemed to require any party to terminate this Agreement, rather than to waive
such condition precedent and proceed with the transactions contemplated hereby.
12.2 Assignment
----------
Neither this Agreement nor any of the rights or obligations hereunder
may be assigned by Seller without the prior written consent of Buyer, nor by
Buyer without the prior written consent of Seller, except that Buyer may,
without such consent, assign the right to acquire the Stock to any affiliate of
Buyer; provided, however, that Buyer shall continue to be a party to this
Agreement and to be bound by the provisions hereof. Subject to the foregoing,
this Agreement shall be binding upon and inure to the benefit of the parties
hereto and their, respective successors and assigns, and no other person shall
have any right, benefit or obligation hereunder.
12.3 Notices
-------
Unless otherwise provided herein, any notice, request, instruction or
other document to be given hereunder by any party to the others shall be in
writing and delivered in person or by courier or facsimile transmission (such
delivered or facsimile notice to be effective on the date of delivery) or mailed
by certified mail, postage prepaid, return receipt requested (such mailed notice
to be effective on the date such receipt is acknowledged or refused), as
follows:
<TABLE>
<S> <C>
If to the Seller: Harlyn Products, Inc.
---------------------
---------------------
Attention:
-----------
Telecopy No.:
--------
</TABLE>
-25-
<PAGE>
<TABLE>
<S> <C>
With a copy to (which shall not -----------------------------
constitute notice): -----------------------------
Attention:
-------------------
Telecopy No.:
----------------
If to the Company: Harlyn International
-----------------------------
-----------------------------
Attention:
-------------------
Telecopy No.:
----------------
With a copy to (which shall not
constitute notice): -----------------------------
-----------------------------
Attention:
-------------------
Telecopy No.:
----------------
If to Buyer: The L.L. Knickerbocker Co., Inc.
30055 Comercio
Rancho Santa Margarita, CA 92688
Attention: Anthony P. Shutts
Telecopy No.: (714) 589-0339
With a copy to Allen, Matkins, Leck, Gamble & Mallory
(which shall not constitute notice): 18400 Von Karman Avenue, 4th Floor
Irvine, California 92612
Attention: Ralph H. Winter, Esq.
Telecopy No.: (714) 553-8354
</TABLE>
or to such other place and with such other copies as either party may designate
as to itself by written notice to the others.
12.4 Choice of Law
-------------
This Agreement shall be construed, interpreted and the rights of the
parties determined in accordance with the laws of the State of California.
12.5 Entire Agreement; Amendments and Waivers
----------------------------------------
This Agreement, together with all exhibits and schedules hereto,
constitutes the entire agreement among the parties pertaining to the subject
matter hereof and supersedes all prior agreements, understandings, negotiations
and discussions, whether oral or written, of the parties. No supplement,
amendment or modification of this Agreement shall be binding unless executed in
writing by each of the parties hereto. No waiver of any of the provisions of
this Agreement shall be binding unless executed in writing by the party sought
to be bound. No waiver shall be
-26-
<PAGE>
deemed or shall constitute a waiver of any other provision hereof (whether or
not similar), nor shall such waiver constitute a continuing waiver unless
otherwise expressly provided.
12.6 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.
12.7 Invalidity
----------
In the event that any one or more of the provisions contained in this
Agreement or in any other instrument referred to herein, shall, for any reason,
be held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement or any other such instrument.
12.8 Headings
--------
The headings of the Articles and Sections herein are inserted for
convenience of reference only and are not intended to be a part of or to affect
the meaning or interpretation of this Agreement.
12.9 Expenses
--------
Seller, the Company and Buyer will each be liable for their own costs
and expenses incurred in connection with the negotiation, preparation, execution
and performance of this Agreement.
12.10 Publicity
---------
Except as otherwise required by law, either the Company, Seller nor
Buyer shall issue any press release or make any public statement regarding the
transactions contemplated hereby (including, but not limited to, any press
release or public statement announcing the execution of this Agreement, the
termination of this Agreement or the consummation of the transactions
contemplated hereby), without the prior written approval of the other parties
hereto. The parties hereto shall issue a mutually acceptable press release as
soon as practicable after the Execution Date announcing the Agreement and the
transactions contemplated hereby.
12.11 Confidential Information
------------------------
The parties acknowledge that the transaction described herein is of a
confidential nature and shall not be disclosed except to consultants, advisors,
affiliates and Representatives, or as required by law, until such time as the
parties make a public announcement regarding the transaction as provided in
Section 12.10. In connection with the negotiation of this Agreement and the
preparation for the consummation of the transactions contemplated hereby, each
party acknowledges that it will have access to confidential information relating
to the other parties. Each party shall treat such information as confidential,
preserve the confidentiality thereof and not duplicate or use such information,
except to advisors, consultants, affiliates and Representatives in
-27-
<PAGE>
connection with the transactions contemplated hereby. Seller, at a time and in a
manner which they reasonably determine and after prior notice to and
consultation with Buyer, may notify employees of the Company of the fact of the
subject transaction. In the event of the termination of this Agreement for any
reason whatsoever, each party shall return to the other all documents, work
papers and other material (including all copies thereof) obtained in connection
with the transactions contemplated hereby and will use all reasonable efforts,
including instructing its employees and others who have had access to such
information, to keep confidential and not to use any such information, unless
such information is now, or is hereafter disclosed, through no act or omission
of such party, in any manner making it available to the general public.
-28-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement,
or have caused this Agreement to be duly executed on their respective behalf by
their respective officers thereunto duly authorized, as of the day and year
first above written.
<TABLE>
<C> <S>
"Seller" HARLYN PRODUCTS, INC., a California corporation
By: /s/ EDWARD DUDZIAK
--------------------------------------------
Name: Edward Dudziak
----------------------------------------
Title: President
---------------------------------------
"Company" HARLYN INTERNATIONAL, a private Thailand
limited company
By: /s/ EDWARD DUDZIAK
--------------------------------------------
Name: Edward Dudziak
----------------------------------------
Title: President
---------------------------------------
"Buyer" THE L.L. KNICKERBOCKER CO., INC., a California
corporation
By: /s/ ANTHONY P. SHUTTS
--------------------------------------------
Name: Anthony P. Shutts
----------------------------------------
Title: Chief Financial Officer
---------------------------------------
</TABLE>
-29-
<PAGE>
EXHIBIT 10.4
FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT
-------------------------------------------
THIS FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT (the "Amendment") is
entered into as of October 15, 1996, by and among HARLYN PRODUCTS, INC., a
California corporation ("Seller"), HARLYN INTERNATIONAL COMPANY, LTD., a private
Thailand limited company ("Company"), and THE L.L. KNICKERBOCKER CO., INC., a
California corporation ("Buyer").
R E C I T A L S :
----------------
A. Seller, Company and Buyer are parties to that certain Stock
Purchase Agreement dated as of September 30, 1996, (as amended, the "Purchase
Agreement").
B. Seller, Company and Buyer desire to amend the Purchase Agreement
in the manner set forth herein.
A G R E E M E N T :
------------------
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants contained herein, and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Unless otherwise specified, capitalized terms used herein shall
have the meaning assigned to such terms in the Purchase Agreement.
2. The parties hereto hereby agree that the definition of "Settlement
Date" contained in Section 1.1 of Article I of the Purchase Agreement is hereby
amended and restated in its entirety to read as follows:
"Settlement Date shall mean October 25, 1996, or such other date as
---------------
shall be agreed to in writing by Buyer and Seller."
3. The parties hereto hereby agree that Section 12.1 of Article XII
of the Purchase Agreement is hereby amended to change the date contained therein
to October 25, 1996.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment, or
have caused this Amendment to be duly executed on their respective behalf by
their respective officers thereunto duly authorized, as of the day and year
first above written.
"Seller" HARLYN PRODUCTS, INC., a California corporation
By: /s/ EDWARD DUDZIAK
----------------------------------------------
Name: Edward Dudziak
-----------------------------------------
Title: President
----------------------------------------
"Company" HARLYN INTERNATIONAL COMPANY, LTD., a private
Thailand limited company
By: /s/ EDWARD DUDZIAK
----------------------------------------------
Name: Edward Dudziak
-----------------------------------------
Title: President
----------------------------------------
"Buyer" THE L.L. KNICKERBOCKER CO., INC., a
California corporation
By: /s/ ANTHONY P. SHUTTS
----------------------------------------------
Name: Anthony P. Shutts
-----------------------------------------
Title: Chief Financial Officer
----------------------------------------
-2-
<PAGE>
EXHIBIT 10.5
SECOND AMENDMENT TO STOCK PURCHASE AGREEMENT
--------------------------------------------
THIS SECOND AMENDMENT TO STOCK PURCHASE AGREEMENT (the "Amendment") is
entered into as of November 7, 1996, by and among HARLYN PRODUCTS, INC., a
California corporation ("Seller"), HARLYN INTERNATIONAL COMPANY, LTD., a private
Thailand limited company ("Company"), and THE L.L. KNICKERBOCKER CO., INC., a
California corporation ("Buyer").
R E C I T A L S :
- - - - - - - -
A. Seller, Company and Buyer are parties to that certain Stock
Purchase Agreement dated as of September 30, 1996, as amended by that certain
First Amendment to Stock Purchase Agreement dated as of October 15, 1996 (as
amended, the "Purchase Agreement").
B. Seller, Company and Buyer desire to amend the Purchase Agreement
in the manner set forth herein.
A G R E E M E N T :
- - - - - - - - -
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants contained herein, and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Unless otherwise specified, capitalized terms used herein shall
have the meaning assigned to such terms in the Purchase Agreement.
2. The parties hereto hereby agree that the Purchase Agreement is
hereby amended to replace all references to "Harlyn International" with "Harlyn
International Company, Ltd."
3. The parties hereto hereby agree to substitute all references to
"Financial Statements" contained in the Purchase Agreement with "Special Purpose
Financial Statement", defined in its entirety to read as follows:
"Special Purpose Financial Statement shall mean the balance sheet
-----------------------------------
for the Company as of, and for the year ended, June 30, 1996, together with
the notes thereto and the pro-forma balance sheet of the Company as
prepared by the directors of the Company, which was audited and reported on
by Deloitte Touche Tohmatsu, adjusted in the manner discussed in Section
2.2 hereof."
<PAGE>
4. The parties hereto hereby agree that the definition of "Settlement
Date" contained in Section 1.1 of Article I of the Purchase Agreement is hereby
amended and restated in its entirety to read as follows:
"Settlement Date shall mean November 8, 1996, or such other date
---------------
as shall be agreed to in writing by Buyer and Seller."
5. The parties hereto hereby agree that Section 3.1 of Article III of
the Purchase Agreement is hereby amended and restated in its entirety to read as
follows:
"3.1 Settlement
----------
The closing of the transactions contemplated herein (the
"Settlement") shall be held at 10:00 a.m. local time on the Settlement Date
at a location mutually agreed to by the parties hereto, unless the parties
hereto otherwise agree."
6. The parties hereto hereby agree that the first four (4) sentences
of Section 4.1(g) of Article IV of the Purchase Agreement are hereby deleted and
replaced by the following:
"The Special Purpose Financial Statement as of and for the year
ended June 30, 1996 has been examined by Deloitte Touche Tohmatsu,
employees of which are the Company's statutory auditors. The Report On The
Special Purpose Financial Statement, prepared by Deloitte Touche Tohmatsu,
opines that the Special Purpose Financial Statement presents fairly, except
for the intercompany receivable and payable amounts and the investment in
another company, in all material respects, the assets and liabilities of
the Company as of June 30, 1996 as adjusted per the Stock Purchase
Agreement, and has been prepared in conformity with generally accepted
accounting principles consistently applied. At the Balance Sheet Date,
there were no material liabilities of the Company required to be reflected
on the Special Purpose Financial Statement in accordance with generally
accepted accounting principles other than the liabilities shown or
reflected in the Special Purpose Financial Statement or the notes thereto."
7. The parties hereto hereby agree that Section 12.1 of Article XII
of the Purchase Agreement is hereby amended to change the date contained therein
to November 8, 1996.
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<PAGE>
8. The parties hereto hereby agree that Section 12.3 of Article XII of
the Purchase Agreement is hereby amended to add the following information:
<TABLE>
<S> <C>
"If to the Seller: Harlyn Products, Inc.
1515 S. Main Street
Los Angeles, CA 90015
Attn: Daniel V. Goodstein
Telecopy: (213) 746-7593
With a copy to (which shall
not constitute notice): Jeffer, Mangels, Butler & Marmaro
2121 Avenue of the Stars, 10th Floor
Los Angeles, CA 90067
Attn: Ronald Givner, Esq.
Telecopy: (310) 203-0567
If to the Company: Harlyn International Company, Ltd.
47/44 Moo 4, King Kaew Road
Prawes, Bangkok 10260
Thailand
Attn: Khun Thip Nakornratana
Telecopy: (011) (662) 727-0273
With a copy to (which shall
not constitute notice): Chandler and Thong-Ek
7th Floor, Bubhajit Building
20 North Sathorn Road
Bangkok 10500, Thailand
Attn: Albert Chandler, Esq.
Telecopy: (011) (662) 266-6483
</TABLE>
9. The parties hereto hereby agree that Schedule 2.2 shall be
replaced in its entirety by "Schedule of Assets Being Acquired and Liabilities
Assumed as at September 30, 1996 per the Stock Purchase Agreement", hereby
attached. Accordingly, all references to Schedule 2.2 in the Purchase Agreement
are hereby amended to refer to the "Schedule of Assets Being Acquired and
Liabilities Assumed as at September 30, 1996 per the Stock Purchase Agreement".
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment,
or have caused this Amendment to be duly executed on their respective behalf by
their respective officers thereunto duly authorized, as of the day and year
first above written.
"Seller" HARLYN PRODUCTS, INC., a California corporation
By: /s/ EDWARD DUDZIAK
------------------------------------------
Name: Edward Dudziak
-------------------------------------
Title: President
------------------------------------
"Company" HARLYN INTERNATIONAL COMPANY, LTD., a private
Thailand limited company
By: /s/ EDWARD DUDZIAK
------------------------------------------
Name: Edward Dudziak
-------------------------------------
Title: President
-----------------------------------
"Buyer" THE L.L. KNICKERBOCKER CO., INC., a California
corporation
By: /s/ ANTHONY P. SHUTTS
------------------------------------------
Name: Anthony P. Shutts
-------------------------------------
Title: Chief Financial Officer
------------------------------------
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